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July 20, 2016
So, in the spirit of doing a better job planning for retirement, NewRetirement has asked a diverse lineup of financial services professionals to share the dumbest, most head-scratching retirement questions they’ve ever heard.
Asking questions is always the wise thing to do…
The questions themselves are honest and not actually dumb, but the assumptions behind the questions show just how clueless many of us are about retirement planning.
While some of these queries are laughable, we hope that the answers are useful. Let’s get to it.
“Retirement questions can really come out of left field”, says Pete Bush, a financial planner with Horizon Wealth Management in Baton Rouge, La. “I get questions from people wondering what to do about their 401(k) account balances when changing jobs,” he notes.
“Obviously, you want to roll the account over and continue the tax deferred compounding, and not spend the 401(k) money,” implores Bush. “The money in your 401(k) is for retirement and should rarely be used for anything else. Don’t spend it, keep saving.”
However, spending is what a lot of people do. Bush reports, “Unfortunately, most of the people asking that question end up cashing out and probably wouldn’t be able to tell you what they spent the money on years later. They wind up losing the money, plus tax penalty, to the government – forever.”
Another retirement question that rankles Bush goes something like this – “Well, my company doesn’t offer a 401(k) match, so why should I participate in the plan?” “That mindset misses an all-important point,” he says. “Most of what you accumulate in a 401(k) plan will be from your own deferred earnings, while the employer contributions usually pale in comparison.”
Of course it is nice to have the employer match, but the matching funds are just supposed to be a small added incentive for you to save your own money for your own future. If you want to retire, then you need to save as much as possible now. Ideally you are saving as much as is allowed into your 401(k) and are also saving as much as is allowed in an IRA as well.
Denise Downey, a financial planner and owner at Financial Trex, in Spokane, Wa., was once asked, “Do I need a retirement plan if I never plan on retiring?”
While the simple answer is no, it is not at all a good answer. You might not need retirement savings if you will continue working through your last living day, but you still want to plan for when to start Social Security, how to cover health costs, where you will live and much more.
Retirement is more a time of life and less about stopping working. In fact, more and more of us are continuing to work — either part or full time — well past the traditional retirement age. But we still need a solid financial plan for our 60’s, 70’s, 80’s and 90’s…
More importantly, most of us desperately want to retire at some point. And while some of us love our jobs, we need a plan in place in case we can no longer work. You cannot predict the future and a big part of a good retirement plan is to build in different contingencies for different scenarios so that you are financially secure — no matter what happens.
A good retirement plan involves much more than a savings account. The NewRetirement retirement calculator lets you see how much you need, but also what happens in hundreds of different scenarios. Try out retiring at different ages, downsizing to tap home equity, buying an annuity instead of drawing down savings and much more.
Downey says “she’s seen it all” in her 15 years as a financial professional. Another crazy question she heard was, “Can’t I just play the lottery instead of saving for retirement?”
Playing the lottery is no way to plan for retirement. You have a greater chance of getting hit by a car on your way to buy your lottery ticket than you have a chance of winning. It is okay to spend a few dollars on the lottery for fun, but it is NOT a retirement plan. When you save money for retirement, you are basically guaranteed to have that money when you retire (assuming you invest conservatively and don’t spend it before it is time).
Saving for retirement is a sure thing. Playing the lottery is an unrealistic gamble.
Rodger Friedman, a financial planner with Forging Bonds of Steel, LLC, and author of the book, “Fire Your Retirement Planner: Concise Advice on How To Join the $100,000 Retirement Club,” says he’s taken a lot of calls over the years, but a few retirement questions about why you need to save stand out.
Friendman recounts, “I took one call where the person said, ‘I’m only 42 years old, why on earth do I have to worry about retirement planning before age 60?’”
The answer is that if you start saving at 60, you probably do not have enough time to save as much as you need. If you retire at age 65, you will likely live between 20 and 30 years in retirement. During that time, your out of pocket healthcare expenses could be $200,000 — not to mention living expenses. That is a lot of money to amass in 5 years.
Then there was the caller who asked Friedman, “Social Security will provide 100% of my income when I retire, so why do I have to save anything at all?”
It is possible to live on Social Security alone, but it is not easy. In 2015, the average retirement benefit from Social Security was $1,335 a month. That works out to be about $16,020 a year. Even if you are married and your household therefore brings in twice that amount, it will be hard to make ends meet on Social Security alone.
Retirement savings are meant to help you maintain a comfortable quality of life.
Michael Cirelli, a financial planner at SAI Financial, in Warren, Il. had a younger client once ask, “Is there an investment out there that gives me zero risk while still getting the full market return if the market does really well?” Cirelli had an apt response for that question, “I wish there was, ’cause then I wouldn’t need to work anymore!”
The reality is that investing involves some risk. However, the biggest mistake most investors make is in thinking that it is all about picking one right stock or fund. The savvy investor knows that they are best with a diversified mix of different stocks, bonds and funds — or one fund that has diversification built in.
And according to Lorraine Decker, a former fee-only financial planner and current Texas-based financial mentor, unrealistic investment expectations seem be a hazard of the financial advisor’s job. Says Decker, “I had one call where the person asked, “My broker told me he could invest my retirement portfolio and earn a 12% return with no risk. What do you think I should do?” She of course told the client to be careful.
If it sounds to good to be true, then it probably is. Don’t ever jump into an investment. Ask questions to really assess how realistic the promise is and figure out what kind of recourse you might have if what you want to happen does not happen.
“Clueless” may be a harsh term, but for shock value, it’s tough to beat the woman who told Decker during a financial counseling session, “My husband doesn’t know this but I plan to file for divorce next week. Do you think that will impact our retirement plans?”
Depending on your finances, divorce can make retirement nearly impossible. “Individuals who go through gray divorce (divorce after 50) are considerably economically disadvantaged, and they are a growing demographic group,” says Susan Brown a sociologist at Bowling Green State University. You have two households to maintain, you have to divide up your savings and navigate issues around Social Security and much more. Find out how to not let divorce ruin your retirement
Most seniors want to leave behind something for the kids. But the reality is that you need to be able to pay your own retirement bills.
Sometimes the issue isn’t necessarily a clueless question, but even worse, a stupid financial move. “We had a client who thought it was better to not have any assets in their name so they transferred all of their property to their children,” says Tony Liddle, a financial advisor with Prosper Wealth, in Wausau, Wi. “The problem was that the property was their main asset and the kids were not financially responsible enough to maintain and care for the property. Within five years the property was in foreclosure for back taxes.”
That is an extreme example, but many Baby Boomers are struggling with how to help their adult children or their own aging parents while also preparing for retirement. Get tips for dealing with helping family members while trying to fund retirement.
Asking the wrong questions can also get retirement savers into hot water, explains Paul Ruedi, chief executive officer at Ruedi Wealth Management, Inc., in Champaign, Il. “My 32 years in finance has taught me that most investors consider risk to be volatility,” he says. “Of course most investors do not like risk and try to avoid it. So they tend to fixate on how much risk does my portfolio have.
That is the wrong question. When clients speak of risk, an excellent advisor will ask, ‘What risk are you referring to?”
Instead, the question retirement savers and retirees should be asking is this: “Is this retirement portfolio aligned with what I want to have happen over my lifetime, and does it offer me the highest probability of achieving or exceeding my goals?” When risk is not approached properly, and when the right questions aren’t asked, clients “end up with portfolios that lead them to eternal sadness,” Ruedi says.
This one comes from Christopher Carosa, president of Carosa Stanton Asset Management/Bullfinch Fund. “The most ill-advised retirement question I get goes along the lines of this – ‘How should I invest? Should I change my 401(k) selections?’”
This seems like a reasonable question and Carosa says retirement savers are allowed to ask this question one time, but, after that, their questions better be focused on changing the things they can control – like saving more.
“The point is, we focus on investments more than savings so much that it’s imbued into our cultural subconscious,” he says. “And it’s precisely the wrong direction to point retirement savers. Yet, they’re inundated with bad information during their annual general education session, mostly concerning investment performance and a reiteration of the asset allocation sales pitch. Instead, they only need one good long-term diversified fund and then the rest is all about doing whatever needs to be done to increase long-term savings.”
Saving more is better than trying to finagle better investment returns.
A recent survey found that 1/3 of all Americans have not saved anything at all for retirement and another study finds that 68% of us are not saving enough.
These people are not asking themselves the important retirement questions — and that is indeed a dumb move.
No matter who you are, you are smart to ask, “how much do I need for retirement?” And, it does not need to be difficult to find out. The NewRetirement retirement calculator takes 5 minutes to set up. It is easy to use and gives you very detailed answers to the important questions — how much do you need now and well into your future.
Do it yourself retirement planning: easy, comprehensive, reliable
Take financial wellness into your own hands and do it yourself retirement planning: easy,
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