Today, Michael Wallin and Stacey Andres break down 3 of the most common mistakes that investors make regarding their retirement. They are:
We discuss each of these points, and our hosts also explain the Life Art plan that they use. It uses hard numbers to determine our investors' ideal rate of return for a successful retirement.
If you need help putting together a financial plan - so you can stick to it - feel free to reach out to Michael and Stacey. You can find them on our website - artofwealthunbroken.com. Or give them a call at 855-378-1806.
Jag: Welcome in to The Art of Wealth Unbroken. I am Jon "JAG" Gay joined as always by Michael Wallen, and Stacey Andres. Great to be with both of you.
Michael: Thank you, JAG. Great to be here.
Stacey: Good to be here, JAG.
Jag: We talk about the art of wealth unbroken. We want to make sure that you have your wealth, you have your money, and when you head into retirement, there are probably a thousand different mistakes that people may be heading into retirement. We could be here all day, all week, all month, all year running through them. But today, Mike, we're going to really focus on three of them. Where do we start?
Michael: I would say the number one area that we should always be focusing on is really having a plan. And we talk about this on every show, but it's so imperative.
My 30 years of being in the industry, the number one area where I've seen people fail consistently is because they did not have a plan from the very beginning. And that is a strategy. We were looking out there to do a vacation today, and we've seen all those surveys and research, it comes out JAG that they talk about the amount of time that people put in as effort planning, a vacation.
And that typically is five to 10 times more effort put into plan a vacation than they actually plan in the retirement strategy.
Jag: Mike, you're actually preaching to the choir here. I can tell you that my wife is a vacation planner. Anytime I am watching a ball game on the TV in the living room. She is on her phone.
She is on TripAdvisor. She is on Yelp. She's figuring out restaurants, wherever our next trip is going to be. And so you absolutely hit the nail on the head. That absolutely rings true.
Michael: Well, people look at retirement, one dimensional, but it's actually multi-dimensional. And too often, what I see, and this would be the number one area that I feel that people fail is they quit their job too early.
Stacy. I know that you see clients every day and they look at their retirement as a destination on their age, but it's really not. It should be a destination on the resources they have. And it kind of brought up , a little analogy, last week, talking about vacations. Children on spring break.
And we happened to have went to a theme park and I've got a six year old daughter that she has been standing on her tip toes for years wanting to ride these rides. Well, she's finally there JAG and she is now able to ride this ride. And I looked at her and I said, just because you're tall enough, does it mean you should ride the ride?
And it's the same thing for retirement. Just because they're old enough to retire does not mean they need to enter into retirement, quitting their job, quitting a process of creating that earned income and now becoming dependent upon the resources that they have saved. That truly needs to have a complete evaluation because it's not, can you make it today?
And it's not. Can you make it for a number of years in retirement, but can you make it all the way through retirement? Stacey, you were sharing with me another article that you had read. They talked a little bit about a challenge. So share a little bit about the numbers that people were seeing.
Stacey: Absolutely. So we see this often,and to your point of, retirement being a more of a destination in regards to the amount of assets that you have versus being in age. On average in the United States, a couple's only going to have $135,000 in their combined retirement accounts. You look at that, that is only enough to provide about $600 per month of additional income on top of whatever benefits they might be getting mostly coming probably from social security. How can anybody in this day and age survive on $600 a month of additional income?
Michael: Well, I think that goes back to our number two point. Which is, that's not following a financial plan because a financial plan is going to take consideration of a lifespan for those individuals that may have 135,000, we sit down with clients like this every day and they're telling us, oh, I need to pull 10, 15, $20,000 a year out of my retirement plan to subsidize the other resources that I have. Well, if you're retiring in that way, without any type of change, of whether it be positive or negative, you're talking about less than a 10 year distribution out of your retirement plan.
That means they're not considering expected lives. They're not truly looking at a planned retirement age that will allow them to have the amount of resources to carry them all the way through the retirement years. We've all talked about the surveys for years, that the number one fear that retirees have is outliving their money .JAG that now is a greater fear for retirees than those that are afraid of actually dying.
Dying is not as morbid or fearful as one actually living, but not having enough resources to live the lifestyle they dreamed of or became accustomed to.
Jag: That makes sense, Michael, because. If you die, you're gone. You're worries are over. But if you're here, when you're out of money, that is a world of hurt.
And as we've seen advances in medicine and lifespan has gone up in recent decades and people are living into their eighties, nineties, even more in some cases. That is a really scary thing to think about.
Michael: One out of every eight couples that have reached age 65, under the current mortality tables is going to reach 100 in age.
So you have got to plan that your retirement dollars are going to last you 30 years or more in your retirement years. Where are you going to retire? Too many people want to relocate, or they want to change their living standard. They may want to downsize in a home. They may want to, move to a sunnier location.
They may want to consolidate. Well, what is that going to look like? They may want to move closer to their children or grandchildren. It is about the difference between qualitative and quantitative planning. Qualitative planning is identifying all the things that bring you joy and happiness and fulfillment, a strategy to give you that lifestyle that you've always dreamed of in retirement.
The quantitative planning comes in and that's identifying how much dollars do you have to have today with some X amount of return on your money between now and your retirement day, so that you successfully land at your destination of retirement. And it can also have enough resources to take you through that.
Stacey: Mike, one of the things that you had said is that one and eight is expected to reach 100 years of. And a lot of people listening to this may think, well, I'm never going to live to a hundred. I don't have longevity in my family, but let's just back that off a bit. The average couple, where both of them reach age 65.
I believe if I recall correctly, there's a 65% chance that at least one of them is going to live till age 90. So it doesn't matter how you slice the pie. You are literally looking at 20 to 35 to maybe 40 years of need. Once you decide to retire, where you are going to need income? And you start looking at all the additional costs that come with that, not just, what do I need today, or what do I need tomorrow to meet the lifestyle?
But once you reach those older ages, once you start getting into your later seventies, maybe early eighties, and then the healthcare costs that are associated with that, because we're not the healthiest eaters here in our country. And that leads to a lot of significant health problems and of the two articles that we're looking at here.
One says that the average couple that is going to be needing healthcare or assets for healthcare is looking at $535,000 out of pocket. The one from Investopedia says that per person, that you could expect to pay $300,000. Those are astronomical. And it's maybe not just healthcare costs that starting to incorporate long-term care.
But like you mentioned, at the beginning of the show, it comes down to, people spend more time planning their vacation and what they're going to do on a weekend than the amount of time that they spend planning for what their retirement is going to look like and how are they going to afford to live?
Jag: Okay. So number one of our three, not having a plan, number two, quitting your job too early. Gentlemen, what's the third retirement mistake we're going to cover today?
Michael: JAG, the number three item that we want to talk about today is investing with a purpose. And when I say a purpose, let me just throw a couple of questions out to y'all.
If you were looking at your investment statement today and you were receiving a 10% average rate of return or a 12%, or let's just say it was a lesser number, and let's just say you were getting a 6% rate of. Are those good returns?
Stacey: It depends.
Michael: Absolutely. It depends because let's say you were getting a 10% rate of return on your account, but you actually needed a 12%.
And so you've checked off the box that yes, I am doing my investing. I'm putting my money in my 401k, my 403B, my 457, my personal IRA. And wherever you're putting your money aside and your investment advisor is getting you a good return. But is that rate of return, really commenserate to what you need to make your plan successful?
This is why this number three goes back to number one. You have to have a plan. One of the things, JAG, that Stacey and I always do is we build in a strategy to determine what rate of return is really necessary to make the plan successful.
Jag: Yeah, absolutely.
Stacey: And one of the things that I love about what we can do here with the life art plan, which is the software data gathering tool that we utilize with all of our clients, is it gives us that quantitative number that we can look at and say, okay, based off of your income now how much you're putting away, it will quantify what rate of return that we need in order to help our clients achieve their lifestyle goals.
It will quantify the amount of risk that they need to take. They may be low risk and say, I want to do something conservative. And we've talked about this on other programs prior to this, but what their lifestyle requirements are, they're needing to take significantly more risk based off of the current assets that they've saved in order to reach those goals.
So it's going to be a push and a pull and something has to give. And so what life art does is it helps put in front of an individual exactly what they need to do to achieve that. And it's not numbers that you and I are just pulling out of thin air and making up it's based off the data that they themselves are putting in.
Michael: Stacey, I got a great example. I'll share with you as we approach the closing points of the show today. Yesterday I was meeting with a client. And we went through the life art plan and through the life art plan, the client had shared with me that they were averaging about eight and a half percent. That was their average rate of return on their portfolio.
Their actual need of a rate of return with current inflation rates was to get 5%. So I shared with the client that they were actually taking more risk than was necessary, exposing their money to more opportunity for loss than was necessary to achieve the objectives that they had for the retirement years.
So looking at life art plan, it was an invaluable tool to help this client understand they did not have to continue in the more aggressive position we were able to reallocate, reevaluate their position. Take down the amount of risk. The beta on the account went down by about 22 basis points and the client's going to be able to achieve it with less risk and more comfort.
So when the market start changing, they're not going to see as much of a down draft in their account value on their statements. They were happy. Life art was able to provide the tool and now it gives us a number that we can measure against as we go forward.
Stacey: I had the exact same experience yesterday. Meeting with a client last night, him and his wife going through some of the numbers and the truth is they have done a really good job of putting the right assets in place to make sure that they are going to be financially secure.
What's interesting is it really doesn't matter where a person is at economically with what they have in stores in their assets. They all have the same concerns. These clients have significant assets and yet their number one question is, do I have enough? And when looking at what they have in their 401k plans and their savings, they are never, never going to need to access them.
And yet that is still the number one question that they keep asking.
Jag: Really important stuff that we've covered today here, guys. You know, as I've said off the top, there are so many pitfalls and mistakes that are very common heading into retirement. And to bring it full circle to your rollercoaster analogy there, Michael, you may be tall enough to ride the ride, but you might not like the drop on that rollercoaster if you're not expecting it. So if somebody wants to come talk to the, both of you about their financial future, avoiding some of these common mistakes, again, we only hit on three today, but there are so many, you can visit our podcast website at artofwealthunbroken.com. Again, that is artofwealthunbroken.com.
That'll be linked in the show notes as well as the phone number to reach you, which is
Michael: 855-378-1806. Again, 855-378-1806.
Jag: Stacey, Mike, I'll think of next time I'm on a rollercoaster. Take care.
Michael: Thanks Jag.
Stacey: Thank you, Jag.