Retirement Ready: Are You Clinging To False Hope?

We often find that people are clinging to certain ideas or beliefs that end up giving them a sense of false hope about their retirement. It’s a dangerous position to be in. Let’s explore some of the faulty thinking that ultimately leaves people underprepared for retirement.

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Transcript Of Today's Show:

Speaker 1: Hey, everybody. Welcome into Plan with the Tax Man. Thanks for tuning into the podcast by Tony and myself, talking about investing, finance and retirement. What's going on, Tony? How you doing bud?

 

Tony Mauro: I'm doing pretty good in the throes of summer and it's hot here as well as what you're telling me there and things are going good.

 

Speaker 1: Well, so we are back doing the podcast here. We're just after the middle point of July, and obviously tax season was a little different this year. And as a lot of what you guys do, so July 15th ended up being delayed due to COVID thing. How'd you guys a fair those last couple of weeks?

 

Tony Mauro: Last couple of weeks really weren't much different than the normal last couple of weeks of the tax season that generally happens in April, which surprised me that that many people decided to postpone filing until then. And we even have some extensions still going on that we just thought, well, we're just going to put it on extension and we'll deal with it here in the next two to three weeks. But definitely, this whole thing has had an impact on our tax clients as well, and many, many at work and we're reduced work.

 

Speaker 1: Definitely.

 

Tony Mauro: So they're concerned about their financial future.

 

Speaker 1: It's an interesting catch 22. I had some friends in the same boat. They were like, "Oh, I'm going to wait till the last second." And I was like, "Yeah." But I mean, it's only do in April, why don't you just go ahead and deal with it, and then you don't have to worry about it and don't put yourself up to the wire. But like a lot of things, we tend to procrastinate humans. It is definitely one of our character traits that shows its head fairly often is procrastination.

 

Speaker 1: Another one, Tony, is hope. Now, hope is a good thing. I think, in any walk of life and certainly 2020 has been challenging and it's good to have hope that things are going to be better and we're going to have a better year next year and all that kind of stuff. But when it comes to retirement planning, sometimes what happens is we tend to cling a little bit to maybe some false hope instead of putting our mind in the right spot, we tend to go to some of these things here that I have on our show for today, this leads us down possibly the wrong path, and just gives us that false sense of hope. So I got a couple here for you. We'll go through them. Maybe you can explain some potentially faulty thinking in some of these ideas, or just your viewpoint.

 

Speaker 1: So mindset. I mentioned that. So let's talk about the mindset that we'll be ready to retire when we hit that certain number. We've talked about that before. I don't know how much that's changed in 2020, but typically, for the last several years, people have had that, well, if I don't have a million I'm not ready, or whatever your number is.

 

Tony Mauro: And I think that in 2020, so far, whether it's been for us either, talking with tax clients or even out golfing, believe it or not, talking to some colleagues and our friends that are basically just golf buddies. Retirement and calling it quits is on a lot of people's minds, especially mid age and older, depending on their work situation and what they're going to go back to, they are definitely thinking about it.

 

Tony Mauro: And I just had a conversation yesterday, as a matter of fact, with an accounting client, he's 55-years old and he is selling the business and he's got this magic number in his mind of the million dollars and he's about halfway there, but I tried to tell him to try to get off of that a little bit, depending, because his question, point blank was, "What do you think I need to retire?" He wanted a number. Is it a million, is two million?

 

Tony Mauro: Of course, it's such a moving target, and of course, I took the accountant answer, "Well, it depends." And it does, but I think when people get fixated, and I try to dispel it very quickly on the million dollar mark, and I say, well, based on what you're earning now, let's take a look at that million, with longevity the way it is generally, even if you're using the principal there, you're going to be out of money by this time. And even if you're just parking it and living off the interest, well, maybe you could get 40 to 50,000 a year interest or earnings on that, but certainly, in a savings account, you're going to have to cross the magical line and get into a little bit of risk. So there's a lot of things at play there, and the million, all of a sudden, and I do it every time they walk out and say, "Boy, you're right, that may not be enough." So I think that people have to take the mindset of maybe it's not a certain number, but what kind of income do you want-

 

Speaker 1: Exactly.

 

Tony Mauro: ... and then see if we can get to that number. And it might be a combination of a lot of things, might be a combination of savings, social security, retirement plans, and even maybe a little work in there.

 

Speaker 1: And I mean, it may be a million, maybe two, maybe four, maybe 500,000, maybe 400,000.

 

Tony Mauro: It could be.

 

Speaker 1: I mean, everybody's needs in retirement, and again, to your point, the income needs really is the more determining factor in that. So again, that's that idea there, you can get yourself hung up on some false hope, if you will, by having your mindset maybe in the wrong spot. And other places, talking about the income, the belief that the income needs will reduce once we retire.

 

Speaker 1: Now, again, everything is changing in light of 2020 and Covid, and so on and so forth. But typically, this has been the thought that your income needs drop once you hit retirement. And I think that's always been a bit of a misnomer, because if you are set up for... No one wants to go backwards in retirement, they want to have a less of a lifestyle in retirement than they had when they were working. But you tend to actually do more, at least early on anyway, but then it seems like I would think that the health costs would ramp up in the later years, even though you're not doing as much. So I don't feel like it's going to drop that much. What do you see?

 

Tony Mauro: We see that as well, is that in the early years, your income needs do go up because you're trying to make up for all the things you didn't do when you were working all the time-

 

Speaker 1: Right, you're having fun.

 

Tony Mauro: ... assuming the body can take it. And then, you get into your mid 70s, whatnot, you might slow down there a little bit, but then you've got, like you say, healthcare costs start going up and it does cut into that income. And then all of a sudden, what you thought, you didn't need as much, you need just as much because you're spending it on something else and it's not real sexy, and you have a lot of fun with it, but you got to have it to keep you going.

 

Speaker 1: Exactly.

 

Tony Mauro: So I think, again, it depends on what type of lifestyle you want to lead in retirement. And everybody always saves for this and always talks about it as the end goal, but nobody really sits down and it seems to think about, "Okay, what do I want out of this last part of my life?" And I think you've got to start there.

 

Speaker 1: No, that's a great point. And so, those two are the initial kind of things. I mean, again, those are all around mindset, it's all around the dollars or the numbers, if you will, having that sense of, I have to have a certain number and or thinking that our income needs will drop into retirement is typically a bit of false hope there.

 

Speaker 1: Another place is inheritance. Here recently in 2020, I've been encountering some folks who have come into a windfall in whatever shape or form and I know that sounds weird given everything that's happened in 2020, but I've met several this year that have been that... And they've looked at it as the makeup ground, Tony, for their own lack of planning for retirement. And there are people out there who do that. Maybe their parents have a little bit of something, and they know when their parents pass away, it's going to be left to them. And they bank on that versus getting their own stuff together and planning securely. And then if they get it, great, it's just extra icing on the cake kind of thing.

 

Tony Mauro: Exactly. I mean, you hit it right on the head. We have a lot of people that do do this, and when we start asking them, "Well, how much do you think you'll stand to inherit?" They blurt out a figure and then we go right down the thing just like we did with the million dollar saying, "Well, let's take a look at this." If it's 500,000, let's say, it's a big number, but when you really start breaking it down over a number of years that you're going to need this money, how long will it really last you? And is that really what you want? And if so, that's great. But most of the time they're, again, scratching their heads saying, "You know what? I better save in addition to that." Again, somebody who's receiving 5 million or more, you're pretty much, I would think you're not going to have a whole lot of worries, but-

 

Speaker 1: True. But what if their parents or grandparents or whoever they might be expecting this from got hit towards the end of their life with a longterm disability that really started to eat away at that?

 

Tony Mauro: I would think that you've got to pay attention to that as well, because that's inevitably what tends to happen is people think they're going to inherit something and then the parents may need it for longterm care costs or something else. I've had one client that this happened to that he thought he was going to inherit a million bucks. And lo and behold, the parents were healthy, they lived into their 90s, but they actually ended up spending most of it because they went out and enjoyed themselves. So I don't think it's a good financial move to bank on that. I think, [crosstalk 00:09:14].

 

Speaker 1: No, definitely not. And luckily, I don't think too many people do it, but I definitely know that it happens. And it's almost the same analogy, Tony, as the lottery. I mean, it's staggering and terrifying that 27% of people feel that hitting the lottery, in some shape or form, will take care of their retirement needs, which is pretty terrifying. 27% of people polled say, "I play the lottery and that'll take care of it." It's like, wow, you got a better chance of getting hit by lightening like twice.

 

Tony Mauro: Yes.

 

Speaker 1: Okay. So anyway, moving along, got just a couple more here. And this is another one that happens too, for those folks, it's terrifying. And I get it, it's really... Before I started hosting these shows and talking about this stuff for the last several years, it was definitely one of those things like math and finance, not my strong suit. I don't know how my daughter's so smart in that arena, but she is, thankfully, but it's that "Well, I'll figure it out when I get there." I've always been one of those kinds of people. "I'll cross that bridge when I come to it." I'm working on my deck outside and probably some pre-planning would get me in better shape than what I'm in right now, but I didn't. So I'm crossing that bridge when I come to it.

 

Tony Mauro: And this, I see a lot in our retail tax clients, because we only see many of these people once a year. And my client base is aging, obviously, as we all are, and we start to talk to them about that, and they'll say things like this, while you can do it, you can figure out how to make it work. But in the big picture, I ask them one question. I said, "Well, is that what you want after basically sacrificing 40 plus years of your life? Is that what you want to end with? And if so, then I guess you can just continue down the same path." And we'll get a little bit of resistance to that. They'll say, "Well, I'm too old," Or "I'm too close." While you can always do a little bit to improve-

 

Speaker 1: Sure.

 

Tony Mauro: ... I think, and at least make it a little bit better. Now, could you go from zero to a big number in five years? No, but you could make yourself a little bit better, or even if you're not wanting to do that, at least know, figure it out before it happens to make it as smooth and painless as possible, so you can get as much enjoyment as you can out of it.

 

Speaker 1: Well, it seems like the trend for Americans, at least over the last probably 20 years, Tony, has been 50. I'll be 49 next month. It's it seems like 50 tends to be that, "Oh, shoot, I better do something."

 

Tony Mauro: It does seem to be. And it was for me. I mean, I've been saving and planning since about 18, but 50 hit me and said, "All right, well I've only got this much time left. Am I on track?" And it's funny, my brother just turned 50 last year, and he's not much of a saver. And all of a sudden, he went from didn't really care to actually right now, today, he is maxing out his 401k at 19,000 a year, plus the catch-up. He's all of a sudden figured out, in 20 years or less-

 

Speaker 1: Yeah, something [crosstalk 00:12:29] or less.

 

Tony Mauro: I'm done, at least in the workforce. And so, 50 does seem to turn on a bowl, but you start thinking a little different.

 

Speaker 1: 15 years, from 50 to 65, you can do a lot of damage. And by damage, I mean, positive.

 

Tony Mauro: Positive damage.

 

Speaker 1: You can do a lot improvement to your situation in 15 years. So to his point, your brother's point, there's the ketchup provision area when you get over 50, where you can put more in than you could prior to 50, you're probably making the most you've ever made in life-

 

Tony Mauro: Exactly.

 

Speaker 1: ... kids more than likely are off the payroll, unless something crazy has happened with COVID. Of course, that's certainly possible as well. But typically, those three rivers come together at the same time there when we get to that pretty retiree age, which is kind of conservative. I think it were pre-retirees probably considered 55, but I think we just started calling it 50 from their own status.

 

Tony Mauro: I think so, and I know for me-

 

Speaker 1:

Maybe it's the pre-pre.

 

Tony Mauro: ... In my own situation, 50, and I only have one son, but he was out of college and he's on his own, and we had things paid off and we wanted to take these next 15 years, not only to ramp up savings, but also to do things we wanted to do, which is a good balance. You can do a lot of damage. Now, if you didn't start early, you may have to make a little more sacrifice depending on how much money you're making. But it can be done over 15 years.

 

Speaker 1: Absolutely. And so, definitely, don't put yourself in that false hope category, folks. I think that's a couple of good places for us to think about, work our way through when it comes to that. And what we're going to do is in an interest to keeping our time, Laurie [inaudible 00:14:06] we're going to go ahead and go into our next section, which is an email question. But if you've got questions about some false hope or some things, if you're one of those number of people, "I need a million dollars," Or "I'm not sure if my income needs are going to be met," Or whatever the case might be, if you've heard something on the podcast today that's got you intrigued, you need to learn more, always check with a qualified professional before you take action.

 

Speaker 1: Call Tony at (844) 707-7381, at (844) 707-7381, or just go to yourplanningpros.com, that's yourplanningpros.com, and you can submit a question to the show if you'd like, while you're there, you can subscribe to the podcast on Apple, Google, or Spotify. It's Plan with the Tax Man. Tony's got more than 23 years of experience, so a great resource for you. And as I mentioned, you can send an email question in to the podcast. We take those from time to time. So let's do that to wrap up this week's show. We've got Rorke... That's a cool name. I haven't heard that in a long time. Rourke says, "Tony, my financial advisor seems to do a good job of managing my assets and my investments, at least as far as I can tell, but we never really talk about some other things like social security, life insurance or legacy planning, which I feel are things I should be getting some advice on. Is this typical?"

 

Tony Mauro: I think it is more so than not. I think that some advisors get wrapped up a little bit, maybe too much on the growth and investment side. But all you've got to do is just let them know, depending on where you're at in your situation work, just start bringing some of these topics up to date. "I've been seeing some of this and I feel like I need to be here at this time. How can we plan for this?" And then hopefully, they will take some of that information, and if they have never done a plan for you, do a plan and at least provide you with where you're at now.

 

Speaker 1: Tony, when I read something like that, if an advisor is not bringing these things up to you, this is just my opinion, I'll get yours on this, it may not be something that they're that comfortable with or that they do that often. And maybe you're really working with a different type of advisor, then you're going to be needing as you're transitioning, to our point earlier, 50 plus, right?

 

Tony Mauro: Yeah. Well, it's possible. Yeah. Depending on what they're doing, not to bash them-

 

Speaker 1: We don't know who they are.

 

Tony Mauro: Because we don't know. It's just that that may not be their area of preference or expertise and maybe they have somebody else in the firm that has that. If not, maybe they're willing to help. If not, then you've got to maybe take a look around-

 

Speaker 1: Get a second opinion.

 

Tony Mauro: ... and see what else is out there.

 

Speaker 1: And that tends to be the case that I seem to come across a lot of times when you see situations like that. They may be more of a broker, they may be more commission-based, where it's the investment side is where they're making their money. It could be a number of things. And to Tony's point, he's being nicer than I am. It could be one of those things where they do have those things available, they just, for whatever reason, it's not being brought up. But Rorke, it's good that you're thinking of it, for sure, because obviously it's your finances and it's your retirement.

 

Speaker 1: So as Tony mentioned, ask the questions to your advisor, "Hey, what about these pieces?" And if you're not getting some satisfactory conversation started, definitely get a second opinion, reach out and look around, there's nothing wrong with that at all. Because Tony, I mean, you do that. I mean, if someone comes in and you're working with them, you start going through the multiple puzzle pieces that make up financial planning.

 

Tony Mauro: That's what we do. And in fact, you can't work with us unless we do a plan for you. Because some people will come to us and say, "Well, here's what I've got, and I just want you to help manage it." And I back up and say, "Listen, here's the way we work." Because we may not be the right fit for you.

 

Speaker 1: Sure.

 

Tony Mauro: We've got to do a plan for you, because that's almost like going to your doctor and getting a prescription and he doesn't even know what's wrong with you.

 

Speaker 1: Just take this.

 

Tony Mauro: Just take this and you'll be okay. And so, I don't like to do that, but that's just personal preference, that's the way we work. But I feel like that way, we get the best picture of the client and where they want to go. So we obviously try to help them.

 

Speaker 1: Well, and you think about it in the name, I mean, you guys are Plan with the Tax Doctor Inc. So people might think, "Well, okay, it's just taxes." So certainly an understandable conversation, but when you come in and you find out, this is a holistic, complete approach, maybe it's something similar like that in Rourke's case, maybe the name made him feel as though it was just investments, but he's definitely interested in these other things. And so, ask the questions, bring it up with your advisor. And for anybody, it never hurts to get a second opinion. It doesn't mean you're doing anything nefarious or mean behind somebody's back. It's your money, it's your retirement, get a second opinion, if you need one, get a third opinion, if you need one. I mean, you would on your health, to your point with the doctor, so why not on your wealth?

 

Tony Mauro: People have asked me too, they'll come in and want a second opinion, and they're almost troubled when I say, "Well, based on what you've told me, I think, they're doing a good job for you." Because sometimes that's the way it is, and it's almost like they want you to find something. And sometimes, again, if they're really truly doing something, not in your best interest or it's just not going to help you meet your goals, then yes. But I don't think any adviser worth what they're doing would have any problem telling you, hey, I think, him or her doing well for you.

 

Speaker 1: There you go. All right. Well, that's going to do it for our show this week folks. Thanks for listening to Plan with the Tax Man with Tony Mauro. Don't forget to subscribe to us on Apple, Google, Spotify, or whatever platform you choose. How you can just click on the, I think it's the heart button on Apple and it's different things for different sites. Go to yourplanningpros.com for more information and to find out more, and we will see you next time here on the show. Tony, thanks for your time, my friend, I appreciate you.

 

Tony Mauro: All right, take care.

 

Speaker 1: We'll talk to you soon. And right here on the podcast, this has been Plan with the Tax Man with Tony Mauro of Tax Doctor Inc.