Power Up Wealth podcast – Episode 109 – Skydiving into Financial Freedom: Knowing Your Retirement Number
James Derrick 0:00
Can retirement be calculated into just one number? If so, what is your number? I’m James Derrick, President of Smedley Financial. Today I’ll be talking with Jordan Hadfield about skydiving and knowing your retirement target.
Shane Thomas 0:18
Welcome to the SFS Power Up Wealth podcast, where we provide impactful insight and expert opinions on timeless financial principles and timely investment topics, preparing you to make smarter decisions with your money.
James Derrick 0:34
Thank you for joining me today.
Jordan Hadfield 0:36
I’m glad to be here, James. Really excited.
James Derrick 0:38
Jordan is the Vice-President of Wealth Management of Smedley Financial. He’s also a private wealth consultant and has a Certified Financial Planner or CFP designation. Jordan, you’re talking about retirement numbers, but let’s talk skydiving first. I mean, why would anyone jump out of a plane?
Jordan Hadfield 0:53
I’m so glad you asked me that, James. If riding in an airplane is flying, is riding in a boat swimming? I gotcha! If you want to fly, you got to jump out of the airplane. If you want to swim, you got to jump out of the boat. This is a question I’m asked all the time. Why would you jump out of an airplane? And I wrote a little something about this. If you don’t mind, I’ll read it to you. At one point I had this memorized. I don’t anymore, but “Frequently I’m asked why jump from a plane by those who don’t understand and think it’s insane they can’t comprehend no matter what my reply, one must jump to believe. But here is the why. As I exit the plane and step into air, I enter euphoria that exists only there. Stresses, frustrations and disappointments stay inside of the aircraft as I free-fall away. I jump for the beauty, for the joy, for the high. I jump for the freedom I feel when I fly. Suspended above all under tiny parachute, the view, the awe, there is no substitute, and when I land softly with feet on the ground, I hear the world cheer though no one’s around. The experience so unique, so intense, so surreal, it must be relived to confirm that it’s real. Some ask, why jump from a perfectly good plane. They only see risk. They see nothing to gain. Falsely believing they would not survive. Fear blinds them from all reasons that I skydive.
James Derrick 2:09
I love that. That is so fun.
Jordan Hadfield 2:11
Thank you.
James Derrick 2:11
You mentioned in there doing it again. How many times have you jumped?
Jordan Hadfield 2:15
I’ve got over 2000 skydives.
James Derrick 2:17
Wow. Do you still get butterflies in your stomach when you jump out?
Jordan Hadfield 2:20
I don’t, believe it or not. I don’t. I’ve done it enough now that it isn’t an adrenaline rush for me the same way it was the first time. But I’ll tell you, it’s more fun now than it’s ever been. I absolutely love it.
James Derrick 2:31
You talk about knowing your number in skydiving. What does that mean?
Jordan Hadfield 2:35
So there’s a number of different aspects of skydiving that require some pre-planning, and one of these numbers is your break off altitude and the altitude that you’re going to pull your parachute. So when you jump out of an airplane, you hit terminal velocity, which is 120 miles an hour. That’s 176 feet every single second. But the crazy thing is, you don’t ever feel like you’re falling. You feel like you’re just suspended above the earth, and it’s really, really windy, but you do have to pay very close attention to the speed that you’re falling and, more importantly, the elevation that you’re at. And so you wear an altimeter. That altimeter tells you how high you are off the ground. And again, you have to know before you jump at what elevation you’re going to separate from the other skydivers. You’re going to create space between you, you’re going to fly away from each other, and what elevation you’re going to open your parachute. Because unlike other sports, when you jump out of that airplane, you were rocketing towards death, and you will surely die unless you do something to prevent it. That is pull your parachute, and you’ve got to give yourself ample time for that parachute to open so you can land safely. That pull altitude is a key number, and it’s a number that you need to know before you jump.
James Derrick 3:48
Yeah, that alone makes me a little nervous. I think I’d be staring at that altimeter the whole time.
Jordan Hadfield 3:53
Well, I assure you, skydiving is far safer than people realize. In fact, the most dangerous part of a skydive is driving to the airport.
James Derrick 4:00
Facts?
Jordan Hadfield 4:01
Absolutely fact. Last year, more people were killed by lightning strikes than they were by skydive accidents. The sport is shockingly safe.
James Derrick 4:10
Okay, so that’s knowing your number. Now let’s talk about your transition into giving financial advice, because going from skydiving to financial advice, very different.
Jordan Hadfield 4:19
Yeah, very different. So how did I end up here? I have a passion to help people. That’s really why I ended up in this industry. I started skydiving to pay for my way through college. I earned some money, and I just it was so much fun. I mean, I absolutely loved it. So I opened my own business, and I was doing exhibition skydives. I was jumping into firework shows and to football games and to baseball games and that kind of thing. I was taking tandems, so people who wanted to jump for the very first time, and I was a skydive coach, so people who were interested in learning how to skydive, you know, they would hire me, and I would coach them through different jumps. And absolutely loved it. I’ll always love that experience in my life. And I’m so glad I got to have that experience. Then the desire came to move into a more professional career, and as I got married and started a plan for children, and I just have this desire to help people. And through some very personal experiences that I don’t really have time to share here, I was really drawn to the idea of helping people financially. It is through our finances that we can obtain safety and security and true freedom. And I want to help people with that. When you’re struggling due to a lack of money, that is really, really tough, and it can wreak havoc on families and on individuals. And if I can help someone avoid that and provide that safety, that security and that freedom, I can’t think of anything better I could do in this life.
James Derrick 5:43
When people prepare for retirement, sometimes they talk about knowing their number. Let’s talk about what that means.
Jordan Hadfield 5:49
I get this question all the time, how much do I need to have saved? How much do I need when I retire? And this number is very different for everyone. I can’t say, oh, you need x or you need y. It’s very, very different. And the truth of the matter is, this number that I’m referring to is nothing but a wide target. When we’re doing financial planning, when you’re talking about retirement, this number that I speak of, this retirement number, is very, very general. We have to dive into in-depth planning, into debt management, into estate planning and tax planning, and there’s distribution planning. I mean, there’s a tremendous amount of planning involved around creating a secure and viable financial plan for somebody. The number that I speak of is very general, but it’s a question I get asked, and so I thought I would write about it. If you’re wondering, what is my financial number for retirement? How much do I need to have saved for retirement? There’s kind of a rule of thumb. It’s loose, but it’s still important, because it will help you set the goals necessary now so that when you hit retirement, you’ve got that nest egg that you need, and we can start doing this other in-depth planning to make sure that your retirement years are as fun as jumping out of an airplane, right? And as safe as well.
James Derrick 7:09
Let’s jump into how that number is calculated. So it begins with how much you plan on spending.
Jordan Hadfield 7:15
Exactly. So the first thing you need to do is, you need to figure out how much you spend a month. Better question to ask is, how much do you want to spend a month in retirement? Because sometimes what people are spending and what they want to spend are different.
James Derrick 7:30
Or what they want to spend and what their spouse is spending.
Jordan Hadfield 7:31
Exactly good point. Yeah, so to know what you want to spend in retirement is your first step in determining what your number is. Then you want to times it by 12. That’s going to give you your annual spending. Then you take that number. This is step three now, and we times it by 1.5. And the reason why we’re timesing it by 1.5 is because that’s going to account for taxes and unexpected expenses that that are going to arise. Certainly they’re going to arise. We want to account for that. So that would be step three. Step four is we want to subtract any annuity payments due, such as Social Security or pensions. This is not income generated through a 401(k) or through an IRA. This is guaranteed income from pensions or Social Security that will help offset that monthly difference without any risk. Guaranteed pension payments. We subtract out from that number, and then we want to multiply that number by 25 for the years. Again, this is general. This isn’t taking into account inflation. We’ve included some of that in our 1.5 multiple, and we’ve also included some of it in our 25 multiple. We’re not taking into account growth. So again, very, very general in nature, but it will at least give you a number. So number one, our monthly spending. Number two times it by 12, our annual spending. Number three times it by 1.5 to cover taxes and unexpected expenses. Number four, we subtract guaranteed pension payments, such as Social Security or guaranteed pensions through our employer. And then number five, we multiply that number by 25 that will give us a general retirement goal for saving. Then the next step is we need to plan how to get there.
James Derrick 9:14
What other numbers are not included there?
Jordan Hadfield 9:18
Inflation is a really big one. When we talk about risks in retirement, most people think of market risk. What happens if the stock market drops 50%? How am I going to survive? And that is a legitimate concern, and we do a lot of planning around reducing market risk. But as a financial advisor, the biggest risk that we worry about for long-term planning is inflation. And you know, pre-2020 nobody knew what inflation was. Now we feel it in a very real sense what inflation is due to COVID and other things that have factored into inflation. And that’s scary, because when you take a three or a 4% inflation rate or 5% inflation rate, and you apply that to a 15, 20-year retirement plan, those numbers just get huge, and it can wreak havoc on a financial plan. So inflation is a really key number. Another one that is just impossible to predict is health care expenses. When someone retires and they reach an older age, health can generate some really significant financial liabilities, and it hits everyone so different. It’s really, really hard to plan for. So again, this number, this retirement number that I speak of, is just a general rule. We want to do some very in-depth planning to make sure that that number is jiving with the rest of our goals, with the rest of our other assets and income sources and priorities and risks that we may face in retirement.
James Derrick 10:43
What about debt? Do you recommend people get out of debt before retirement?
Jordan Hadfield 10:46
Yes, from a cash flow perspective, debt can also be difficult for a retiree on a fixed income. A lot of people try to pay off their house early. And this is not the question you asked, but a lot of people are saying, you know, I want to get out of debt by age 40, and I don’t subscribe to that idea. There’s such thing as good debt and there’s such thing as bad debt, and we don’t ever want to take on bad debt. We want to limit that as best we can. But good debt will actually help build our net worth, and it can create opportunity to build net worth in other places, such as education, such as a home, as long as it’s a reasonable home within our means. You know, these debts can be really good. I often tell people, don’t worry about making an extra payment on your home if you’re at a 2.75% interest rate. You may have opportunity to do far better than that. And you’re still young, you’ve got a lot of time on your on your side. But when you retire, and we’re on a fixed income, now those mortgage payments or those car payments, or those personal loan payments, or those HELOC payments can become really burdensome. So yes, when I’m working with my clients, our goal is always to be debt free the day we retire.
James Derrick 11:53
How is life better when you know your number or when you have a great financial plan?
Jordan Hadfield 11:59
I’m glad you asked that, because I would tell you that life is better when you’re jumping out of airplanes, and it’s also a heck of a lot better when you’ve got a secure financial plan. You know, just the other day, I met with a client, a lovely, beautiful woman. I won’t tell you her name. She came into my office and she’s retired. She’s in kind of a tricky home situation. And without going into a lot of detail, just know that she’s looking to move, and she’s looking to buy another house, and this move will provide all sorts of emotional and social benefits to her, and I think it’s really important that she does this, and yet she was so worried about how she was going to afford it. And we sat down and we looked over her finances, and we reviewed a plan, and at the end of it, I told her, this is a no brainer. Sell the house you’re in. Let’s move into this other home in the area that you’re looking to move back into, and it the plan looks great, like you can afford to do this. This is not a concern for me at all. And I thought she was gonna cry. I thought she was gonna break down. She said, such a weight has been lifted from me. I have been so worried about how I’m going to do this. And I just think about all the people out there, particularly people that are already in retirement, that struggle to make these kind of decisions and the financial pressure. Can I afford to make this move? Can I afford to take that trip? Can I afford to do this thing that I want to do. Without a financial plan, we’re jumping out of an airplane without an altimeter. We don’t know exactly where we’re at relative to the ground. We don’t know where we need to be pulling our parachute. We don’t know what you know level we are to fly our parachute and land it in the area that we’re trying to land it. Having the knowledge of that elevation through an altimeter when you’re jumping out of an airplane is vital to skydiving safely, and I don’t see how retiring and living through those retirement years without a financial plan is any safer.
James Derrick 13:51
Jordan, thank you for coming in today.
Jordan Hadfield 13:53
Thanks, James.
Shane Thomas 13:53
Thank you for joining the Power Up Wealth podcast. Smedley Financial is located at 102 S 200 E Ste 100 in Salt Lake City, UT 84111. Call us today at 800-748-4788. You can also find us on the web at Smedleyfinancial.com, Facebook, Instagram, Twitter, and LinkedIn. The views expressed are Smedley Financials and should not be construed directly or indirectly as an offer to buy or sell any securities or services mentioned herein. Investing is subject to risks, including loss of principal invested. Past performance is not a guarantee of future results. No strategy can assure a profit nor protect against loss. Please note that individual situations can vary. Therefore, the information should only be relied upon when coordinated with individual professional advice. Securities offered through Osaic Wealth, Inc., member FINRA/SIPC. Investment advisory services offered through Smedley Financial Services, Inc.® Osaic Wealth is separately owned, and other entities and/or marketing names, products, or services referenced here are independent of Osaic Wealth.
