Retirement Roadmap

Debunking Dangerous Retirement Myths

• Mark Fricks • Season 3 • Episode 18

Share episode

We explore eight common retirement planning myths that could potentially derail your financial future and explain why these outdated beliefs may no longer apply to today's retirement landscape.

• The 4% withdrawal rule from the 1990s has been updated to 2.8% by Morningstar research, meaning you need significantly more savings to generate the same income
• Social Security isn't going bankrupt, but its trust fund may be depleted by 2032-2034, potentially reducing benefits by about 20%
• Social Security was designed to replace only 40% of pre-retirement income, not the 70-80% many retirees depend on it for
• Keeping all investments in cash during market uncertainty may mean missing recovery periods and growth potential
• Modern long-term care planning offers alternatives to expensive traditional insurance through integrated financial tools
• Financial planning is a strategy for everyone, not just wealthy individuals, as those with modest savings can also need guidance to maximize resources
• Estate planning can apply to people at all asset levels, and outdated wills may not address digital assets or modern financial considerations
• It's important to review financial plans on a regular basis, as life circumstances, tax laws, and economic conditions evolve
• Many retirees don't drop to lower tax brackets due to required minimum distributions, loss of deductions, and potential tax increases

Visit masterplanretire.com to schedule your complimentary consultation where we'll run retirement outlook reports and stress test your plan, or call 770-980-9262. 

Have a topic or question you'd like Mark and Evan to address in a future episode? Email us at info@masterplanretire.com or call 770-980-9262.

https://masterplanretire.com/
Catch all episodes of our podcast at https://www.masterplanyourretirement.com/resources/episodes
Listen to Mark Fricks on Saturdays at 8:30 a.m. EST on AM920 WGKA and 12:00 p.m. on XTRA 106.3FM WFOM.
Sign up for one of our upcoming events at https://www.masterplanyourretirement.com/events
Purchase Mark's Book, The Road Less Traveled: Turning Your Retirement Worries Into an Excursion of a Lifetime on Amazon.com https://a.co/d/4fx94Al

Advisory services offered through MasterPlan Retirement Consultants, Inc., a Registered Investment Advisor in the state of Georgia. Insurance, tax and commodities services offered through Fricks and Associates, Inc. dba MasterPlan Retirement Consultants.  The aforementioned are affiliated companies.

Send us a text

Evan:

Do you believe a retirement planning myth that is endangering your retirement plan? Hey folks, thanks for joining us. Welcome back to Retirement Roadmap with MasterPlan Retirement Consultants. My name is Evan. With me, as always, retirement planner Mark Fricks. We have a series of retirement planning myths to discuss, some of which could derail your retirement. You may be surprised to find out. You've been believing a myth for a while. Mark: We come across many myths and just beliefs that are either old and outdated or just completely unfounded.

Mark:

Quite often, yeah, it's all about everything from what we used to believe, because my granddaddy retired that way. It could be something that has just been spread around the radio so long, or magazines nowadays. Social media, water cooler talk... the modern water cooler as well.

Mark:

So there are a lot of things and you know, when we teach a class or we're face to face with a prospect for a client, those will come up almost every time and we're like, hey, I hear what you're saying, but think about this and try to steer them in the right direction, Because it is typically a long-held belief, maybe from their parents and grandparents as well.

Evan:

Sure, so we're going to kick it right off with one that is probably originated in the 90s. There was a study back in the 90s known as the 4% rule, so the myth number one is everyone should follow the 4% rule. So basically, the 4% rule again. It's been around since the mid-90s. It's a popular retirement savings strategy. It suggests retirees can withdraw 4% of their total retirement savings every year, adjusting for inflation, and their retirement dollars should last roughly 30 years.

Mark:

Yeah, that's one that still keeps getting spread around, and what they're basically saying is, if you've got this equity account with a mixture of even some bonds and things like that, that, if you take out 4% a year of that balance, you've got a pretty good chance of your money lasting 30 years 90 something, percent, 97% or whatever, which is fine. But a lot of things have happened since 1993, I believe, is when the study was done and so they redid the study, they being Morningstar, one of the world's largest researchers of investments. Every investment has been around all of that kind of good stuff, and so what they found with their new study was what we now call the 2.8% rule. So now you need about a third more money for the same math to work. So instead of maybe 700,000 to get 30,000, now you need over a million dollars to get the same thirty thousand dollars, and even still it's not guaranteed.

Mark:

So that's why we and many planners have moved away from stock market based income models into other kind of models that produce better income than 2.8. Every model we use produces at least 4% to 5%, many of them 6%, and almost all of them guaranteed at that percentage, and so just be careful. I still hear it on the radio. Sometimes I still hear it around social media or whatever. A lot has happened over the last 20, 25 years from a standpoint of market volatility, and so that's what's changed that rule, more ups, more ups, more downs. So when you're taking money out and we hit a 30% bear market, you are just sucking the life out of your principal, and so it's going to disappear much quicker.

Evan:

Yeah, people refer to the 4% rule as a rule and it really was never meant to be that in the first place. It's more to be a guideline. So if you consider the fact that, yes, now it's actually 2.8%, which I guess doesn't flow off the tongue quite as quickly, as easily as 4%, but if it's 2.8, that also doesn't account for individual circumstances, unique circumstances to that client or account, market fluctuations, personal spending habits. It's more of a guideline, of a starting point for folks to kind of wrap their head around income and retirement.

Mark:

And think of it this way. If you are, you know you've got one big bucket of money which used to be your 401k or your thrift savings plan or your 403b. Most people have one or two larger buckets and you're using that like that. Even if you're doing 2.8%, things come along. It's not just monthly income, it's that roof that you might need to replace next year. Well, that's another 20 grand coming out.

Mark:

I just read this weekend heating and air systems are going to go up by 35% because of new regulations that the new administration is trying to get rid of. But they want to move to a higher level of refrigerant which only two companies in the US have a patent for. And it's just things like this, I mean. But you replace these things, whether it be a house, whether hey, I wouldn't like to take a nice trip type of thing, or whatever. So that kind of just piles on top of that 2.8. So that's why we, as part of our planning technique is splitting off that income source from the other things we need periodically, and that way we can really measure how much we can take out for those extra things. Hey, I want to reward myself this year and go to Europe because we've made good money in the market this year, not so much. I think we'll go to Duluth or Snellville or somewhere like that, which is which are nice places, by the way. That's that's.

Mark:

that's a positive.

Evan:

Yeah absolutely Myth number two, and you're going to like this one. We get this one a bit: Social security is bankrupt.

Mark:

Yeah, we've tried to straighten this out a couple of times. I still hear it a lot Social security is not bankrupt. It's not going bankrupt. To explain that, let's dig just a little bit.

Mark:

So Social Security is actually funded three ways. Number one is funded by current taxes. So when I work I pay into FICA. That goes into Social Security. Some of the money that people that are getting Social Security pay in taxes goes into Social Security. So two of the feeders of Social Security are current taxes. The third feeder is what they call the trust fund.

Mark:

I call it a big savings account. So for many years there were 16 or 18 people working for every retiree. Now that's down to about two to two and a half, and so they're having to take money not borrow, but take money out of that savings account to make the difference. The savings account is shrinking. It will be gone. Not borrow, but take money out of that savings account to make the difference. The savings account is shrinking. It will be gone, they think, in 2032 to 2034. And so what will happen is payments will be cut by approximately 20 percent because they no longer can use the trust fund. That's all that is.

Mark:

They are trying to fix it. There are about seven proposals on the table. I have faith in our Congress that they will come together and get that fixed, because I don't want anybody getting a 20% pay cut, including me. Okay, but it's not going away. I've had so many people say I'm going to go and take it because it might not be here. No, it'll be here unless something super drastic happens, and if something that major happens, we have bigger problems than that. So I cut in funding or the amounts you might get, but it's not going away.

Evan:

Yeah, there was a study by Nationwide and turns out that about three in four think social security will run out of money, the fear that social security is going bankrupt. The problem with that is that it may push people on the verge of retirement to start collecting their benefits earlier than they maybe would have, which doing so would result in a reduction of up to 30 percent in their monthly payments, since you can generally get a bigger benefit if you delay your social security.

Mark:

Yeah, and, of course, it all depends on life expectancy and all that kind of good stuff. We have a lot of discussions with our clients about this. Uh, there's more than one way, especially if it's a married couple. Take one a little bit earlier, one later. Whatever, there are reasons for doing that. Also, are you working part-time in retirement? You take it too early, you lose some of your social security benefits, so why take it? So a lot of factors come into play, so please get help on this. This is not a Google solution. There's too many things coming together and it's all based on what your needs are in your life, and so get help with a fiduciary that has training in social security benefits, which we do.

Evan:

Myth number three is also social security related: Social security will cover most of my expenses.

Mark:

Yeah, I'm sure you've got some stats that I don't memorize, but so many people are relying on it almost for 100%.

Evan:

Yeah, and it was never meant to replace your paycheck. It's designed to replace about 40% of your pre-retirement income.

Mark:

So what are people relying on it for? Now, the average, do you have that number Like 70 or 80%? That supplies like 70 to 80% of their income, that they need.

Evan:

No, it's intended to only replace 40%. I'm not sure what it actually is.

Mark:

I think I've read it's about double that.

Mark:

That is what people are actually, the average person is actually depending on from social security, which is why it's so vital that they not get a pay cut, because we've leaned further and further on this pool of money that is beginning to run dry. So that's why you know, take into account your own, you know responsibilities when it comes to retirement. If you need to work a little bit longer to fund your 401k a little bit longer, if you want to maybe work part-time for a while, I myself, if I ever do retire, I don't know that I can sit at home. Most people can't.

Mark:

Most people need to be doing something productive, whether you're getting paid for it or volunteering or something. But yeah, be careful with that. With Social Security again, some of the changes that may come would be cost of living increases. So if you're relying on it for 80% or 90% of your income and you don't get much of a bump one year even though inflation goes up, you're getting further and further behind. So lots of things affecting that. Please, it's never too late to start saving money.

Evan:

Yeah, some of the misconceptions, I mean they've been around for a long time about how much Social Security is actually supposed to replace. But back in the day we had pensions and Social Security, two reliable sources of income. Well, we know that pensions have largely gone away at least the vast majority of them and they've been replaced with a 401k, which is not a guaranteed amount, a set amount of money, and that responsibility is now in your hands, folks who have the 401ks, the TSPs, the 403bs, all these good things. It's up to you now to determine how to make that money work for you over 25 plus years in retirement. It's no longer reliant on your pension and your former company.

Mark:

And that's why a lot of times I'll refer to it as my grandfather's retirement versus today's retirement. Again, he had a great pension. He worked 30-something years for the mill, right, you know, he had a mill house. It was a very nice little house. It was perfect for them. It was paid for after a while.

Mark:

Cds were paying 5%, you know, savings accounts were paying well, and nobody was in the market. I mean, in the 50s, 60s and 70s the IRA and the 401k had not come out yet. So the middle American mostly they were not participating in the market because they didn't have that easy conduit into it, and so they were again just kind of riding this three, five, 6% wave of money. But again, that pension probably covered 50, 60, 70% of their needs, and then social security kicked in the next 40 or 50,. They were in good shape, you know. And then they passed away right, I mean life expectancy much earlier, and so maybe they were five years in retirement, maybe 10. But nowadays we've got people 20, 30 years in retirement, and because we're living so long, guess what Health issues those are cropping up more and more. We didn't live long enough to. I'm not even sure Alzheimer's existed. It was probably called getting senile or something like that Just a different world we live in, and it's not something that I would encourage anyone to do on their own.

Evan:

Yeah, and on the social security conversation if you have not visited ssa. gov, downloaded your own social security estimate to see where you are, I highly recommend doing that, especially in your pre-planning stage for retirement. While you're online, you should also go to masterplanretire. com. There you can schedule your complimentary consultation with one of our advisors. That's an opportunity to run a series of retirement outlook reports for you. It's essentially a 10,000-foot view of your own retirement and then we will stress test that retirement. We will test your retirement against bear markets, against higher taxes, against the passing of a spouse and many more items. That's completely complimentary. Feel free to take us up on that. We'd love to hear from you. MasterPlanRetire. com or 770-980-9262. You ready for myth number four?

Mark:

Real quickly on social security.

Mark:

Another great reason to check out your statement. Actually, look at the statement, don't just look at the little readout on the initial login. Pull up your statement because it will give, on page two or three, all your years of history of earning and we have found over and over again that social security will miss a year. And so it's 35 top earning years. Okay, earned income over 35 years. If you're missing four or five years, those are zeros and that will lower your average as well. Get it fixed, the sooner the better. Do a check, do a self-audit, double check that for yourself.

Evan:

Number four: cash is king. In times of uncertainty, many people liquidate their holdings and move to cash. They're betting that it's safer than being beholden to the whims of the stock market. May move funds to CDs, bonds, money markets, things like that.

Mark:

Which is fine if you've got clear signals that the market's going down. You haven't waited until the market's gone down. You want to sit on the sidelines. Our money managers do that fairly often. But they get the signals, they get the algorithms and they can see hey, we need to rest some of our money. They never go all to cash. I don't have anybody that ever goes all to cash, but even our government workers. We'll advise them maybe move to G Fund for a few months. We'll give you another notice when we get more signals and let you know to get back in. But we have seen.

Mark:

I can remember after 2008,. It was years where I'd see people sitting in almost all in cash eight and ten years later, which means they totally missed the recovery, plus another 40 or 50 percent on top of that. Don't let fear drive your decisions. If fear is a problem, if greed is a problem, let somebody else manage your money. You know I have a little bit of hard time managing my money. I hire money managers to hire, you know, to manage it because again it takes that emotional aspect down of it. I trust them. They have a long track record.

Evan:

Let them do their job and they'll work their way through the windings of the stock market and make money long term, yeah, a portfolio of all cash is not going to keep up with inflation, over 30-year retirement, with rising health care costs, inflation, cost of living increases. It's better to have money spread out inflation, cost of living increases. It's better to have money spread out stocks, cash and bonds. And again we have this conversation all the time. It's what the account needs to do. What's the account's job? Of course, if you need immediate income, that's not going to be in an aggressive portfolio, but maybe your long-term 5-10 year bucket that's for long-term growth can remain in the market and remain more aggressive even in more volatile times times

Mark:

Again over time, the market makes money.

Evan:

Myth number five: long-term care insurance or nothing.

Mark:

What I hear you saying is that's our only choice Long-term care. We have steered folks away from buying the insurance because it has got to be very difficult to get. It's very expensive and clients that have bought it years ago still get letters every two or three years where the cost is increasing. That happens four or five, six times over a 10 or 12 year period. They can't afford it anymore, so they paid for it for 20 years. Now they drop it.

Mark:

So there are tools out there and again, if you've got a planner that specializes in retirement planning, they will know of some tools, just like we do that you can incorporate long-term care coverage into other tools so that you're not just paying for long-term care insurance. It's just almost like a trigger that gets triggered and whether it's built into an income plan, whether it's built into a life protection plan or whatever, I love those tools because I don't feel like I'm spending a client's money. We're utilizing a client's money and for many purposes. Built into one tool, that long-term care rider is a very powerful tool.

Evan:

Yeah, absolutely, and it doesn't even have to be a long-term care rider. It can just be a specific bucket, specific account with a certain timeline. You do need to prepare, but we've seen how many clients who have been paying in for a long time with these long-term care policies that they had before they've ever met us Several, are being offered a buyout. One of our clients was offered a buyout of $50,000.

Mark:

I think it was $50,000, $40,000.

Evan:

They'd had it for 25 years, which, if you consider that amount, that's about half how much a long-term care has cost.

Mark:

They probably paid in $60,000 to $70,000, but that didn't count the fact that they could have made money on that money. So they're trying to buy them out because they don't really understand or know. They don't have a good handle on how long people are going to be in in facilities. It seems to be getting worse and worse because we are keeping them alive, we're trying to give them a quality of life, but it's also costing a lot of money, and so it's just I don't know where it's going to come to you. I really don't. I'm hoping the government doesn't have to get involved, but people are just floundering with some of these issues. So make sure, especially if you're middle to upper middle class, you make a little bit better than average income. You don't want to lose all of your assets to Medicaid and not have a legacy to leave your family or your spouse enough money to live on because the state came and used up all your money for long-term care.

Evan:

And now this is also not a recommendation by any means that if you have long-term care insurance, that you should drop it. Not at all, because it actually can be a huge blessing for you, especially when you find some folks who've had it for a long time and it's still a good policy, one of those stronger carriers. We're not saying get rid of it. In fact, many people have great experiences with it when it pays out the way it's meant to. However, when you're strategizing, moving forward, the landscape has changed, so you really need to have a fuller viewpoint on your long-term Know your options. Yeah, know your options. Myth number six: financial plans are for rich people.

Mark:

Wow, that's a good one, yeah, so. So it's almost like saying you know, only really really healthy people need to go to the doctor. That's good. You need to go, period. You know we have people we work with that have very little in investments, in investable money. They need help more than anybody. We need to squeeze every dollar out of there and really show them what they can spend. Maybe they need to budget, Maybe they need to work part-time or whatever, but have a plan. No matter how much money you have, you certainly need one if you have a lot of money.

Mark:

Wealthy people are afraid of running out of money. The wealthier people we work with, but that middle class, somebody that worked at Lockheed for 30 years, somebody that worked at Southern Company for 30 years or whatever they've saved all these years. They've got a decent nest egg. They go well. I'll just turn on my social security at this age. I'll just take money out of my 401k over the next 30 years and we should be okay.

Mark:

Should's not a plan, Hope's not a plan. So put it in writing. You know what it does, Evan. As you've heard our clients say, it gives them absolute peace of mind knowing that they've got a lifetime of income plus growth over here, and plans for hey, if I lose my spouse early, if taxes go up. These are all strategies we put together. Why not have that peace of mind to have a plan? So don't be afraid to. You know, I know as a guy and speaking for a lot of men, a lot of times we're afraid to look for help. Many times it's the female that drives the couple to see us, you know, and that's okay, you know, but yeah, yeah, don't be afraid to at least have a chat with us.

Evan:

Yeah, that's good.

Evan:

Myth number seven: estate planning doesn't apply to me. So estate planning, including even drafting a will, is one of those things people just put on the back burner or think, oh, my assets aren't large enough to need any of this. But you're not considering, not only the trouble you're leaving your heirs but the costs that it might eat into your legacy.

Mark:

I consider this in two steps. Step one is having the right documents. That's a good step in the right direction, but it also needs to be incorporated into your overall financial plan. That's what estate planning is. It's not just creating documents. So make sure you work. So we have attorneys as part of our team because we do some of the planning with them. They give us advice on how to set that up, they write the documents, but now it's integrated with your other holdings. It's integrated.

Mark:

You know, do you need a trust or a will? Have you updated some of your beneficiaries because they don't go through the will or trust they go through. They don't go through probate. That's a better way to put it. So it needs to be an overall plan and also we're beginning to see more and more of these wills that people do online or do through some cheaper attorney website or maybe done by an attorney that's not an estate planning attorney are not working. They look good, you know they feel right, and then they get a probate and the judge says I can't accept this because of this or that. So it's up to the probate judge to decide if the document is any good and maybe it was written 30 years ago and that maybe was no good.

Mark:

I have somebody come in here with a three-page will. I already know it's no good. There's just not enough language in there for today's digital assets and getting into people's bank accounts and other things that have not been addressed in the past. So getting into people's bank accounts and other things that have not been addressed in the past so many people's will was done 30 years ago when their first child was born or something like that. So not only that, getting it updated, but making sure it integrates with everything. So I think if you've got a house and $50,000, that's still going to be a mess for somebody. If you don't have a will, You're dying without a will. It's a much longer process, more expensive process.

Evan:

Myth number eight, we've just got a couple minutes so we'll try to knock these last two out fast. Myth number eight: I can set my financial plan and forget it.

Mark:

Yeah, you can, you shouldn't.

Mark:

But you can. Things change, life changes. That's why we meet with our clients officially once or twice a year, because we understand that things change. Sometimes they'll call us this has changed. We need to see y'all make adjustments. It's not in concrete, it's not in stone. It's designed to be flexible. Hey, if I lose a spouse, my income just dropped. I've got to take a little detour If this happens or that happens or whatever. We've talked about it, we've planned for it, but now we actually got to change those widgets or change those levers or whatever to make sure that it keeps up with the evolving lives, evolving tax laws, all of this. It is always something you got to keep up with. That's why we love working with folks, because we help you keep up with it. It's not like you've got to sit down on New Year's Day and make a bunch of changes. We've got that plan and we guide you through it, pretty much like your CFO.

Evan:

Last one. We'll try to plow through it while we still have time: I will be in a lower tax bracket in retirement.

Mark:

Yeah, almost never happens. Most people want at least 80% of their income coming in at retirement. Most of them want 100%. You've got to remember when you're working, you've got money coming out for health insurance. You've got money coming out for your 401K or thrift savings plan, and so what is your net income and do you want to maintain that? That's going to be a different tax bracket, plus, as tax laws change, it could be higher. The fact you've got to take required minimum distributions. You're forced to take money, have an ira that can put you in higher tax bracket. If you lose a spouse, you're in a higher tax bracket. A single tax bracket is higher than a joint. So there's so many things and we rarely see somebody stay the same or get a lower tax bracket, especially with taxes going up in the future, so much money being spent. So, yeah, don't let that be part of your philosophy. Make sure that you keep up with that.

Evan:

That's good. Folks, thanks again for joining us today. Remember, check out MasterPlanRetire. com to schedule your complimentary consultation.

Mark:

We've enjoyed today, I hope this has been helpful for you. Until we see each other again, remember plan well and prosper. Take care. This was Retirement Roadmap Radio with Mark Fricks of Master Plan Retirement Consultants. To schedule a complimentary consultation, go to masterplanretirecom or call 770-980-9262. Thanks for listening and remember plan well and prosper. Thank you.