Top 10 Myths of Retirement (Part 2)

In this episode, Host and CERTIFIED FINANCIAL PLANNER™ professional Joe Allaria is joined by Co-Host Jay Waters, Wealth Advisor with CarsonAllaria Wealth Management, to discuss our Top 10 Retirement Myths that seem to be widely accepted amongst those in or near retirement. In Part 2 of this two-part series, we cover the final five myths, including:

Final 5 of the Top 10 Retirement Myths

1. Long-term care is covered by Medicare.
2. You can count on historical returns to repeat during retirement.
3. You will only live to age 80-85.
4. You need an annuity if you’re retired.
5. Retirement planning is all about money.

Resources Mentioned in the Show

• Living Too Long is a Risk (CBSNews article on life expectancy)

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Disclaimer: All material discussed on this podcast is for educational purposes only and should not be construed as individual tax, legal, or investment advice. Investing involves risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results. Joe Allaria is an Investment Adviser Representative of CarsonAllaria Wealth Management, a Registered Investment Advisory firm. Information discussed on this podcast may be derived from third parties that are believed to be reliable, but CarsonAllaria Wealth Management does not control or guarantee the accuracy or timeliness of such information and disclaims all liability for damages resulting from such sources. Any references to third parties are provided as a convenience and do not constitute an endorsement.

Transcript

Joe Allaria 0:00

Welcome everyone to the Retirement Power Hour Podcast. My name is Joe Allaria. This is episode 15. I'm going to be joined today by Jay Waters. This is part two of an episode that we're doing on the myths of retirement. The first myth for today, for this show, is about nursing care, long-term care. And one myth that I've heard is that oh, that's covered by Medicare. Long-term nursing care is covered by Medicare, isn't it?

Jay Waters 0:31

No, but it's not covered. There's a lot of people that do think that there's, oh, well, you know, Medicare covers it, and or my supplement will cover it. And to a degree, it will cover some things. It depends on what led to it, how it happened. And there's certain days that Medicare will cover in hospital care, and there's certain days that Medicare, the Medicare supplement will cover X amount of days for hospital care.

Joe Allaria 0:57

Depending how you enter the nursing or assisted living facility, if it's directly from a medical event, then there's a chance. Best case, Medicare could pay up to 20 days of your assisted living stay. And then if you have a supplement, best case, the supplement could pay up to 100 days of your care. Beyond that, now you're in true long-term care world where original Medicare or supplements, they're not paying for anything beyond 100 days. So a lot of people think when I get to retirement, my my medical costs are going to be a big cost for me. And I think that's a little bit misguided. And that could be another myth that we could have added in here. But people think I'm going to pay a lot in medical expenses. Well, the truth is if you're on original Medicare, for example, you pay your Part B premium, you've got a supplement. If you've got a more robust supplement, you may have a small deductible each year. And that's about it. Medicare, as long as it's an approved Medicare expense, then Medicare essentially pays for the rest. But where these big expenses come into play, historically could be prescriptions. These expenses for long-term care and nursing care, which are incredibly expensive facilities to stay in, depending on the level of care that you need. That adds up very quickly. So it's not covered by Medicare, that's a myth. We did an episode eight, I believe, where we talked more about Medicare and some of these things. So go back and listen to that.

Jay Waters 2:47

One quick thing I was just thinking about, Joe, is speaking related to Medicare. And we didn't even have this on our topic of discussion, but just thinking of it as the other myth around Medicare or insurance cost is oh, I can't retire until I'm 65 because the health insurance cost is just going to eat me to death, right? The health insurance cost is overwhelming. So I have to either work until 65 or have a spouse work till 65. Because the health insurance is just going to be too much until I go on to Medicare.

Joe Allaria 3:18

Yeah.

Jay Waters 3:19

So again, didn't even have it on there, but it just made me start to think because I know I hear that a lot. And I know a lot of people say, hey, I'm 63, but I got to go two more years because the health insurance.

Joe Allaria 3:29

100%.

Jay Waters 3:30

That may be the case for some people, depending on income. But we've seen time and time again, and we help clients with it, is you can get affordable health insurance with a decent deductible and max out of pocket to where that can fit into the retirement plan and you can retire before 65. So don't let that hold you up from retiring.

Joe Allaria 3:51

Just a lot of pitfalls in that. Or better yet, contact someone that knows what they're doing that can help you. But there are a lot of pitfalls in that whole pre-65 transition to Medicare. One of the biggest questions is do I need to enroll in Medicare when you turn 65? So that's an entire show in itself. We did a show on just general Medicare. We could do an entire show on when do I sign up for Medicare?

Jay Waters 4:18

Yeah, because there's A and B, but yeah, just on a high-level view is again because we're doing myths of retirement, you don't have to be 65 to retire just to be able to get on Medicare.

Joe Allaria 4:30

Good one. The next myth, Jay, kind of back to the investing front for this for part two here in this episode, but you can count on historical returns to repeat during your retirement. In other words, I'm gonna throw out a hypothetical here, but if a 6040 averaged seven percent over the last 30 years, it's gonna average seven percent over the next 30 years, right?

Jay Waters 4:54

So never attempt to or assume repeatable returns. Having a diversified portfolio does help that. If you look at just the SP 500, there's been the lost decade. Yeah, but then there was also the 10 years after that that were very good.

Joe Allaria 5:12

Explain what the lost decade is, if you can.

Jay Waters 5:14

Yeah, so SP 500 from what was the time frame?

Joe Allaria 5:19

2000 to 2009.

Jay Waters 5:21

The SP was basically flat over those nine, ten years.

Joe Allaria 5:25

Cumulative at the end of 2009 was actually negative, the returns were negative. Now you could say, well, that was because of the global financial crisis, but it was still negative over a 10-year period of time. So yeah, being diversified helps.

Jay Waters 5:43

But again, you would never want to say, well, the SP was negative for those nine years, so it's gonna be negative the next 10 years.

Joe Allaria 5:50

Sure, yeah. And in the same way, the the next 10 years after that, that SP had an incredible run, and you would you wouldn't want to count on that. I think the mistake here that we're driving at is when you go and do a retirement plan or someone goes on and does a retirement calculator and tries to figure out are they on track, I think the mistake is just looking at historical returns and plugging in that number for your assumed rate of return.

Jay Waters 6:17

There's a lot of times where clients want to see a lower than average rate of return. Just so then if we actually do get that number or the market produces that number, we've already accounted for it.

Joe Allaria 6:30

Yeah, on the projection. Yeah, yeah. We always want to see higher than average returns, but on the projection, and we sometimes we have to explain that why we're using lower than average returns on the projection, because we are trying to project a less than ideal scenario going forward, and we're also measuring the environment. And so, interest rates, it's a very interesting conversation yet again on interest rates, but rewind about a year ago, interest rates and two years ago and three years ago were they were incredibly low. And so when you looked at bond return expectations with those incredibly low interest rates, the expectations were very were low. They were not equal to the bond returns from 1980 to 2020, where bonds actually did pretty darn well for being bonds during that time because the 10-year treasury note in 1982, I think it was, went from about 15% and then over the course of time down to what 0.5% in 2020. So when interest rates drop, bond prices go up, bonds do better. But when there's a sharp increase, it causes bond prices to go down, and that's what we've seen this year. What's the silver lining there, Jay? Now interest rates are up. So bonds are paying out higher yields, they're paying out higher levels of income, and over time, now that speaks to better longer-term returns in those bond investments. It may take a while for those bonds to recover because they've taken such a hit this year.

Jay Waters 8:14

Everyone always says are higher interest rates a good thing. And I always say, well, it depends on if you're a borrower or a saver.

Joe Allaria 8:20

Yeah. Are you a lender or are you a borrower? Yeah, when you own bonds, you're lending money. So higher rates are good. If you're borrowing money, it does make it a lot more difficult to go get a mortgage, car payment, whatever it may be. You think differently about it when rates are where they are today. The next one, Jay, another different category going a different direction, but a big myth is I'm only going to live to 80, I'm only going to live to 85. Or in other words, I'm not going to live to 90. I'm not going to live to 95. I'm definitely not going to live to 100. But what have you seen? What do you share with clients on that topic?

Jay Waters 8:57

Well, when I show clients or prospective clients, okay, what is the scenarios that we're running, or what's our baseline scenario? Is we always like to run everything to at least age 100. And living to 100 or living for a longer time will either stress your portfolio more, depending on withdrawals, or it could be a good thing living a longer time because you have more time for your money to compound. But for the most part, the longer you live, the more stress it is on your portfolio because there's a longer amount of time for withdrawals. So you would never want to be on the assumption of, hey, I have to die at 80 to not run out of money. We'd rather be in the scenario of, well, yes, I family history, I may only live till then, but I'd rather make sure that I'm good until 100, just in case I do live to 81, 82, 83, because you never want to have to say I have to die by a certain age to make sure I don't run out of money.

Joe Allaria 9:54

Yeah, absolutely. It's better to overestimate your life expectancy. And it sounds morbid, but you die prematurely, not great from a life expectancy standpoint. But financially, you didn't run out of money. It's not the worst case scenario financially. It might be a bad case scenario, worst case scenario, measuring everything else. But financially, if I don't live long time, that's actually good for my retirement. If I do live a long time, that's a big drain on my retirement. And so it's a bit morbid to think about, but it happens, I think, much more often than people think. And I see this happening with parents of our existing clients who may be in their 60s, and their parents are living to 90, 95, nearing 100. If you look at the statistics on it, I've got a study here that we found on CBS News, and it says the odds are about 31% that one member of a 65-year-old couple will live to 95. One out of every three 65-year-old couples, someone's going to live to 90. And that's a risk. That is a financial risk that we'll talk about it kind of segues into the next topic a little bit, but it is a risk that needs to be addressed. Now, I don't mean addressing that by cutting your life expectancy short. Live a long life, live a great, happy life, have a high quality of life, do everything in your power to do that. We strongly believe in that, but it needs to be addressed financially. And I think it's a mistake for people to just put their head in the sand and say, I'm never gonna live that long. And you're not, and don't plan for it. Like, yeah, just Jay, just put me at 80. There's no way I'm living to 81. I think that would be a mistake to do a plan that way.

Jay Waters 11:38

Yep, I agree.

Joe Allaria 11:39

Well, the next one is sort of on that line, and it's you need an annuity if you are retired. You hear a lot about annuities out there again on the radio. We talked last episode. If you turn on talk radio on a Saturday or really any day of the week, you're gonna hear a show, you're gonna hear someone talking about how you shouldn't be in the market, how you can't afford for the market to go down. If you're 65, if you're retired, the market environment is terrible and you can't sustain those losses. So, in order to avoid the market, you need to jump into these safe products. They'll say you get the upside of the market, but there's no downside risk, you get guaranteed lifetime income. Some of those things are true. You can get guaranteed lifetime income, but I have a real problem with the way that folks try to sell these on the radio and really give the impression that they're these great growth vehicles and they have no downside risk. Well, that doesn't happen. The old adage, if it sounds too good to be true, it probably is. And that is the case. But as far as income goes, Jay, I think that's what we're talking about. Do you need an annuity that is going to provide guaranteed lifetime income if you are retired? We know you don't need every kind of annuity because there's a ton of them out there that we don't like that have high fees, they're very complex. But do you need even the good kind? Does everyone need a good annuity to provide lifetime income when they're retired?

Jay Waters 13:09

No, every scenario is different, but do you need one? No. This kind of goes back to the living expenses, the living style. Let's say you do have 500 grand and you need a small withdrawal rate to meet your lifestyle expenses because you already have Social Security and you have no debts and you just live below your means.

Joe Allaria 13:28

Why wouldn't someone need more guaranteed income? The thing that comes to my mind is because they already have enough more than enough guaranteed income. Again, and we do see clients all the time that have pensions, maybe they're military pensions, maybe they're government pensions, teachers have that have great pensions, and they already have more than enough guaranteed income coming in. So if I need $3,000 a month, or let's just say it's a married couple, I need $6,000 a month. But between all of two Social Security benefits and a pension, I have $7,000 a month coming in. Do I need to take any of my portfolio and go buy an annuity that's gonna generate more guaranteed income? I already have more than I need. Do I need to go get more income? Obviously not. That would be a situation where the answer is a resounding no. But do some people need an annuity? Well, let's say you don't have any guaranteed income. Let's say you have a million dollars and just Social Security, and Social Security is not gonna cut it to meet all of your needs, and you want more guaranteed lifetime income. You certainly could use an annuity. And in some cases, it does make sense if you get the right kind that are low cost, simple, and that you understand all the benefits. But a lot of people choose to not purchase an annuity because, like you said, Jay, they just they use a portfolio of stocks, bonds, they use that bucketing strategy, they buy into that, and they believe that if I just take the risk myself in the market, I'm likely to do better long term. Because annuity companies don't have this magic investment realm to dive into that other people don't have access to. I mean, they're for the most part turning around, investing in very similar things that we can invest in. But here's the difference they do have the benefit of pooling, pooling their investments and pooling their obligations. So if they guarantee Jay to pay you for life, you may live a long time, but you may not. And so they're making a return on people that don't live a long time, and they're using part of that return to pay for people that do live a long time. And they've got actuaries to figure out how all of this works at a large scale. The law of large numbers, they can see patterns, they can figure this stuff out, but they're taking a little bit of risk, and that and you are getting that risk off of your table, off of your plate. But it sometimes people say, I'm okay taking that risk, I'm gonna take that risk myself. I don't want to pay someone basically to take the risk for me. I'll take the risk myself. And sometimes I think I would agree with those people that you may be able to do better doing it yourself rather than trying to outsource that risk and pay an insurance company to take it for you.

Jay Waters 16:21

Yeah, there's all again, every scenario is different. But like you said, sometimes it if you don't have any guaranteed income outside Social Security, then it may make sense to do a little bit. Or again, you may say, you know what, I'm willing to bear the risk. I'm okay watching my money go up and down, knowing that in the long run, I may come out ahead or should come out ahead. And a lot of it boils down to just what can your emotions handle? Maybe you don't want to have the whole amount on the roller coaster ride. Maybe you do want to outsource some of it and say, I will bear some of the risk, and I'll let the insurance company bear some of the risk. Yeah, every scenario is different, everyone's risk tolerance is different. But do you need does everyone need an annuity? No.

Joe Allaria 17:00

I guess that's where I have my problem is I hear again the radio shows, the people out, some quote, advisors that are pushing that message. You got to have an annuity. Everyone that's retired, you gotta have an annuity, you gotta have this type of lifetime guaranteed income. And I'm I think that we are about balance. We are about using the right tool. You referenced that on the previous episode, I believe, but the right tool for the job. And we don't need to use a hammer for everything. Yeah, you're not gonna use a hammer to screw something in. Can it get the job done? Maybe, but it's probably not gonna be the best way to do it. There's a better way, there's a more efficient way, and I think balance is so important when we look at all the tools we can use. You can't say annuities are bad. I mean, someone could say that, but if they said that, I don't think they're being honest. Just like if someone says stocks and bonds are bad, that person's not being honest. It's not that all stocks and bonds are bad. I see videos on social media, Jay, all the time, not to derail too much here, but I see these uh whether they're on Facebook or Instagram or even TikTok or whatever, I see videos that people are just they'll bash 401ks. They'll bash the stock market. And whatever they're bashing it, there's always something tied to that. I'm gonna bash 401ks so that I can get you in my real estate investing program, right? And you can pay me a large fee to consult. Or I'm gonna bash the market because I sell indexed universal life policies, and I made up a name for them and I called them a Roth IUL, which is this are real things. I mean, I see these things, it just boggles my mind the stuff that people say that really I don't think is compliant. I don't think that professionals are allowed to say the thing, things that are being said, but these people are saying them. People see the videos, they get tons of follows. And because you have, I think, a lot of regular good advisors who are restricted on what platform they can go on, you know. A lot of advisors, you can't go on TikTok. TikTok's not approved, and they're restricted in some of the things that that we can say or talk about because there are rules in our industry, and some of these people just blatantly go outside of that, and they use these sales tactics and they try to they tell you something is bad when it's you can't make a blanket statement about anything, but every tool has its use, its best use, and having balance and understanding when to use each tool is what we recommend. Okay, last one here. I've got one more Jay, and it's retirement planning is all about money. And I threw this one in here just because is it something I hear? I don't hear this outwardly, but I observe it in my interactions with clients. I don't hear them say retirement planning is all about money, but yet when we sit down to plan for retirement, I observe that the conversations a lot of times stay on money. I know a lot of advisors, their conversations stay on money, they start on money and they end on money. And retirement planning is about much more than that.

Jay Waters 20:17

Yeah, completely agree. And I've seen a lot more and more recently where there's not just the financial side of retiring, there's the emotional side of retiring. And it's what am I gonna do once I retire? So there's many of clients that we meet with and have that are financially set where we don't need to talk about money. It starts with money, but it then it ends with, okay, what's the lifestyle I want to live in retirement? How do I make that transition from being important, being relevant, going and doing something every day, and having meaning in the corporate world or in your own business or whatever it may be to okay, now what do I do every day? And that is the biggest transition in and of its own. Because again, it's what do I do with my day? And it's so important to have hobbies or another passion project or whatever it may be. Yeah, once you do go to retire.

Joe Allaria 21:11

Have a plan. Yep. Think about it. And obviously, we're gonna talk about money because I think money, it's that first layer of retirement success, I'll call it, but it's just survival. You have to be able to check that off the box. You have to check that box, check that off your list. Can I survive? Can I pay for my essential needs? And so we have to talk about that because money is gonna drive that, and you should talk about that. But it, I don't think it should stop there. And I think it does a lot of times, and I think only sometimes do people go to the second level of this retirement success pyramid, which might be the survival plus, where it's okay, I can survive and maybe I can take a trip a year, maybe we can do a few things, you know, enjoy some of our hobbies, then we're good, you know, we're content. But there's a third level of retirement success, and that is retirement fulfillment. It's like the top of, I can't remember that what pyramid it was, but it's that self-actualization. But I say the retirement success pyramid, the top is true fulfillment in retirement. That's when you've gotten over the survival hump, you've been able to do some of the hobbies that you like, you do those things that you enjoy yourself, but you think even further outside of the box and you plan for what is going to provide me the most fulfillment while I'm retired, and you take actionable steps toward that. Maybe it's gifting to your children, maybe it's charitable donations, maybe it's volunteering. Things that you do that if you lay your head down at the end of the day and you spend all day doing those things, you say to yourself, Man, what a great day. What a great day that I just had. Because if you do that every day in retirement, you're gonna lay your head down at the end of retirement and say, What a great retirement, what a great way that I just spent the last 30 years. And on the flip side, if you don't do it, you lay your head down at the end of retirement and say, Gatch, I wish I would have done this, I wish I would have done that. And none of us are guaranteed any amount of time. And so best to not only plan for the financial part, but for that lifestyle part too. Fun conversations we get to have too with folks that buy into that, and we get to help them along that journey. Well, this was fun, Jay, talking about some myths, being myth busters, always good. I know I speak for you as well, too, but I'm super passionate about getting people on the right track and educating them and clearing up misinformation, whether it's the media, other quote, financial professionals, your neighbor, your family member who's spouting whatever they heard from those sources, there's a lot of opportunities to fear, to have excess stress. So, a good time to mention, too, if you've listened to some of what we've talked about and you've wondered about your own situation, and you're wondering are you on track or have you been getting the best advice? I would encourage you, you can get a free retirement analysis by going to retirement powerhourpodcast.com, click work with me, fill out the information to schedule a 30-minute phone call. And the first step is gonna be me talking to you, asking you a few questions, gathering some information, getting a sense of where you are, and explaining to you the process that we can take to get you that retirement assessment. And I already mentioned it is something that we do, it is complimentary, it's free. So go to retirement powerhourpodcast.com and click that work with me tab to start the process to get your free retirement analysis. No reason to wait, do it now, and we look forward to helping everyone that does to clear up some of the myths maybe that you've heard as well. And Jay, on that topic of misinformation, you may recall, I'm sure you do, you were on the inaugural episode of the Retirement Power Hour podcast, where we at the beginning of every year, we look back at what happened during the year and we compare that to the predictions that these financial experts made about that year at the beginning of the year. So I'm very excited to do that, and hopefully it can have you back on the show to join me and talk about that and kind of beat up on these people that continue to spread misinformation because someone's got to do it and someone's got to put out the right information. So hopefully you can come back for that.

Jay Waters 25:37

Oh, absolutely.

Joe Allaria 25:39

Awesome. Well, thank you all for listening. Again, go to retirement powerhour podcast.com for all of our past episodes. You can also submit a listener question on there. We'll read it on the show. Thank you for listening. Thank you for watching. With that, again, I'm Joe Allaria. This is the Retirement Power Hour, where we help people invest wiser and retire better. Take care.

Speaker 2 25:59

Thank you for listening to the Retirement Power Hour Podcast. All material discussed on this podcast is for educational purposes only and should not be construed as individual tax, legal, or investment advice. Investing involves risk of loss, and investors should be prepared to bear potential losses. Past performance may not be indicative of future results. Joe Allaria is an investment advisor representative of Carson Allaria Wealth Management, a registered investment advisory firm. Information discussed on this public house may be directed from third parties that are believed to be reliable, but Carson Allaria Wealth Management does not control or guarantee the accuracy or timeliness of such information, and it displays all liability for damages resulting from such sources. Any references to third parties are provided as the convenience and do not constitute an endorsement.