Retirement Planning Insights with Harry Abrahamsen

Retirement Planning Insights with Harry Abrahamsen | Peaceful Life Radio

Join hosts David Lowry and Don Drew on Peaceful Life Radio as they interview Harry Abrahamson, a leading financial strategist specializing in retirement planning. In this episode, Harry explains the unique nature of money compared to math, discusses his book 'Money Rules: Nine Rules to Massive Wealth', and shares invaluable advice on managing finances before and during retirement. He covers topics like the behavior of money, retirement income strategies, the significance of RMDs, and the importance of having a diversified portfolio. Harry also sheds light on the benefits of whole life insurance and the pre-tax vs. post-tax investment debate. Tune in to get expert insights to help you secure your financial future.

00:00 Introduction to Money and Math
00:22 Meet Our Guest: Harry Abrahamson
00:33 Harry's Financial Philosophy
01:53 Money vs. Math: A Deeper Dive
03:40 Harry's Book: Money Rules
05:13 Retirement Planning Strategies
08:39 Understanding Required Minimum Distributions (RMDs)
14:39 Investment Strategies and Diversification
24:20 The Importance of Financial Preservation
27:51 Final Thoughts and How to Connect with Harry

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Transcript

Harry Abrahamsen: 0:29

Money is not math and math isn't money because they quite frankly, behave differently. If you take a look at math, math is perfect. One plus one equals two. And if you and I are around a thousand years from today, one plus one will be two. But if you take a look at$1 today plus$1 a year from today,$1 plus$1 in a year is never gonna be$2 between taxes and inflation. It erodes.

David Lowry: 0:52

That was Harry Abrahamson, our guest on today's Peaceful Life Radio. I'm David Lowry, and with me is my good friend Don Drew. Hello Don.

Don Drew: 1:00

Hello, David. I'm really excited about today's program.

David Lowry: 1:02

I know. Don, let me tell you a little bit about Harry. He's one of the leading financial strategists in personal financial economics specializing in helping individuals at all stages of retirement planning, and that's why we have him on our show today. He works with people who are thinking about retirement, those who are getting ready to retire, and those who are already in retirement. So that's just about everybody who's going to listen to our show. After September 11th in 2001, he realized the critical importance of properly protecting yourself from all kinds of unexpected life events and controlling your own destiny. So today, that's his philosophy. He helps his clients do the same thing. Throughout his career, Harry's clientele has shared one common objective, and that's to receive expert advice and guidance from someone they trust. Harry has his bachelor of science in marketing with a minor in finance from the University of Tampa in Florida. Then post-graduation, Harry helped build a family business from the ground up, and then after 10 successful years, he founded his own company, Abrahamson Financial Group. Harry, welcome to Peaceful Life Radio. We're so glad you're with us today.

Harry Abrahamsen: 2:13

David, thank you so much, And Don, thank you so much for having me on today. I'm excited to be here and look forward to having a nice conversation.

Don Drew: 2:21

Harry, we're really happy to have you with us. You know, I first started investing when I was 25. I'm now 67. So it's been over 40 years and it was one of the smartest things I ever did. Somebody came to me and said, what are you doing to prepare for the future? And my answer was, well, not a whole lot. So I met my first financial advisor and it really changed a lot of things for me. And I know that you can help other people find their way financially. Your well known for saying that money is more like oranges than math. I love that. Can you tell us what that means?

Harry Abrahamsen: 2:53

A lot of times when people are doing planning, especially retirement planning, you have to run some calculations to do things, whether it's to figure out when to take Social Security, different options, maybe with pension plans. So people use mathematical calculations to determine what they should be doing. But I always say that money is not math and math isn't money because they quite frankly, behave differently. If you take a look at math, math is perfect. One plus one equals two. And if you and I are around a thousand years from today, one plus one will be two. But if you take a look at$1 today plus$1 a year from today,$1 plus$1 in a year is never gonna be$2 between taxes and inflation. It erodes. And so our money behaves more like oranges. If you put four oranges and put it in the middle of the table, got up left and came back a year later, how many oranges would be in the middle of the table? None. They'd rot from mildew. So you have to really understand how money works, especially with retirement planning, because it's a little bit easier while people are working in the wealth creation phase. Because you're earning a living and then you kind of pivot and you go into the distribution phase where now the money is at work. So a very good point to make and people to understand that money is gonna erode over time and does behave a little bit differently than it a pure mathematical calculation.

David Lowry: 4:10

Harry, you wrote this wonderful book called Money Rules. Nine Rules to Massive Wealth. And I know that you did this as a result of working with so many clients over the years with your personal consulting group. Tell us what you were trying to do in this book and give us some secrets on how we can do better with our retirement planning.

Harry Abrahamsen: 4:30

There's a couple of different components of the book. The first couple of chapters are very philosophical, giving you some foundation of how to make plans. One of the chapters I talk about is needs versus wants. And a lot of times if you're planning with someone and you're talking about something and someone might say, well, I don't know if I need that. Yet they drove up in a Mercedes or a nice car. They have a beautiful pair of shoes on which technically they don't need, right? So a lot of times I'll say, if you're planning based on a need and we live in a wild world, you may wanna consider different options and different strategies. Another one of the chapters I talked about in the book is protection. And I use a fun example of back in futile times how people would display their wealth with castles. At the time they would protect their castle and have a moat, hot oil, alligators, to protect their wealth. And today people have their paper or online castles, and there's no protection of things that could potentially happen. And again, the more you have, the more is at stake. So you have to be careful on how you're positioning what you are doing to properly protect. And then there's some chapters in the book that are very tactical, to give you examples on how to do certain things and strategies that they can utilize in their everyday life.

Don Drew: 5:42

One of the things that a lot of folks try and do is chase the market and try and predict and win by gambling on the performance of the market. You've got something to say about that.

Harry Abrahamsen: 5:52

Wherever you are, there's no way to time a market. Nobody has a crystal ball. Right? So, you don't always wanna be chasing that rate of return. You don't wanna always be trying to get that extra couple of percentage points'cause the reality is all it takes is a couple of bad downturns or events that happen in your life, especially if you have things like required minimum distributions that can throw a wrench into any plan. You wanna just make sure that you're being sound with your approach, with how you're investing your money, especially as you get older. So you have to be mindful of the fact of not always trying to get that high rate of return, although you wanna get a decent rate of return, but you have to be careful.

Don Drew: 6:31

You used the term black swan events, which means not just the market, but we all have events that occur in our lives that can impact our finances, especially at this time that's so critical that we are protecting the money that we have.

Harry Abrahamsen: 6:45

I talk about risk and I tell people that true risk is everything that we're not talking about right now. Okay? So like last year, nobody really was talking about tariffs and the impact that could have. Nobody was. It was all about taxes and interest rates and things like that. Real risk lies in everything that we're not even talking about right now. And that's a global or domestic black swan that can have an impact. Maybe a correction with housing. But then also is your health, right? You can have an event. You just go to a doctor like this week and then next thing you know you gotta see a specialist and your whole entire world unravels and you have to ask yourself, is everything set up the right way right now? If something like that happened? Then, I use an example in the book the game that we played as kids, red light, green light. All of a sudden we're all up the line and you know, green light comes and we're running and they say red light and you stop. But what happens in your personal life if I said, red light, you can't make a change. You can't do anything right now if something happened. Are you okay? Do you have everything set up, whether it's wills, umbrella policies, if there was a sickness, whatever that is? So it's important to really pay attention to all these things because you don't know about'em until they happen.

David Lowry: 7:57

Are you a dollar cost averaging kind of guy, when it comes to laying money aside for the future?

Harry Abrahamsen: 8:03

I call that a micro in my book. There's macros and there's micros, right? It's really common knowledge if you're gonna go into something you dollar cost average, just because we don't know how markets are gonna behave. I think what happens with planning and people is that it's very important to get macro, to step outside of the world. Maybe it's just not, your money manager or your insurance professional, your CPA, and to really strategically look at what's available and how can you use all the tools to do different things? I always tell people in retirement, there's three functions of money and they're simple, but they're important to understand. The first function of money in retirement is income. Which assets are gonna be used to create income? The second function is liquidity. And that's something where maybe you might take on a risk. You don't need it. Some people today they're like, how about crypto? You know, if that's your liquidity, if you need it, you need an expense. And then lastly, legacy. And they kind of waterfall effect into each other. So you have to look at these functions and say, okay, what are we doing now? Are we in the income function? And what are the roles and responsibilities of these assets or investments?

Don Drew: 9:09

One of the things you mentioned earlier was required minimum distributions. I wanted to bring up a couple of topics that are generally specific to people who are entering into their retirement years where they're drawing out of their savings or out of their investments and they have less income or no income. What is a required minimum distribution and why is it so important that we pay attention to it?

Harry Abrahamsen: 9:31

A required minimum distribution is an actuarial calculation determined by the IRS. That's basically what it is. And it's all age-based. So depending on your birthday, there'll be an age, whether it's 72, 73, 74, 75, depending on your age'cause they just made a change. And they're gonna basically require you to take a percentage of all of your qualified assets, to satisfy this IRS requirement. And the reason why you have to pay attention to it is if you understand what a safe withdrawal rate is in general, in contrast to the RMD, you would hear like this, the 4% safe withdrawal rate. You know, that's something on the internet and talked about. The RMD percentage actually is gonna contradict that and be higher and increase as you get older. So even though if you're gonna do prudent planning, the IRS comes along and says, Hey, by the way, we don't really care about your safe 4%. We need four and a half, five, and it actually increases as you get older. So you need to pay attention to that because, like, this year happens, and the person I was actually meeting with, she said her account was down 30% and it was an IRA and she's like, I took my RMD and I said, geez, taking your RMD while it's down 30% is not the best strategy. So you need to really have a plan. I find that people need to actually have an RMD strategy depending on your assets. And the other thing you have to pay attention to is where the money is. So if it's in an old 401k because you like that 401k because you didn't move it to an IRA, you have to take that distribution separately. Or if it's a TSP separately. Or if everything moved into an IRA, then you can pick where's the best spot. That's something I talk about with a lot of people. And sometimes, people are not aware that the percentage increases. They just thought it was a set amount of money and it's not.

Don Drew: 11:24

Are you able to then reinvest some of that money or if you have to take out more than you need? In other words, are you able to do something with that money that's smart?

Harry Abrahamsen: 11:33

Yeah, there's a lot of very interesting things that people can do with that scenario. Like I run through an example of a person that has a million dollars and they're taking their RMDs off. You have to be careful because if that account is down 9% while you're taking that distribution, over that period of time, yes, you can take that money out and reinvest that maybe. And it's gonna be a non-qualified account that you can use, in case you need something if you have to access money for a car or something for your home. But, the fact of the matter is that if you are pulling that RMD and that account is down 9%, 8%, 10%, you are unnecessarily eroding that account down during that period. And a lot of people, because it's not like tangible, they don't realize because they'll say, well geez, what else can I do? And that's where you just have to be really careful of like maybe set aside some money where it's sitting in cash earning four or 5% to handle that RMD. That's where that chasing rates of return come into. Because somebody may say, well, geez, the market went up 12%. I missed out. But the fact of the matter is, if the accounts dropped 12%, you just saved a ton of money there, you know?

David Lowry: 12:40

Here we are in a very unusual period of time, I think. The market appears to be shrinking right now, and some of our 4 0 1 ks are decreasing in value. We don't wanna panic, and yet same time we wanna be prudent. What basic rules or advice would you give us when we have uncertain times staying the course in this kind of environment?

Harry Abrahamsen: 13:00

You wanna make sure the person you're working with understands retirement income and knowing that the markets are gonna go up and the markets are gonna go down and having a plan in place. And then just being mindful that their accounts are properly invested and allocated the right way. It's important if people are working with an advisor, probably 80% of the advisors out there work with people while they're working. But there's a small segment of people that just only focus on people in retirement to help navigate what you're talking about. I don't work with people while they're working. It's not my area of expertise, and the reason why I'm saying that is that there's a lot of very interesting tools you can use to simulate, and again, money isn't math, math isn't money, but simulate certain circumstances and the number one priority for you is income. You have to look at your income and say Between social security, pension, money coming off of investments is this amount of money per month enough? Are you okay? I would just strongly recommend to look at your income goal. Look at where it's coming from. We call it a security scores, is what's coming in that's fixed guarantee no matter what goes on in the world that you know you're okay with. And then the balance is gonna come from any risk-based portfolio. And things will change in 10 years because people in their sixties, there's a very big difference of a conversation I'm having with them when they're late seventies and in their eighties. So you wanna make sure your income is okay, whatever your strategy is. If it's dividend income. You have to be careful because those assets can drop 40%. You have to be okay psychologically to be saying, okay, my account down 40%, but I have my dividends. There are some very unique, annuity products that people can look into that do things very differently today than before. For example, they could provide a guaranteed stream of income, like a pension plan, but they also can accumulate. The old fashioned types of products like that money would disappear. So you're trading money for income. But for people that are fairly young, like in your sixties, is a very young retiree, seventies is where people are most likely retired, they have to be careful they're not outliving the money that they do have.

Don Drew: 15:09

One of the issues I hear people talk about a lot is this pre-tax, post-tax challenge. Whether or not to invest in a regular IRA or a Roth IRA and so on. One of those is pre-tax. One of those is post-tax. Should I be looking at the Roth? Should I be looking at as traditional investments? What's your advice on that?

Harry Abrahamsen: 15:25

I like the Roth approach. They grow without a tax and you can access them without a tax. Somebody may say, Hey, let's do a Roth conversion. You can't give generic advice. It's gonna depend on a lot of things. What's the break even? How long is it gonna be? And that has to be done by each person differently. You have to look at what's your tax brackets today? Run a proper report. A lot of times if you're in your later sixties and seventies, it doesn't make sense over time depending on your bracket or circumstance. Roth is fantastic. I don't know how long it's gonna be around. Back in 2014, the government did a study, it's in my book, and the government concluded they lose out on future tax revenue. They would prefer you do pre-tax. That's a home run for them.

David Lowry: 16:07

Harry, it seems like a diversified portfolio is the way to go.

Harry Abrahamsen: 16:11

Diversification is really important and in my book I talk about life insurance and specifically about whole life insurance. 99% of all my clients can't even get it'cause they're old and don't qualify. But when they read about the strategies and things they can actually do, they're like, geez, I wish I would've done that. I myself, I'm 58 and I have 13 life insurance policies that are all paid up when I'm 65. So everybody does things a little differently in their life. Obviously investments and real estate and all that stuff is important too, but a lot of different diversification will help you in the long run.

Don Drew: 16:44

Harry, one of your rules is, that the best bank is the one that you build. I love that phrase. Can you share with us a little bit more about that idea?

Harry Abrahamsen: 16:53

Yeah. For younger people put away some money into an insurance policy. If you design it correctly, it's accumulating money that's tax free, that grows tax free, and you can access it tax free for the rest of your life. The compounding or exponential growth never stops. It will never, ever stop. College education planning a 5, 2, 9 plan. This is a perfect example. When you put money away over time. It's not until the end of the second third, you get exponential growth, right? And then once you get to the last third of exponential growth is where you really get in that growth. Well, if you have a baby and you put away some money when they're born and you do that, and the 18th year just prior to that last third of growth, you literally take all that money and you give it to college. And that curve resets at that point in time. And so you'll never realize that right. But If you understand, like using an insurance product where you're building that bank, which I've done for my children, when they're 18, you're now taking that money out, whether it's 40, 60,$80,000 and that goes to pay for college. But that 80,000 is still in that account, growing and compounding as if it still is in the account. And that's because it's collateralized as a loan. It has to be the right policy, the right company, like all of the right stuff for what I'm explaining to work. It's not an IUL or variable universal life or anything like that. It has to be the right stuff. And when you understand it, it's very powerful because then you can actually lend that money out over and over for different things. For example, if a couple is in their forties, they're going through a tough time financially, their credit is bad, they can't get a loan, a lot of times we can take out$20,000. It doesn't impact your credit at all'cause it's from a policy. You use the 20,000 to get rid of your credit card debt immediately. And because it's considered a nonrecourse loan, you don't have to pay it back technically if you don't want to. So your credit will get fixed in a couple of months, no problem. It helps you out to do different things, different tasks in different periods of your life that we're not planning on. You can also use it, like for me, where my kids are grown. I'm having my seventh grandchild, but if you need to lend money, I can lend money, no matter what, to my kids. I don't have to go to a bank, I don't have to liquidate my investments. It's another tool in your overall mix of what you have and your plan.

David Lowry: 19:21

I have a question about distributions. We've talked about RMDs and so forth. More and more, seniors are working longer. Their health is good. They stay on the job longer. Some of'em are working in their seventies, not as many, but some do. Should you start taking your 4 0 1 ks because you qualify or should you keep on paying in and taking'em when you retire? Any ideas on that?

Harry Abrahamsen: 19:43

We take a tax return and run it through a report, right? A two-page summary report. You see if it's not bumping you up into different brackets for different things. So year by year, Hey, okay, what's the plan for this year? Are you gonna work? How much you anticipate you're gonna earn this year? Then based on that, what are some of the distributions we should take? Again, nobody really has that crystal ball to understand where federal tax rates are gonna be. Nobody knows where they're gonna be next year. I think working is a great thing for people if they wanna do it and they're healthy, of course. And then just being smart about the distribution. So as long as it's not bumping them up into a bracket, unnecessarily, but yeah, I think taking distributions, enjoying your life, being smart from a tax standpoint. Even if you are taking a$20,000 distribution out of an IRA, where it's not bumping you up to the next bracket, you don't need it, but then you put it in a non-qualified brokerage account, that's a great move, you know?

Don Drew: 20:33

Harry, you mentioned earlier in the program the 4% distribution rate, which is sort of the, thing that you'll read about most on the internet and so forth. And I think most people have gotten in their heads that okay, so I should be withdrawing about 4% per year, or that's the most I can, or what I should be taking out every year. Dave Ramsey talks about it's okay, take up to 8%. What kinds of things do we need to think about when we're looking at how much money we need to take out per year?

Harry Abrahamsen: 21:01

Great question. So anybody can Google Morningstar safe withdrawal rates. The interesting thing about the safe withdrawal rates is they change every year. They're 3.8% this year, last year was 4%. The year before that was 3.8. So think about that. So this four percent's a general guideline, and the reason why it exists is because it gives the portfolio over time, 30 years, in all market conditions, like how would it work or behave? And the reason why people use 4% is because you need to have reliable income, right? So you're like, okay, if I'm taking 4%, I need to have a budget per month. But what happens when you look at Dave Ramsey and he's such a popular person. He's written a lot of books. He's got a Wikipedia page, and it's amazing. In November of 2023, he literally doubled down on this 8% and he's having a battle with another person, Dr. Wade Fau. Dr. Wade Fau is one of the leading retirement income gurus in the United States of America, bar none. Okay? And these two are battling it out in the media for real. And it's interesting'cause Dr. Wade Fau is saying to Dave Ramsey markets can be down. You can't take eight when they're down, but for some reason, he doesn't want to realize the fact that it's not gonna be a consistent rate of return. You can't run an analysis on 6% every year, and I'm taking this percentage off. It just doesn't work like that in the real world. So I did an analysis. We ran an example if you did 8% in 1980, how would that work for 30 years? And it worked out okay. Then we ran it in 1990, and after the 10th year where it peaked and then just dropped off right after that and that person would've ran outta money technically. And then I ran it for the year 2000 and it took nine years. So it really depends on where you are and when you were actually retire. I always tell people like that there's a myth that you're gonna run outta money. You know what really happens? You don't really ever run outta money. What happens is you actually live in fear'cause you're gonna sit there and that account's gonna get to a certain point. And then you're gonna just say, I'm not going, okay, we can't afford it. I'm not gonna be able to go to the restaurant. So what happens? You're never gonna run outta money, you run outta lifestyle. That's what you run out of. Because there'll be this psychological component that'll say, Hey, my account's down to 250, we can't go on that vacation or we can't afford that restaurant, so we're just not gonna go. And then you basically run outta lifestyle, but you keep your money in that account out of fear.

Don Drew: 23:34

It's always important no matter how old we are, to have a working budget. I think what you're saying is how important it is for us to understand what our needs are, how much we need, and work that in tandem with our, withdrawal rate, whatever that is.

Harry Abrahamsen: 23:48

Absolutely. When you look at your expenses of today and you look at wealth erosion it's not just taxes, inflation, it's planned obsolescence, technological change, fees, consumer financing. I did some research this morning in the state of New Jersey. There's between 55 to 75 different taxes, fees, federal, state, and local in the state of New Jersey. Okay? So that's just a component where we live in New Jersey, believe it or not, when we go to the supermarket, we have to buy bags. And it's not just regular bags. So there's cultural shifts. Like if you go to a restaurant years ago you tip the person between 15 and 20, depending on the level of service. You go to a restaurant, at least around here, they want. 20, 25, 30%. I'm like 30% that's a lot of money for a tip. So it's cultural shifts. So your money basically is eroding very close to believe it or not, 15% and it's not just tax inflation that most people talk about.

David Lowry: 24:48

Man, that's really scary. One of the things we have to be paying attention to is preservation of our money. What are some strategies you can give us to make sure that we're preserving what we have even in difficult times.

Harry Abrahamsen: 25:02

Preserving is very important. And if you look back 10 years ago, even five years ago, you could barely get 1% in a bank, right? Recently, we've all had the fortune of having four point a half, 5%, five and a half percent. Right? And people are like, wow. It's like Mardi Gras, it's fantastic. Which is great. One of my concerns is that if rates do drop and it's just a matter of time, I think, where do you put your money where it's at least getting some type of growth? And that's where it's important to understand even some insurance products that are out there where you can maybe get some of these rates of return or some of the protections that you have in addition to your investments. Again, you definitely wanna look at all options that are out there. There's a lot of very new, interesting products that people can look at, even from a long-term care planning perspective. The new, products out there, they're not like the old ones where you're paying that premium and if you have a heart attack, you lose everything. It's a whole different ball game.

Don Drew: 25:59

Harry, is there anything that we're missing here that's really critically important for people who are in the latter part of their life?

Harry Abrahamsen: 26:06

You're not gonna always be right. You just never know, right? So be mindful of, okay, I wanna look at some things that are conservative, what are my options? And then talk to someone about all the different, various options and then make a decision based on that. It's always important no matter where you are even if things are perfect., I'll give you an example. I met a very nice couple, and they were 67. They were perfect. They had rental income, a bunch of CDs that were coming due and they had this annuity that they loved and they got it from a very good friend of theirs. And they came walking into my office and everything literally was perfect. And we were able to look at what they were doing. And they had a good amount of money. We looked at that and they were able to make one change where that was giving them$68,000 of income a year and we made one move and they were able, there was no cost. There were no fees. There was literally nothing that happened where they were able to get$117,000 a year with the same money. That's a fantastic amount of money. And think about that. They're like 67 years old and they discovered all this extra money that they have with no risk. So you wanna go out and explore, have a conversation, talk to people, get a better understanding of things that you can utilize. There's different programs out there that don't cost money. And one last piece of advice, I always say to someone if you are self-directing your portfolio and you are adverse to a managed money fee for your assets, I always say to them, listen, you always wanna have'A' players on your bench. Because if you are taking care of things for the last 20, 30, 40 years and you're doing a great job, the last thing you want if you're in your late seventies, eighties with a health problem, go into doctors and trying to interview a planner to help you when that's happening. It's the worst time. If you are at your'A' game, you know your stuff right now. Make sure you get people on your bench to say, Hey, listen, I'm not fully gonna give you everything right now, but I just want to test you out. I wanna just see how it's going, because I wanna have backup plans because lemme tell you the last thing you wanna be dealing with when you have doctors or health concerns is trying to interview for a new relationship.

David Lowry: 28:21

We've been talking to Harry Abrahamson, who has written a book, Money Rules, Nine Rules for Massive Wealth. Harry, tell us what's going on in your life, how we can get hold of you, your social media, and any upcoming things.

Harry Abrahamsen: 28:35

Thanks. We have a YouTube channel we are launching. It's called Retire With Harry. It's exclusively designed for people that are thinking about retirement or already in it. We'll be talking about all kinds of different topics and whatever's relevant that's happening right now. Social media. Instagram, that's my fun account. That's just me living my life doing the things I'm doing. It's not related to business, but it's just all pure fun. And of course our website and if they wanna get the book, it's on Amazon, they can go there. Money rules. They can type in my name, and my book pops up. But yeah, that's how they can reach me.

Don Drew: 29:07

Harry, thanks for being with us today, so appreciate you.

Harry Abrahamsen: 29:09

Thank you, David. Thank you, Don. I appreciate being here today.