Your Money, Your Wealth Podcast Episode 525: Risks Threaten Retirement. Rewire Your Plans

Release Date: April 15, 2025
Hosts: Joe Anderson, CFP® & Alan Clopine, CPA of Pure Financial Advisors
Guest: Jamie Hopkins, CFP®, Attorney, and Bestselling Author

Introduction to Rewirement with Jamie Hopkins

In this episode, hosts Joe Anderson and Big Al Clopine welcome back Jamie Hopkins, a certified financial planner, attorney, and bestselling author of Rewirement: Rewiring the Way You Think About Retirement. Jamie delves into his book's core concept of "rewirement," emphasizing the critical shift from an accumulation mindset—focused on saving throughout one’s career—to a decumulation mindset, which centers on thoughtful spending and living during retirement.

Jamie Hopkins [01:24]: "We need to change the way we think about retirement from this accumulation mindset to a decumulation mindset."

Jamie highlights a significant gap in retirement planning education: while individuals often learn about investing and saving, they receive little guidance on how to effectively spend during retirement. This lack of preparation can lead to challenges when transitioning from saving to drawing down retirement funds.

Embracing the Permission to Spend

One of Jamie’s key insights is the concept of "permission to spend." Contrary to popular belief that retirees tend to overspend and deplete their savings prematurely, Jamie reveals that many Americans actually underspend during retirement. This conservative approach often results in substantial untapped funds at the end of life, which could have enhanced their quality of living.

Jamie Hopkins [04:05]: "People actually end up dying with big sums of money never spent. That's actually a bad story because they could have lived a much better life by spending those funds."

Jamie advocates for a balanced approach where retirees allow themselves to spend part of their savings, thereby enjoying their retirement years more fully without the constant fear of outliving their assets.

Cultivating Purposeful Communities and Lifestyle in Retirement

Beyond financial planning, Jamie emphasizes the importance of lifestyle and community in achieving fulfillment during retirement. He contrasts "accidental communities" formed through work or geographical location with "purposeful communities" that retirees can intentionally cultivate based on their interests and values.

Jamie Hopkins [07:40]: "When you get to retirement, you can basically pick whatever community you want to be part of now. It’s an amazing time to reevaluate and be purposeful about the communities you're in."

Strategies such as phased retirement, where individuals gradually reduce their working hours, and engaging in charitable activities are recommended to help retirees find meaning and maintain social connections.

Navigating Retirement Risks

Jamie Hopkins outlines several pivotal risks that threaten retirement security and offers strategies to mitigate them:

1. Inflation

   • Impact: Erodes purchasing power over the long term.

   • Strategy: Invest more aggressively in equities as a hedge against inflation, despite the inherent risks.

   Jamie Hopkins [12:28]: "Inflation is a permanent increase in the cost of goods for the entirety of the 30 years of retirement."

2. Rising Healthcare Costs

   • Impact: Significant and often underestimated expenses, primarily driven by prescription drugs.

   • Strategy: Allocate sufficient funds to cover Medicare gaps and unexpected healthcare expenses.

   Jamie Hopkins [14:15]: "Most of the additional health care costs are driven just by higher prescription drugs costs."

3. Public Policy Changes (Tax Laws and Tariffs)

   • Impact: Unpredictable alterations in tax regulations and tariffs can affect retirement income and purchasing power.

   • Strategy: Stay informed about potential legislative changes and adjust financial plans accordingly.

   Jamie Hopkins [15:14]: "Tariffs are always kind of in place, and they can range from specific goods to broader economic policies affecting overall costs."

4. Tax Cuts and Jobs Act Expiration

   • Impact: Potential adjustments to tax benefits currently enjoyed, affecting overall retirement strategy.
   • Perspective: Jamie is skeptical that all provisions will expire as originally planned, suggesting possible extensions or modifications.

5. Social Security Viability

   • Impact: Concerns about the long-term sustainability of Social Security funds.

   • Counterpoint: Jamie defends Social Security’s efficiency and its essential role in preventing poverty among retirees, advocating for minor reforms rather than significant cuts.

   Jamie Hopkins [20:35]: "Social Security is the single most efficient financial instrument that's ever been built in the history of the world."

Listener Q&A: Practical Retirement Financial Strategies

1. Fred and Ginger from Huntington Beach, CA: Managing Rental Property Repairs

Question: How should Fred and Ginger fund repairs on their rental properties?

Discussion Highlights:

• Options Explored:
  • Using Retirement Accounts: Risk of taxes and penalties.
  • Line of Credit: Avoids depleting retirement savings and maintains investment growth potential.
• Recommendation: Opt for a line of credit to manage repairs without tapping into retirement funds, ensuring sustained cash flow from rentals.

Joe Anderson [28:04]: "I would just do it through a line of credit. If the properties can support the extra debt, then great."

2. Peter from Lemon Jello, FL: Early Retirement Tax Strategies with 72T Elections

Question: How do installment sales and rental income impact tax planning, specifically regarding 72T equal periodic payments?

Discussion Highlights:

• Installment Sales: Explained as receiving payments over time, involving a mix of principal and interest.
• 72T Elections: Allows early withdrawal from retirement accounts without penalties under specific conditions.
• Strategies:
  • Separate IRAs: Allocating funds for 72T distributions to avoid penalties.
  • Tax Implications: Ordinary income taxes apply, but penalties are avoided.

Jamie Hopkins [37:16]: "72T election allows individuals to pull money out of a retirement account prior to 59 and a half without a 10% penalty."

3. Calvin and Susie from Lancaster, PA: Purchasing an $800,000 Beach House vs. Roth Conversions

Question: Should Calvin and Susie prioritize buying a beach house over performing Roth IRA conversions?

Discussion Highlights:

• Financial Position:
  • Assets: $2.6M in tax-deferred accounts, $627K in Roth IRAs, substantial pension incomes.
  • Spending Plan: $120K to $140K annually.
• Pros of Buying the Beach House:
  • Aligns with lifestyle goals and personal happiness.
  • Their robust financial position supports the purchase without jeopardizing retirement security.
• Pros of Roth Conversions:
  • Potential tax advantages and reduced taxable income in the future.
  • Enhances tax diversification of retirement funds.
• Recommendation: With their strong financial footing, they can comfortably pursue the beach house while also considering Roth conversions to optimize their retirement strategy.

Fred and Ginger [50:02]: "A beach house purchase would take all of our cash and possibly more. I'm anti mortgage, and I may win that battle."

Joe Anderson [50:49]: "Is the $800,000 beach house purchase a wise decision based on the information provided? ... I think there are a lot more positives than negatives."

Conclusion and Final Thoughts

The episode wraps up with hosts emphasizing the importance of balanced financial planning that considers both the preservation and appropriate expenditure of retirement assets. By addressing listener questions, Jamie Hopkins and the hosts provide actionable strategies to navigate the complexities of retirement planning, highlighting the necessity of flexibility and intentionality in financial decisions.

Notable Quotes

• Jamie Hopkins [01:24]: "We need to change the way we think about retirement from this accumulation mindset to a decumulation mindset."
• Jamie Hopkins [04:05]: "People actually end up dying with big sums of money never spent. That's actually a bad story because they could have lived a much better life by spending those funds."
• Jamie Hopkins [07:40]: "When you get to retirement, you can basically pick whatever community you want to be part of now."
• Jamie Hopkins [12:28]: "Inflation is a permanent increase in the cost of goods for the entirety of the 30 years of retirement."
• Jamie Hopkins [20:35]: "Social Security is the single most efficient financial instrument that's ever been built in the history of the world."
• Jamie Hopkins [37:16]: "72T election allows individuals to pull money out of a retirement account prior to 59 and a half without a 10% penalty."

For more insights and personalized financial advice, visit YourMoneyYourWealth.com to access free resources, episode transcripts, and schedule a consultation with Pure Financial Advisors.