9 Big Mistakes People Make When Approaching Retirement - Cravitz Financial & Insurance Solutions

9 Big Mistakes People Make When Approaching Retirement

In the complex world of retirement planning, there are countless pitfalls one could fall into. So many different factors impact your success and determine whether you’ll be able to enjoy financial independence.

In this episode, we've distilled it down to what we believe are nine big mistakes to watch out for. Avoiding these crucial missteps can have a significant impact on the success of your retirement plan. So, join us as we delve into these key issues and learn how to navigate them effectively when it's your turn to plan for retirement.

Here are some of the things you’ll learn in this episode:

  • Starting Social Security as soon as possible might be the best solution, but you need to discuss this with a professional. (5:44)
  • Sequence of return risk and why it’s so important in retirement. (8:58)
  • Why you can’t ignore the future tax implications of your retirement accounts. (10:05)
  • Healthcare expenses cannot be overlooked in retirement. (13:44)

Full Transcript:

Ryan: It's not like it was a couple of generations ago where people didn't live very long in retirement. Today, again, people are living so much longer and you have to make sure that you're accounting for this.

Announcer: When it comes to financial planning, you need to cut through the jargon so that you can understand how to achieve your own retirement success. This is Candid Conversations: Retirement Talk with Ryan Cravitz of Cravitz Financial & Insurance Solutions.

Ben: Well, hello and welcome back in to Candid Conversations: Retirement Talk with Ryan Cravitz over at Cravitz Financial. You can find them online, cravitzfinancial.com. Ryan, what's going on today? How are you?

Ryan: I'm doing pretty good. How about you, Ben?

Ben: Doing well. As like we were talking about a little before, I'm getting ready to go to my first NHL playoff hockey game for the Carolina Hurricanes and Devils, so kind of fired up for that.

Ryan: I've got to go to a hockey game sometime. I've never actually been to a hockey game by here. It's fun in person. I'm not really a big fan of hockey, but again, I think it'd be fun to watch an actual game live.

Ben: Yeah, I don't keep up with it too much throughout the regular season, but playoff hockey's a lot of fun, yeah, and if you have a chance to go really with any sport, get in there and watch these guys perform at that highest level, it's pretty remarkable, and the way these guys move on ice is just, it's pretty fascinating to watch, so yeah, if you get a chance, I would highly recommend you working that into the schedule one time. It's a lot of fun.

Ryan: I'm going to do it. I mean, there's two teams locally that I can find here, right, the Kings and the Ducks, so I got double the opportunity.

Ben: Yeah, Kings been pretty good. Ducks, I guess they're not too bad either. But yeah, I mean, it's worth it if you get a shot, so I'm looking forward to that, so should be good.

And I'm also looking forward to our conversation today, Ryan, because it's a big one and it's an important one for people that are always just kind of careful. "Hey, am I doing the right thing? Am I taking the right steps? Or I want to make sure I'm avoiding any mistakes that are possible." Well, today we want to highlight nine big mistakes that people make when they approach retirement. Now, this is not going to cover everything that people do wrong occasionally, but these are nine of the bigger ones that we want to bring to your attention. Talk to them a little bit about what you can do to avoid these and how to navigate these waters sometimes as you approach retirement because it's such a big time in your life, we want to make sure you approach that phase with your best foot forward. So again, if you have questions after we are done talking today and want to follow-up with Ryan, you can always do so by calling (714) 462-9155, or again, you can get online right now and get your retirement-ready checkup at cravitzfinancial.com.

All right, so let's start, and I guess theses aren't necessarily in any order, right, Ryan, they're just nine. The number one's not any bigger than number nine necessarily. They're all mistakes you want to avoid. But let's start off with not having a clear retirement goal. That's one, you have to begin the planning process with having a goal in mind, right?

Ryan: Yeah, and this one, I would say this is kind of the starting point. I mean, you've got to know exactly what you want your retirement to look like. Obviously, things are going to change over time, but you have to an idea of what it looks like, where are you going to live? You got to make sure that if you're married, that you're getting on the same page as your spouse so that you don't have any major disagreements on how this is going to look like and how you're going to fund your retirement so you have to take a look at those things.

And then you have to do something that nobody I find really likes to do and that is you have to put together a budget. I mean, it's not so important to put to together a budget and you're working years if you're working and making more money than you're spending and you're saving on top of that. But the moment you retire or the moment you're planning to retire, you have to really account for how much are you going to need, how much are things going to cost, and within your plan, how are you going to meet that? Might you have to move or what might you have to do in order to make this work? So you have to account for all of that.

Ben: Yeah, and I'm going to probably ask you a little bit more about the budget here coming up. It's one of our mistakes that I want to get to, but I want to go now to longevity, that risk that you have that if you live a long time you need to plan for, but on the other side of that, Ryan, a lot of times people just assume, "Hey, I'm not going to live a long time," whether it be because their family has a history of not having a long life, right, and they just say, "Okay, it's going to be the same thing for me, so I don't need to have as much saved."

Ryan: Yeah, it's definitely true. I mean, the fact is that many of us are going to live for 20 or 30 or more years now in retirement. I read the other day that, what was it, it was a third of kids that are born today or babies that are born today are going to live to be a hundred years old.

Ben: Wow.

Ryan: And in fact, I was just talking to my dad the other day. I mean, he's 70 years old right now. He's got a couple of health things going on, but very well under control, and if you would've asked him just 10 years ago or 20 years ago, "What do you think your health is going to look like when you're 70?", he would've never envisioned that he'd be in as good a health as he is actually today. But it happens all the time. My grandmother lived to be 102.

Ben: Oh, wow.

Ryan: It's very common, so it's not like it was a couple of generations ago where people didn't live very long in retirement. Today, again, people are living so much longer and you have to make sure that you're accounting for this.

Ben: Yeah, because you don't want to live and be healthy like your father at 70 in your 70s and feeling great, but also on the other side going, "Oh, man, I won't know if I have enough money to be able to enjoy everything that I want to right now because I wasn't really planning for this," so something you have to be aware of and it's a mistake that you want to avoid and proper planning will help you with that.

All right, we're going through nine big mistakes people make when approaching retirement. Third one here, Social Security. People for whatever reason, and there's a lot of good reasons to maybe do this, but it's starting Social Security too early. A lot of people want to turn it on as soon as possible, and while that might work, it's not always the best solution.

Ryan: Yeah, definitely. I mean, for some people that's going to be the best solution, and especially if you don't have much other money that's saved, that's probably going to be the solution that you need to go with. For other folks, it may or may not make sense to do it. Again, part of it has to do with longevity, which we were just talking about a moment ago, because the longer that you delay taking your Social Security benefit and you can wait until you're age 70, the higher your benefit will be.

But there's a lot of mistakes that I see here in the way that the analysis is done on this because one of the mistakes that I see far too often is you've got a husband, maybe he's a couple of years older than his wife and he was the higher breadwinner throughout his working years, and so he's got the higher monthly benefit amount and he says, "I'm not in that great of health. I'm going to go ahead and take my Social Security benefit early," and so he does, and then he passes away, and then when he passes away, his wife, who is perhaps a couple of years younger than him and perhaps in good health now has a much-reduced survivor benefit for the rest of her life, so you really need to make sure that you're accounting for everything when you're making that decision on when to file and how to file and all that sort of thing.

Ben: Yeah, not a decision you just make by itself, there's a lot of factors that go into it, so have a plan as always before you go into Social Security and turn on your benefit.

All right, as you move into retirement, your mindset shifts, right? You're no longer really much worried about accumulating assets and building your nest egg. It's more about, "Okay, how do I distribute this?" So the mistake people often make there, Ryan, is they don't shift and they continue to think about, "Okay, I'm focused on returns," rather than focusing on income.

Ryan: Yeah, absolutely. If you think about this in your working years, you have income and then you need to take a portion of that income and turn that into assets and hopefully grow that over time and then in retirement it shifts back. I mean, now you have to take those assets because your income is stopped and you have to turn that into income. That's really the name of the game. It's all about income in retirement. As long as you have the income that you need in retirement to meet your expenses and maybe not just the needs of what you want to or what you need to have available to you for the basic living expenses, but maybe enough income for the other things, the vacations and the going out to eat and all the other fun things that you want to be able to do, if you know have the income that you're going to need during that period of time, that's what really matters, so focus on income in retirement.

Ben: All right, we're talking about nine big mistakes people make, and again, if you have questions, follow-up cravitzfinancial.com. That is the website. You can also call (714) 462-9155.

Number five here on the list, forgetting about sequence of return risks, so explain what this is for anybody that maybe is not familiar, Ryan, and why this is a mistake that people make.

Ryan: Yeah, this is so important. There's something called the retirement red zone or the financial red zone, which is that time period that's right about five years before you retire up until about five, maybe 10 years after you retire, and it's so critical during this period of time to make sure that your money is managed in such a way that you don't experience large stock market drawdowns because if you lose a significant amount of money during this period of time when you're also needing to withdraw money from the portfolio to live on, this could put you at a very real risk of running out of money. Or if it won't put you at risk of running out of money because you've really done a really good job of saving, it might put you at a very real risk of having to deplete your nest egg down to a level that's uncomfortable so you want to make sure that you're aware of sequence of returns risk and that you have a plan around that for where you're going to get your money and when.

Ben: All right, number six, taxes. Let's talk taxes for a second, and as you're saving money in these retirement accounts, your 401(k), IRA, a lot of people are ignoring those future tax implications of the money that they're putting in and maybe get caught off guard in retirement, Ryan, when they get that tax bill and that money they're pulling out, right?

Ryan: Absolutely, and we have to know that tax rates are going up. We know that for sure because the Tax Cuts and Jobs Act is going to sunset in 2025, so we're going to go back to the old tax rates as it was back in 2017. Tax rates will be higher, the spreads between the brackets aren't going to be as favorable. We know that's going to happen. We also know we're over $31 trillion in debt as a country, so there's a lot of reasons why our government's going to need additional revenue, which the way they get that is by additional taxes and so in fees and other things, but primarily taxes, and so we have to account for this.

And many people in retirement, they have most of their retirement savings in these pre-tax retirement accounts like 401(k)s, IRAs, 403(b)s, et cetera, and when you go to withdraw that money, you have to pay taxes at your ordinary income tax rates and so you have to have a plan as to when you're going to withdraw money from when in order to minimize the taxes that you're going to have to pay over time. For instance, just because you can delay taking money out of these accounts because the age when you have to start taking out your RMDs, your required minimum distributions, has now been pushed back till perhaps age 73 or age 75, depending upon when you were born doesn't necessarily mean that you should, so you really have to have a well-thought-out plan to determine when you're going to withdraw money from when in order to reduce the taxes that you have to pay.

Ben: All right, I mentioned I was going to circle back to budgeting a little bit later on, so let's do that right now. You mentioned putting a budget together is hard enough, but for people that have a budget, oftentimes a mistake they make is they don't adjust it for inflation, and I think a lot of people are realizing that right now with the inflation rate we've been through.

Ryan: Yeah, absolutely. I mean, for several years there, inflation really wasn't top of mind, but over the course of the last couple of years, it certainly has been. I mean, it's not only in the news, it's in the supermarkets, it's everywhere that we go, so we need to account for inflation over time knowing that the dollar that we have today, it's not going to buy as much in the future, and if we live for 20 or 30-plus years, we're going to really need to make sure that that money is keeping up with inflation.

Now, the only other thing that I will say here is that you don't necessarily need as much money adjusted for the cost of living in maybe two decades or three decades from now, except for possible healthcare expenses. That's definitely one that will creep up later in the future for many, but for a lot of folks, they don't spend as much in their later years in retirement, again, except for things like healthcare, so there's different things to consider here, but you want to make sure that you have a plan and don't overlook the fact that things are going to cost more in the future just because of inflation, and we could experience even more inflation for a longer period of time here.

Ben: Yeah, that's just really, it's hard to predict, and I know there's experts are kind of all over the place and in terms of what they think, but the key is inflation's going to be there, whether it's a smaller rate or a higher rate and you have to be ready for it.

All right, a couple more on our list, and you kind of touched on healthcare and long-term care costs, and this is another expenses that seems to go up maybe even faster than inflation most of the time, but these costs later on to take care of yourself. A lot of people don't want to think about this, and for whatever reason, because they don't want to think they're going to get sick or going to need help, or they just feel like they're in great health, it's going to be a while, the mistake is they ignore this and it can really catch up with you.

Ryan: Yeah, healthcare expenses in general just can't be overlooked in retirement. The cost of healthcare is going up at about twice the rate of the overall inflation rate, so you have to have a plan as to how you're going to pay for these expenses in retirement, and many people overlook just how much it will actually cost. You've got the Medicare expenses and such there, and perhaps that could increase in the future, or cost-sharing could increase in the future. There's a lot of reasons why that could be the case that has to do with what our debt is as a country, and that the fact that these programs are underfunded, Medicare, Social Security, and others, so there's that.

But then on top of that, there's the things that Medicare doesn't pay for, and those are long-term care expenses, like if you need assistance, whether it's at home, whether it's at an assisted living facility, whether it's at a nursing home or whatever the case might be, you have to have account for how you're going to pay for that, and not everyone's going to encounter this and have to pay for those expenses. If you're married, there's a very high likelihood at least one of you is going to encounter these types of expenses, so you need to have a plan as to how you're going to pay for that. I mean, there's long-term care insurance policies, and I think they should always be investigated to see if it makes sense as a part of your plan, but if not, you just have to make sure, okay, where am I going to get the money if and when these expenses come up?

Ben: Right. All right, last one on our list, nine big mistakes people make when approaching retirement, hopefully you've already got a plan in place. That's great big first step to take, but planning's not over at that point, right, Ryan? It's all about regularly looking over your plan, evaluating where you are, and making adjustments where you need to.

Ryan: Yeah, absolutely. I mean, you can't go to the doctor, get your physical and say you got a clean bill of health and you're good to go for the next 10 years, right, you got to go back on a regular basis. I mean, same thing with our teeth, right? We got to go for regular checkups and things. Over time, your situation changes, your financial situation, your personal situation changes, tax laws change, different retirement rules change, and so you have to make sure that your plan that you set up originally is still the right one for you today, so you have to make sure that you're doing this periodically. It's so important.

Ben: All right, very good. Nine mistakes people make. If you think, "Hey, maybe I've made this mistake, or this maybe has me a little concerned about my own plan or my own finances or my own retirement," best thing to do is sit down with the financial professional, have him look over it, talk through everything, and you can always get in touch with Ryan at Cravitz Financial online at cravitzfinancial.com or over the phone, (714) 462-9155. Confidence, security, peace of mind, that's Cravitz Financial, and what we hope to accomplish every episode on this podcast is to help you give you a little bit of that as well. So Ryan, I enjoyed going through these with you. I know these are some important things to be paying attention to for anyone approaching retirement, and hopefully we'll help somebody out today.

Ryan: Absolutely, and enjoy the hockey game tonight.

Ben: Will do, appreciate that. Thank you for listening to Candid Conversations: Retirement Talk with Ryan Cravitz. I am Ben George. Have a good week.

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