On This Episode
There’s no shortage of financial advice out there, and unfortunately, not all of it is good. Some of the most damaging retirement mistakes don’t come from reckless behavior, but from ideas that sound reasonable and get repeated often enough to feel true. Today, we’re busting some of the most common retirement planning myths and explaining why believing them can quietly derail an otherwise solid plan.
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Disclaimer: PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.
Marc:
This week on Retirement Planning Redefined, we’re going to talk about some financial myths that can quietly wreck a retirement plan. There’s no shortage of advice out there, so let’s talk about some of it. Not all of it’s good, some of it is, and sometimes myths are just that, they’re just myths. Let’s get into it this week and see what the guys have to say.
Hey everybody. Welcome into the podcast. This is Retirement Planning Redefined with John and Nick from PFG Private Wealth. We’re going to have a little fun, make you guys myth busters this week here on the show and talk about some things that are out there that have been permeating the financial space for a long time. Again, some of it may be true or maybe came from a place that’s true, but maybe it doesn’t hold up under pressure anymore. We’re going to talk about some of that and get your guys’ response on these.
John, how you doing this week, my friend?
John:
Doing good. I’m doing good. Still cold over here for Florida, but hopefully warming up soon.
Marc:
Nice. Nice. We were laughing the other day talking about when it gets cold, it’s like what a weird defense mechanism that nature gave those iguanas down there when it gets cold and they just fall out of the trees.
John:
I know the feeling.
Marc:
You would think that, I don’t know, nature somehow would have their claws lock in or something, like some sort of a reflex where they would just dig in and go dormant or whatever. But nope, they just fall right out of the tree. So weird little defense mechanism.
Nick, how you doing buddy?
Nick:
Doing pretty good, thanks.
Marc:
You falling out of any trees lately or you doing all right?
Nick:
No. Some of the things that my football team’s doing is making me want to jump out of trees, but besides that, pretty good.
Marc:
No jumping out of windows or anything.
Nick:
No.
Marc:
No falling out of trees over the football, that’s right. All right. Well, let’s get into it, have some fun with these myths here.
Nick, I’ll start with you, buddy. “The more a financial plan weighs, the more valuable it is.” If you walk in, or walk out I should say, with a copy of War and Peace under your arm, boy, you must have a great financial plan.
Is that a myth or what?
Nick:
Yeah, I think I’d definitely put that in the myth category. I think probably one of the most common points of feedback that we get from clients that come over from working with other advisors are that oftentimes other advisors are in love with jargon, in love with making everything feel and seem really complicated to show value, including plans, including outlines of investments, all these different things.
And so, really that just dives into communication. You want it to be succinct, direct. You want things to be easy for clients to understand so that they can take action. That’s really something that we focus on, but we’ve seen that as a huge issue for clients working with other people.
Marc:
Okay. All right. So definitely a myth in that one.
John, what about, “My life is simple, so a Will is all I’ll need.” We actually even had the attorneys on with us a few episodes back talking about some of this as well. What’s your thoughts on this one?
John:
Yeah, this one we hear quite a bit because I think a lot of people think that things are easy and, “Hey, all I need is a Will.” I’ll tell you from just personal experience dealing with my father-in-law’s estate and helping out my wife because she was the executor, it is not that simple. This just came up recently with a client meeting where all she had was a Will.
As I started going through scenarios of looking, reviewing beneficiaries and asking some questions, it was like, huh, I might need to consider updating some of my stuff here. It kind of triggered for her to go see an attorney when you start really doing that navigation of, what if X happens in this scenario? Where do I want my assets to go?
As someone’s assets get bigger and things get a little bit more complex, you start looking at it a little differently and saying, “Yeah, well, if this happens, this is how I’d want it to be.” And nevermind the other Living Will, healthcare surrogate, power of attorney, all those documents are very important as well. I’d say more often than not, you need more than a Will to make sure things are done correctly.
Marc:
Okay. All right. So yeah, I mean, I think that one probably is the case too. Simple is great, but I mean… And a Will’s fantastic for the basic stuff, but there’s still a lot more things you want to check off. You might require some more things than that.
Number three here, “My spouse will be fine when I’m gone. They’ll only need about half as much income.” This is definitely an old myth here, I think.
Nick, what say you?
Nick:
Yeah, definitely an old myth. Oftentimes, not something that is said in the presence of the other spouse, if it is said. I would say I’ve seen this less and less probably over the last five to 10 years, especially when you’re focusing on planning as you get closer to retirement, that sort of thing.
Between the fact that one of the Social Securities goes away, that is oftentimes just when you explain that to a client and they realize that that one sole benefit, having a substantial difference in household income really exemplifies the need to be planning for longevity for both.
With the exercises that we do with clients for things like expenses and that sort of thing, they see that there’s a lot of fixed expenses that stay even if there’s only one client. Luckily, I think that that’s something that is less prevalent than it used to be, but it is still out there and we definitely address a fair amount.
Marc:
Okay. Yeah. I think the spouse doesn’t want to be sitting there going, “No, I don’t want half. I don’t want to get cut in half.” The rule of thumb is probably 85% roughly, but I mean, everybody’s life is different, so you want to run those numbers.
John, what about this one, “When I retire, I need to dramatically shift from stocks to bonds.” This was probably true once upon a time.
John:
Yeah, I think at one point this kind of was the thought process, but I think what we’ve seen the past five years or so, really post COVID, is expenses and inflation has gone crazy. With that, if you look historically, the best way to outpace inflation is being in stocks versus bonds.
Depending on your risk tolerance, and caveat everyone’s situation’s different and how things work, but ultimately it is important to have some stock exposure to outpace inflation. So just going all to bonds or whatever you call dramatic, may need a second look at it because you want a nice balance of something to outpace inflation.
Marc:
Yeah, for sure. Once upon a time, again, this probably was doing the standard 60/40, all that kind of stuff. But again, there’s so many different things out there now and the rules have changed. It may be worthwhile to rethink that.
John:
Yeah. What we’ve… Actually, Nick and I have come across this in the past, and I came across it a few times, is that old adage of just staying and living off of your income and your interest in dividends. I ran into a client where she had everything in fixed income. It was pretty interesting. A neighbor or an old boyfriend or something picked her allocation.
When I started evaluating, it was all high… Well, not all, but a majority of high yield bonds that were junk bonds. When we started looking at it and I was kind of showing her stress testing during different market downturns, it was just as risky as some stocks. It was important to really take a look at that and her situation, rebalance her to have some stock exposure that was provided, maybe some dividends in this person’s case.
It worked out well for her because she had some appreciation, but it was definitely interesting, the thought process of, “I need all bonds now to provide me income.”
Marc:
Gotcha. Yeah, great point there as well.
All right, moving along here on our myth buster episode here of the podcast. Nick, “If the market crashes, I’ll just stop spending until it recovers.”
Nick:
Yep. That doesn’t really work out too well for people. We do tend to have conversations with clients where dependent upon their level of comfort with the market, we’ll look at their annual burn or the annual amount that they need from investments to covering expenses and come up with a multiple of how much of that do we want to keep in cash.
In theory, I think the one pseudo interpretation of this is maybe not take out investments from growth assets when something like that happens, which is possible. But yeah, just usually that’s just a defense mechanism from the standpoint of, “Hey, I’ll just turn off the faucet.” The reality is that that doesn’t work. If anything, when things are going poorly… You can’t stop when the AC goes out, or if you got a hole in your roof and you need a new roof, there’s absolutely things that still need to… dollars that still need to be spent.
Without having a comprehensive income plan, that is a recipe for disaster.
Marc:
Yeah.
John:
I’ll add to that, if my wife continues her spending habits, that will definitely not work for me in retirement because the spending will continue regardless what the market’s doing.
Marc:
Exactly. I mean, it’s not optional. We still have to maintain our lifestyle. And yeah, maybe you could trim a little bit, and people certainly do when we have market downturns. Again, it’s kind of like the half the income myth where it’s like you still want to try to have some contingencies in place to hopefully offset some of that stuff.
All right, John, back to you. Number six, “Social Security will take care of most of my retirement income.” I mean, it’s a big chunk of money for a lot of people, but I don’t know, what do you think?
John:
Yeah, it is a big chunk of money for a lot of people, but it’s typically a foundation for someone’s financial plan of saying, “Hey, I have this baseline income.” In some cases, not all, it might cover some baseline fixed expenses, and it has a nice cost living adjustment, which we’ve discussed in previous sessions. But typically, we don’t see it covering most of someone’s retirement income need. Maybe 30 to 40% might be the average.
Again, everything depends on the household, but this wouldn’t be something you want to plan for at all. Not to dive into it on this session, if no changes are made, I think it’s 2033 or 2034, people will see a reduction in their benefit.
Marc:
Right. Yeah. That’s a whole hot potato, right? We’ll see how that shakes out. They’ll wait until the last minute on that, as we all know. You certainly want to have a strategy in place. Again, you want to be effective with Social Security, not just taking in a vacuum because it can’t be a lot of money. That is a pretty substantial piece of many people’s retirement. But to say it’s going to take care of most of everything, again, not the ideal… Probably not the… Could it? Sure. Is it the retirement you want? Probably not.
All right. Let’s see. Where are we at? Number seven. Nick, “I’ll be in a much lower tax bracket once I retire.” Again, this probably was true once upon a time.
Nick:
Yeah. I mean, there was a perception for a lot of people that that would be the case. I would say that ideally the goal is that you’re not, from the standpoint of hopefully while you’re working, you’re saving enough money to maintain a similar lifestyle through retirement and which effectively would put you at a similar income threshold and that sort of thing.
Also, what we found is those middle brackets between that 18 and 24%, that such a huge majority of people live in that space where it can just be the difference of a certain deduction one year or the other. The variance is not nearly what a lot of people expect. There have been things done. Example, the new credit for dependent upon income on whether or not you can get a tax credit on Social Security income, stuff like that.
The Baby Boomer generation does tend to have a fair amount of tax benefits geared towards retirement that can help reduce it. Really, the key with this whole aspect of things and what we tell people is that your goal should really, number one, to be in a similar tax bracket from the aspect of having similar income, but to give yourself the ability to adapt and pivot by having the three buckets of income from investments, meaning pre-tax, Roth, and non-qualified income that are subject to dividends and capital gains.
So yeah, just assuming that you’re going to be in a much lower tax bracket is often another recipe for disaster.
Marc:
Yeah, for sure.
Hey, John, number eight, “I don’t need a written plan because I know my numbers.” What do you think about this one?
John:
Yeah, so knowing your numbers and balances is one thing. Knowing how that’s going to produce income and last throughout your lifetime is another. So just knowing what you have as far as balances, and even if you’re like, “Hey, I know what my income number is,” you got to take account things that are going to happen that you don’t know. Inflation kicking up. What if the market drops? What if you have a health event, whatever it is.
It’s important to understand how these dollars work, how it produces income, and how do you… Nick just mentioned it very well there. How do you adjust depending on what happens and being flexible to adapt?
Marc:
Yeah. I think seeing that stuff on a regular basis not only helps you, but helps your spouse, your loved one, and what happens if something happens to one of you. So again, having that written plan goes a long way to, I think, adding some peace of mind.
John:
Yeah. And also, just knowing your numbers isn’t enough to know. What if you could spend more money and enjoy your time a little bit more?
Marc:
Sure, yeah.
John:
We do come across that where people are kind of nervous and they’re really, quite frankly, underspending in retirement. When you show them like, “Hey, you could beef this up a little bit or your beneficiaries is going to be a little bit happier when you pass away,” and people see that. We’ve had scenarios where people are very appreciative of saying, “Hey, thank you for putting my mind at ease and I’m going to go travel a little bit more during these couple years.”
Marc:
There you go. Exactly.
Nick, number nine, “I can always work a little longer if things don’t go as planned.” I kind of feel like this one goes along with that written, “I know my numbers kind of thing.”
Nick:
Yeah, it does. But I would even say further than that, and we’re starting to see it in the employment cycle now, is there’s all sorts of data out there that shows people expect to retire later than they actually do. Some of the underlying causes of them retiring are either some sort of health event and/or issues with employment, being downsized from a company. They’re not allowed to downsize based upon age, but there’s all sorts of ways around that.
Oftentimes, people are at their highest income earning years in those 60 to 65 range. We’ve seen people get downsized quite a bit and then be underemployed if they can get work. I have different contacts that this exact sort of thing happened to. To be able to get a new position, their income was going to be 30% of what they were used to making. Luckily, their plan had been pretty good leading up to that, but that is an assumption that is a really risky one to test.
Marc:
Yeah, definitely. Yeah. You don’t know what’s going to happen. You don’t know what your body’s going to say. At some point, your body might say, “Yeah, you might want to work, but you ain’t going to.” A lot of different things there.
Final one, John, “Once I retire, my financial decisions will get easier.” I feel like this one’s a little bit of a tricky one. What you think? What’s your thoughts?
John:
Yeah, I tend to say they’re reverse. I feel like they get more complex. Just because you don’t have a paycheck coming in anymore, now it’s a little harder to determine what do you spend your money on? Again, the whole, how long is my money going to last? When you have a paycheck coming in consistently, it’s kind of easier to say, “Hey, I’m going to buy this.”
Maybe some of it gets easier as far as maybe you’re not spending as much or buying as many things, assuming mortgage is paid off and things like that, and kids are off the payroll. Maybe that part of it gets easier. But as far as determining your spend, I think that gets a little bit more stressful, I’d probably say.
Marc:
Yeah. I’m with you on that. I think there’s facets of it where you think… In theory, you kind of go, “Well, it should get easier, doesn’t it?” You feel like it could, or why wouldn’t it? But there’s so many more moving parts now in retirement and things you need to be aware of. Again, that’s where it can get more complex.
Of course, I guess it would be easier if you had somebody handling that for you, which is where you turn to financial professionals and say, “Look, I don’t want to have to deal with all this minutia, but I do want to know what’s going on.” So reach out to John and Nick and have a conversation and get some help when it comes to getting someone to help you with your strategy for retirement at pfgprivatewealth.com. Go ahead, man.
John:
Yeah. Actually to add to that, and I think Nick will probably laugh internally and relate to this, but I think a lot of stuff that we end up doing in retirement, we’re kind of a financial soundboard quite a bit for some expenses where we even tell our clients like, “Hey, if you have an expense coming up, don’t hesitate to reach out to us.” It’s kind of like, “Hey, this is what I want to do. I ran my numbers. I think it’s a good decision. I feel like I can do it, but I just want to see if I’m missing anything.”
That tends to happen quite a bit where people will ask us like, “Hey, what do you think about this? “
Marc:
Yeah, and what does it do to my portfolio? Where you’re pulling money from, how it affects things. Not that you guys are the money police, but again, it is your job to say, “Okay, look, let’s talk about this. Let’s run these. Let’s do some stress testing and see what this does to your plan and your overall setup.”
Again, that’s the whole point. If you got a plan, that makes things a little bit easier to know those numbers and to have some confidence in the different things you want to try to do. But it also does give you that sounding board piece, as John said, one of the big takeaways from working with financial professionals, and I talk to them all across the country, is that behavioral management side of things, just having that person to talk you off the ledge or on the ledge, depending on what the plan needs.
Reach out to John and Nick and get started today at pfgprivatewealth.com. That’s pfgprivatewealth.com, and subscribe to us on Apple or Spotify, or whatever podcasting app you enjoy using.
Nick, thanks for your time, my friend. I always appreciate it.
Nick:
Thanks, Mark.
Marc:
John, appreciate you, my friend. Have a great week. We’ll see you next time.
John:
You too. Have a good one.
Marc:
We’ll catch you later here on Retirement Planning Redefined with John and Nick from PFG Private Wealth.