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5 Things You Need to Know Before You Retire

5 Things You Need to Know Before You Retire

Originally aired 8/25/2021

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Mirror mirror on the wall, what’s in your retirement crystal ball? While we’d love to tell you exactly how your retirement will turn out, there are a lot of unknowns when you clock out for the last time.

You’ll learn:
– 5 things you need to know before you retire
– What makes some Americans fear retirement more than death 
– How to address the most difficult part of retirement planning 

Links:

Free 15 Minute Retirement Checkup

Moneyguide Program

Ready to Retire Process

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SHOW NOTES

*The More You Know*

  • When it comes to retirement, there are a lot of unknowns.
    • When should you retire?
    • How will you spend your time?
    • Will you have enough money?
  • While we’d love to be able to look in a crystal ball and tell you exactly how it’ll all turn out, we can’t do that.
    • We can’t control circumstances – market downturns, health issues, new legislation, etc – but we can control our preparedness.
      • Good or bad, luck shows its face occasionally, but it’s not enough to hope for the best.
    • In today’s episode, we’re talking about 5 things you should know before you retire!
  • #1 – Knowledge is Power
    • Making smarter retirement decisions means more retirement security.
    • Research from Morningstar found that informed (versus naïve) decisions in just six different areas of retirement planning can increase retirement income by 31% — and there are more than six planning areas.
    • Think about what that means: If you invest time to learn your options, you can improve retirement security.
  • This doesn’t mean we expect you to know everything.
    • You haven’t spent your whole life studying how money works. And you shouldn’t have to!
    • Just like you probably know enough about your car to keep it functional on a daily basis (change a tire, fill the tank with gas, take it to the car wash, etc.) but may not know how to fix more complex problems (patch a hole in a tire, fix a broken gas gauge, etc.), it’s okay to have a similar level of understanding about your finances.
  • Understand that retirement is more than just investments.
    • This means you need a plan that accounts for all the facets of your life and an advisor to help you along the way.
  • You don’t have to win the lottery or hope that Aunt Sally remembers you in her will.
    • According to Psychology Today, while it has its advantages, hope can actually hamper us from adequately preparing for negative outcomes, keep us from taking necessary or advisable action, and cause us to forfeit personal responsibility.
  • Are you on track for a successful retirement?

Pressure, Pushin’ Down on Me

  • #2 – Look Before You Leap
    • Warning: Haste makes waste. So, don’t give up a long-term job before you know what’s next and that you can afford it.
    • This may sound obvious, but a Bankrate study indicated that 58% of Baby Boomers claimed ignorance of how much money they needed for retirement.
    • There are many reasons to look before you leap, but here are two.
      • First, giving up a career often means giving up valuable additional retirement benefits, especially health insurance.
        • According to Forbes, the estimated value of common benefits annually
          • Health Insurance: $5,000 – $30,000
          • HSA: $500-$1500 (plus current and future tax savings)
          • Retirement Plan: typically 2-6% of your salary in matching contributions
          • Dental Insurance: $1,500 – $4,500
          • Disability Insurance: $2,000 – $5,000
          • Life Insurance: $250 – $500
      • Second, if you decide that you miss work or miscalculated how much money you needed to retire (or never calculated it in the first place), finding a comparable job with the same wages at an older age is hard.
  • #3 – Levers of Success
    • Pre-retirees looking to improve their retirement plans should understand that there are three main levers that have the most impact on retirement security: retirement age, Social Security claiming age and spending levels in retirement.
    • Retirement age:
      • A study from the Stanford Longevity Center found that three months of additional work generates the same increase in retirement income as saving an additional one percentage point of earnings for 30 years.
    • Social Security claiming age:
      • There are multiple factors that go into this.
        • Don’t just rely on the “waffle house method.”
      • With about 2,700 rules that govern Social Security, we aren’t going to make a blanket statement and say you should just take it early or delay as long as possible.
        • That may be the right answer for you. Or you could have another option that works better for you.
        • It’s important to understand how Social Security works in relation to your overall financial plan in order to find your best claiming strategy.
    • Spending levels matter:
      • You deserve the future you want. But going overboard with your spending in retirement can be dangerous.
        • Don’t spend money on things you don’t need.

‘Cause We are Living in a Material World

  • #4 – Living On Your Own Dime is Nerve-Racking
    • Living primarily on withdrawals from your retirement portfolio is not for the fainthearted.
    • Retirement fear is real:
      • A survey from Zety found that 40% of Americans fear retirement more than death.
        • According to the survey, the No. 1 fear Americans have about retirement is having a lack of income, with 87% saying that this scares them.
        • Other fears include losing employment-based healthcare benefits and medical insurance (77%), not keeping mentally active (71%), not keeping physically active (64%) and not having social and friendship networks associated with work (50%).
      • Today, many individuals go into retirement with Social Security benefits, a significant account balance in their 401(k) plan, and a few bucks in the bank.
      • It’s unlikely that Social Security alone will cover living expenses (especially for those who claim Social Security early) so this means figuring out how to generate additional income.
        • According to the Senior Citizens League, over the past twenty-one years, Social Security benefits have increased 55%, but the typical senior expenses over that same period grew by 101.7%. 
          • This includes things like prescription drugs, which jumped 272%, Medicare premiums, up 226%, homeowner’s insurance, up by 178%, and even a 10-pound bag of potatoes up 134% and a pound of ground beef up 127%.
        • 40% of seniors surveyed by this organization say that they have no retirement savings to add to their income.
      • If you rely on your 401(k) alone, you’ve got to determine how much to withdraw. How much you can afford to take out each year depends upon a lot of moving parts, including how the portfolio is invested, how volatile investment returns are, how long retirement will last, and whether you are willing to cut back on withdrawals if the market is down.
        • The 4% rule is dead.
  • Our strategy:
    • Buckets.
    • Annuities if needed (regardless of what you’ve heard, they aren’t always bad)
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Askin’ All Them Questions

  • #5 – Answer What Ifs
    • Perhaps the hardest part of planning for retirement is preparing for the “what ifs.” Like:
      • What if you live much longer than expected?
      • What if you or your spouse has a serious health care issue?
      • And what if the stock market tanks in the first five years of retirement?
      • What if prices go up in retirement?
  • We like to ask it this way: what’s the plan?
    • If your financial plan doesn’t address these risks, it’s not working hard enough for you.
    • The Ready to Retire Process
      • 7 key areas:
        • Protect against inflation
        • Maximize Social Security
        • Secure guaranteed lifetime income
        • Consider a hybrid retirement
        • Plan for long-term care
        • Defend against taxes
        • All in a written plan
    • If you’re getting started earlier and trying to balance life and money, Moneyguide is for you.
      • Goals-based financial planning for the life you have now and the future you deserve.
      • Working side-by-side with an advisor and utilizing the right technology gives you the freedom to focus on what’s most important and the guidance to know you’re still on track.

FINAL THOUGHTS

    • 5 things you should know before you retire:
      • Knowledge is power
      • Look before you leap
      • Levers of success
      • Living on your own dime is nerve-racking
      • Answer what-ifs
  •  
    • Skydiving in tandem with an experienced instructor is different from just jumping out of the plane on your own.
      • While retirement can be a scary concept with a lot of unknowns, we’ve walked many clients through the process.
      • When you’ve got someone next to you with experience – someone who wants the best for you – it can help ease some of your fears.
  •  
    • Are you on track for a successful retirement?
      • Find out for free with our 15-minute retirement checkup! Click here.