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February 14, 2019 2:56 pm
Plan to fail. When planning matters radio and welcoming program on radio. I advised Sean planning along with my lovely wife Amber sign here with another morning radio show for you guys. We appreciate you tuning into planning matters, radio, and in fact planning does Sean planning.
We strive to help identify opportunities, protect what's important primarily protecting your paycheck through all walks of life and on this program will be addressing some of the big mistakes planters make.
The biggest is not having a plan absolutely. There's a lot of people unfortunately sort of just waiting hope and a prayer right. I hope that things work out. I believe that I'm making progress.
I Inc. that I'm doing the right things but without a plan. There's no knowing there and so the plan is what allows you to remove that hope that think that believe and replace that word with no as you are talking about your financial progress so we want to help you identify some common planning myths and mistakes and misconceptions that we see people making as they fall for conventional wisdom or what they have been told what we have been told without really examining the facts and so today will go through some myth or misconception were going to go through some fact or fiction and identifies some opportunities may be for you to examine some of the assumptions that your plan is based on that may result in you not achieving the goals that you have set out to achieve at sounds great, Peter said, fact or fiction. Social Security is tax-free. Well, it's a little bit of both.
The answer to that one is it depends as Social Security was originally designed and intended it was supposed to always be tax-free. However, in 1983 under Ronald Reagan and then again in 1993 under Bill Clinton that changed and Social Security could still potentially be tax-free, but it also can potentially be up to 85% taxable and it all depends on your adjustable gross income or other income. It depends on how much income you are bringing in. If Social Security was to stand alone and be your only income in retirement than most likely, it is a tax-free source of income for you. However, Social Security itself gets added into the equation. Half of your Social Security plus just about all your other forms of income and if that meets or exceeds certain thresholds and if you're married over $32,000. Pretty low threshold there. If you are bringing in over $32,000 including half of your Social Security, then your Social Security income is going to be 50% taxable. If you're earning over 44,000 or bringing in over 44,000 of taxable income or Social Security 85% taxable.
So, bottom line, what does that mean if we assume that Social Security is tax-free and then we find out in actuality it's taxed. That means we get to keep less of what we anticipated.
We would and therefore we have to put more money out of our personal accounts or lower our standard of living in retirement. So very important for you to identify when and where and how your Social Security may become taxable and how much you actually get to keep. Once we identify that no are there things that we can put into place to help our money be more safe and secure absolutely and and we talk about it often. It's not what you make. It's what you keep it Uncle Sam stands in the middle there that's that's the difference. There are strategies, and especially if you begin planning early on if you really examine this assumption of I'm going to be in a better tax environment. When I retire. That's the way that everybody's planning. That's why we defer and delay paying our taxes in our 401(k)'s. If we examine that early on is a will. Let's rethink that. Maybe that's not always the case, and we begin planning to have a tax-free retirement. There are absolutely strategies that you can keep much more of the money that you earn over your lifetime.
And so as we help people plan, prepare, we help them identify strategies to create more tax-free income and before we jump into any further of these missile misconceptions Amber while we remind folks that we always offer the opportunity for a complementary review of your game plan for retirement at the end of your strategies to set yourself up to achieve your goals.
We sure would love to sit down and have a free complementary review with you guys. If you would just pick up the phone and give us a call at 800-338-5944. Again, that number is 800-338-5944. You can also go to rich on planning.com it's our last name Rochon but looks like Rich on planning.com you can listen to past editions of the planning matters radio podcast. There's lots of great resources including my new book, understanding your investment options now available on Amazon. You can go to our website rich on planning.com and link through an an order your copy of that book. Also, if you'd like to get access to some of those old podcast. You can ask Siri or Alexa hey hey Alexa play the rich on planning podcast and and both of those are phonetic spellers Syrian Alexa. They are hooked on phonics so they understand is as rich on planning rather than Rochon.
The way the names pronounced but anyway if you'd like to hear more editions of Rochon planning, you can ask Siri, you can ask Alexa you can search on iTunes or I heart lots of different ways to find us, but we always try to present some important information. I think all of the myths and misconceptions that we are talking about today can unfortunately lead to mistakes if you count and rely on absolutely and getting back on topic fact or fiction. I can work and collect Social Security. Absolutely you can you can absolutely do that.
However, before full retirement age, you may want to seriously consider the implications and the penalty that you could incur. So the government gives us a full retirement age in our Social Security statement. There's three numbers you can take your Social Security benefit at your entitled full retirement age, not somewhere between 65 and 67 depending on the year that you were born you can wait until 70 to maximize your benefit or if you really need it. You could begin claiming and collecting Social Security as early as 62 they let you file and collect early. However, that's if you need it and if you're out there working and earning an income. The government doesn't really view that is truly needing it Bayview that is double dipping. And if you earn more than $17,640 and are collecting Social Security before your full retirement age for every two dollars you earn above that low low limit of $17,640 for every two dollars above that they take back a dollar of your Social Security benefits.
And if you begin claiming collecting early that stops the potential growth because your Social Security benefit could have been much higher had you waited a few additional years so it's kind of a double whammy there and so I hear a lot of people saying get Social Security at 62 get it as soon as you can. Not so fast. It's a very individual decision and is a lifelong decision is not permanent implications. Amber, you and I both know there there some decisions that we have made that are lifelong lasting decision. Some are beautiful know the decision to ask you out on the first all the great great decision right lifelong lasting implications of, but there's also a few things that I see if I can do that again. I would've done that different. You don't want Social Security to be one of those decisions right and so claiming, collecting at 62.
If you need the income is one thing but if you're thinking I just want to rack up and supercharge my retirement savings on the go ahead and start Social Security while I'm still working there are actually negative implications to that you need to carefully consider and again all of these that were talking about today. These common planning myths or misconceptions somewhere they may be based in truth, but you need to understand how they apply to your situation before you make any kind of decision. And that's where consulting with a qualified financial and retirement planning professional is really a pay off in spades and and benefits for you in the long run. Invest just a little bit of your time so that you can have a a a better, more comfortable and confident financial future and if you're willing to invest that time were willing to donate a bit of hours and then help you in that process answer and address any of your questions directly. Just give us a call 800-338-5944, 800-338-5944. Following through with those myths and misconceptions of planning to theme to kinda go together. Most people feel like they arty have an idea of what that retirement number is and a lot of people also feel like taxes are to be lower in retirement.
What would you say to that right so you again. A seed of truth there, because back when that idea first started when the American economy really began adopting the 401(k) the idea that you would be paying lower taxes in retirement probably was more universally true than it is today.
But today we are in a lower tax environment tax brackets and tax rates have gone down and we got $22 trillion in debt. We just broke that $22 trillion threshold. We got 75 million baby boomers who are moving into retirement.
So there beginning to pull money from and depend on Social Security and and Medicare and pull dollars from their retirement savings accounts rather than contributing to all of those things and I don't see where taxes are going to remain as low as they are today, and in fact up in Washington right now there there are some out there that are talking about a 70% tax bracket or a 90% tax bracket. They're already talking about substantially increasing the amount of taxes that Americans are paying other also offering to pay for everything for free.
But on the other hand, that monies gonna come from somewhere. Taxes is where that's to come from. So myth or misconception. Yeah, I think that this is a misconception because nowhere is it written in the tax code.
The taxes will automatically be lower in retirement. I have not met one retiree.
Yet the got a nice heart, bubbly letter from the IRS saying you made it to retirement were no longer going to charge you taxes it doesn't happen. Taxes are based on income. The amount of income that you earn.
So if you want your income to stay about the same in retirement, you're likely going to pay about the same amount in taxes unless you've done some very proactive tax planning, building up some money in those Roth accounts building up the money that you've already paid a great deal of tax on that's not the way most people are doing it.
Most people are saving in that 401(k) where they have deferred the tax they kick that can down the road and now they have an even larger bill waiting for them when they retire and we can definitely help with that. Here Rochon planning. If you are interested in that three complementary review pick up the phone and give us a call at 800-338-5944, or if you'd like a copy of my husband's brand-new buck understanding your investment options pick up the phone and give us a shout at 800-338-5944 and there definitely are strategies available to help you morally, legally and ethically minimize that tax liability but nowhere is it written in stone. The taxes are lower in retirement and really two of your biggest potential deductions are probably gone were on their way to being gone.
Once you retirement the. The children are out of the house. If they were a deduction previously and your home is paid off, so the mortgage interest tax deduction is is he is either gone or you're making her way toward it paid off house and and it could be gone in the future. So again, basing your plan upon the assumption that taxes are lower in retirement.
You always have to ask yourself what if this assumption is incorrect right every plan is based on some amount of assumptions and and so right now were assuming taxes are going to be lower in retirement. What if were wrong about that. That means that we don't have as much.
We don't get to keep as much of our income, which means we gotta pull more out of our accounts or lower our standard of living or risk running out of money sooner than we would like to think about and so if we reverse that and we assume taxes could be higher into the future and were wrong about that assumption if we planned around the premise that taxes could go up and they don't stay the same.
Then we get to keep more money than we thought we would be able to. That's a much better situation.
I like that that side of things a whole lot better.
So I am basing all of my planning under the assumption the taxes could go up into the future and for for anyone who is maybe 45 and below.
I would base all of your plans upon that and and again there there some times and places for tax deferral but I think that you will under that assumption be putting yourself in a better more advantageous situation, and if you've already built up a large tax-deferred balance. Well, there are still strategies to move some of those dollars from tax-deferred to tax free and we can work through some of those with you and show you where you can take advantage of some opportunities to pay the least amount on those dollars as possible in taxes so a lot of people have built up a large balance, how they plan for retirement right that's that retirement number right and there was a real clever commercial a few years back and have big green numbers floating over people's heads are $1 million $2 million. That's your retirement number. Well, just because you've built up to some certain amount pick pick your number.
$1 million, $1.5 million $500,000. Whatever it is that arbitrary lump-sum number does not indicate if you are financially prepared to face 2530 35 years of unemployment where that dollar figure has to generate your income along with health issues right and I mean day one of retirement. It does not really tell you if you're prepared but extend that out. Most people have trouble making financial decisions to budget a finite amount of money just through the month. Now we got a budget a finite amount of money for 30 years. Plus, it's very difficult to do and the lump sum figure alone does not indicate that you're prepared neither doesn't age and I see a lot of people, picking an arbitrary age. I'm 62. Gonna retire I'm 65 I'm I'm going to retire when I hit 67 I'm going to retire. That age does not tell you if you're financially prepared to face retirement.
What does tell you what your true retirement number is is based not in the lump sum but in the budget and we go through pretty standard exercise with our clients and with radio show listeners all the time and it is identifying that retirement number or what we call the income gap we look back over your average spending and you don't have to keep a very detailed budget for this, there are ways to figure out what your average spending is pretty quickly and easily. But from that average spending. We reduce that by any sources of income that you don't have to generate from your savings and your investments which it Social Security and pensions, mostly what you're left with is your monthly income gap.
That's the amount that your assets have to be able to generate for you consistently month in month out to cover your lifestyle which are used to to living off of and we can reverse engineer that and figure out what that retirement number really something that appears great with our next myth and misconception of folks believing that they only need the 70 to 80% of their income in retirement right now III can hear a little bit but I have not yet met anyone that wants to drop income when they have more free time right right now I'm either working, earning an income or I have free time where I am spending money bills are still due and retirement taxes are still due in retirement.
If you're saving in a tax-deferred account than those dollars go to be taxed just like brand-new income in retirement and more free time equals more spending so when we planned for only needing 70 to 80% of our pre-retirement income.
Once we leave that paycheck behind that is a plan to drop lifestyle only. If you are currently saving 20 to 30% of your wage income of your salary into retirement accounts does a plan for only 70 to 80% of your income. Once you retire constitute the same lifestyle right so so you earn X amount let's let's nice round numbers here. Let's say that were earning $100,000 a year and were doing our retirement savings off the top were saving 15% of our income and then Uncle Sam is taking another 20% of our income right so we are bringing home 65% of what we actually earn after those two things are done will bring home 65% will if were saving in that tax-deferred account. We gotta add that back because those dollars that we have saved are still going to be to taxable to us so that tax we gotta add that 20% back so now we need 85% just to bring home the same amount of money and by the way, inflation is real right at 3% historical average inflation, the need for income doubles in 24 years, so this is another planning myth or or miss a compounding inflation right inflation compounds our need for income and over 24 years at 3%. The need for income doubles and this is another common mistake I see people counting and relying on all the time thinking that in 30 years. Their need for income is going to be the same as the day that they retire. It is not.
Yes, you might have a little bit more activity. The first few years because you're excited and you're healthy and you're traveling and you're doing things are on your bucket list and and then activity may be reduced a little bit as you get into your retirement routine, but the cost of bare essentials goes up over time and so if we need $5000 a month on the day that we retire you're likely never going to need less than that, per month in order to maintain your standard of living, and in all likelihood, that is going to rise significantly over the years in retirement, so basing a plan on a flat level income throughout your entire retirement is another big planning mistake that I see it, and I do help people dress with that written retirement income plan that we put together we help to incorporate inflation protection and additional streams of income that can kick on into future years.
And if these are your concerns here Rochon planning. We would love to help if you would pick up the phone and give us a call at 800-338-5944 and again if you would like to pick up a copy of my husband's book for free.
Understanding your investment options pick up the phone and give us a call at 800-338-5944 and we also have a great report that I've put together the details a few additional financial myths and fact. It's titled the seven financial myths common planning mistakes and misconceptions to reconsider if you would like a copy of this report, which details a few of the things we talked about, but several additional planning myths and misconceptions give us a call at that same number or visit us online rich on planning.com or 800-338-5944. You can request a copy of that report will email out a copy to you and you can look it over and make sure that your plan is not reliant on any of these myths or misconceptions to hold true to give you a brief overview of the seven financial myths number one on the left is the market always goes up the market, we hear the language the market has always gone up or the market always goes up over time, but if you have any kind of recent memories of the market, you know that's not always true. If that was always true, we wouldn't need statements like it's just a paper loss. Don't worry, the market always comes back and we wouldn't have suffered through a down year like 2018 a down year like 2008 a down year like 2000 2001 through 2002. There have been many periods where the market has not always gone up, but many people's plans are reliant on the market always going up.
I have seen.
I can't tell you how many it is a large percentage of the plans for retirement. The so-called plans are really projections are not plans but when people come in and say here is my plan for retirement. It is based on a projection of a steady increasing positive rate of return those projections assume that the market is always going to move up six or seven or eight or nine or 10%.
That's not the way that the market works. The market goes up goes down goes up goes down very random nature and we may have an average rate of return of seven or eight or nine or 10%.
But that's not the real return that an investor makes an impact that's number two on on this report. The seven financial myths is the average 10% market rate of return.
That's right, many market proponents, quote the medical 10% average return over the history of the stock market that does bring us to number two on the list.
The 10% average market return and I think this is one of the greatest fallacies in the financial world where funds get to advertise their previous rates of return and they talk about their past performance that the past 10 year rate of return has been over 10%. Let's examine like let's let's look at the way that works so if we've got a situation where we have a 60% rate of return in the first year and then a -50% in the second and then a positive 20% rate of return in the third year and I know numbers over the radio like I get it, but positive 60 -50+20 so 60-50 is 10+20 is 30÷3 that's an average 10% rate of return over that three year.
But what if we had invested $100,000 over that same period. In the first year we got a 60% rate of return are hundred thousand times 260,000. The next year, we lose 50% were down to 80,000. The next year we get a 20% positive return. We are up to $96,000 with a average 10% rate of return over a three-year period are hundred thousand dollars turned into $96,000 and we weren't even taken money out – just what happens to our actual money and that's the difference between linear averaging and geometric. Averaging, which is what actually happens, your money, so this myth of the 10% average rate of return. A lot of people count on that for how much income they think they should be able to generate and that's not the way that money works when you're withdrawing money at all sides important to have a conversation with an advisor who has your best interest in mind. So pick up the phone and give us a call at 800-338-5944.
We will offer you a complimentary review and sit down with you and discuss what your best options are again pick up the phone. Give us a call 800-338-5944 and that's really where I see a lot of people having a conversation with an advisory goes something like we believe that we have identified good funds for you to get a positive rate of return.
We think that we've identified a strategy to diversify and protect you on the downside, and we believe based on our strategies that you will have a secure retirement. All of that boils down to the person walking out thinking. I hope they're right, you will win when it's just a projection when it's I think I DO. I believe all of that is I hope I I hope this plan works hope is not a strategy. So in order to replace those we need to understand math and I feel like when I look at a lot of retirement plan projections there not based in reality, nor are they based in math.
What actually happens to money in the market and that's why a lot of people think they can withdraw a much higher cash flow from their assets than they really are going to be able to count and rely on throughout retirement is why I see a lot of people making the assumption that somehow the beekeeping more of their money in retirement and the taxes will be lower. That's why I see a lot of people believing that they no longer have a need for life insurance and retirement. Not a big lump sum that 500,000 that million dollars that we've built up on the day that we retires probably the largest amount of of personal wealth we've ever had. That gives a lot of people a false sense of confidence and what got all this money right here don't really need life insurance are not replacing my paycheck. I don't have debts don't have kids at home that I need to get through college. Why would I need life insurance and they forget that over retirement a period of 2530 35 years. They're going to be spending out of that lump sum and the market is going to be going up and down at the same time and lump sums have a way of declining and depreciating over decades, wouldn't you feel a lot more confident spending time with your spouse enjoying doing things together. If you knew you had set up a way for them to replace the lump sum that's giving you that confidence rather than being uncomfortable sitting there looking at each other, watching your account balances dwindle away. Life insurance is a an important part of retirement planning, and I know the saying is by term and invest the rest.
And that's absolutely accurate if you start out buying term insurance which is the cheapest way to cover the potential need. If you were to pass away, and then you invested the rest.
Then you can build up a lump sum that sufficient cover that. But most people forget to invest the rest and the rest is the difference between the cost of the cheap term and the cost of the permanent insurance that you really need to have in place in order to cover this knee.
Most people don't invest the rest and therefore the term expires, and they are not properly insured. At that point in time. So a lot of different aspects year that we covered today as we've discussed some myths mistakes misconceptions but the number one thing Amber I think is that it's too late for me to plan where I don't have enough to plan, we hear that a lot here Sean planning again.
We have covered a lot of different topics today. Planning for your retirement as well as some life insurance needs. If you're interested in a free consultation, please pick up the phone and give us a call at 800-338-5944 is better late than never. Ladies and gentlemen, there's no time like the present. Procrastination is not preparation is not providing for forward progress so if not now, when let's get that plan put together whether your 25 and just starting out whether your 65. In looking at retirement in the near future anywhere in between, or even beyond those if you want to get a better handle on your finances if you want to get a plan put together give us a call, and CS is a direct conversation will answer your questions with specific answers and after just a little bit of time if we decide to together mutually. That would be beneficial to continue our conversations and form a relationship fantastic. If not, at least you have some answers. We may have helped you identify some holes that have been left unaddressed some red flags in your plan and if you'd like to get started with my new book, understanding your investment options. Great way to get started in in understanding some choices and options and benefits and disadvantages of each. There not book pick up the phone.
Give us a call first 10 callers to the program today will send the book out to you for free.
Understanding your investment options give us a call now 800-338-5944, 800-338-5944. Always a pleasure talking to you in general. We appreciate your time for my family always, we look forward to hearing from you are talking with you since then. Planning matters radio the content of this radio show is not a solicitation or recommendation of investment strategy vestment tax or legal advice from a professional advisor and investment investment strategies mentioned involve risk, including the possible loss of principal by three services offered capital management for registered investment recently on the financial strength and claims paying ability withdraw support from annuities may be taxable as ordinary income. He stated the visuals for specific details of the productof penalties protected advisory advice is not just other activity such as product may result regarding