Biggest Retirement Regrets (and how to avoid them!)

Peter, good to see you.

Welcome back, everyone. Today we are talking the biggest retirement regrets and how to avoid them. According to a recent report from Consumer Affairs, 60% of seniors have regrets about how they prepared or didn't for retirement. Among those regrets, 63% wish they had planned their investments to provide automatic income. How do we avoid that mistake? Yeah, well, along with start planning sooner, saving more, paying off debt, this is a big one once we make the transition into retirement.

And those first three will help you get to that point with more confidence. But once you get there and you do retire, it's not that you don't need an income, it's that you don't have a paycheck. And so we've done a good job in general for those proactive planners and savers in accumulating money by making deposits into our retirement savings accounts. And we've built up a nest egg, a lump sum. But on the day after we retire, it's not the lump sum, it's how much income can we spend from it?

And how reliable is that income? So making that transition into retirement also is a fundamental transition that is required from your portfolio because the money has completely changed directions. During your working career, it's supported by the paycheck and the money's going into investments. And during your retirement career, you do not have the paycheck and the money is coming out. And if you expect the same results from the investment portfolio, when your money has a completely opposite behavior, you may be very disappointed or put your projections in jeopardy. And so setting up that automatic income, that means a number of things.

It is the regular distributions from the portfolio. And this could be in the form of removing the interest along the way, dividends in a stock portfolio. This could be annuity income. This also has to do with the nature of the tax withholdings that we're not kind of guessing along the way that we've got that set up and structured that we've done some accurate tax projections so we know how much to withhold. And in some cases that we've got that set up automatically and guaranteed that we have certainty that that income will last for as long as we do, plus some. And the reality is that for most folks, if we set up that baseline of income and give certain guarantees and then have additional discretionary money left over and above that, that is a very confident place to be in retirement. More and more, we're seeing where people can do both. They can set up a baseline for guaranteed certainty for income, have that pretty much set in stone and then continue to take the risk with the growth bucket, the money that is in the market, the investments to continue to make additional forward progress, address things like market volatility and inflation and health care expenses and goals for legacy. Right. And you're covering a lot right now, which we're going to dive into deeper too.

But I think, again, that first point just comes back to peace of mind. Yeah. Another eighty five percent. Eighty five percent wish that they had built their portfolios to deal with the unexpected, as you just mentioned, including specifically inflation and market volatility.

Yeah. Can inflation and market volatility truly be classified as unexpected? I mean, we really should know and understand that these things are certainties. We are going to see inflation, especially with the rate that the Fed continues to print money and rack up debt. We we know that the cost of goods is going to continue to rise.

Plus, we add new line items to the budget over time. And then market volatility is also a certainty. The market moves in cycles. The good news is that the market, given enough time to recover, has always not only recovered, but surpassed previous highs. But the chart that you have on screen right now, that is a very condensed chart. That is a lot of time that fits into that chart.

And the curve looks fantastic. But over those periods where the market does go down, those are significant downturns and drawdowns. And if we live through those times and have our assets and maybe more importantly, our income base subjected to those downturns at the same time needing income and making withdrawals, it can be catastrophic for our retirement trajectory. And so, again, when the money is going into accounts, when we have the paycheck to provide for our financial security, we're taking advantage of those downturns.

Nobody likes to see them. Everybody panics. But as long as we are not liquidating and withdrawing, we are actually taking advantage of dollar cost averaging and buying low because the market does and will eventually come back and rise and surpass previous highs. But when we remove dollars during those downturns, we've locked in losses and we've removed those dollars' ability to participate in any ensuing recovery.

And that, again, can be catastrophic for retirement projections. So, it's really important, again, that we sort of go back to that number one, that we've set up some systematic, automatic, durable, dependable income and then we've segmented off the growth bucket money that we can continue to take those risks with, Erin. But just to put you on the spot quickly, Peter, I think some people might respond, well, I am taking inflation into account, but what rate do you use and how often do you revisit that rate? Yeah, well, over the past 99 years, historically, we've looked at 3.27% inflation. So, 3.5% is a good number, be a little higher than inflation. And I know that there are periods, and right now, we are certainly in one of those periods where inflation is higher than that average.

And it feels certainly very painful, especially if we are on a fixed income and can't add to it. But we've had periods of higher inflation in history before. In the late 70s and early 80s, we had double-digit inflation and severely high inflation. And by the way, inflation usually coincides with fairly poorly performing markets. The markets go down at the same time inflation is going up, so they generally aren't a good offset in the moment. But then there are years and sometimes elongated periods of years where inflation is relatively low and under control.

Again, with the amount of government spending, with the amount of new money they're putting out into circulation, with the debt, the deficit that we have, I'm not sure that it's safe to assume much lower than that average historical rate. But you should at least be including that into your projections in order to have any semblance of reality because things do get more expensive over time. You cannot avoid that. You've got to work that into the plans.

Right. All right, let's move on to our next regret, not considering tax implications. This is the danger for most of us who have the bulk of our retirement savings in tax-deferred accounts like 401ks. Yeah, and there's a lot of Monday morning quarterbacking going on here, I'll call it, or woulda, coulda, shoulda, because the availability of the Roth was not very widespread and the knowledge of it was even less widespread until fairly recently. I'll say the last 10 to 15 years, the Roth was not really too much of a thing. And now people are retiring with the bulk of their money in what was told and taught to them and widely available, which are these tax-deferred accounts, right? The 401ks and the IRAs, where we did not pay taxes when the money went in and when the money comes out, it will be taxable. Now, kicking themselves or regretting this decision, I think that maybe that's a little too strong because if you saved in a tax-deferred manner over the course of a career that now is culminating in retirement, so the last 30, 35 years, taxes have come down.

And so this may have been a good deal for you. It's just that we are at a paradigm shift. We're at a precipice where we've got a historically low tax rate today. And the tax law on the books is that taxes could begin to creep back up.

And certainly that's been the language in Washington. So right now is the moment of opportunity to take what you have taken advantage of in those tax-deferred accounts, those 401ks and IRAs, and manage the taxes on it. So don't regret this one.

Just be proactive with this one, right? Is that you've done a good job in saving and accumulating. If this is a big deal to you, fantastic congratulations. But if it is a big deal to you, it is an even more costly mistake to continue to avoid this or ignore this or continue to defer and delay and default to the IRS's plan.

I think that would be something that you should and will regret into future years. The study also mentions the dangers of putting your investments on autopilot. One investor shared his experience of putting his retirement funds in a robo-advised portfolio, which had 20% in mortgage-backed securities among other poorly performing sectors. So his regret was not working with a professional. Well and then in 2022, the mortgage-backed securities, maybe that was like 07, 08, right?

The great recession, that would have been a big deal. But I saw the same in 2022 with these target date funds and lifecycle funds that had a near-term date and therefore were highly concentrated in fixed income and bonds. Look, autopilot can have some benefits, right? We make the contributions to our 401k, we set the percentage and the money goes in, that's sort of on autopilot. But inside of those accounts, those target date, those lifecycle funds, that's like putting a car on cruise control and then going in the backseat and taking a nap. And I know we've got self-driving cars now, so maybe that analogy is a little less applicable, but there used to be a lot of jokes about that, where I guess people even tried that, unfortunately.

But we should not do that with our investments because target date funds, lifecycle funds, do not adjust to real world conditions. So continuing with the automobile analogy, on the highway, the speed limit might be 65. On the city streets, it might be 45. In a school zone, it goes down to 35. And I would be wise to follow that posted speed limit if conditions are good.

But if we've got torrential rain or one of our North Carolina winter storms where there's ice on the road, I probably would not be wise even to follow those posted speed limits. And that's what these autopilot kind of platforms do, is they do not adjust for real world conditions. They're a predetermined algorithm. And if something in the real world would dictate that even that algorithm may not be appropriate, they don't make that adjustment. So a lot of people lost a lot more money than they were comfortable with in 2022 as interest rates were rising. But the reality is that the Fed was telling us at the end of 2021 what kind of year it was going to be. So if we were paying attention and a bit proactive, we could have avoided some of that pain and some of those losses for those folks who were near their retirement date. So yeah, the autopilot, it's good in theory, maybe not quite as good in reality, Erin. Right, right. Well, you know, Peter, it's helpful to talk through these regrets because I think there are obviously solutions to each one of these.

So if somebody wants to talk through some of the topics we've covered today, what's the best way to reach you? You only get one shot at an ideal retirement. Smart people learn from their own mistakes, but we don't have that time or luxury if we want that ideal optimized retirement. So if you'd like your optimized retirement plan put together, give me a call at Rashan Planning 919-300-5886, 919-300-5886. You can go online to rashanplanning.com.

It looks like rich on planning. It's my last name, Rashan, rashanplanning.com. You can email me, peter at rashanplanning.com or again, no cost, no obligation for the service. By the way, Erin, we put together, we customize the optimized retirement plan, the retirement tax bill analysis. So just give us a call to start that conversation, 919-300-5886.

Definitely worth a call. Peter, thank you. Always a pleasure. Thank you.

Hey everyone, Peter Rashan here. Hope you enjoy the content. As always, make sure that you like, subscribe, share the videos with others that may find this information helpful. And as always, you're welcome to be in touch or to submit questions or comments.

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