Inflation, required minimum distributions, asset allocation, stock market declines, Social Security and Medicare, long-term care and estate planning are important considerations when it comes to retirement planning, and it’s all too easy to make mistakes. After 40-plus years saving for retirement, the last thing that you want to do is sabotage all your hard work once you retire! Learn from Joe Anderson, CFP® and Big Al Clopine, CPA key tips and tricks to avoid 12 big money mistakes that can sabotage your post-retirement plans.
Financial Planning at Every Age
- Unrealistic Expectations
- Market Miscalculations
- Planning Missteps
Important Points:
- 00:00 – Intro
- 03:32 – Unrealistic Expectations: Relocating Without Researching
- 04:32 – Unrealistic Expectations: Plan to Keep Working
- 05:31 – Unrealistic Expectations: Buyer’s Remorse
- 06:40 – Retirement Readiness Guide – free download
- 07:11 – True/false: $100 in 2000 is equivalent in purchasing power to about $180 today
- 07:42 – Market Miscalculations: Inflation Erodes Purchasing Power
- 08:39 – Market Miscalculations: Required Minimum Distribution (RMD) Mistakes
- 11:06 – Market Miscalculations: Appropriate Asset Allocation
- 11:33 – Market Miscalculations: Down-Market Distress
- 13:21 – Market Miscalculations: Running Out of Money
- 13:56 – Retirement Readiness Guide – free download
- 15:04 – True/false: If you claim Social Security at age 62 you will be automatically enrolled in Medicare
- 15:30 – Planning Missteps: Medicare Coverage
- 16:08 – Planning Missteps: Claiming Social Security Early
- 17:12 – Planning Missteps: Ignoring Long-Term Care
- 18:25 – Planning Missteps: Neglecting Estate Planning
- 19:29 – My husband and I recently retired with enough money to last until we pass, should we just get out of the stock market now? (Kristen, Tacoma, WA)
- 21:02 – Now that I’m retired, I have too much free time and I’m driving my wife crazy, any suggestions? (Jim, Solana Beach, CA)
- 22:10 – Pure Takeaway
- 22:32 – Retirement Readiness Guide – free download
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Transcript:
Joe: Most of us spent 40-plus years saving for retirement. Once you hit that retirement date, the last thing that you want to do is sabotage it. Stick around folks. We’re going to give you the keys and the tips and the tricks to make sure that you can have a successful retirement without sabotaging yourself on some big mistakes that people are making. Welcome to the show. Show’s called Your Money, Your Wealth®. My name’s Joe Anderson. I’m a CERTIFIED FINANCIAL PLANNER™, President of Pure Financial Advisors. And of course, I’m with the CPA extraordinaire, Big Al Clopine. Hello, Big Al.
Al: How you doing, man?
Joe: Good, good, good. Sabotage. You know, when you’re thinking about 40-plus years of saving money, worrying about are you going to have enough capital to make sure that you can provide the lifestyle and the income that you want for the next 20, 30, 40 years. Guess what? People are sabotaging themselves. We’re here to save you. That’s today’s financial focus.
Let’s take a look at these numbers here. Elder fraud in 2022, 88,000 victims from people 60 years of age and older. Total losses, $3,100,000,000. It’s an 84% increase from 2021. Where do you think that number’s going? It is crazy out there. So you wanna make sure that you protect yourself. We’re gonna walk you through, let’s bring in the big man.
Al: Yeah, it does turn out, I mean, none of us think we’re going to be a victim of fraud, but it happens. It happens more than you think. If it’s going up 84%, it’s almost doubling in a year. How is it happening? It’s phone scams. It’s links on the Internet. It’s all kinds of sweepstakes. Just be careful out there. If it sounds too good to be true, it may be too good to be true. But today, here’s what we’re going to talk about in terms of sabotaging your retirement, which is not something you want to think about. But you need to be aware of things that can happen. First of all, is- are your expectations realistic, right? Do you have the right assumptions? We’ll get into what that means. Market miscalculations. Are you have a- do you have too high of a rate of return for your portfolio to be able to sustain the cashflow that you want. And planning missteps, things about but may not even be thinking about, but could affect your retirement.
Unrealistic Expectations
Joe: You know, I think as we break this down, Alan, is the most, one of the most important things that you need to be thinking about as you approach retirement is kind of the softer side almost. What does that retirement look like from an activity? How are you going to find your purpose? What are you going to do day in and day out? All right. Once you start formulating that life plan, I think we focus so much on the dollars and cents, right? Versus hey, where am I going to live? What am I going to do? Who am I going to hang out with? I think that’s almost as important, if not more important for some people and making sure that you have the realistic expectations is key. Here’s an example. Hey, we’re going to move to Florida when we retire, but I’ve never stepped foot in the state of Florida.
Al: Yeah. Or I went one time, it was in the Spring. It was fantastic. Weather was perfect. So I get there in the Summer. It’s, it’s a little more muggy than I thought. A few more bugs than I thought. Right. I’ve heard of people that, they go to vacation once somewhere. They buy their dream home, they wanna move there. Make sure you do your research. Make sure you go multiple times, different times of the year. Make sure that it has the kind of community that you want, the activities that you want. Not just how you feel- you know, a lot of times when we go on vacation, Joe, we’re in great moods. It’s like, oh yeah, I could do this forever. But real life’s a little bit different.
Joe: Right. I’m going to Italy, and wow, this is so cheap here, or whatever foreign country. And maybe I might be an expat. But you’re right. When you’re on vacation, you’re having a good time. You’re not worrying about what work is going to look like, or real life. You’re just checking things out. And then once you actually live there, real life creeps in. Next one. Look at this. 55% of people are expecting to work over the age of 65. Reality.
Al: 19%. So it doesn’t always happen. And, and so here’s, here’s what you need to think about is, is what could happen, right? Well, maybe you have some health issues or maybe a spouse has health issues, so you gotta care for them or maybe a parent or whatever it may be. Maybe you get laid off from your job. There’s all kinds of reasons why you may not work past 65. If your financial plan requires that you work much later, just be aware you may end up not doing what you think you’re doing as far as work goes.
Joe: Yeah, just think about the energy level that you need to have to continue to work, right? You’re 65. It’s like, all right, you know what? I don’t want to work anymore. But hey, it’s fun. You know, once you get there, it’s like no one wants- unless they have to. That’s the lack of planning again. Let’s look at the next one. Buyer’s remorse. Get that nice dream home. How about the boat? Little RV, Al?
Al: I want that giant RV. I want to, I want to spend $500,000 or more. I want to, I want to get like this, this moving, movable hotel room. And then I get on the road and I realize it hardly fits in a lane and I’m not that comfortable driving it, but I already bought it, Joe.
Joe: Yeah. Right. I, it’s like we’re in the RV. It looks great on the lot. You get in it two days later is like, this is miserable. Or how about a boat, right? Oh yeah. I always wanted a boat. And then, you know, you have it for maybe 6 months. It’s like, I’m not sleeping on this thing again. I’m getting sick. It’s cramped. It smells. I’m on the open water.
Al: Yeah. Or, or how about your dream home? So, all right. So you go to Vermont in the Summer. You go, this is for me. This is idyllic. It’s a slower pace. It’s beautiful. And then January rolls around, and it’s winter, and you’re shoveling snow, and it’s like, Oh, this isn’t quite what I thought it might be.
Joe: If you want more help with this, get planned. No one fails to plan. What do they do? They plan to fail. So let’s get you not to fail, but start planning. Go to YourMoneyYourWealth.com. Click on that special offer. It’s our Retirement Readiness Guide. Are you ready for retirement folks? Well, get ready. Go to YourMoneyYourWealth.com. Click on that special offer this week. It’s our famous guide. It’s the Retirement Readiness Guide. We got to take a quick break. We’ll be right back. Show’s called Your Money, Your Wealth®.
Andi: Do you know, right now, how likely you are to run out of money in retirement? There’s an easy way to find out. It’s also free. Go to easiretirement.com.
Market Miscalculations
Joe: Hi, welcome back. Show’s called Your Money, Your Wealth®. Joe Anderson here. Big Al’s over there. We’re talking about different things that people are doing to sabotage their retirement. Simple steps that you can take to avoid ’em. Go to our website, YourMoneyYourWealth.com. Click on the special offer this week. It’s our Retirement Readiness Guide. Get ready for retirement, folks with our special guide. Alright, let’s see how you did on that true/false.
Al: $100 in 2000 is equivalent in purchasing power to about $180 today. So we’re talking about inflation, right? More than 20 years ago, $100. If you’re spending $100, you’re buying the same amount that you have to spend $180 today. Is that true? It actually is true. That’s at about 3% inflation, Joe. That’s about the right number.
Joe: You think people had their calculators out?
Al: I think so. I mean, they’re just like me. Pulled it out.
Joe: Okay, looking at 1970. Cup of coffee. So, $.25 in 1970s.
Today it’s $1. Well, how much is a coffee at Starbucks? It’s more than a- it’s like $10 bucks, $5?
Al: Well, it depends what kind you get, but just a basic coffee’s probably at least $3.
Joe: Wow. Alright, so maybe $4. Here you go. Little cash and go. $1.85. It was $.25 in 1970, 2000 was a $1.20. 2022, $1.85. Alright, so if this is inflation, this is the cause of inflation. That’s why when you think about investing, you’re trying to combat this, right? If you have all of your money in cash, you’re just losing money safely. You’re not outpacing inflation. So that is why the need for some of you to have a little bit more riskier assets such as stocks to outpace this.
Al: Here’s what happens. People, they’ve retired 65 and so they think, okay, I have another 20 years or more and they’re using today’s dollars, not realizing the cost will be perhaps almost double in 20 years from now. Now, if you think about Joe, if you think about required minimum distributions, there’s a lot of miscalculations there. First one is not taking it on time, not even really understanding. And it is confusing because they keep changing the date on when you need to take it.
Joe: Yeah. What, how old you gotta be? What’s the date that you have to take it? Do I have to take it when I’m 70 and a half? Oh no. Those are the old rules. Now it’s 72. Is it 73? Is it 75? That get a little confusing here. All right, just remember that you have to take it but it’s April 1st after your required beginning date So whenever your required beginning date is you do have until the following year to take that required minimum distribution But if you do wait the following year, you have to take two.
Al: You have to take two of them, right? And so just-
Joe: Clear. Clear as mud here.
Al: Yeah that that we know. Another thing too though is it’s like okay you did everything right. You did the right calculation but you took it all out of one 401(k). You got four 401(k)s. IRS says you have to take a required minimum distribution out of each 401(k). Now, if you have multiple IRAs, you can aggregate them together and just take one.
401(k)s are a little bit different.
Joe: Right. I mean, the rules here just needs to be simplified just a little bit. You have multiple 401(k) plans. You have to take an RMD to every single 401(k), you have multiple IRAs, no biggie. You just have to take one RMD. You can, you have to add up the total aggregate amount though, as Al said, so calculate the amount wrong. So if you don’t take enough out, they’re gonna penalize you. First year could double RMD taxes. So this happens quite a bit with people that are really good savers.
Al: It does, right? Because you didn’t take it that first year where you turned 72 or 73 or 75, whichever year it is for you, you take it the following year and that’s okay, but then you have to double up and take another one.
Joe: Another thing to think about is that you probably want to start calculating what your RMD is a lot earlier than when you actually need to take it. Because what you find is that for those of you that have big balances in your retirement accounts, your RMD might be quite large, which would push you into another tax bracket. Recently I met a gentleman that had $8,000,000 in his retirement accounts. $8,000,000. He didn’t spend anything. He had no idea what the RMD was going to be. Thank goodness he looked at it a lot earlier than his RMD age or his required beginning date. So then he could try to mitigate some of that tax by doing conversions or utilizing some of the tax brackets before a lot of this money comes out. All right, asset allocation.
Al: Yeah, so this is another issue. So the concept is you got to have the right asset allocation for your plan, depending upon how much money you need out of your portfolio when you retire. This is not the concept that you need to be this allocation. It just means to say that as you get, as you retire, as you need to pull money out of your account, you need to make sure you have enough safe money so that the market goes down, Joe, you can still take money out and be okay.
Joe: Now, this is the reason why, because it’s sequence of return risk. This is one of the largest risks that people don’t really understand. Because if you look at the S&P 500 or the Dow Jones or the total US stock market over the last 20, 30, 40 years, let’s just assume the average rate of over that 40 year timeframe is anywhere from, let’s say 8% to 10%. Let’s just say it’s 9% hypothetically. So 9% rate of return over the long term, right? So you’re like, well, if my money grows at 9%, as long as I take out a little bit less than 9%, right, I should not erode my principal because I’m just taking the earnings and the growth out. Guess what? The market has never done like exactly 9% every year. It’s up 20%. It’s down 10%. It’s up 5%. It’s down 7%. It’s up 30%, right? So depending on when those returns hit your account means everything as you’re taking dollars from the account. Everyone might know of dollar cost averaging. You’re putting dollars into your 401(k) plan. As the market goes up and down, as you’re saving, that actually helps you. You like volatile markets because when the market goes down, you’re buying more shares. Right. That’s good. You want more shares because when the market goes up, you have more shares to take that lift up. But when you’re taking money out, it’s called reverse dollar cost averaging. So the sequence of return risk is that now I’m retired, the market’s down, and I’m taking dollars from those portfolios. Could absolutely blow me up.
Al: Well, and that’s why we say that when you’re in retirement, when you’re taking money out of your portfolio, make sure you have enough safety so you’re not taking out of the market. You can let the market do its thing and recover. Another issue is, are you taking the right amount out of your portfolio? Sometimes you think, well, I’m making 6%. So I can take 6% out. Well, you’re forgetting about inflation. If you do that, you’re gonna run out of money a lot more quickly. You know, a lot of people, including us, say 4% might be a way to think about it. It depends. It depends on a lot of factors that may be less or could be more. Let’s say you’re older when you start taking money out, it could be a higher percentage. Just make sure you’ve got the right plan. You’re taking the right amount of money. You got the right investments.
Joe: All right, start planning, folks. You need our help? Go to YourMoneyYourWealth.com. Click on our special offer. It’s that Retirement Readiness Guide. Get ready for retirement. If you’re in retirement, 5 or 10 years from retirement, just starting to save, this guide has it. Go to YourMoneyYourWealth.com. Click on the special offer. It is called our Retirement Readiness Guide. We got to take another quick break. We’ll be back in just a second.
Andi: Do you know, right now, how likely you are to run out of money in retirement? There’s an easy way to find out. It’s also free. Go to easiretirement.com.
Planning Missteps
Joe: Hey, welcome back to the show. Show’s called Your Money, Your Wealth®. Joe Anderson here. Big Al’s over there. We’re talking about sabotaging your retirement. Earlier, we talked about buying that boat, or maybe that RV, or moving to a state that you’ve probably never been to in your overall retirement. Those are probably not the best moves. Then we looked at, hey, how much money should I be taking from my account? What does that portfolio should look like? Am I making mistakes in regards to taxes? Now let’s focus on the later side of your overall retirement. But before we get there, let’s see how you did on that true/false.
Al: If you claim Social Security at 62, you’ll be automatically enrolled in Medicare. True or false? Well, that’s not true. That’s false because Medicare doesn’t actually happen until age 65.
Joe: Right. There’s this gap if you retire at 62, you’re 65, right? So you got private health care that’s gonna have to cover you. So are you calculating that in your overall strategy? So it’s like, all right, well here I’m gonna claim my Social Security as early as I can. I’m gonna retire at 62 because now I have that fixed income, but they forget, oops, I got a pretty big expense that I didn’t necessarily realize that’s going to be on top of my living expenses, travel expense, and everything else.
Al: Yeah, and it gets tricky sometimes because you’re thinking, okay, I’m going to claim, maybe my spouse will claim Social Security later. Maybe I have a pension that starts later. So I go ahead and I retire. I start collecting Social Security. My expenses are higher. My income’s lower, then I start going through my portfolio and next thing you know, Joe, is by the time I start getting better income, I’ve used a lot of it up.
Joe: Yes, sir. Let’s look at Social Security claiming strategies here. Let’s say 67 is your full retirement age. You’re gonna receive $2000 per month. Alright? $24,000 a year. If I decide to claim it at 62, well, I will receive a permanent haircut. But if I wait until age 70, I’m gonna receive $2500 a month. So, this is the game that you have to play. If you know when you’re gonna die, it’s pretty easy. But most people like to take it, most advisors, I think, like to say, hey, take this thing out as far as you can because you’re going to lock in the highest benefit. But I think it’s up to you. What is your overall health? How much capital do you have? Most people take it early, even though it’s suggested to take it later.
Al: Yeah, and whether you should take it early or late, it really depends upon your own situation. What you might want to do if you need the cash flow, but if one spouse has made, had made more money than the other spouse, maybe you delay the spouse that made more money because that will be a higher benefit for the both of you for the rest of your life.
Joe: Long term care, medical expenses, we’re living a lot longer, which is the good news. The bad news is, is that we’re living a lot longer. Because we’re living a lot longer, some of us, or most of us, could get into a long-term care stay. And it’s not cheap. So if I have a private room in a nursing home care, it’s $10,000 a month on average. Depends on where you live. If you live in Southern California, New York, Miami or whatever. These prices are all over the board. So you want to make sure that you understand you have the capital here to help provide you this type of income to help with any type of private room. Just assisted living is half that, a little bit more than half.
Al: I can tell you from experience with my mom, it can be higher. It actually can be a lot higher. So just think about that.
Joe: One thing to consider too with this is that you’re not necessarily, I mean we’re not telling you to buy long term care insurance, you just need to have a long-term care plan. All right, where’s the capital going to come from? Because you’re not necessarily planning for you that is going in, you’re probably planning for your surviving spouse. Because they could drain most of the assets to provide for your care while you might have a surviving spouse that is running out of capital that could have a lot longer life expectancy. Let’s talk about estate planning.
Al: So many people, it’s like 50% of the people out there at least, die without a will or a trust or without appropriate powers of attorney. What happens if that’s the case? Well, your assets will likely go through probate and how they’ll be distributed is in accordance with the state law, not how you want it. Make sure at least you have a will. With a will, you’ll still go through probate likely. Trust, you’ll avoid probate and then you have much more say on where those assets go and maybe even more importantly, make sure you have the powers attorney for health care and financial in case you need some help down the line.
Joe: Yeah, I mean if you if you get sick, you probably need a health care power of attorney, medical directives, things like that. Depending on what state you live is going to be dependent on what type of overall estate plan that you should have. But you just want to make sure that you’re educated on what documents that you need just to make sure that it is smooth sailing because it’s a pretty stressful time as you could imagine. And you just want to make sure that you have your financial affairs in order. All right, let’s switch gears. Let’s take some questions from all of you.
Al: This is Kristen from Tacoma. “My husband and I recently retired with enough money to last until we pass. Should we just get out of the stock market now?”
Great question. So when you have plenty of money, and I don’t know what the dollars are, so I can’t really say for sure. But if you have plenty of money that you’ll never really need, then you can actually go either way. You can get out of the market if you’re uncomfortable with the market because you don’t need to take the risk. On the other hand, if the money’s not for you, if it’s for your kids or your beneficiaries, maybe you stay in the market, let it grow for them. So it’s a- it’s a very individualized thing.
Joe: Yeah, that, that, that’s well said, is what is the dollars for, what does that portfolio need to do, and what’s the calculations that you ran in regards to making sure that you have enough money? Right. Did you put some caveats in there, such as long-term care, an illness, or maybe you do wanna buy your dream home or the boat, whatever. Make sure that you’re super tight on the numbers. What are you using for assumptions in regards to rate of return? So if you’re fine saying that, hey, we have enough money, but you use the 6% or 7% rate of return on your assumptions, well, if you go into cash, cash is going to pay a lot less than that. So, it’s just dialing in your overall strategy. We have very little information, but yeah, I agree with Al. If you don’t wanna take the risk, don’t take the risk if you don’t have to. But if you don’t need the money and you wanna leave a legacy to the next generations, well you might wanna leverage the time that you have to take advantage of higher returns that will give you more risk. But if you don’t need the money anyway, then right, who cares about the volatility?
Al: It, it’s more personal choice. So Jim from Solana Beach asks, “Now that I’m retired, I have too much free time. And I’m driving my wife crazy. Any suggestions?” Okay, Jim, maybe a little part-time job to get out of the house, or maybe you play a little more golf, or maybe you volunteer, right?
Some separation. I’m taking from a guy who’s been married 36 years. Love, love, love, our time together, but still separation is important to keep a relationship strong. You like that?
Joe: I love that. Here’s my, here’s my two cents is before you retire, you have to have communication with your spouse, your significant others. You just please have that meeting or have that conversation. Because I think a lot of times people get on the different sides or they have different assumptions of what the other one really wants, right? There was a survey that was done and they surveyed men and they surveyed women. And then they asked the man, they were like, hey, you know, what do you wanna do when you retire? And number one choice was spend more time with my spouse, spend more time with my wife. And then they surveyed the, the, the, the wife, the females, where do you think spending more time with my husband was on the list? It was like, it didn’t even make the top 10.
Okay. What did we learn? Unrealistic expectations, right? You just wanna make sure that you have the appropriate expectations. Market misses, right? What does that portfolio look like? Are you doing things appropriately with the money to give you the goal or give you the income that you want? And then, you know, of course, there’s always different planning missteps along the way.
That’s it for us today. Go to our website, YourMoneyYourWealth.com and click on that special offer. It’s our Retirement Readiness Guide. Get ready for retirement folks with our help, YourMoneyYourWealth.com. For Big Al Clopine and I’m Joe Anderson. We’ll see you next time.
IMPORTANT DISCLOSURES:
• Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC. A Registered Investment Advisor.
• Pure Financial Advisors, LLC. does not offer tax or legal advice. Consult with a tax advisor or attorney regarding specific situations.
• Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
• Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
• All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.
• Intended for educational purposes only and are not intended as individualized advice or a guarantee that you will achieve a desired result. Before implementing any strategies discussed you should consult your tax and financial advisors.
CFP® – The CERTIFIED FINANCIAL PLANNER™ certification is by the Certified Financial Planner Board of Standards, Inc. To attain the right to use the CFP® designation, an individual must satisfactorily fulfill education, experience, and ethics requirements as well as pass a comprehensive exam. Thirty hours of continuing education is required every two years to maintain the designation.
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CPA – Certified Public Accountant is a license set by the American Institute of Certified Public Accountants and administered by the National Association of State Boards of Accountancy. Eligibility to sit for the Uniform CPA Exam is determined by individual State Boards of Accountancy. Typically, the requirement is a U.S. bachelor’s degree which includes a minimum number of qualifying credit hours in accounting and business administration with an additional one-year study. All CPA candidates must pass the Uniform CPA Examination to qualify for a CPA certificate and license (i.e., permit to practice) to practice public accounting. CPAs are required to take continuing education courses to renew their license, and most states require CPAs to complete an ethics course during every renewal period.
