Too often we think we can we prepare for retirement on our own only to find years down the road when we want to make the transition in life that we have to keep working. Listen as JT Greenwood, Chartered Retirement Counselor, discusses some of the common mistakes.
Alan: Welcome back. I’m here today with Jason Greenwood. Jason is a senior vice president and also chartered retirement counselor with a major Silicon Valley firm. Jason, welcome to today’s show.
Jason: Thanks, good to be here. Thank you for having me.
Alan: Jason, give me some of your background. How did you get to be where you are today?
Jason: I started in the financial services industry in 1999. About three years ago, I started my own private practice financial services firm and prior to that I was at Merrill Lynch for over seven years as an international financial advisor. In 2008 I became a chartered retirement planning counselor.
Alan: Chartered retirement planning counselor- what exactly do you do in that role?
Jason: Basically helping people understand how their investments and their strategy for planning for retirement is going to enable them to live the lifestyle that they have grown accustomed to.
Alan: How many years in advance should a person come seek your counsel prior to retirement?
Jason: Really if someone is able to save money or spend less than they make, then they should start planning for whatever goal it is.
Alan: When you are looking at retirement, what are some of the things that shall help coach people along this line?
Jason: Really understanding where their source of income comes from and how much they’re going to spend in the various areas of their life if they like spending money. So, we really need to have an understanding of how their investments are going to help them live that lifestyle if they have grown accustomed to that.
Alan: Do you see people making great mistakes that need to be adjusted once they come talk to you?
Jason: There's a lot of mistakes that people make. Some include emotion, their investment decisions are driven by their emotion or taxes. They also don't understand how much risk they're taking. One of the reasons I got into this business is because I was working as a trader at Fidelity investments. A gentlemen had one stock in his taxable account, he had the same stock in his rollover IRA account, and he was all concentrated. The stock in 2000, went down about 60% in a span of three days. He had a margin call, he was fully leveraged. My task was to call him and let him know he needed to deposit money in his account or we would be forced to liquidate. He didn't have enough money to meet a margin call. Because of that situation, he ended up having to work for another ten years where he had actually saved up all this money and he was ready to be self-sufficient. That situation during there made me want to become an advisor to help people, to set an outline for their short-term and long-term goals.
Alan: When you're looking at the economy today, there’s a lot of volatility in the stock market. How do you measure volatility in terms of looking towards retirement? Let me ask the question another way. In the example of the client you just shared, what would you have done to prevent that?
Jason: People who have big concentrated stock positions, it doesn't hurt them to diversify a certain percentage every year. If they’re really emotional and tied to a stock that's great, but there's a lot of risk there. And so understanding how much risk a client has in their portfolio and how that relates to then either meeting their goals or not meeting their goals is an important job of a financial advisor. That's what I take seriously when people come and meet with me is to look at how you are invested in relation to what your goals are.
Alan: You find that there's a lot of emotion with individuals that are tied to a single stock?
Jason: Huge emotion. I have a lot of clients that work in tech companies here in the San Francisco Bay Area and one of the things they love doing is what they call E-Trade therapy. That's a firm that handles most of the stock option plans in the Valley here. What clients would do is that they’ll log into their accounts and then look and see how much their company stock is worth and it’ll make them feel good. The problem with that is that it’s all in that company and so what they need to do is consider what if the stock drops and have? How does it impact them?
Alan: I’m visiting here today with Jason Greenway. Jason is a wealth advisor and also a chartered retirement specialist Jason, I need to take a quick break and we'll be right back after these messages.
Alan: Welcome back. I’m here today with Jason Greenway. Jason is a wealth advisor in the Silicon Valley and also a chartered retirement specialist. Jason, with the baby boomers today, it’s said that starting in 2010- we’re already about four years into this- to the year 2020, about 80% of these baby boomers would be jumping out into retirement. So, the fact that you’re in the midst of that being a retirement specialist is a real need in this world today. So a person comes to you and says that, Jason I’m thinking about retiring maybe in five years, walk me through the steps, what exactly would you do with that person?
Jason: That’s a great question. Actually, I had this scenario happen just the other day. I had someone come to me and say that I am ready for retirement and I’d like to retire in a few years. What we need to do is to develop a plan for you- an outline- look at your short-term goals and your long-term goals and understand how you’re invested to meet those goals, retirement being the forefront of their goals right now because they are approaching that. So, we need to look at your investments and look at your saving strategy in each of your types of accounts whether its 401(k) and IRA, a trust account, a taxable brokerage account, whatever it is and understand how those accounts are invested and then run an analysis. A lot of times people use just a standard straight line analysis of growth. What I like to use is what's called Monte Carlo analysis. What that does is it looks at dressing the portfolio and doing multiple tests to find out if your portfolio can survive down markets and how that’s going to impact you and understand what's the probability of your portfolio in the growth of that portfolio to actually meet your needs in retirement to be financially independent, because that's what everyone's looking for. It’s not really I’m going to retire but at what point will my portfolio allow me to maintain the lifestyle that I have?
Alan: Do you find oftentimes that as you advise people that you have to break the news that based on the way you are living now, you will not be able to maintain the same lifestyle, you’ll have to change certain aspects of your life?
Jason: There's three things that we can do. We can either retire later or we can invest more aggressively which may be detrimental or we can actually change how much we are going to spend in retirement if we want to retire at a set date. And that's a difficult question to really answer for people, they are maybe not there yet. But doing planning early on, you can actually have a higher probability of reaching that goal you have.
Alan: Do you find sometimes there's an aspect of psychiatry in what you do, trying to get people to be mentally prepared for the future?
Jason: Absolutely. People will often be so emotionally tied to particular investment or a particular goal that they have and really understanding that hey, this is your goal that we've outlined. Every year I meet with clients and revamp their financial goal or their outline of their plan and the reason we do that is because things change. We need to understand what changes occurred and how that impacts the moving forward and so it's an emotional thing and people need someone to keep them on course.
Alan: When you're looking at long-term perspectives on investment, we live in a world that nothing stays the same, how important is it moving from stocks and having aspects of that part of the portfolio into fixed investments in a retirement world?
Jason: That is a great question. When I was working at Merrill Lynch, Ashvin Chhabra was one of the managing directors of analytics. He created a white paper called ‘Beyond Markowitz’, you might be familiar with Harry Markowitz, he developed the modern portfolio theory.
Alan: What year was that?
Jason: 50’s. One of the things about modern portfolio theory is looking at how investments work together to lower the risk of a portfolio. What Ashvin Chhabra did is he looked at that theory which has some assumptions, one is that investors are not emotional and two that markets are efficient. What Ashvin did is he said let's look at this and let's create three areas of investment in a portfolio. One is to preserve our current basic needs of life as far as the percentage of our investments. The other area is to outpace inflation which takes on market risk which is our stocks, bonds and things that might do better than inflation. And then the other is aspirational risk- things that are hopefully going to change our lifestyle moving forward, that's concentrated stock, that's investment properties, hedge funds and private equity. But with those that aspirational area, those things can incur substantial loss so really its understanding how to create a portfolio which is going to weather some storms but also help the client outpace inflation.
Alan: I’m visiting here today with Jason Greenwood. Jason is a wealth advisor here in the Silicon Valley and a chartered retirement specialist. Jason, I need to take a quick break and we’ll be back after these messages. I want to get into talking about how to combat inflation, we’ll be right back after these messages.
Alan: Welcome back. I’m here today with Jason Greenwood. Jason is a wealth advisor here in the Silicon Valley, he's also a Chartered retirement specialist and we’ve been talking about getting a retirement plan together. Jason, is there a problem with the person getting to retire to say I’m just going to leave my money in all cash because I don't want to lose it.
Jason: It's a huge problem and here's a great example of someone in their mid-30s who's going to want to have $66,000 a year of money to spend when they retire at age 65. That’s going to be $241,000 after inflation rate of 4.2%. So that $66,000 is not the number that they need to be looking for. In order to combat that, they need to have exposure to things that run or outpace inflation which is equity, commodities, things like that.
Alan: What exactly will inflation do for a layperson?
Jason: Perfect example- my son loves skateboarding. When I was younger, a skateboard cost $40 but the other day I just went and bought him a skateboard and his skateboard cost me almost $150. That’s inflation.
Alan: Point well taken. What type of clients do you specialize in? Who should be coming to Jason?
Jason: Most of my clients are engineers that work in the tech companies here in the Valley. They work long hours but part of their compensation is an employee stock, it's restricted stock unit. They work away and they never really look at their stock unless they’re feeling down and they want to see how much they are worth. Those people don’t have time to create a financial plan or outline or anything like that and so they don't understand how their stock impacts their short-term and long-term goals. That’s something that I specialize in. I do sensitivity analysis on concentrated stock positions. So, people that have half a million dollars or more typically come to me and say- what should I do with all this? And here are my goals and this is what I want but I don't really know how to manage this.
Alan: So you call it sensitivity analysis?
Alan: What does that mean?
Jason: What that means is let's say someone has received four grants from their company of stock. They might have access to that stock over a period of time. Over that period of time, the stock can go up or down. As they get access to more shares, they can actually sell and take control of. What happens if the stock’s down? What happens if the stock’s up? Every year we can see, okay we can expect to have so much in cash coming to their portfolio and diversify it, but what if the stock’s down tremendously? Can they reach their goals, whether it's to pay for college, whether it's to buying a new house.
Alan: When these RSU’s are coming, do you recommend for the most part that they liquidate it for cash and buy other securities?
Jason: It really depends on the situation. If someone only has a certain number of shares and they’re not going to be receiving more, then maybe yes. Or maybe not, it depends on their assets, it depends on their situation, that's why I meet with people.
Alan: Taxes. This is something that we cannot avoid in our life. Recently they put in a new 3.8% tax- for singles, it starts with $200,000 or more income. How has that impacted the decision-making aspect of trying to preserve your wealth?
Jason: People are looking for ways that they can move minimize their tax burden. So sometimes they’ll look for investments out there that minimize their tax burden. Certain investments that are tax efficient or tax-deferred or even tax-free potentially, are good things but maybe not for everyone. So it's important to sit with a wealth advisor or a financial advisor and to understand what's right for you.
Alan: Taxes is a necessary evil and in today's high tax environment, they recently impose a 3.8% investment tax, for singles earning more than $200,000 a year and for married filing joint, $250,000 a year. So how does that impact what you do in retirement planning and the types of strategy that a person should do when looking at investments? Is there a certain type of investment that they can move into to avoid that tax?
Jason: It does depend on each individual. If someone is in retirement and they have a pile of money that they don't know what to do with, often the default is let's look at municipal bonds in the state you are in because we know that the interest that you receive from any municipal bond is federally tax-free and state tax-free if you own a municipality in the state you live in. So there are some opportunities out there for people to minimize their tax burden but really need to sit down with a financial advisor or a wealth advisor to understand how it impacts you, because your tax bracket in retirement may or may not be lower than it was when you were working.
Alan: I think it's all good advice. I think taxes is something that we have to live with. Jason, if somebody wants to contact you, how do they go about that?
Jason: They can call me at my office at 408-856-6355, they can send me an email to firstname.lastname@example.org.
Alan: Last question, how do you define success in life?
Jason: For me, success is spending time with my family. I think most of my clients want to spend time with their families and having a plan in place or an outline of how they can do that is number one hands down. I think helping people become the best they can be and become successful is also success to me because I feel like I'm contributing to their success.
Alan: Well-said. I’m visiting here today with Jason Greenwood. He’s a wealth advisor and a chartered retirement specialist. Jason, thank you for being on today’s show.
Jason: Thanks for having me.