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Avoid These 5 Retirement Mistakes Before It’s Too Late · Retirement Answers

• 0:00
  Jacob Duke: Hey, friends, and welcome back to another episode of Retirement Answers. My name is Jacob Duke. I'm your host, as always. Today on the show, I want to talk about the five biggest regrets that I see retirees have, but often after it's too late. So this is designed to be a warning for you.
• 0:17
  For those of you who are early in retirement or still just before retirement, that you could get ahead of and not make the same mistakes so that you don't regret them later in life as well. Now, before we jump in, if you're new here again, my name is Jacob Duke. I'm a certified financial planner and the owner of River Tree Wealth, a retirement planning firm that helps people just like you plan smarter and retire better. Now, today on the show, we're not really talking about some of the numbers on this data sheet, but I always want to emphasize that you can go grab this data sheet completely free. It has all of the current year's numbers, things like contribution limits, income limits, tax brackets, IRMA brackets, everything you might need to know about retirement.
• 0:56
  I call it our important numbers data sheet. You can go grab it using the link below, go grab your free copy. It's a quick little download, and you can use that throughout the year. I encourage you to grab it, but let's go ahead and jump into these five things that I think that you should look out for and not make these same mistakes. So number one is claiming social security too early.
• 1:17
  Now you're like, Jacob, this might not make sense because what's wrong with getting more income and getting my money earlier? Because who knows, I might get hit by a bus tomorrow. I want to get something out of this thing that I paid into for the longest time. Now, why do people end up doing that? Well, typically, out of fear.
• 1:34
  Right? I just wanna get what I can while I can. But there are some negative sides of this. Right? A few different things come to mind right away for me if you do claim earlier.
• 1:43
  Number one, you're getting a permanent reduction in your own benefits. You're giving up something you already paid in for. So if you take your money right at 62, as opposed to your full retirement age, you're gonna get about a 30% reduction in benefits, and that is forever. Now that's just one side of it, right? Because you also might be giving up spousal benefits if your income, your benefits are actually lower than your spouse's.
• 2:07
  So you could be hurting yourself and reducing your spousal benefits if you otherwise would have qualified for those if you had delayed until your full retirement age. Now, if you're the higher earner of the two, if you're married, you might be giving up a survivor benefit for your spouse if you predecease them. So there's more to it than just getting what you can while you can. You have to think about the true cost, the true impact of what if I take my benefits early and how does that negatively impact either myself or my spouse down the road? Now, one of the thing that's often hidden here is what opportunities you might be giving up if you take your benefits early.
• 2:45
  Now, the first one and the most obvious that comes to my mind is gonna be around Roth conversions, because if you are needing to do Roth conversions, maybe you're someone who has those large tax deferred account balances like IRAs and 401ks, Roth conversions might be something that you could benefit from to reduce your overall RMDs later on down the road, which by effect, you know, reduces your total taxable income, reduces IRMA surcharges, and so on. And if you end up taking your benefits early, just because you haven't planned it out very well, you could end up costing yourself the opportunity to convert as much as you possibly can, which would overall lower your lifetime tax bill. So taking them early, just kind of on a whim without much thought could end up costing you hundreds of thousands of dollars in taxes and or penalties or surcharges later on down the road if you're not careful. So this is one of those things that yes, on the surface, it's like, let me get what I can while I can, but it impacts everything else around your retirement. And oftentimes it's not until later in life, 80, whenever you realize how much your benefits are not keeping up with inflation because your costs are so high, especially if you do get to that long term care one day, and you might need a lot of money every month for different assisted livings or care.
• 4:02
  So you've gotta think about what this looks like in the grand scheme of things, not just right now today when it comes to your social security claiming. Number two, the second regret is being too conservative with your investments too early in retirement. So the thought process here is, hey, Jacob, I've saved my million or 2 or 3 or 4 or $5,000,000. I can't afford to lose it because my time horizon is zero. I'm finally at retirement, I made it, I can't afford to watch this thing go up and down over time.
• 4:31
  And typically what this leads to is getting out of all of your growth style investments, such as equities or stocks, and typically going to more cash or fixed income style, so that you can preserve what you've earned and saved over time. The logic makes perfect sense, but what's often not considered is the erosion of purchasing power, right? And we've seen this over the last four to five years. How much has inflation impacted our daily lives? And it's been quite a bit.
• 4:58
  So if you were in retirement, and you have all this money sitting in cash, getting a three or a 4% interest rate, but inflation is six, seven, 9% year after year for a few years, you're losing a lot of purchasing power over that period of time because of the safety that you sought. So the safety you were looking for actually ended up harming you, you just didn't know it at the time. Now, what's interesting here too, is when you think about all of the work that you've done to get to this point in time where you've got X amount of dollars saved, and you've got the most money presumably that you've probably ever had, that is the most opportunity you've got to make as much money for as little work possible. Think about it. Let's say you've got a million dollars that you've saved.
• 5:43
  To get a 10% return on that million dollars is a $100,000 for doing essentially nothing. Now, it took you a long time to grow and earn that million dollars, but along the way, that 10% that you made, let's say year after year, it didn't have the same impact because you did not yet have a million dollars. 10% on a $100,000 is only 10,000. 10% on $500,000 is only 50,000. Right?
• 6:08
  You're putting more money in to your investments over time, and so the money is working for you while it's invested. So whenever you get to this point in time where you've had the most money you've ever had, the opportunity to make more money as much as possible with minimal effort is right now. So it's actually counterintuitive to go ultra conservative whenever you have the most investment power. So this doesn't mean by the way, that you should go all stock all the time and put all the risk on the table. Instead, I think about this in a more balanced approach.
• 6:42
  And this is why I use the bucketing system. I like to have two years worth of income expense needs in cash that can be in the bank, that could be in an IRA, that can be anywhere within your portfolio or a combination of those things. But whenever you structure it in this way, you got two years worth of expenses in cash. I want three years of expenses in fixed income, think US treasuries, maybe CD ladders, some corporate bonds mixed in. So what you're doing is, is you're kind of staggering how much risk you're taking by having at a minimum five years worth of living expense needs in non stock or non equity investments.
• 7:15
  And then bucket number three, that is your growth bucket. That's the money that's allowed to be in equities beyond bucket one and bucket two. So what you're doing is you're building this five year runway to outlast any sort of market volatility or downturns. If you think back to o eight, the reason I like to use five years as a minimum is because if you think back to o eight, it took just under five years for the stock market to get from where it was pre crash until 2013 when it finally got back to that level. So the thought process here is to cover your short term expense needs without changing your lifestyle at all with bucket one and two and earning some interest along the way, but also not giving up too much growth opportunity if the market continues to grow and expand.
• 7:55
  You have bucket number three to outpace inflation, right? So this is a both and approach. Don't go ultra conservative out of fear of losing, protect that fear of losing by having enough on the sidelines early on using this bucket strategy. So just remember this, your biggest risk in retirement is not actually volatility. It's volatility at the wrong time, but also it's the loss of your purchasing power over time.
• 8:21
  So protect against both of those things by having a designated growth in long term bucket, but also covering your short term needs with those cash and fixed income buckets. The third regret that I often see, especially with those of my clients who are later on in life, is they regret not spending enough money early on. Now, this is a tough one, right? Because as you walk into retirement, you're like, oh my goodness, I don't have an income anymore. I don't know what I'm doing.
• 8:47
  I'm scared. I don't wanna spend too much and end up running out one day. What I've found though, is that more people end up with more money at the end of the day, compared to what they started with because they didn't spend enough early on. Now, what I'm also not a fan of is the die with zero mindset, because personally, I just don't think it's realistic. It's actually probably impossible as a human to do that because of this fear around not having enough, and, you know, we have basically these buffers on the bottom end to say, once I get to x amount of money, I'm probably gonna cut back.
• 9:16
  There's this kind of preservation and human instinct, a part of it where die with zero isn't realistic, but I don't want you to do is triple your money over retirement because you were afraid to spend. Now the real issue here is not dying with more money than you thought, but it's actually what you gave up to have that more money out of fear of spending too much. You're So giving up on the experiences, you're giving up on the travel, you're giving up on the gifting or the charitable work that you wanna do with your money, all in the name of making sure you don't run out. So here's the problem, you get to this point later in life, and you're like, gosh, I could have spent so much more and we could have gone on that trip, I could have paid for the family vacation, or I could have gave that much to the church or the charity, and it wouldn't have mattered. And guess what?
• 9:57
  You're right. But typically, don't notice that until you get to that point in life. So my job as an advisor is to actually show you the path, give you the confidence, so that you can spend more now or give more now without worry of running out of money, so that you don't push off the enjoyment to later on down the road whenever you might not have the opportunity to enjoy, whether it be because you passed away or your health is not the same, now is your time and your opportunity to go and do. So with that said, there is a balancing act, we've got to understand, hey, here's how much we can spend month to month or year to year without going too far past that edge. Right?
• 10:33
  We've got to balance this out, but I want you to walk that line. I want you to find a way to say what is the line that I can walk and how can I push that a little bit further than typically people would want to go? Because I don't want you to die with a ton of money one day, I want you to enjoy a life well lived. So regret number three, people often regret not spending enough money early on and end up saying, what am I doing with this much money this late in life? I could never spend it.
• 10:59
  So the goal isn't to die with the most money, it's to use your money for what matters most to you. Regret number four is ignoring tax planning until it's too late. I as a retirement planner, I love tax planning. It's something that in my opinion, you simply can't remove tax planning from any of the decisions you make around retirement. An income decision is a tax decision, a conversion decision is a tax decision, investments are a tax decision, it all folds in together, it overlaps, there's layers to it, you can't make decisions around your retirement in a silo.
• 11:30
  So taxes overlap every decision that you will make in retirement, and that's what we like to focus on here at RiverTree. So if you're someone who's like Jacob, I know I need to do some tax planning and figure that out, you can book a call with us, apply to work with us there on the website, the link is below. But one of the things that a lot of people end up regretting is they say, I'll worry about those RMD things later. I'll worry about how much my wife or my spouse is gonna have to pay in taxes later. I'll let the kids figure out that tax thing whenever they start getting all my four zero one k and IRA money.
• 11:59
  And to that, I say, well, that's your prerogative, but don't come to me at 71 or 72 or 73 and say, oh my goodness, I didn't know I was gonna have this much in taxes. Right? Whenever I'm forced to take out all this money from my accounts. Here's your warning. RMDs will hit.
• 12:15
  Social Security will get taxed whenever those RMDs are large. IRMAA will hit you and surprise you whenever you have really high Medicare premiums because your income due to those RMDs is now really high. So I want you to focus on what can you do now to start mitigating those risks. It can be in large chunks, or it can be piece by piece year after year. But think about it this way.
• 12:38
  Whenever you're early in retirement, this is your window. This is your gap. This is your opportunity to do as much tax planning as possible because your income is likely as low as it would ever be in the future, especially if you have not turned on Social Security yet, going back to our first regret of people turning on Social Security too early and ultimately taking away some of the opportunity to do tax planning proactively. So when you get later in life, you see, oh my goodness, I'm paying 50,000 in taxes or 100,000 in taxes because of the fact that my accounts just grew over time and I didn't spend enough, right? If you ignore tax planning too long, it's gonna end up causing you, your family, a lot of money that you otherwise could have saved or protected against if you had been proactive along the way.
• 13:22
  So the goal here is not to eliminate taxes entirely in retirement. I don't know if that's quite possible, but what you can do is you can control them and control when you pay them. So the tax rate that you do pay on your hard earned savings is something that you can pay because you can stagger out when you decide to pay those taxes. And the fifth and final regret that a lot of people come to me with is the over complication of their investments. They've got accounts at five different custodians, four different IRAs, 10 different brokerage accounts and a CD ladder that's, you know, forty years long, you know, invested $5 in each year, just being hyperbolic here.
• 14:03
  There's minimal benefit to more complexity, because what happens is, is as you continue to grow your wealth and everything starts to compound, the complexity compounds as well. You've got too many accounts, too many strategies and no clear plan. All it leads to is confusion, inaction, analysis paralysis, and just more stress. So my perspective as a retirement planner is how can we simplify things as much as possible? Because what I do know to be true is this, simplicity leads to clarity, and clarity leads to confidence.
• 14:35
  And I would argue the only thing anyone in retirement is after is confidence, right? Yes, we've got to do taxes well. Yes, we've to invest well. Yes, we've to plan on income well. But at the end of the day, all those things are just the means to the end, which is a fulfilling retirement, and one that you can live out confidently.
• 14:52
  So stop over complicating things. It doesn't have to be flashy. There's no magic elixir, or magic potion that makes things magically better, right? Invest well, do it simply, and the best retirement plans are often the ones that are not most complex. They're the ones that you can actually understand and execute.
• 15:12
  So those are the five common regrets that I see with people we work with on a daily basis, and what we're trying to protect against. So if those things ring true in your world, I hope you can take this advice and take it and apply it to you and start course correcting if you need to. So if this was helpful, please share it with a friend, let them know that they might gather something or learn something from this episode. But thanks so much for tuning into this week's episode of Retirement Answers. We'll see you again next week.
• 15:40
  Hey, it's Jacob again, and I wanted to remind you that nothing discussed in today's episode is meant to be financial, legal, or tax advice. Retirement Answers is for educational purposes only. Thanks for tuning into this week's episode. I look forward to talking with you again next week.