Money, Myths, and MREs: The Pitfalls of Financial Planning Explained
07 May, 2024
Four Things That Clients Tell Themselves About Saving for the Future
The myths surrounding financial planning and retirement planning are more numerous than the Florida Man tales you read about online. It can be easy for the line to blur between fiction and fact. What I can say for sure is that the predominant fear among retirees is running out of money.
To shed some additional light on the subject, I’m going to address some major myths of retirement planning that contribute to that fear.
#1: “I have plenty of time to save…later.”
You typically only realize how much you missed out on by delaying your savings once it’s too late. Having said that, it is also never too late to start saving and actively working on your retirement planning. That’s my way of saying, “If you haven’t started saving yet, you should look into that now.”
One popular ideology is to pay off credit cards and personal loans before committing to a retirement savings plan. And although achieving debt-free status is all well and good, a person can reach that status while saving for their retirement at the same time.
When it comes to credit, the focus is always on the interest rate charged, which ultimately drives the motivation to pay off last year’s vacation. However, take a moment to consider how money works in this situation. As your credit balance decreases, so too does the amount of interest you pay. And as you deposit money into an interest-bearing account, the amount of interest you earn increases.
Accelerating the pay-off of your trip to Disneyland may be a moral victory of sorts, but you could be forfeiting interest earned – not just this year – but for the next several years. Granted, this is a gross oversimplification, but sometimes it makes sense to attack both at the same time and we can show you how.
#2: “My 401(k) and IRAs will be enough.”
The average retirement account for someone 65 years old is about $150,000. Take a second to consider that. Even with Social Security, you have to ask yourself if that will produce enough income to last you for the duration of your retirement. That could be another 25 or 30 years.
If you do manage to save enough in your IRA and 401(k), the rules determining how the money is used are set by a few hundred people hanging around the Potomac. Periodically, especially during a steep downturn on Wall Street, those we’ve placed our legislative trust in have serious conversations about the Federal Government “procuring” retirement assets in qualified accounts to “protect us from market correction.” Some of what has been floated is removing the assets from the market and depositing them into an interest-bearing account, held in escrow in the depositor’s name. Kind of like a Social Security Trust Fund, I suppose!
This is not a Chicken Little apocalyptic tale of fear mongering, and we’re not anti-401(k). These are just matters of fact to be aware of. The rules for 401(k) and similar accounts are subject to regulatory changes quite often, and most result in restricting access and control by the account owner. And with trillions of dollars in tax-deferred deposits, these accounts are annuities for the federal and state budgets. There are strategies you can employ that give you greater control over your financial assets and mitigate future taxes.
#3: “Speaking of Taxes!”
Another common faux pas of retirement planning is to assume you’ll be in a lower tax bracket and your Social Security income will be tax exempt. This is where I get a bit excited and geeky about numbers and statistics.
The national GDP is roughly $23 trillion. Our debt is about $30 trillion (130% of GDP). This figure doesn’t count federal unfunded liabilities which by most accounts are around $169 trillion and some argue that figure is underestimated by 25% or more.
What are your state’s unfunded liabilities? According to Tax Foundation, public sector pensions are funded at 70% in KS, 61% MO, 55% CO, 77% FL and 96% WI. When the Piper calls, do you think our police and fire retirees will take a 30-50% pay cut or will taxes go up?
Now consider the fact that we have a much longer lifespan coupled with a spiraling birth-rate. In 1950, life expectancy was about 68 and we had 14 workers for every Social Security recipient. Today, you can expect to live to almost 90 and we have 2.9 workers paying in for each beneficiary, projected to be 2:1 by 2030 with an even longer lifespan.
I’m not saying it’s time to convert your assets to gold and MREs and then head for the mountains of northern Arizona. These are just more facts to be aware of. There is probably a much greater chance of your personal taxes increasing over the next few decades than needing to figure out how to pay the taxes on your Powerball winnings.
Simply put, if you plan on a higher tax bracket but wind up in a lower one – YOU WIN! Take another cruise, buy that custom painted golf cart to tool around The Villages, eat TWO meals a day at Hometown Buffet. The world is your oyster!
#4: “My expenses will be lower.”
This is more of a self-fulfilling prophecy than a myth in most circumstances. Yes, it is true that some people have less expenses in retirement than their working years. You’re not buying work clothing anymore. You’re not commuting or dropping major coin on lunches. And you’re no longer attending the weekly happy hour with coworkers.
However, in my experience, new expenses usually replace old ones in due time. Think about your last staycation. Did you slowly chew through your streaming queue, or did you hit the local entertainment venues? You likely didn’t just sit around wishing the grass didn’t grow so fast.
Retirement multiplies your downtime, and chances are you’ll want to travel to see the kid that took the promising job in North Carolina or the grandkid in residency in New Jersey. The reality is that you and your dearly beloved will probably get bored of life at home after a few weeks and will want to create new memories to reminisce about. That usually costs money.
As with most myths, changing one’s thought process to the reality of what is true can be uncomfortable. But I assure you the process can be much more pleasant! Your retirement planning goals can be met if you consider the future with respect to the past – secured and guaranteed for your lifetime and that of your spouse!
Contact Foresight Financial Design Today for Expert Retirement Planning
We’ve discussed a lot about the dos and don’ts of retirement planning. Now it’s time to put some of this advice to good use by contacting us for a consultation.
Our team will be happy to sit down with you and discuss your financial goals in addition to areas of opportunity that we see regarding your portfolio. It’s never too early to think about financial planning for your future.
Foresight Financial Design offers the following suite of services:
- Retirement planning
- Financial planning
- Financial management
- Private wealth management
- Small business finance management
- Estate preservation and transfer
- Protection planning services
- Infinite banking concept set-up
Call the team at Foresight Financial Design today at (913) 346-3465 or email us at info@foresightfinancialdesign.com