Avoiding The Most Common Retirement-Planning Mistakes with Mark Biller

This faith and finance podcast is underwritten in part by Soundmind Investing. For more than 30 years, do it yourself investors have relied on SMI for proven strategies and trustworthy guidance. SMI helps people build wealth so they can provide for their families, prepare for the future and give generously. Learn more at soundmindinvesting.org. It's said that we learn from mistakes, not success. But do you want to experience that with your retirement savings?

Hi, I'm Rob West. There's no question that saving and investing for retirement is something you want to get right the first time. Mark Biller joins us today to help you avoid some of the most common retirement planning mistakes. And then it's on to your calls at 800-525-7000.

That's 800-525-7000. This is faith and finance, biblical wisdom for you and me. Well, Mark Biller is the executive editor at Soundmind Investing.

He and his team are devoted to helping you apply biblical principles to your investing so you can get retirement right the first time. Mark, great to have you back with us. Thanks, Rob.

Good to be back with you. All right, Mark, we said that when it comes to retirement, we don't want to have to learn from our mistakes. So can we learn from other people's mistakes? Maybe? Oh, definitely.

Yeah. So two years ago, a prominent investment firm surveyed 2700 financial professionals worldwide about the most prevalent mistakes that they've observed regarding retirement planning. So this was basically the greatest hits of errors and oversights that financial planners see over and over and over. And we detailed several of those in an article that we titled Avoiding the Most Common Retirement Planning Mistakes, which your listeners can check out at soundmindinvesting.org.

Yeah, sounds fascinating and the right group of people to ask this question to. So let's begin to run through some of these, Mark, what was at the top of the list of retirement mistakes? Yeah, well, Rob, somewhat surprising to me, the most common retirement planning mistake was underestimating the impact of inflation. And I say that that that surprised me because if you think back over the last few decades, really until the last three years or so this was mostly a low inflation environment. But underestimating inflation was still a big problem for people in their retirement planning. So the way to think about this is just like people don't fully appreciate the power of compounding in the long term growth of an investment portfolio. Most people also fail to grasp the destructive impact of inflation's compounding. So while most people think higher prices, when they hear the word inflation, it's really important to remember that those price increases actually result from the continual erosion in the value of the currency. That's really where the loss of purchasing power comes from and what makes something that used to cost, say, $75 now cost $100. It's because the money itself is worth less than it used to be. And so even with a relatively tame rate of inflation, the compound effect over many years destroys a lot of purchasing power. So here's an example to kind of drive that home. If inflation grows at just 3% a year, a lifestyle that costs $75,000 a year today will require $135,000 20 years from now. So that's a huge difference in terms of how much income a retirement portfolio needs to produce. Oh, totally. Yeah, that's really helpful. And we've, of course, had a pretty stark lesson in how destructive inflation can be over the last few years in particular. All right, let's quickly move to one more before our first break.

What is that, Mark? So it's investing too conservatively. And this one ties directly to the inflation related point that we were just talking about. So to meet the challenge that's posed by inflation, retirees need to keep their portfolios growing to at least match that rate of inflation.

This is where fixed income instruments like CDs, savings accounts and bonds, they have a place within someone's overall financial picture, but they aren't likely to outpace inflation. And that's why investing too conservatively can actually be quite risky. It's also why, Rob, you and I are always talking about on these programs that retirees need to be careful about scaling down their stock exposure too quickly.

Yeah, that's exactly right, especially in light of the longevity. People are living longer, which just underscores all of this in terms of how you allocate your investments in this season of life. We're talking today with Mark Biller. He's executive editor at Sound Mind Investing, and we're talking about a recent survey of financial professionals around the most prevalent mistakes related to retirement planning. A lot more to come just around the corner, including not overestimating your retirement income and health care costs.

That and more with Mark Biller after this break. Stay with us. We'll be right back. We are grateful for support from Sound Mind Investing in the faith and finance program. If you have money in a retirement account or just a general investing account, you know the stock market can sometimes seem like a roller coaster.

But it is possible to enjoy both profit and peace of mind in investing no matter what's happening in the market. You can see a short video webinar on that topic at soundmindinvesting.org. Since 1990, Sound Mind Investing has sought to offer financial wisdom for living well. Soundmindinvesting.org. We'll have you with us today on faith and finance.

I'm Rob West. With me today, my good friend Mark Biller, executive editor at Sound Mind Investing. We're talking about the most common retirement planning mistakes that was featured in an article at soundmindinvesting.org. This is based on a survey of more than 2,700 financial professionals that identified what they've seen as the most common retirement planning mistakes.

Again, that article available at soundmindinvesting.org. Now, before the break, we talked about the first two. The first was being underestimating the impact of inflation. The second, investing too conservatively. Mark, let's continue to move through these.

What's next? Yeah, so the next one was overestimating investment income. So a good idea to think about in your planning is that you want to be optimistic in your planning regarding how long you're likely to live, but it's actually better to be conservative about your projected returns, what you're going to earn over those retirement years. And directly related to that, withdrawing too much money too soon from your retirement accounts can create big problems down the road, especially if you or your spouse live to a ripe old age. So the general rule of thumb is withdrawing no more than 4% annually from your portfolio is pretty likely to keep your account from being depleted too early, but that 4% rule isn't always optimal.

Your own personal safe withdrawal rate is going to depend on several different factors which are going to include any other sources of income you might have the size of your portfolio, and definitely the sequence in which your investment returns occur after you retire. Yeah, that's helpful. Mark, let's dig into those projected returns. Mark, would you say that over the next decade or two, we should dial back our expectations in light of the prospect of higher inflation and slower growth than let's say we saw over the last 20 years?

Yeah, so the two things that I would say about that, Rob, are one, it's just inherently safer to use conservative projections when you're doing this type of planning, always great to be surprised with better results than you're anticipating than to go the other way around. But the other thing that that would make me think that using lower projections is really appropriate is just our starting valuations. When you look over history, and you look at the stock markets valuations, they have almost no correlation to what we should expect over the near term over the next year or two or three. Valuations are a very poor guide to that, but they're a great guide in terms of what we should expect over the next seven to 12 years. And so with today's valuations being at the very, very high end of the historical range, that would suggest at least that returns over the next, say, 10 years or so are probably likely to come in on the low side of the historical averages.

Yeah, that's really helpful. All right, Mark, let's continue working our way through these planning mistakes related to retirement. What's next on the list? Next one is underestimating your lifespan.

We briefly kind of hinted at it a moment ago, but it's worth pointing out in a different recent article that we just published at SMI. It mentioned that even though the average life expectancy in the US is 76 years for a man who reaches age 65 in good health, he has a greater than 60% chance of living to age 85. And for a 65 year old woman in good health, they have better than a 50% chance of living into their 90s. So what that says to me, Rob, is most people really need to plan on at least two decades of retirement if they make it to age 65 in good health. And, you know, there's no way to know how those years will play out in terms of investment performance, the rate of inflation, anything like that. But if we fail to plan for at least 20 years of retirement and we don't consider the range of possibilities, that's really just asking for trouble.

Yeah, that stat also tells me, Mark, that most of us guys will pre-decease our wives and therefore we need to be sure that she's ready to be the steward of what God has entrusted to us, right? That's absolutely right. And that factors into so many different decisions from when to start claiming Social Security and all these different types of things. But that's an excellent point. All right, Mark, there's one more we're going to tackle today.

What is it? Forgetting to account for health care costs. So in the US, you know, Medicare covers many health expenses for retirees, but it doesn't cover everything. You know, generally speaking, Medicare is going to cover routine medical costs, short term hospital stays. And there are other ways to cover some other expenses with insurance, like getting a Medigap supplemental plan or a Medicare Advantage plan. But even with those, a person's likely to face out-of-pocket expenses for co-pays. And there are just other things that these plans often don't cover, like dental care. Now, of course, the big health related wild card in retirement planning is the potential cost of extended care. And while long term care insurance has grown really expensive, it's kind of prohibitive for most people at this point. A more affordable short term care policy could be an option. Last point on this, the section that I would make is for those who qualify, we love health savings accounts and we strongly recommend trying to build up an HSA balance during your working years to help with these later life health costs. You know, but I would also say, you know, a lot of people say, well, I don't have an HSA account.

I can't do that. And I would just say to those folks that one of the best ways to prepare for later life health is to take good care of yourself today. And that's really where all the common advice about diet, exercise, sleep, stress and all the other controllable factors can really pay off down the line.

Yeah, living a healthy lifestyle today is really another form of investing that will pay big dividends later in life. Now, Mark, as we wrap up today, we have to recognize it's not always easy to avoid these mistakes, is it? No, it absolutely isn't, you know, because so many variables are going to change over the years.

It's next to impossible to anticipate everything that could happen. But fortunately, SMI does have a few resources to help our members avoid common errors and oversights. One of the big ones is a product called Money Guide, which is the financial planning tool that's been the most used by financial advisors with their clients the last 17 years in a row. And what Money Guide does is it can run really hundreds of different what if scenarios, considering all these different variables like market downturns, higher inflation rates, all that kind of thing. And SMI premium level members can get ongoing access to that tool for a very low fee. Of course, a person may also want to seek guidance from a financial professional, whether that's a stewardship advisor through SMI private client or a kingdom advisor.

Getting some professional help is always a good idea. No doubt about it. Well, Mark, I really appreciate your insights and I couldn't agree more. Soundmindinvesting.org is a great place to go, not only for this article that we've been discussing today, but for some valuable resources and assistance. We're grateful for our partnership, my friend. Thanks for being here.

Thank you, Rob. That's Mark Biller, executive editor at Soundmind Investing. Check out this article at soundmindinvesting.org. Back with your questions today on any financial topic. Eight hundred, five, two, five, seven thousand.

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I'm Rob West. We're taking your calls and questions today at 800-525-7000. Hey, before we head to the phones, you know, this is a really important time for us to hear from you with your financial support. If you find some value in this program, maybe you've seen the benefit of biblical wisdom in your own life, or you've been encouraged by something you heard, or you've been able to put something into practice that's made an impact. You listen regularly, but you've never supported the ministry here at Faithfi. Well, we'd invite you to do that with either a one-time or a monthly gift as a Faithfi partner. You can learn all about it at faithfi.com and just click Give. And we're so thankful for so many wonderful content partners that we have that bring you God's wisdom around your financial decision-making, like Matt Bell, who joins us regularly on this program. In fact, we talked to Matt recently about his thoughts related to the broadcast, and here's what he had to say. Hi, this is Matt Bell at Sound Mind Investing. Managing money as a steward of God's resources is something I don't think any of us fully master.

We're always learning more about what that means and what it looks like in our daily lives. That's why I appreciate Faithfi so much. It provides ongoing, trustworthy teaching and encouragement for traveling this journey well. If you share Matt's sentiment and you'd like to support our work, just send it again to faithfi.com, click Give. That's faithfi.com and click Give. All right, let's take your phone calls today. We'll go to Woodbury, New Jersey. Hi, Jessica.

How can I help? Hello. Hi. I'm calling because I have three jobs, and I was wondering, I know the Bible says you need to tithe. So I do tithe to my church, every paycheck, but I have two more. So my question is, do I tithe all three 10%, meaning 30%, or just 10%?

Yeah, it's a great question, Jessica. So the principle of the tithe would be applied like this. We look at, first of all, what is my increase? And in your case, your increase is anything that you receive.

So it would be your income in the form of your paycheck, whether you get one paycheck from one employer, or you get four paychecks from four employers, it doesn't really matter. That's all your increase. And then you could look at gifts or inheritance.

I mean, there's a variety of ways we would receive an increase. And then, no matter what you receive, the word tithe means a tenth. And so that's where that 10% tithe idea comes from. So the easiest way for you to do that would just be, perhaps in any given week, you could just total up what is the total amount of income that I received this week. And so maybe it's a week where you only received one check.

Great. You'd take 10% of that amount, you'd write a check to your church and take it with you and stick it in the offering plate. If you received three checks in that week, whatever you received for that week, you'd total up all the amounts, regardless of how many different employers paid you. And then again, you would write a check for 10% of that amount. That would be the tithe, a tenth. So it really doesn't matter how many different people pay you. It's just 10% of the total income that you're receiving. So that doesn't equal, with three checks, 30%. It's still 10%.

It's just 10% of the total, and that total is made up of three different employers' paychecks. Does that make sense? Yes, it makes a lot of sense. Thank you. Okay, you're welcome.

Thanks for calling today. By the way, just a fun anecdote. You know, we have Ron Blue on the program regularly, and Ron shared a story about this recently.

Ron's the popular author on biblical finance. He said he and Judy started giving electronically. And they liked it. It was very convenient, but they just felt like they were missing out on the act of worship. And he would be quick to say, and I would too, that online giving is great.

It's very efficient. Julie and I give electronically, and it just works for us. But he and Judy were sensing that they missed out on that kind of physical expression of taking their act of worship with them to church. So this is what they do.

It's similar to what I just shared with Jessica. When they come down for breakfast on Sunday mornings, Ron has a little three-by-five card. He puts it on the table, and he's written down any income they receive for the week. Now Ron's an author, so he's getting royalty checks, and he does consulting, and he works for various organizations. And so he might have half a dozen income sources. He just totals them all up on that three-by-five card and multiplies it by 10%, writes that number at the bottom. And then Judy writes out the physical check for the amount based on that three-by-five card. And then when they head off to church, they take it with them. And they love it because it's a way they can celebrate on Sunday morning the tithe that they're taking.

They're now both involved in it. And for them, they like the physical act of making that gift. Perhaps that's something to consider for you. It's a great question, though, from Jessica.

Let's take an email. This one comes to us from David. He says, he wrote, by the way, to askrob at faithfi.com, he says, My 401k is down over 51% from where it was three years ago.

Is there anything I can do to help it recover? And wow, David, that's clearly a lot. I can understand your concern there. The markets have more than recovered from the setbacks incurred by COVID. And given that you're saying three years, you're even a little bit beyond that. So that would be out of line with what the broad market has done. Even though it's been a tough year, a couple of years for bonds, it had been a tough couple of years for stocks, although they've recovered. I will say that a lot of the concentration of the market's recovery, at least until recently, has been highly concentrated in some large kind of high-flying tech stocks, what they call the Magnificent Seven. And so if you're not in those stocks, or you were heavily in bonds, you certainly have taken a beating. But despite that, I'm still surprised that you're down 51%. So it sounds like you're probably highly concentrated in one particular sector, which you can do through a mutual fund that kind of focuses on one slice of the market.

And perhaps that sector has been beaten up over these last few years. So I think your next step is to get a financial advisor to step in and walk with you through this, perhaps evaluating the options that you have and getting you more properly diversified and seeing where those maybe high concentrations are that's creating additional risk and helping you look at the investment options there. I would guard against, David, though, this idea that I'm going to try to, quote, make it up by taking on additional risk. I mean, don't go into, you know, a tech fund or something because you're like, well, you know, I'm going to make up for lost time. As tempting as that is, let's take a more sure and steady approach to this, get you properly diversified.

And I think in the end of the day, that's going to be the better posture for you. But thanks for writing to us. By the way, folks, if you would like to send us an email, you can do that at any time.

Ask Rob at faithfi.com. And Devin, by the way, if you'd, or excuse me, David, if you'd like to find a certified kingdom advisor in your area to help you with that 401k, just go to our website, faithfi.com and click find a professional at the top of the page. Let me say thanks to my team today.

I certainly couldn't do this without them. I'm incredibly grateful for my good friend Jim Henry's providing research today. Devin Patrick, our producer and handling all of our call screening today, Dr. Robert Youngblood. For those gentlemen and the entire team here at FaithFi, thanks for being a part of the broadcast today. May the Lord bless you and we'll see you next time. Bye bye. Faith and Finance is provided by FaithFi and listeners like you.