This release from Smart Money immediately caught my eye as a way for people to take a different look at some of the common advice and information regularly preached to retirees. The problem with standard advice is that it often relates to the “average” person but lots of analysts fail to understand that the average person never walks through the door. You, as an individual, will deviate from that average profile in a unique way. The average is just a number but you are a person with a very specific set of needs, desires and financial objectives.
This article attempts to shed light on a few of the retirement myths that bring a little reality to some of the issues that were previously considered common knowledge. Read the Smart Money article here.
This is a chance for you to take account of some of variables that play a part in many people’s retirement planning.
Myth #1: $1 Million will be enough
Many advisors recommend planning to accumulate a specific level of assets before retirement and then project annual spending rates. Whether the target level of assets never materializes or spending projections are inaccurate, several surprises can come from assumptions that have very real implications.
Myth #2: Spending will decrease in retirement
Are statistics that show retirees spend less born from necessity or choice? It is true that expenses related to work and raising children disappear in retirement but leisure time is what retirement is all about. You’ll have more free time to pursue passions you didn’t have time to do while you were working. Do you really need less money?
Myth #3: Retirees need bonds
Common knowledge suggests that retirees move to bond-rich portfolios. With the 2008 market crash leaving so many people a few years behind targets, reality suggests retirees will need the growth in stocks to achieve measurable results throughout retirement.
Myth #4: You’ll save money if you move
I can’t tell you how many articles I’ve read that suggest people move to a cheaper area for their retirement years. While there is some truth in the numbers, it’s worth considering some of the extra expenses you may incur if you leave your hometown.
Myth #5: Medicare will take care of all medical expenses
Many routine, preventive procedures are not covered by Medicare. Some things may be considered luxuries such as periodic eye exams or dental care so you’d better plan to pay out of pocket for plenty of medical-related expenses. Gap coverage or long-term care insurance can be used to limit your financial exposure to unexpected medical costs in retirement.
What other expectations do you have for expenses and portfolio performance in retirement? No matter what your answer is to that question there remain many more issues to plan for than most people realize. Some you can control and some you can’t.
My advice is as consistent as always: by planning for what you can control you’ll limit the negative effects of the things you can’t control. You are not an ‘average’ so making necessary preparations is a process unique to your situation. Make sure to seek help from someone who can identify all areas of concern and offer viable solutions.
Thanks for staying tuned to our weekly email and feel free to suggest a future topic for discussion if you’d like to see more issues tackled with some straight talk!
Have a great week everyone!
Bryan J. Anderson
800.438.5121 bryan@annuitystraighttalk.com
Bryan….good summary of the article. As you have mentioned and we discuss all the time with our clients, the average guidance will not work for the specific individual. Many advisors still start with 1.)How old are you? 2.) When are you planning on retiring? 3.) How much money do you think you will need every year in retirement? Then voila! out pops the average plan of spreading your assets across a spread-risk portfolio and "don't worry, if the market goes down, you'll have enough time to recover."
The problem is that when the person reaches that age of retirement, they continue with the same strategy that got them to retirement and leave the great majority of their money at risk when they should be concerned about protecting the money they have saved for retirement.
The same strategy that you use to get all the way to retirement will usually NOT get you all the way through retirement. The risk strategies need to be different from growth of assets in the early years to protection and conservation of assets in the retirement years so it can be counted on to be there for the client to use for the rest of their life.