PART TWO
Last month, I covered Part One (1 through 5) of “10 Retirement Myths” (Business Report, September 2020) which can also be found as a blog on this website (www.vancofinancial.com) or at www.businessreport.com.
6. Retirement will last about 20 years.
The greatest fear of retirees is they will outlive their money. Today, the fastest growing segment of the population is nonagenarians – the 90-plus club. In another decade or two, it will be centenarians. The new norm is 25 to 30+ years.
Retirees in good health should plan as though they will make it to at least 95. We routinely plug in age 100 as a target.
7. Investments in retirement must be about income.
Poor ‘common wisdom,’ it soon became apparent that investing almost exclusively in bonds, CDs and annuities may assure a steady income but less purchasing power due to inflation. 30 years of inflation can easily chop the value of one’s income in half.
Growth stocks and stock-index ETFs can usually be counted on to track inflation. A popular strategy is to start retirement with a 60-40% mix of stocks to bonds, becoming more bond-heavy as you age, thereby accepting less market risk as you have less time to recoup any losses. We find it hard to recommend any mix higher than 70-30% at age 65.
We have our safe investments track markets as they go higher with no downside risk, capturing most of the growth. That means major market corrections will lead to a pause rather than a deep dive.
8. Medicare and a Supplement will take care of me.
With all the public advertising and outcry, it is shocking people still believe this myth.
Medicare with a Medigap supplement or a Medicare Advantage plan are adequate if you don’t require major surgery, invasive tests, hospitalization, a nursing home or dental work. Doctors can bill you an extra 20% above what Medicare approves.
Approximately 70% of those in their 70s today will want or need to move to an assisted living facility or a nursing home, both of which are not covered by Medicare.
Insurance is available to cover some or all of Long-Term Care (Nursing Home), Home Health Care or Assisted Living expenses. Like all insurance, it can be bought only when you do not need it and can qualify medically. It is cheaper at a younger age, and may be expensive, especially if it is not used. Most premiums will increase over time.
The most economical policies are part of or attached to a life insurance contract. Thus, if benefits are not used, the cost will be recouped by the life insurance payout. We recommend this option to ensure the premiums and to secure an unwavering fixed cost.
9. Never Dip Into Your Investment Principal.
This might make sense if you are living on the edge and scrimping. Otherwise, it makes no sense. But I still hear that the whole portfolio must not be changed because the widow’s husband selected those securities ten years ago or will only be sold if needed to pay taxes.
Ed Slott, on his PBS program, points to parents and grandparents who refuse to use their nest egg because they are preserving it for the “children.” Those kids are now on their own and grown. Alternatively, they want to help educate the grandchildren. Slott tells them to buy life insurance to provide an inheritance and stop treating the portfolio as a valuable antique.
I agree. Freezing a portfolio is dangerous and denying yourself what you worked for is a harsh sentence. If you sincerely want to leave a legacy or help with college, let us put it in your initial planning and make specific provisions. We often include payments to college funds for grandchildren.
When it comes to legacies, I find that personal items are much more memorable and important than cold cash. We counsel both be considered in the estate plan.
10. The sale of “_____” will fund my retirement.
Fill in the blank. Rife for disappointment, the item is usually viewed through rose-tinted glasses.
Owners of closely held businesses are prone to this belief. Most have no plan to make the sale and have done nothing to assure who or what will be available to buy it. Despite their perfunctory knowledge of buy-sell agreements, over three quarters (76 – 84%) have yet to contact their Financial Planner to get started. Our Business Consulting Division specializes in getting the process in motion and consummated.
Hobbyists and fine art collectors are better able to see if the value of their collections are reasonable. Not surprisingly, their worth may be spot-on but they are often much more attached to them than they thought.
The best way to achieve the desired sale(s) is to identify potential buyers, get a realistic valuation and create an Exit Plan that includes partial or total funding with a mechanism to make the transfer when ready. With proper planning, a future sale can be assured, even to the final adjustments and funding.
It is amazing how much a business tends to grow after a buy-sell agreement is in place. The freedom from worry on that subject seems to create new energy and commitment from all involved.
10.5 I’ll supplement my income by working part-time.
This is a common assumption. Unless your skill set is hard to find and your connections uniquely valuable, you may find yourself one among thousands thinking the same way. One way this may succeed is to establish a part-time position before you retire. In most cases, your health and energy will let you down. If you want to be a greeter at Walmart, you have a job!
10.5a It’s Too Late/Too Soon to Get Started.
This, of course, is just plain procrastination. Some think of retirement as a well-deserved reward for years of toil and some look to it with dread because of the wrenching change and uncertainty.
The only way out is to take the first steps to see what resources are in place or needed. Once the process has begun, thinking about lifestyles and realistic choices will follow naturally.
Yes, it can be too late if retirement is here. It can never be too soon. In fact, the sooner the better.
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I am sure if this list had been compiled by someone else, other myths would arise. My experience is these false hopes and beliefs haunt and hamper a retirement.
It is easier to write about it than to convince a business owner his valuation is too high or a proud portfolio owner the next downturn may erase his hard work. If your aunts, uncles and parents all made it to 80+ and never needed a nursing home or help, that doesn’t mean you won't.
I am proud to have helped so many retire securely and happily. Of course, prior success is no guarantee. We have a system that in a few minutes will reveal how ready you are (financially) for retirement.
The challenge is to develop realistic financial targets and deal with them as elegantly as possible. As always, Time is The Enemy, as collecting information, sifting, testing, drafting and calculating takes time. If done right, deciding to adopt a plan is the logical next step.
I can be reached at (302) 856-2734 or ghvanv@vancofinancial.com working, thanks to the pandemic, almost exclusively over the internet in multiple States.