Matt Walters (00:00):

Hello and welcome to the Mach 1 Market Moment where we provide financial information on topics such as investing, insurance, financial planning, and everything related to your money. This is Matt Walters here with David Lee and Mike Frost. And today we’re going to discuss financial planning. What does financial planning mean and should you have a financial plan? Mike, David, how are you guys doing today?

David Lee (00:23):

Doing great. Happy to be here, living the dream.

Mike Frost (00:25):

Fantastic, Matt

Matt Walters (00:28):

Today’s goal is that you leave here with a better idea of what, you know, what is financial planning? That word, that term is thrown out a lot – should you have one? The goal is that you leave here with a better understanding of what that term financial planning really means and the value of having a financial plan. Maybe you come in and you’re listening to this wondering if, this is something that you should do or maybe you’ve, you’ve had a financial plan put together but you’re kind of questioning, um, you know, its validity or the detail that you got into when you were putting it together.

Matt Walters (01:01):

We have a lot to get into, so let’s get started. Here at Mach 1, we start with the planning side of things, right? We typically don’t get too much into the weeds of investing products. You know, how should I allocate, the resources that I have, my assets, because our philosophy is it’s really hard to know the solution if we don’t know if we don’t understand the problem, right? So we take the planning and we focus on the planning component to help us figure out what the problem is. Maybe there’s more than one. What are the top couple problems that we have financially speaking, um, and w and really hone in on those and define those. And once we know what those are, we can then start working towards the solution.

Matt Walters (01:49):

So David, give us, give us just kind of your thoughts on, you know, what financial planning is, what that means, and then why it makes sense to start with that before you just jump into how you should be investing in products and those types of things.

David Lee (02:04):

Well, obviously if you just try to jump right into a solution, you’re likely gonna end up with the wrong solution. So, you know, I relate a lot of, a lot of the things I talk about to my former life, many of you, if you have listened to this podcast or if you’re familiar with Mach one at all, you probably know a little bit about my background as a pilot. So I was in the air force and flew fighters for about 10 years in the air force. And before we would go on a mission, you have to come up with a game plan.

David Lee (02:31):

You first have to know what’s your objective, you know, what are you going out there to do? It’s the same thing with retirement planning. You first have to understand what’s the target I’m trying to hit? Am I trying to retire by a certain age with a certain income and make sure I don’t run out of money before I die? That’s, that’s usually a pretty common one. That’s one we deal with a lot.

Mike Frost (02:53):

Well David, for those of us that haven’t been in the military, I liken it to going to the doctor and you walk in and the doctor looks at you and says, “Oh, well you need a flu shot” and you’re there for a broken toe. So, until we know the details, we really can’t prescribe or give any advice on what the plan should be.

David Lee (03:10):

That’s right. You might, uh, come up with the wrong prescription. Something that could kill you, right? Correct. Uh, like, uh, like with any strong medicine, you know, in the right quantity, the right prescription can heal you and in the wrong quantity, the, even the right prescription can kill you. Right? So you gotta have a, you gotta have a good plan to start with. You gotta know what your objectives are. So it starts with getting to understand you, the client and understanding what brings you in the door? What is your objective? Some for some people, you know, I mentioned one objective is not running out of money before they die. For some people it might be leaving a legacy to grandchildren.

Mike Frost (03:46):

Absolutely. We have several clients that way. They know they’re set, but what’s the best way they can set up their finances for their future, for their heirs, for their sons, daughters, grandchildren, other legacy people they want to leave it to.

David Lee (04:01):

For some people it might be, you know, college planning. Like Matt, you’re, you’re the young one in the, in the group here between us two older guys, you’ve got young kids and so a lot of times with our younger clients, they’re looking at college planning.

Matt Walters (04:15):

Right, right. Absolutely. And I know one thing I learned from you, David, when I came on board here with Mach 1 was your emphasis, you always use this, the slogan, and correct me if I get it wrong, but, “take the least amount of risk necessary to achieve the desired outcome.” And I’ve can’t tell you how many times I’ve used that because I think it’s a perfect starting point. Let’s figure out where, what are our goals, where are we trying to go, and then figure out how we can get there in the most conservative way possible. And now we have a starting point and go from there.

David Lee (04:47):

Yeah. And so to relate that back to the whole mission plan, the fighter pilot mission planning process, I’m going to go back there for just a minute. So, you first start with the objective, what’s the, what are you trying to achieve today? And then like you just said, Matt, then we would come up with as a, as a team, and I, and I emphasize the word team because it, you couldn’t just all do it with one particular asset. For example, a fault if all the air force had was F16’s, which is what I flew, we wouldn’t achieve the objective.

David Lee (05:15):

You gotta have all the maintainers obviously to fix and fly your airplanes. You got to have the ground crews to load the weapons. You got to have the tankers, the air refueling tankers to get you there. You got to have the airborne radar to, anyway, the point is it takes a team and it takes different tools to achieve the mission objectively. So you first got to know what the objective is, then you come up with a plan. We would start a mission planning process at that time in the military to come up with a plan using all these different assets, all these different vehicles you might say, to come up with the lowest risk plan to achieve that mission while hopefully keeping everybody alive, right? The lowest risk plan to achieve the goal. And it’s no different in financial planning.

David Lee (06:03):

We start with what’s is your unique objective? What are you trying to accomplish? And then we figure out using, a variety of different vehicles, investment vehicles. They may, in some cases, it may be annuities, in some cases it may be stocks and bonds and mutual funds and exchange traded funds and put and call options and all kinds of things. But we come up with a unique plan based on the unique objectives, to achieve that. Whatever your unique objective is with the lowest risk possible.

Mike Frost (06:36):

And so, David, you’re basically saying everybody that walks in the door is different. You know, Matt has got three young children, you’ve got kids in college, I’ve got grandchildren. So everybody that walks in has a different goal. We don’t have a cookie cutter approach. We have all the tools available. But depending on your goals is how we deploy those tools.

Matt Walters (06:58):

Right, right. Yeah. One of the questions that I think is always the most interesting is when somebody comes in and says, you know, “how should I invest my money?” And it’s like, well, we need to take about 10 steps backwards before we get to that, you know, and have that conversation. But you know, it’s, it’s natural cause the investing side of things, you know, “what are we going to do with our money?” It’s the exciting part, right? It’s the lot for a lot of people. It’s the fun part. It’s what you want to talk about. So it makes sense and I think we have a lot of unique strategies and you know, a unique approach that we take here. So we’re excited to get into that as well, but, but we really do have to just, we just caution people to let’s not get ahead of ourselves, right? If you don’t even know what your monthly outflow is every month or every year, right. How we’re investing should be, you know, something we’re talking about in the third or fourth meeting

Mike Frost (07:50):

And Matt, we’re getting ready to do some painting in our house and if you’d read anything about painting, the prep work is absolutely the hardest part. The actual paintings, like icing on the cake. And so the planning process we do here is the prep work. We’ve got to get all that done to tell us, “okay, now what tools do we need to deploy?”

David Lee (08:09):

And so that, that phase of the, what we call the Mach 1 Retirement Flight Planning process is what we call the, the mission execution. So it first starts with mission objectives, knowing what you’re trying to accomplish. Then after that we go to mission briefing. We put, that’s where we’re putting together that plan using all those different tools that I referenced earlier. Then the third step is mission execution, where you’re actually going out there that says, you were saying, Matt, that’s the part that most people want to start with.

David Lee (08:38):

They want to kick the tires and light the fire, so to speak, right? They want to get right in the airplane and go fly without a plan and that that can get you killed, right? So it, so the third step is the actual execution, but then there’s this last step that’s also critically important. You know, one of the reasons why we had, we have the greatest air force in the world. The greatest fighter pilots in the world is because after every single mission you come back and you debrief every little thing, every radio call, you know, was it said exactly, precisely correctly in the most concise manner possible to minimize radio chatter. And then of course every shot, you know, was every shot taken, making sure it’s a valid shot. And what you would think are little fine details can become very, very important.

David Lee (09:31):

And as you continue to debrief each mission, you get better and better and better over time. And so it’s the same way with retirement planning.

Mike Frost (09:41):

Exactly. How we relate back to the flight plan here is once we are invested, we meet with our folks quarterly, we invite them to come in and let’s go over “how have we done? Are we meeting our objectives?” If not, then let’s figure out what changes we need to make. And that’s exactly what you guys would do in your debrief. “What do we need to change the next go round?”

Matt Walters (10:02):

Yeah. So a quick recap of the four steps. So David’s referring to the Mach 1 Retirement Flight Plan. So first of all, mission objective, step one- what are we, what are we trying to do? Where are we going? Number two, mission briefing- how do we get there? What’s the plan? Number three, mission execution – let’s get on board where, where are we going to allocate our assets? Where are we going to invest, what are we going to do? And then last but not least, number four, mission debriefing- staying the course, having those regular review meetings, to make sure we’re staying on track.

Matt Walters (10:35):

Talking about planning, I was doing a little bit of homework prepping for today. I think Mike has some statistics as well, but I was on the CFP (Certified Financial Planning’s) website, and they had some interesting statistics and numbers out there that I thought were just really insightful and interesting when discussing financial planning. I’m going to throw a few out there. Mike’s got a few to add I think. But the first one that really stood out was approximately half of adults are not saving for retirement. So their number was 48%. So almost half of the adults out there.

Mike Frost (11:18):

Matt, that’s kind of scary too when we read about the social security, if that’s what people are depending on social security in 2035, it looks like there may have cut the benefits like 15 to 20%. So if you’re planning on social security being your sole retirement asset, we really need to have a discussion about that.

Matt Walters (11:36):

Right? No, absolutely. Absolutely. Yeah. All of these statistics, the reason I highlighted these, cause they were, they were mind boggling. They were big numbers. Another one that I thought was really interesting was where they surveyed people to figure out what the most common words that you think of or that come to mind first when you’re thinking of saving or investing.

Matt Walters (11:59):

First the number one was essential, so I think that’s a positive, but the next two were overwhelming and complicated. And I think that’s the, I think we experienced that a lot in the day to day. People are excited, but then they often can backtrack just because they get, they get overwhelmed and they, it does K can come across as complicated if you don’t simplify it.

Mike Frost (12:25):

And some of the people that are listening to this probably have never visited with a financial planner. According to the CNBC and the Acorn survey, only 17% of Americans have ever visited with a financial planner because of some of those, what you just said, Matt. They may think it’s overwhelming or complicated. Well folks, what we just went over with the flight plan, it is not come in free of charge. We sit down with you and we kind of go through the whole process and just had a client yesterday. They told me, he said, we should have done this 10 years ago. So don’t let that happen to you. Come on in and visit with us.

Matt Walters (12:58):

Yeah, and I think that’s interesting. Do you remember where you got that 17%?

Mike Frost (13:03):

It was in the CNBC and Acorns survey April of last year (2019).

Matt Walters (13:08):

Yeah. So the CFP board actually did a similar survey and their number was 18%. So two different surveys that came up with almost the exact same results. So just it goes to show that, um, I think we can, you know, accurately say a majority of people aren’t working with a financial planner, a financial professional and an advisor and don’t have a financial plan. They’re not saving the way they need to be. Saving really starts with budgeting. Budgeting can be come across as a dirty word, but you have to get into the basics of what are you spending and if you know what you’re spending, you hopefully Lord willing, you know, what you’re making. Now we know what we can save, we know what we can start putting aside. And when you start with the basics, it’s often not nearly as complicated or overwhelming as you might think. So, um, David, just based on your experience, so you’ve been doing this longer than Mike and myself. What are your experiences, you know, throwing around some of these statistics? What have you seen?

David Lee (14:10):

I want to kind of echo some things that you were just saying there at the end. I do think that a lot of people are afraid to come talk to an advisor. They’re afraid that, well, “I’m behind my peers”. That’s a lot. That’s when we hear a lot or where people have this mostly irrational fear that they’re, that they’re behind in their retirement savings. And so they’re afraid to get the bad news. They’d rather kind of stick their head in the sand and not know oftentimes what, what I find is after we do this, go through this planning process that we’ve talked about in the first part of the program is that people realize that for the first time they’ve got hope. They’re not just kinda burying their head in the sand and hoping it’s going to be okay, but they for the first time, have a realization that’s right in front of them on this big screen that we’ve got here in the office. They can see their numbers and see that it is going to be okay.

Mike Frost (15:02):

And having a plan, is so comforting. Again, I just use the client we had just this week when they left here, you could see the relief on their face. They knew where they were, they knew they had to do some things to get there, but at least they had a path to get there. Just like you’re talking about for, you guys took off on a mission, you had a plan, and we won’t be able to have a plan for their successful retirement.

David Lee (15:24):

That plan breeds confidence, right? And it eliminates a lot of fear. Right? And that’s again, that goes back to what I was saying. I think that’s one of the primary reasons why only 17 or 18% of adults go see an advisor because they’re afraid they don’t want to hear the bad news. And usually it’s not nearly as bad as what they think. Even if it is bad though, at least you know, you have to at some point confront, confront facts and, and get yourself on a new path, right. Turn around, make that pivot and start marching in the right direction. It will get better, but only until you decide that it’s going to get better.

Matt Walters (16:01):

Right and we’re talking about getting into the details and, um, taking the necessary steps. You know, it, it can sound very complex and complicated, but it, it, it really isn’t. Right. We can typically cover that and in one to two meetings with somebody, we don’t, you know, we don’t give you a giant three ring binder that you have to take home and study and look. It’s really just conversations. Us knowing the right questions to ask. Bringing those fears and anxieties to the surface, for you. A lot of people may know what those are, but they’ve spent so many years and so long just pushing them down and, and, and avoiding them that they just need some help and help from someone, bringing them back up to the surface so that we can tackle them, that we can really overcome some of those things.

Matt Walters (16:51):

So talking about the Mach 1 Retirement Flight Plan today, financial planning, the value of financial plan and that’s what we’re focusing on today. So we have our process, right? We’ve referred to it a few times, the Mach 1 Retirement Flight Plan. We don’t just, you know, pull out a pen and paper and put this together on a notepad, even though you could. That’s a great place to start, but we do have a very sophisticated, very useful resource and system that we use that helps us crunch the numbers and build these models for people. It gives us a place to enter the budgets and run the calculations very quickly and efficiently. Mike is, for those of you that know Mike, Mike’s really passionate on education. He’s got his master’s degree in education. One of his master’s degrees is in education. And so he’s very passionate about that. He’s kind of our in house, financial planning guru. Mike, walk us through the software program that we use, how we use it, and the value that it provides.

Mike Frost (17:56):

I’d be glad to Matt. It is a fantastic software program. Someone asked me the other day, do you like it? And I said, no, I love the program because it can do so many things with the right inputs. So what does it do? We gather all this information, Matt, like you said, budget. Budget is key. It is critical. We cannot do a quality retirement plan without a quality budget for lots of reasons and when you come in, you’ll be able to see that.

Mike Frost (18:25):

So what can it do? So we put in your income, we put in your social security, we put any pensions you have, we add in what you current your current assets would be your 401k’s, IRA’s, 403B’s, all of that, put rates of return and we always, always, use conservative rates of return because we want to give you the worst case scenario up front and then we’ll work backwards from there.

Mike Frost (18:49):

Then we add in the budget and that absolutely comes from you and it has to be a detailed budget. Uh, we don’t do what we call clumping. “Well it’s about this much a month”. Well, do you have things you’re going to be paying off? A car? Are you going to pay off credit cards? You pay off house payment, you pay off. If you do, we gotta put end dates on those so we don’t project that all the way out through retirement. Once we have all those inputs in there, then we can create a quality plan to see what your retirement looks like. We can make assumptions. We can assume that you’re going to pay that house off in 10 years or you’re going to make this return or you know what, what people love to see once we kind of get it fine tuned, we add in something called ‘Gogo years’.

Mike Frost (19:28):

So for 10 years after they retire, we bump up their vacation and travel and then show them they still have money and they are excited about that. I’ve got a plan, I’m going to have fun when I retire and I still have assets at the end. They love seeing that and we can do all that with this beautiful piece of software. We can also tell if you need life insurance. What’s going to happen if one of you pass away at a certain time? Do you need more or are you okay? Same thing with longterm care insurance. Do you need it? You may or may not need it. And then last but not least, we get the opportunity to stress test all of our assumptions with different market conditions. What if we have three or four bad years in a row? What does that do to our assumptions?

Mike Frost (20:10):

Are you going to run out of money? Are you going to be okay? And again, from all that information, we have a plan and then again, every three months we invite you to come in and we see how we’re progressing towards that plan.

David Lee (20:23):

Yeah, and Mike, I’m glad you mentioned the ‘Gogo years’. Rob, if you’re listening, we give full credit to you for helping us come up with that but I do want to highlight the ‘Gogo years’ because you know, like we were just talking about earlier, Matt, sometimes, this can be a process that some people dread and we want it to be fun too, right? We want to, we want to put those fun years in and help you dream a little bit and think about what are some of the vacations you want to do and what some of the fun things you’d like to do with your kids or your grandkids or whatever. So making sure that we include the fun or what Mike and Rob called the ‘Gogo years’ in there is an important part of the process as well.

Matt Walters (21:07):

Yeah, absolutely. And I know Mike, you’ve mentioned this and you talk about a lot about how having a budget can be very freeing. And I see that with a ton of people. You know, budgeting is not a bad word, it’s not a dirty word. All it means is what you’re spending, right? And so what that tells you is how much do you have left that you can spend on the things that you want to spend on.

Mike Frost (21:29):

So well, Matt, I use a quick example of folks is well, “how much do I need?” And they ask, “what will a million dollars get it?” Well, it depends. If you spend $10,000 a month, that million dollars will be gone in a little bit over eight years. If you want to spend $2,500 a month, it lasts you over 30 years. So it’s not the million dollars. It’s what you spend.

David Lee (21:46):

That is why it is so important and that’s why it’s so important to start with that plan. Right? Right. Cause like we talked about at the very beginning- It’d be like going to the doctor and saying, “Hey, I’m not going to tell you what’s wrong with me, but give me a prescription”. Right? You have to have a plan. You’ve got to go through the planning process and you can’t short circuit because the spending is such an important part of coming up with the right plan.

Matt Walters (22:07):

Right. So Mike, if someone comes in and meets with one of us, I’m one of the three of us, you know, just starting from scratch. How many meetings, how long does it take for us to typically put together a good plan for somebody and have some action steps ready for them?

Mike Frost (22:23):

Well it depends, Matt, if it’s you or David, you guys are a little bit faster than, I mean I’m a little bit slower and I’d like to talk a lot. So it’s usually about three good meetings, at least an hour each to get to the fine tune details. What I found is, once we start getting in and doing their retirement analysis, people want to do a lot more scenarios, well what if I do this well, what if I do this? And that can take a little bit longer, but at least three meetings, it’s usually a fine plan.

Matt Walters (22:49):

Yeah, absolutely. So a super important topic today, right? Financial planning, trying to improve the financial health of Americans, people, people here in Northwest Arkansas. We really want to take that percentage of 17, 18% of people who save for retirement, work with a financial advisor. We want to increase that. We want to see that get to as high as we can possibly get it. So, we don’t have any Q&A questions for today, but I just want to remind you that we are going to have a Q&A session at the end of each podcast. Natalie got our website set up so that you can go to the podcast tab on our website. You can click on the little logo or you can email, send us questions. If there’s a particular topic you’d like us to discuss to get our thoughts on, we’d love to get your on that. Mike has our thought for today, so can you share that with us?

Mike Frost (23:49):

You bet, Matt, with all the stuff going on in the economy today, I thought this was very appropriate. If all economists were laid into end to end, they would never reach a conclusion.

Matt Walters (24:01):

Yeah, that’s, I think that’s a perfect timing for what we’re living through right now and all of the headlines that you see when you pull up CNBC and these various media sources. The next podcast we’ll be putting out is going to be titled investing in turbulent times where we will discuss how you can invest with confidence in uncertain times. So that’s it for today. We appreciate you listening to the podcast and we look forward to you joining us next time on the Mach 1 Market Moment.