In today’s episode, Victor tackles the question, “Are my financial advisors working in my best interest?” In addition, Victor discusses 5 Retirement Planning Sins and ways to avoid and overcome them.
For additional information on retirement planning issues and things you should look to avoid, text RETIREMENT to 609-554-5936.
Make It Last with Victor Medina is hosted by Victor J. Medina, an estate planning and Certified Elder Law Attorney (CELA) and Certified Financial Planner professional (CFP). Through his law firm and independent registered investment advisory company, Victor provides 360º Wealth Protection Strategies for individuals in or nearing retirement.
For more information, visit Medina Law Group or Palante Wealth Advisors.
Click below to read the full transcript…
Victor J. Medina: Hello everybody, welcome back to Make It Last. I’m your host Victor Medina. I am so glad you could join us for another fun and exciting adventure in the world of legal and financial retirement planning.
Listen, I have a lot to cover in today’s show and one of the things I’m going to do is talk to you about five retirement planning sins and how to overcome them. Before I get into that, a couple of things that I wanted to share first of all.
Today is my wife’s birthday. I’m not allowed to tell you how old she is. Certainly not on anything that’s going to be pushed out and saved in posterity forever and ever but it is her birthday and I want to wish her a very happy birthday. I’m going to try to do something special for her a little bit later today.
That wasn’t the biggest news of what we had. [laughs] Biggest news of what we had in terms of the first segment of today, I wanted to cover a couple of things that we’re going in my practice that I thought were newsworthy. Things that are related to clients that I’m having, and to having to deal with it.
It just seems to be part of a thread of things along the way. That’s really about whether or not financial advisors are out there doing the best thing for their clients, and whether or not the financial institutions are doing the same thing.
We’ve been working pretty consistently with teachers and people who were in the public education system that come to us with a number of accounts already in place at TIAA. It used to be TIAA‑CREF.
I think about 10 years ago, they moved from a non‑for‑profit company to a for‑profit company, but they didn’t send out a big press release around that. Nobody got a flyer in their materials saying, “Hey, by the way, we’re no longer non‑for‑profit and just wanna let you know how for‑profit we really are.”
It turns out that they just made the change. It allowed them to start to treat clients completely differently. Part of what they started doing was offering products that have some stringent and harsh contract terms.
It’s really visiting on my clients’ heads right now, as we try to figure out the balance of their retirement planning. We start down a path of putting a great plan in place for them.
Then when we go to try to access the money that’s in there, that’s the time that we learn the contracts that they have will only release this money over the course of five years or seven years or nine years. It really impacts their planning.
I don’t think that many clients are in a situation where they realize that that’s exactly what’s been going on. Then, I started reading a article but an arbitration with somebody who had dealt with AXA Advisors.
The details of it aren’t super important, they were a retired couple, they had saved a lot of money. But what they were being pushed into were these unsuitable contracts and they’re in the midst of arbitration trying to acts of defending and these clients fighting. This idea that they were given something that wasn’t good for them.
On top of that, we’re in the midst of passing all this new regulation around FINRA and SEC where they’re calling it a best interest standard, but when you start to dive into the documents, its soft but the laws and regulations turns out that it really doesn’t protect the way that they had hoped or the general public would expect it to protect.
Where do I end up with that? I end up in this conversation with clients about this idea that they’ve got to be watching out for their own best interest, unless they’re working with a fiduciary advisor. Unless they are working with somebody that is contractually obligated to be looking out for their best interest. At the end of the day, they are not going to be protected by any of the laws that are out there because laws, in fact, for the majority of the financial advisors really don’t protect for them.
I guess the best way to illustrate it without painting the entire industry in the negative light is to think about the difference between a butcher and a dietitian. If you see like, you’re going to see Lou the butcher, and you ask Lou the butcher what you should eat. Lou’s going to give you one kind of answer and that answer’s going to be meat in some format.
At the end of the day, you’re going to get meat that isn’t rotten, right? Because that would violate some health codes, but you’re not getting the best part of your diet at all. That is the thing that I think that really highlights the difference because if you had seen somebody who is a dietitian and you ask them what it is that you should eat.
Then, they’re going to give you advise that’s really in your best interest. They might say that meat’s OK. Eat meat maybe even once in a while. Red meat probably won’t kill you today. But look, you shouldn’t have some salad, and you should have some leafy greens on a regular basis. It should be part of a balanced diet.
When you’re trying to figure out where people’s priorities are, looking at the compensation schedule for them like, “How is it that they’re making their money?” is one of the things that can lead you to some really sharp conclusions about whether or not they’re looking out for your best interests.
If we look at Lou the Butcher, Lou only makes money if you buy meat. His recommendations are always going to be around meat, and that meat might be great. That meat might be the best meat that you could get, but is it really the best thing for you?
When you work with a dietitian, you say, “Look. I’m looking for what I should eat.” Dietitian gets paid by you. The only way the dietitian continues to get paid by you is if they give great advice, and you’re still around. They need to earn their place with the advice that they’re giving.
They’re not trying to push any particular product. They don’t make money if you buy meat, or if you’re buying salad, or anything else. They don’t get paid any of that.
That’s the difference between somebody that works as a fiduciary that says, “Look, I’m sort of agnostic around what it is that you’re going to be selecting for your meal, but I’m really, really concerned in you having a balanced diet and getting the best food for you.”
We’re still in that world. I need to keep sharing those stories out with people because I can only help so many people, one at a time. At the end of the day, I’m not going to help the majority of the people in this population. That means that there’s a lot more people that are going to need advice and help than I could possibly give.
One of the things I need to do is help them recognize when they’re working with somebody that’s looking out for their best interests versus somebody who isn’t. One of the ways you can do it, obviously, is making sure that you’re working with somebody that is a fiduciary that will sign a fiduciary pledge that will hold themselves accountable as though they were working for your best interest.
It’s one of the best reasons why, and as an estate planning and elder law attorney, I’m able to offer financial services, as well. The relationship that I have with my clients, attorney‑to‑client, is one where I am there not only looking out for their best interest but actively engaged in safeguarding them, now and for the future.
That’s probably something that you should be thinking about for yourself, as well. Listen, I want to go over, as I said, the five retirement planning sins.
Here’s the thing. We’ve all sinned or made a mistake at some point in our lives, but the timing and the magnitude of those particular sins and mistakes are what can make the difference between something being detrimental or not.
What do I mean by this? Let’s say that you are planning for college, or you’re planning for a wedding, or maybe your first job. What might happen if you made a big mistake during those milestones of your life? Most people want to make sure that the college that they choose is the right one the first time they make that choice so they don’t regret making the choice that they did.
Most people want to make sure that they’re fully prepared for the big wedding date so that everything runs smoothly. Most people want to be fully prepared for the interviews, and so forth, that goes along with preparing for their first real job out of college.
The idea is if you happen to make a mistake at one of those points in time. The magnitude of that mistake will dictate how detrimental it is. If you forgot to order food for the wedding, it’s a big mistake, but we can pretty much get through the wedding. If you forgot to order or plan for the marriage certificate, well, that’s a big one. You’re actually not going to get married.
Even if you made a mistake in any of those scenarios because the majority of them, your first job, wedding, college, happened early in life, you got a lot of time for you to correct that mistake. You can overcome a bad college choice decision with different internships or maybe transferring.
You’re not so hurt by a bad decision early so as to take away your entire future. Now, I want you to think about retirement in the next 20 or 30 years of unemployment. Would you rather live those years enjoying yourself or stressing out because you didn’t build a proper retirement plan?
Or, maybe you did a great job planning ahead for retirement but you committed one of the retirement planning sins that can be detrimental to your golden years.
Today, what I want to do is I want to talk about what common retirement planning sins are, five of them, in particular, and make sure that you understand how to avoid each one, and to put you on the right path for a successful retirement.
Here’s my goal with this. I want you to have something actionable as part of what you can take away from this show. Understand what are the most common retirement sins that could impact your future, and how to avoid them. We’re going to talk about things like budgeting or classes or clubs that can help you prepare for post‑work life, or how Social Security is going to impact it.
I want you to understand that the changes that you make now could help avoid each of the retirement sins that I’m going to outline. I want to be clear, when I say sin, I’m just simply meaning retirement mistakes that you should avoid. The small sense, like little letter s, not capital S, not the venial sins, or whichever is the big one.
These sins can be avoided with the right plan or the right guy to help you build that plan. Once you figure out a way to help overcome or avoid these sins, it can help you create financial stability for your retirement.
Financial stability can have many different meanings to different people. I think maybe the simplest way to put it is that when you feel confident about your financial situation, that’s when you’ve obtained financial stability.
In other words, if you’ve got confidence that your income sources will cover your bills in retirement because you have an income plan set up for that, or when you’ve pay down most or all of your debt prior to early in retirement so you don’t have that as a lingering item in your budget.
Or, you’re planning for leaving a legacy behind, and you’ve bought some form of a product that will guarantee what it is that you’re leaving behind as a death benefit.
At some point in time, you’re going to have the components of a plan that gets you confident about your current situation and even the majority of what your future situations might look like. That, in of itself, is financial stability.
Today, I’m going to discuss these common mistakes that happen. Again, my goal is to help you think of ways to help you overcome or avoid them so that you can have this financial stability in retirement. For me, when I first started working in the real world, I was looking for financial stability.
I didn’t get it in my first job. My first job was working for a copier company. I believe that I made about $16,500 as a salary, which was not enough for me to leave my home. [laughs] I graduated college, moved home, got that first job, but even that job was barely enough to cover gas and rent money.
What I wanted to do is get to the point in time in which I felt confident about what my financial future look like. It meant that I needed to put a plan around that. By the way, one of the elements of the plan is I need to get a better job, and I did. In about six months, the next job that I had after that was working for a pharmaceutical company.
That brought a lot of stability with it because it was the first time, I had access to a retirement plan at work. They gave me a car, which meant that I had reliable transportation. In fact, if the car ever broke down, it was a phone call before they delivered another car to me. I had a lot of stability in my life.
That financial stability between the salary, the 401(k), how I was meeting my obligations, the fact that I can move out of my parents’ home, and actually find an apartment that had washer and dryer in it. I mentioned that today’s my wife’s birthday. Well, we were dating at the time that I got this job.
The idea that I had a washer and dryer in the apartment was a big draw to spend the weekends at my place instead of at her place because her place had the washer and dryer in the basement, and you needed to bring quarters. This one was a lot better. I was talking about stability, the stability of having clean clothes.
For most people, they’ve been on both sides of the coin, feeling confident and stable and not feeling confident and stable. I know that in my own experience, and I guess may be talking with other people, as well.
One of the things that I’ve noticed is that financial stability is one of those things that if you don’t have it, it ends up causing the most amount of anxiety in someone’s life. They’re so much wrapped up into your current security, your current sense of feeling safe, as well as what the future might look like.
There’s so much of that that’s wrapped up in financial stability, in knowing that you have the money and the income, the stability in the job situation, and the savings to know that you’re going to be safe. When you create that kind of safety, it gives you the opportunity to have vision.
You can see a future that is greater than your present. When you don’t have it, all you can barely see is the nose in front of you. Knowing what the difference in that feeling is, absolutely, has driven me to try to get as many people as I can feeling safe and secure. It’s just not about money either.
We do so much work in the world of elder law asset protection planning, which is essentially the work that it takes to make sure that somebody doesn’t die broke in a nursing home. That’s a huge concern for an aging population where they know that the cost of long‑term care is so, so significant.
When we’re able to put together a plan that gives for them a sense of comfort and security. That no matter what life deals in their direction, they’re going to be able to meet that challenge and be safe all the way through.
All of a sudden, their future is brighter. All of a sudden, they can see past their present into a future that is greater than one that they’re currently living in. When they can, when they have a parent, who’s in a long‑term care facility that might be spending a lot of money in skilled nursing or assisted living, or when they’ve been dealing with it for a loved one, there’s no vision.
They can’t see past their next month or the next visit. What I’m getting at here is achieving this kind of stability, legal, and financial stability. It’s going to take some work. It may take some time. Some of you may feel that you’re there already. Some of you may not. The goal is to be able to have some certainty that you’re there.
One of the things I want to do is I want to offer you the opportunity to get a report around how to plan for retirement. All you have to do is text the word, Retirement, to 609‑554‑5936. Type the word, Retirement, into 609‑554‑5936. You’ll get a free report that we’ll send you that will give you the opportunity to learn more about that.
I’m hoping that you understand it’s not too late to build a plan for retirement and to take care of some of these mistakes. Maybe you’re making them right now. You can always change that.
The key is to avoid procrastination and really get into making sure that you’ve got all of this in place. Let’s do this. Let’s take a quick break. When we come back, we will dive right into the five common retirement planning sins. Stick with us. We’ll be right back after this quick break.
Announcer: Life is better when you have your legal ducks in a row. One area attorney can help you get your financial ducks in a row, as well. Victor J. Medina fills dual fiduciary roles, an estate planning and certified elder law attorney, and also a credentialed, certified financial planner professional through his law practice at independent registered investment advisory company.
Mr. Medina serves high wealth individuals seeking conservative advice at a professionally‑managed approach to retirement wealth management. Learn more about Victor’s 360‑degree wealth protection strategies.
Call 609‑818‑0068, that’s 609‑818‑0068 or listen to the newest episode of Make It Last radio, Wednesday mornings at 11:00 on 1415 talk radio. Investment advisory services offered through Palante Wealth Advisers LLC, a New Jersey and Pennsylvania registered investment advisor.
Victor: Welcome back to Make It Last. Today as I mentioned I want to talk to you about different retirement planning sins. There are five that I want to go through because I think these are the ones that are the most common and the ones that I think are going to be really helpful if you avoid.
Let’s jump right in. The first retirement planning sin is counting solely on Social Security and pension. I see this all the time. It’s one of the most common ones we see with people that are looking ahead to retirement is that they’re making assumptions about their income sources specifically about Social Security and pension.
They think about their future and assume that Social Security will take care of the majority of their income needs in retirement. If they’re fortunate enough to retire with pension they think they’re going to be more than well off when they start receiving that plus Social Security in retirement.
I’m going to talk to you about couple of reasons why you shouldn’t count on these income sources at least not in the way that you’re thinking about it. Right now, just so that we are clear, Social Security is currently bringing in less than it pays out. It’s projected to do that every year moving forward. There’s really no end in sight on that.
If exchanges are not made, the programs trust fund will be exhausted in 15 years and only about 75 percent of the schedule benefits will be paid out to future recipients. It’s not in the status of fully funded and super reliable.
The other reason why I don’t want you to rely on this as your sole or primary income source is that for many people the amounts that they are going to get from Social Security probably is only a fraction of their spending needs. That is due in part to the idea that people’s spending in retirement often doesn’t go down unless it goes down by requirement.
Most of the time people’s income stays flat or may even increase. The reason why it might do that of course is with all of this time, every day is Saturday. By the way this is somewhat in the structure of the way that Social Security was created, but if you are looking for a guide for this, realize that Social Security is really only designed to make up about 40 percent of your pre‑retirement income.
It wasn’t ever thought of as being the form of the safety net that gets 100 percent covered along the way. It never was what it was meant to do. If you are thinking about pension, you probably already know whether or not you will have one in retirement. It was probably a benefit of you being employed with that company in the first place or that employer.
As it turns out, according to the Bureau for Labor statistics, only about 15 percent of private sector workers, basically run by individuals and companies rather than the state or the government, participate in work‑related pension programs. By the way, this survey consisted of about 116 million full and part time workers.
Think about that, just over 1 in every 10 private sector employees will receive a pension when they retire. 20 or 30 years ago pensions were far more prevalent. That helped to make retirement easier to plan for today, because somebody didn’t have to save in order to get to retirement. They just had to keep working.
As long as they do that, they’ll earn the pension at the end. Pensions are becoming a thing of the past. In defined contribution plans such as 401(k), they are becoming the forefront of retirement and what retirement is.
These plans do not guarantee for you an income stream for life on retirement. Instead, what you have is just a nest egg, a bank of dollars that you have to figure out what to do with. Look, even if you are receiving a pension in retirement, I don’t think that you should solely rely on that. There can be reasons for that in the future.
You might have a buyout option sometime down the road, where the company will be looking to get rid of this unfunded liability for them. Unfunded being they have to pay for your income for the rest of your life, and may start to put in front of you, decisions about whether or not you take it as a lump sum.
Well, you want the flexibility to consider that decision. In the best light, you don’t want to be hamstrung to only being relying on this pension income if it turns out that your needs are going to be different in the future. There are all kinds of reasons to think about that by the way, too…
Once you start to layer in elder law planning in trying to protect assets in case someone gets sick sometime in the future that it’s covered that way, once you begin to do that, you start to realize there are circumstances in which, even if the income is there and guaranteed, if someone happens to get sick, the rules around how you qualify for Medicaid require that the person who is sick give up their money and pay it to whatever facility they’re in.
This often leads to a huge change in someone’s lifestyle when the money that they were relying on as a guaranteed basis gets cut in half or somewhere else. It cuts in half or worse, I mean. You’re looking for ways to get you flexibility so you can get some consistency around that. It’s an important thing to do.
Next retirement planning sin. Number two, if you’re taking notes at home, is not having a budget. I think that this is a sin or a mistake that has had a resurgence in the last 10 to 15 years. What I mean by that is back when we were far less about living on monthly income.
Back in those days, people had to budget. They may have been relying solely on one person’s income. That income might have made it a stretch for people to live. Meal was extremely expensive, far more expensive than it is today. It is difficult to do meal planning, in a way. People would budget.
Your grandmother ended up putting money in envelopes, cashing a check and putting money in envelopes. One envelope said rent, and the other envelope said utilities, and the other envelope said groceries, and budgeting happened. Then, we moved to having two incomes. When we had both spouses working, we were bringing in a lot of money.
Some people had changed their lifestyle but we started to reduce the need to do budgeting because people simply had enough money routinely deposited in their account just as their salary every month, every month, every month.
Great. They’re having all of this money. That’s the bulk of the baby boomer generation, where there was a lot being made and people living on that. When somebody gets into retirement, and they spend all of these years not having a budget and not living on a budget…
I have friends that are as guilty as anyone that I know just spending when they come in but not ever really living off a budget. As long as there’s enough money in there, that’s enough. I’m getting all of my needs met.
I never have to dig into savings because everything ends up being done on a monthly charge, a subscription basis, their Netflix, their mortgage, groceries, but that’s not even a big investment. Anything they want. Anything that’s part of a service economy to get them their status in life and what they’re doing. All of that is being handled on their monthly cash flow.
Then when they get to retirement, that cash flow disappears. That guaranteed income, the paycheck disappears. Question comes, what do we do now? The answer is, let’s go back to an idea that we had before that works so well. We need a budget.
As I mentioned, it’s not necessarily important when you’re working, but when you get to the end of the working life, it’s hard to make adjustments when you’re drawing down from principal. When you’re getting income in and you get a pay raise or there are tax laws change, and you have a different withholding, it’s very easy to make some form of a course correction.
Once you get into retirement, if you start off that journey without a budget and a plan, then it can lead to some problems down the road. I want to help you simplify how to build a budget in retirement. I don’t think that it should be a really burdensome task. I don’t think that you should be pulling your hairs out overdoing this.
First, let’s just get all of our expenses down.
If you look online for a monthly expense sheet, you can find all kinds of options. It’s the one time I’m going to tell you to start your planning online. [laughs] Do your planning on the free resources, because all it really is in terms of a tool is a spreadsheet. It’s just a spreadsheet that does some addition.
The ones that help you with monthly expenses probably have some predetermined categories that you can just fill in. Look at the things that are your mandatory bills, as well as the discretionary expenses that you don’t necessarily need. It may make sense, by the way, to consider some unexpected bills such as unplanned, unanticipated, undesired, car repairs.
If you don’t want to go through pulling out line items for all of this, a good rule of thumb is to add maybe 10 to 15 percent of your total monthly expenses. If your total monthly expenses come up to like $3,000, add an extra $300 to $450 a month onto that expense total to help cover any unexpected expenses that may arise.
That’s going to give you your expense number. The next thing you want to do is then figure out your income sources. Once you’ve figured out your expenses, then go ahead and look at all of the income sources that you have. You may want to look at $1,500 coming in from Social Security.
If you were fortunate enough to receive a pension upon retirement, maybe another extra $1,500 a month. For most people, those are going to be the only two sources of income that they’re going to draw from, and the math is simple.
There are other sources that yet may come into play. For instance, you might have rental income from a rental property that you have. You might have an annuity that pays you out, lifetime income.
You might have investments that pay you dividends on a regular basis. You essentially want to count on those. Whatever they are, whatever you can get your income sources that are not about liquidating your investments, add those all up.
Then you’re going to discover where your shortfall is. A shortfall is when your expenses exceed your income. Look, for most of you, you’re going to have a shortfall. Most of you will spend more on a mandatory basis plus, definitely, a discretionary basis. You’re going to spend more than you make.
Whatever that is, let’s write it down. If your monthly expenses come out to about $4,000 and your income is $3,000, you have a shortfall of $1,000 a month. Now, you have to figure out a way to overcome this shortfall in the best, most efficient, optimal way.
Like I said, some people don’t have to worry about this. Kudos to them. My parents when they retire, God bless them, they’re both schoolteachers, they do not have to worry about this, at all. They have more coming in than they spend on a guaranteed basis. Fantastic.
If that’s not you, if you’re not my parents, you’re going to have a couple of things that you can do to help fill the income gap. The first thing is, I want you to save as much as you can until you retire. Max out your contributions to your employer’s retirement plan, as well as any other retirement account that you have that can help fill the income gap.
Start to go over your monthly expenses. See if you can cut out any expenses or reduce them. Definitely pay off credit cards or other similar debts. The sooner you do this, the sooner you won’t have to include it in your monthly expenses, which is going to, in turn, lower your overall total expenses.
If you pay off your credit cards and other similar debts, then you will have extra space in that expense category. It’s going to make it easier to manage that in the future. Next, you may want to put off retirement a little longer. This is going to have a double benefit.
One of the things is it’s going to give you more time to save. The other thing it’s going to do is it’s going to give you fewer retirement years that you have to cover. It may not be an ideal choice, but it can cause less stress if you’re contemplating retirement, and you have a huge income shortfall and not a lot of savings.
We want your retirement years to be less stressful. It won’t matter if you have an extra two or three years, if all of the years are stressful. Let’s make the fewest number of them stressful, and that could be the additional years that you work and put off retirement. You may want to think about any expensive hobbies or travel plans that you have.
Again, you want to try and hold off on these as much as possible until you have more financial freedom. Or, you may even want to consider working part‑time in retirement. You might have an option to do that as you transition away from your job.
You might want to change careers. You might do that as a function of staying on in the job and training the next generation, somebody that might take your role. If you’re able to work part‑time in retirement, again, that has that double benefit.
You’re essentially able to save more, but while you’re there, you’re going to spend less because you’re going to be working for that period of time. You don’t have to consume those dollars. The income from that job is going to reduce the stress and the workload on your retirement dollars, and that’ll make it easier, as well.
[background music]
Victor: Listen, let’s take a quick break. We’ve only gotten through two. When we come back, we’ll handle the other three retirement planning sins or mistakes that you should avoid.
The most common ones, and we’re going to give you some tips and tools as we’ve been doing now, to be able to get fresh ideas on how to avoid making mistakes, in the first place, how to correct them. Stick with us. We’ll be right back after this quick break.
Announcer: Imagine if the attorney you trust to protect your legal interests could also be trusted to protect your retirement wealth. One trusted advisor, dual fiduciary roles, Victor J. Medina.
Mr. Medina is an estate planning and certified elder law attorney with a national reputation. He is also a certified financial planner professional. Through his law firm and independent registered investment advisory company, Mr. Medina provides 360‑degree wealth protection strategies for individuals in or nearing retirement.
His unique approach offers advantages to high‑wealth individuals seeking conservative advice and a professionally managed approach to their retirement wealth. Learn more. Call (609)‑818‑0068. That’s (609)‑818‑0068.
Or, listen to the newest episode of Make It Last radio, Wednesday mornings at 11:00 on 1450 Talk Radio. Investment advisory services offered through Palante Wealth Advisers, LLC, a New Jersey and Pennsylvania registered investment advisory.
Victor: Everybody, welcome back to Make It Last. We’ve been talking about these retirement planning sins and the things that we can and should be doing in order to avoid making these mistakes and making the most common of them.
We handled two already. One of them was planning specifically on just Social Security and pension for the income that you’re going to need. The other one was not having a budget. Let’s go ahead and update those, fix those.
Let’s get to the next one, which is ignoring inflation, specifically in the area of long‑term care and healthcare costs. I’m sure that just about everybody understands the general concept of inflation and basically that things 10 years from now are probably going to be more expensive because of rising prices.
That also means that your money won’t go as far. It’s going to take more of that money to get the same things but what many people do not put in perspective is how inflation can impact healthcare and long‑term care costs.
According to Fidelity, a typical 65‑year‑old couple will spend about $280,000 of out‑of‑pocket healthcare cost during retirement. If that number isn’t surprising enough itself, remember that five years ago that number was $220,000.
We had an increase of 27 percent in just five years. Not only are costs generally rising, but the cost of healthcare is rising significantly.
On that same note, long‑term care costs are rising. According to “Senior Living” the national average for a semi‑private nursing home is $82,000 a year, so let’s call that roughly, about $7,000 or so a month.
I’ve got to tell you in New Jersey, because we deal with this all the time, the cost of long‑term care for a semi‑private room in a nursing home is far higher than that. Far higher. We’re looking at closer to maybe $10,000 a month not $7,000.
If you’re trying to budget for that in this area, it’s about a $120,000 a year. Not only is that number that high, but it’s continuing to rise. It is rising faster than the cost of inflation. We think about this concept of inflation as being more global. Just the idea that things are going to get more expensive in the future, it’s important not to overlook this.
This particular scene is important to…I wouldn’t say avoid…it’s not a mistake that you can do anything about. You’re not going to change what inflation is, and you’re not going to change whether or not it happens, the rate at which it happens, you have zero control over that. You do have control whether or not you plan for it.
I have to tell you nothing has the risk of depleting a retirement nest‑egg more than the cost of long‑term care and/or healthcare. One of the nice things about our practice is that, because we focus on elder law asset protection planning, because I’m a certified elder law attorney, I get the opportunity to see exactly how this impacts families all around me.
We are routinely meeting with families that are facing a long‑term care crisis right in that moment. There’s a spouse that’s gone into an assisted living facility. There is a parent that’s in an assisted living facility.
There is something going on that is causing them to have to plan for this, and here’s the most important part. It is devastating their retirement nest egg. We are no longer in nest egg mode any longer, by the way, for most of these people.
Not literally, I’ve figured. If we literally did this, it wouldn’t work, but it feels like we literally set fire to the money. The rate at which money is going out the door is faster than in any other situation.
When you start writing a check for $12,000, you are buying a really good used car every month. You didn’t just buy one. You bought 12 of them in that year. Guess what? When you start the next year, you’re going to write another check for another small, great, used car.
It’s $12,000 a month. You are consuming far more money far faster than you probably ever did in your life. Your mortgage never costs $12,000 a month. Your car payment wasn’t $12,000 a month.
You didn’t spend $12,000 a month in entertainment. Certainly, you may have spent $12,000 in one month for a vacation, but you didn’t spend it the next month after that and the month after that and the month after that.
Now, as I mentioned to you, there aren’t a lot of ways for you to control whether or not this thing is going to visit on your doorstep. You have very little control on whether or not you will have a need for a long‑term care stay sometime in the future. You just can’t control it.
You will also not be able to control what the rate of cost inflation is on that. How fast that cost grows, you can’t control it either, which means that it’s going to be difficult to use financial planning instruments essentially to make this work.
What we’re going to need instead is we’re going to need some legal planning instruments. We’re going to have to use some tools from the legal world to do that.
Now, unfortunately, I can’t send you to Google to get this done. This kind of planning does not live in a spreadsheet. It doesn’t live in some downloadable format. It doesn’t live in the form of a conversation with your neighbor, where you can just get that one little key piece of advice. It doesn’t live there.
The only place where this lives is when you visit with a qualified elder law attorney. If you visit with somebody who is a certified elder law attorney, certified, a CELA. By the way, you can search for these individuals by going to NELF, nelf.org, that’s the National Elder Law Foundation. Search for CELAs in your area in New Jersey.
Only when you meet with somebody like that, tell them that you want to do asset protection planning against the causal long‑term care, will you get the solution from that. By the way, the solution is not really, really difficult for most people. It just needs to be done with the help of a lawyer.
Next retirement planning sin. Number four is not having a post‑work plan. Many people I sit down with are so focused on actually getting to that retirement date. They have not built any kind of a post‑work or post‑retirement plan. Rather, they believe that they can finally reach retirement and then figure it out along the way.
I’ll tell you something. It doesn’t always work for everyone. I hope it works for you. It may be good to start thinking ahead of what retirement looks like. In case it doesn’t work for you, you’ve got a secondary plan. What’s the harm in being prepared? Boy Scouts knew this. Be prepared. There’s nothing bad that can happen from that.
My goal is to give my clients confidence when heading into retirement and help them along the way, along their entire journey throughout retirement. This not only includes helping them with their finances. It also includes providing guidance to them with many other facets of living in retirement. I like to communicate with them and make sure that things are going well in that regard.
What I find is, unfortunately, that’s not always the case. Not too long ago, I had a woman come in to our office and mentioned that the transition from working to retirement has been very difficult for her. She decided to attend a class at a local senior center that brought together a bunch of retirees to discuss [laughs] not knowing to do with their freedom.
What’s interesting is that, that right there shows that she isn’t alone. That many other retirees have trouble figuring out what to do with this new chapter in life. Rather than figuring out about your post‑work plan as you go along, think about how to do it now.
I’m going to give you a couple of suggestions that I think are a little off the wall. Probably sound like they’re a little off the wall but they are good suggestions for you. This one sounds a little hippie‑dippie but start to think about your purpose.
Why did you exist? What is it that you have to contribute? Most of us can find enormous value in having a purpose. Not only that, the research has shown, time and again, when you have a reason to live, you live longer and more healthy than when you don’t.
Especially when that reason is outwardly directed, is other‑centered. When that reason comes in the form of your charity, gratitude, contribution, it manifests itself inside of you in a way that leads to better health along the way and far more reward than, A, either doing nothing, doing no planning, or having that planning B, really focused about you, and how much you can take from life.
What you want to be able to do is find and search that purpose and start to find activities that serve that purpose. Maybe get involved in your church. Maybe you get involved with a local hospital. My mom for a while was holding babies in the NICU that just needed comfort. For her, that gave her a lot of purpose to know that she was contributing in that way in retirement.
Next, start to approach retirement a little bit like work. I don’t mean be upset that you have to get up every morning. I don’t mean create a commutative hour, but pay attention to the things that made you successful at your job and in your career and apply a lot of those principles to your retirement life, as well.
Many of you did very well by working at your job deliberately, thinking about, “What am I going to do today? What are the top three things that need to get done?”
Many of my clients were fine just being on the assembly line and cranking a widget, doing the same thing over and over again.
This many of them, it had the ability to chart their own course in life and make decisions about what would they going to pursue. What job opportunities were they going to take advantage? What you’re going to take a flyer on? What were they going to try for the first time and try to be successful, or where do they see a need within the company and how did they fill that?
Retirees are capable doing exactly the same thing using those exact same skills, but just apply them in retirement. Think about your retirement and environment and start to evaluate whether or not that retirement environment serves the same kind of structure that you were doing while you were at work.
Do you have a way of setting up and getting out in the day? Do you have a routine? Can you keep that routine up going forward? I think if you start to have more of a deliberate attention to your retirement. For some people, if they don’t know where to start going back to the thing that worked for them i.e. the way that they were working in work.
If they don’t have that, then going back to the way they went to work might work out better for them. This is where I’m at with that. We have one more for you. One more recommendation for how to avoid making a big retirement sin and that last one is procrastinating.
In this last row of retirement planning sin is a conglomerate of all the sins mentioned and they’re all together. Whether you are five years from retirement or in retirement, I firmly believe that it’s in your best interest to start acting upon your thoughts and plans now and no longer procrastinating.
Don’t feel bad if you know you’re guilty of this, and so many of us are even as accomplished as I feel as I might be in a lot of areas. Let’s say that there’s a bunch of stuff that I do in my practice and with my clients in which I don’t at all procrastinate. There are areas in which it does happen. I’ll tell you, one of them is with stuff that needs to go on around the house.
There was a pile of clothes that had accumulated on my dresser that absolutely needed to go through. In fairness, all of those clothes were clean. They were all clean clothes. It wasn’t dirty clothes that had accumulated. I wanted to take care of that and address that. I kept putting it off one week and after another week and after another week until I finally made the space for it.
I’m as guilty as anyone else in procrastinating but I want to give you a few simple strategies that can help you stop procrastinating especially when it comes to planning like this. The first is to take a few minutes to list out several activities that you have been delaying or you have put on hold.
We’re going to call this the brain dump and you’re going to take everything that’s in your brain. You’re going to dump it onto a page of things that you should get done because here’s the thing, your brain is great for having ideas and terrible for holding ideas. That’s not my sentiment. It came from a guy named David Allen and his productivity strategies called, “Getting things done.”
We can only hold onto about four things well. When we hold on to something else, we drop one of the four and then we have to go back and pick it up, and we do create a lot of stress in our lives. Let’s get that stuff out of our head.
As you start to take a look at this list, take one small physical action on one of those things right now. It might be making a phone call. It might be sending an email. You might look at putting something on the calendar, or picking something up, or buying a book.
You’re going to want to verb some noun. You’re going to want to try to go and take some form of action that will lead you to making progress on this in some small way. Guess what? It’s going to feel great. It really will. The next thing you want to do in the next day is guess what? Take another step. Build some momentum.
By the way, quit trying to be perfect. People often push things off because they are afraid of not achieving perfection. Sometimes perfect is the enemy of done. What we want to get to is, done. We don’t want done perfect. We want done. Done OK is better than not done because you were waiting for it to be perfect.
Then the last thing you would do is start to imagine how you’re going to feel once you do whatever it takes that you’ve been putting off. Accomplishing these tasks that you’ve pushed off will help you get a great boost of confidence and energy. We want you to act now.
By the way, watch this little artful move here. We want you to act now with getting your planning done with a professional as well. If you’re currently committing one of the five common planning sins that we’ve talked about today, you may determine that you need help overcoming the procrastination and implementing strategies to help avoid these retirement sins or mistakes.
Maybe you need to see and check in that you’re right on the right path on and through retirement. If so, I want to give you an opportunity to go through a retirement checklist and be able to check yourself against that. You can do that directly with us. You can also do that by downloading our top retirement planning issues that serve as a checklist for you.
The way that you do then, I mentioned this at the top of the show, is just text the word, Retirement, to 609‑554‑5936. That’s 609‑554‑5936. Put the word, Retirement, right in the message and send it right off. We will get to you a special report talking about top retirement planning issues and the things that you should look to avoid.
I have a couple of coming events that I want invite you to next Tuesday. If you are a member of the Monroe Township Senior Center, I am going to be giving you a presentation on there on ways to protect your principal specifically in retirement. That will be at 10:30 in the morning at 12 Halsey Reed Road in Monroe Township 08831. Punch that into your GPS and join us in there.
I believe you have to be a member of the Monroe Township, but if you are listening and you’re there, you know, you can definitely take advantage of hearing some of that additional great information and joining us there.
Otherwise, I hope that these five retirement mistakes that I’ve outlined here give you a heads up on how to navigate and chart your own course. Of course, if we’re able to help you at all don’t hesitate to give us a call at 609‑818‑0068 and schedule a complimentary consultation. That’s it for Make It Last, another fun adventure in legal and planning retirement. Hopefully as I said, this is giving you a way to get through.
Join us on the next episode of Make It Last. We’ll help you keep your legal docs in a row and your financial nest egg secure. Catch you next week. Bye‑bye.
Announcer: Investing involves risk, including the potential loss of principle. Any references to protection, safety, or lifetime income, generally refer to fixed insurance products, never securities or investments. Insurance guarantees are banked by the financial strength and claims paying abilities of the issuing carrier.
This radio show is intended for informational purposes only. It is not intended to be used as a sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual situation.
The host of the show is not affiliated with, or endorsed by, the US government or any governmental agency. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed.
Podcast: Play in new window | Download
Subscribe: RSS