Why Income Building is the Key to your Retirement Success

Episode Description

In this inaugural episode of the Yield to Reason Podcast, host Brandon Roberts introduces a fresh perspective on retirement planning that could transform how you prepare for your future. After nearly two decades in the financial industry, Brandon reveals why shifting your focus from simply growing your nest egg to building reliable income streams is the key to retirement success.

What You'll Learn

• Why retirement income planning is more important than just accumulation
• How traditional financial advice has missed the mark on preparing Americans for retirement
• The top 5 retirement concerns that Americans consistently worry about (and how they all connect to income)
• Why you might need significantly less savings than you think to achieve your retirement goals
• How an income-focused approach can provide peace of mind during market volatility

About Your Host

Brandon Roberts brings nearly 20 years of financial industry experience and practices what he preaches—building multiple streams of passive and semi-passive income. As a semi-advocate of the FIRE (Financial Independence, Retire Early) movement, Brandon focuses on the most practical path to financial freedom through income generation.

Key Takeaway

When you build your retirement strategy around creating reliable income streams rather than just accumulating a large account balance, you gain clarity about your retirement timeline and greater confidence during market downturns. Join us on this journey to build the retirement you deserve and truly want.

Transcript

UNKNOWN: 0:00

Thank you.

SPEAKER_00: 0:22

are listening to the Yield to Reason podcast, where we strive to help you build the most important part of your retirement strategy, because a retirement plan built with robust income sources is a retirement plan built for success. I am Brandon Roberts. This is episode number one, and I thank you for joining me as we embark on this journey to build the retirement you deserve and the one you always truly wanted. So episode one, what are we going to do? Well, we're going to set the stage for why this podcast exists and why it is that I think you should start shifting your focus away from accumulation and towards income, no matter where you are in your working years, your accumulation phase, as we like to call it in the financial planning world. Because ultimately, if you change your thinking about this subject, I think you're going to find there is something a whole new world that will open to you, a sharper focus on where you're going, and ultimately a better, more comfortable retirement with higher degrees of peace of mind and a much, much higher degree of success. So we'll get into who I am because that's That's probably something you're all wondering. And then we'll also talk about why the industry is in the condition that it's in, how we got here, why more people focus on what I'm going to tell you is the wrong thing, and why we aren't seeing more advisors catching on to the idea that income is really all that matters to most Americans. So let's start with the really basic question that most of you probably have on mind, which is, Who am I and why should you be listening to me when it comes to your retirement planning strategies? So I'm Brandon. I've been in the financial planning investment insurance industry for about two decades. Just a little shy of that, actually. I'm a semi-advocate of the FIRE movement. I'm also a personal practitioner of what I preach. So I... Have a pretty decent amount of passive and semi-passive income that I collect every month from my various investments set up intentionally to create that income for me. Technically, my real job, if you want to call it that, is running a website and kind of online information services for the insurance industry where we focus intently on various insurance products and how they work to create retirement income. I'm not going to get too much into that here in this podcast because we're going to focus much more explicitly on income planning for retirement and the various tools that you can use for that sake or for that purpose, which encompass things like the stock market, things like the bond market, things like real estate, and a number of other assets that you may have some vague familiarity with. But really, today, we want to get into the why you need to stop thinking about accumulation income generation from your assets because that is what will work the best for a high chance of success in retirement. It'll eliminate a ton of the concerns a number of people have about the prospects of their own retirements. I want to start by talking about just something that I've observed over the past nearly 20 years of being full-time engaged in this industry. I realized back in the very beginning of my entry into the financial planning world that the industry seemed to have a glaring deficiency when it came to the income side of the retirement puzzle. Because people would save money, people would worry about rate of return, but when they got to retirement, the one thing that always seemed to be the most enigmatic about the whole concept was how exactly one goes about taking a pile of money and turning it into the resources that they needed to live the life they wanted to live in retirement. In fact, just 10 years ago, there was a pretty obvious deficiency among advisors in this regard Because the Certified Financial Planner designation, which happens to be the gold standard of educational attainment and certification among financial professionals, didn't even directly have subject material on its examination and test prep materials that spoke intently to the subject of retirement education. income production. So in other words, equipping these individuals with the tools and the skills that were in the knowledge that was necessary to go out and advise their future clients on the step-by-step process of taking your 401k, your IRA and turning it into retirement income. And there are a number of different ways to do that. And we're going to spend a lot of time, um, throughout the existence of this podcast going through the array of options that you have and how they may be good for some and better for others. But those tools were not something that even the CFP exam specifically dove into for individuals who were seeking out that designation. And the whole process, the whole point of becoming a certified financial planner was in theory to to gain knowledge that would help you advise individuals who were looking to hire a professional and help them go through the process of building a sound financial future specifically for retirement. Because for the vast majority of Americans, financial planning is about retirement planning. Sure, there are smaller niche areas, estate planning, college planning, things of that name, budgeting, things that some people need some help with. But ultimately, the idea of saving money really comes down to the hope to have the wherewithal, the financial wherewithal, to retire and live comfortably. That's what it is all about for a huge percentage of Now, thankfully, thankfully, the CFP caught on to this deficiency. And today, roughly 18% of the exam focuses specifically on retirement income sources. So things have changed, time shifted, and thought shifted on this. And the industry started to realize that it had a very glaring blind spot when it came to where its focus was and how it was training professionals who were entering this industry looking to help people build retirement plans. Now, there are other institutions that have also attempted to address this. The American College for Financial Services is another one that grants certifications and degrees to some level to individuals who want to up the ante on their knowledge base. And there are some resources there as well that equip professionals with specialized knowledge for income. So if you happen to see an advisor who hands you a business card and you see the letters CFP after their name, that means they have a certified financial planner designation and they have gone through a decent amount of rigor to gain additional insights on the industry and Today should be also picking up skills and tips to help with the process of income generation. Another one that you might find is the RICP stands for registered income certified professional, I believe, or something of that nature. This was created by the American College for Financial Services, and it was a specialized certification created a number of years ago, actually, to help provide knowledge and skills necessary to go through the process of setting people up for a higher degree of success of income attainment in retirement. But that all being said, we still live heavily in an accumulation-focused world. Most people gauge the success of their retirement plans by their account balance. or by the rate of return that they achieve on their 401ks or their IRAs year over year. Many of them will evaluate the success of their financial advisor by how well they keep pace with certain benchmarks. that they have, in many respects, assigned arbitrary significance to. We like to, as an industry, tell individuals that if they can't at least do as well as the broader stock market, then what exactly are you doing? And maybe you need to make some changes to your portfolio. I think that that claim is somewhat short-sighted, especially in the context of what specifically somebody might be targeting for a retirement goal. But that being said, there's still a significant focus on arbitrary benchmarks and also the fact that if you're not growing your account balance, for some reason you're doing something wrong, which may be very, very incorrect for a number of individuals. We even had, as recently as the 20-teens, big federal initiatives like the Department of Labor's fiduciary standard or best interest contract idea to... Basically, levelize the options and try to bring down investment costs, fees and such. But really, it was not a plan focused on helping people develop safe, sound retirements with plentiful income. It was really just an effort to systematize or standardize what was a good versus bad investment and lower fees that people were paying, because somehow that was going to make you a more successful retiree. For better or worse, that rule ultimately went away, though there are other adaptations of it that are still in existence more at a state level as it affects investment and other financial products throughout the country. There was even a proposal at one time in the 20-teens to mandate that 401k statements begin providing projections of income So in other words, your account balance is here, you're putting a certain amount of money away each year, and we believe that by the time you reach your retirement age, you should be able to generate roughly this amount of income, which probably was a good idea in terms of giving somebody or rather some people at least a baseline of where they could anticipate things moving forward. But sadly, that idea was swept aside and we don't have any requirement to do that today. Now, a lot of people have money, but they don't know what to do with that money. And the reason they don't know what to do with that money is because the transition from accumulating assets to now distributing assets, using them for income, it's not a simple transition. It's difficult. It just is. And I speak from a healthy, healthy amount of experience here when I say that. I have watched a number of people who have all the right behavior patterns when it comes to traditional financial advice. They save quite voraciously. They monitor their expenses. They would get the blessings of all the major financial gurus that have come and gone over the past several decades. And yet they get to retirement and they don't feel all that comfortable about what's going on because saving is not... a strategy that gets you super far in retirement. Now, everybody's probably going to know somebody who was miserly in retirement and was okay, at least from the standpoint that they didn't run out of money. But if we peer in a little deeper, what we often find about these individuals that save first and spend second is that they tend to not live super happy lives because they're always worried about whether or not some major expense is going to be the thing that ultimately puts them in the poorhouse. And I don't think you have to do that when you get to retirement. Let's spend a little time looking at the data because this gives us a really good temperature on where Americans are. There are countless surveys, research surveys that are done every single year that try to gauge where Americans' minds are at regarding retirement, how happy they are in retirement, how comfortable they are in retirement, and also how happy and comfortable they are heading into retirement. Consistently, consistently, the top five worries that Americans address about retirement is, one, running out of money, two, maintaining a stable income in retirement, three, affording healthcare costs, Four, having inflation decrease their buying power. And number five, social security solvency and or reduction of social security benefits. Now, we could argue that all five of these items are income related. Because if we have a solid income plan, we significantly reduce, if not eliminate, a number of these worries. But, Ultimately, some of them have to do with forces beyond our control. We can't necessarily ourselves control the cost of healthcare. We also can't control ourselves whether or not Social Security remains solvent. We can, however, make plans to try and deal with policies that shift that might make healthcare more expensive or might result in Social Security benefits being reduced. But if we look at the top of the list, running out of money and maintaining stable income streams, we see clear as day that the topic of mind, the number one topic on the mind of Americans as they enter retirement, as they are in retirement, is income. Specifically, the ability to have income, to afford the lifestyle they want to live, and not run out of money in the pursuit of generating that income and living that life. And interestingly, interestingly, these worries, they transcend age and economic achievement. So it's not the case that the older you are or the younger you are, the more or less you worry about any of these things. When these surveys are done, they generally break up respondents by age category or put them into the generational categories that we all are fairly familiar with. And they all consistently tell us that every age range worries about this quite considerably. Gen X tends to be the most worried. And then millennials and boomers, slightly less, but still the majority, the vast majority of respondents all affirm the fact that they are worried about running out of money in retirement. And income levels don't tend to insulate people from this worry. So high-income earners worry about it almost as equally as low-income earners. Interestingly, high-income earners arguably have more to worry about and more to do when it comes to retirement planning because they don't receive as high a percentage of their income in Social Security benefits as lower-income workers do because there are caps to Social Security benefits that mean if you are a higher income earner, your pre-retirement earnings will not be made up as much from social security as is the case with lower income earners. Now I want to call your attention to something. Notice what's not on this list. We're not seeing things like have enough money to leave to the kids. We're not seeing things like becoming a millionaire. We're not seeing things like paying high investment fees, nor are we seeing some of the more ridiculous things that some investment firms have talked about, like being worried that you won't be able to afford a beach house. Now, look, if that's your worry, any of these four items that I just brought up, that doesn't make you a bad person. That actually puts you in a very enviable position of first world problems that most of us wish we could have. But what this shows us is most Americans are not worried about those things. because they have more pressing issues. They need to be able to provide themselves with the financial resources to live the lifestyle that they've become accustomed to. And they're really worried about how to do that. And as a result of that, I want to let you know right now that the Yield to Reason podcast is not a podcast that will ever be about the secret tips of turning you into a 401k millionaire. I believe a lot of you will get there, but I'm not going to intentionally focus any of my or your efforts on the pursuit of growth of account balance for the simple sake of the growth of account balance. Instead, we're going to focus on things that are more meaningful, which is we're going to focus on how you get to retirement and you continue to do things like buy groceries, go on vacations, live the normal life that you were accustomed to living while you were working. Because I think it's actually pretty easy to do. Now, over the years, I have been able to observe lots of people go through the various stages of life. In financial planning, we typically look at them as three different phases. You have the accumulation phase, that's when you're working. You have the distribution phase or the retirement phase. And then you have this phase at death that looks at how your assets that are remaining are distributed. So watching people go through these various phases, what I have noticed is that people who follow very traditional Advice, things that you might see from certain radio personalities that have been around for a couple of decades now. The idea that you should save everything that you can, save until it hurts, and you should always be mindful of how much money you are spending. Those people do tend to accumulate a decent amount of money. But when they get to retirement, there's a lot of apprehension about what's going on. they tend to not be the happiest people I've ever met. And they tend to stay up at night worrying about what money they have left, how much of it they're spending, and how quickly that might run to zero. Now, alternatively, I've also met a number of people who, by some function, have entered retirement with a certain degree of guaranteed or nearly guaranteed income. These are generally people who maybe worked for an employer that had a pension program. Or they themselves bought an annuity. Or perhaps they ended up with some stocks that paid really great dividends. Whatever it is that they lean on as a source of income, they have it. And they're not just depleting assets that they own that were accumulated in a 401k. And these people tend to approach retirement very differently than the ones who just... decided that saving and not spending money was going to be their retirement plan. They make different buying decisions and they view money very differently. I have said a few different times that people who are just cheap, who decide they're not going to spend money and they're just going to save as much as they can, they don't have as healthy a relationship with money as they would tell you they do. Because the truth is, a lot of the decisions that they make and a lot of the things that they decide do in life and the way that they view money could be borderline unhealthy in a lot of respects because they put off a certain amount of gratification or they even sacrifice a certain amount of expenditure that is good for their health, be it physically or mentally, because they're so wrapped up in the idea that the only virtuous decision is to save the money and spending is never going to become the more virtuous option. These are people who get really panicked by market turmoil, which does happen. Economies change. Federal policy shifts. These things are part of life. And people who focus intently on accumulation find themselves in very uncomfortable moments when they wake up to news that the stock market declined 10% this week. They panic. They make decisions in very... rash circumstances and they often sell at really bad times, costing themselves even more money. Being income focused doesn't tend to follow this pattern. People who are income focused have income to back up on or to fall back on and they can see that income consistently coming in and it stops them from making certain decisions. Personally, I can tell you that back in 2022, when we had a very troubling market condition unfold. We had the stock market decline by nearly 20%, and then we had the bond market decline by nearly 20%. So an old stylized fact that bonds were a move to safety away from the riskier stocks, it didn't really play out. If you sold your stocks trying to buy bonds, you lost basically the same amount. That, for an accumulation-focused investor, is an incredibly frustrating moment. Now, I personally saw my passive investment income rise quite considerably in 2022 because I just kept reinvesting the income that I was earning from my investments. All the while, they're all dropping in price, meaning I was buying at ever better yields month over month. The income that I saw kept increasing as far as passive investment income goes. And yeah, account balances were dropping, but I didn't really care because I I was watching the income from these investments continuously rise. That is a very great peace of mind moment. And it helps a number of people, me included, stick with the plan versus freaking out about a 20% decline and deciding, well... Now that I'm in retirement, I can't afford these sorts of things. So I don't know if this is going to turn around, but if it continues to fall down even further, I would really be screwed. So I just need to sell and do things that are safer. Now, the shift away from accumulation to income is not, for many people, an easy transition to make. I know that from having worked with people through this process, they sometimes dip their toes in, but then they get a little freaked out because they're still stuck in the accumulation mindset. So even though they're collecting income, they may see their account balance drop and that puts them on edge. I'm going to advocate that for anybody who wants to start to go down this road, be ready for that moment because your old habits are going to die hard. I want to spend a minute or two talking about the notion of financial independence, because I think ultimately that's what everybody should be looking at when it comes to retirement as their horizon. So money is simply a tool to let you live your life. And if you are striving for financial independence, doing it through raw accumulation of is very difficult because you never actually know if you have enough money to truly be financially independent. But if instead your assets are set up for the sole focus of generating income for you, you have a very clear picture of when you might be able to retire. And for a lot of people, if you are exceptionally successful in this regard, allow you to retire much earlier than you thought, that doesn't mean you actually do that. I could tell you personally, I do have enough passive and semi-passive investment income to live off. But I have zero plans to give up my full-time day job right now. And I'm 39 years old. So I do have a very fortunate position. Of not needing to worry where the money comes from to pay the electricity bill or the property tax bill or whatever it is. That doesn't mean I'm retiring anytime soon. It just means I have a certain degree of peace of mind that doesn't keep me up at night worrying about how I'm going to manage expenses and income. income versus accumulation generally means you'll discover that you don't need as much money as you probably thought you did when you were going through your original retirement plan and using any number of the retirement calculators that exist on the internet that try to give you some insight into how close you are to reaching your retirement goals. Let me give you an example. Let's say you want$10,000 a month in retirement income. I use that number because for whatever reason, it's become an incredibly popular goal for a number of people. Now, if you want$10,000 a month and you're going to follow traditional financial advice, you're going to need about$3 million a year to retire. I say that because traditional financial advice would tell you that you take 4% of your retirement assets And you withdraw that number, 4%, each year to generate income. And if you do that, the chances that you'll run out of money are quite low. There is a decent degree of research that backs that up. Some in more recent years has argued that we need to adjust that number down or up. But regardless, 4% is the number that sticks. That's what most people use. So when they build plans, they decide 4%, that's it. If you instead focus... your efforts on acquiring assets that are specifically designed to optimize income produced versus accumulation, I'm willing to bet that you will discover you need a little more than half of that number,$3 million, to generate the same amount of income, which means you're not nearly as far behind as you probably thought you were. And when you start to buy up these assets for income, you start to get a much clearer picture of how close you are. And there's also a motivation that comes along with that. I can't tell you how unbelievably gratifying it was the first time I started to see income statements, dividend statements and such, distributions from passive investments that I made. Now, these investments are never going to optimize accumulation. But they do seek to optimize the dollars you will collect per dollar put in. So what I'm saying is, I don't worry about how much I think an investment is going to grow to in value. I worry about how much money I'm going to earn from that investment on a monthly basis, for example. That is what I look at when I'm assessing the investments that I want to make now. And I've lost value recently. in some of those investments. They have positions that are down since I bought them. But that's okay because I also look at the amount of money I get paid each month for owning them and that makes it worth continuing to own them. That's the shift in focus that we really want to work on here with the Yield to Reason podcast. That's all we have time for today. But have no fears. We will be back next week with more tips and tricks on how you will go about building a rock solid retirement income plan. Thanks for joining me. And until then, remember, real wealth doesn't just add up. It writes checks.