The TANSTAAFL Theory, Part 2

To catch you up, here’s a link to last month’s blog. There’s a lot of information in there, but here’s the “Cliff Notes” version:

The average baby boomer retiree wants:

• A reasonable rate of return, preferable to the S & P 500
• No market risk or volatility
• Assurances they will never run out of money in retirement

And as the title says, “There ain’t no such thing as a free lunch!”

To compound these desires, per the American Society of Pension Professionals & Actuaries (ASPPA), over 40% of non-retired people plan to take their Social Security benefits between ages 62-65, leaving them short of qualifying for their full retirement age (FRA) benefits by more than 30%. (1)

A new study just published by Northwestern Mutual shows that Americans believe they will need a lump sum amount at retirement age of $1,460,000 to retire comfortably. To show how current inflation has affected that number, in 2023 the amount was $1,270,000 and in 2020 it was $951,000. (2)

To complicate this, 52.5% of Baby Boomers have less than $250,000 in retirement savings, and 14.6% have assets of $500,000 or less. I’m hearing a Christmas song right now: “Do you hear what I hear…?”

4,100,000 of Americans are turning 65 this year and each year through 2027 (3). I’m hearing that most want to retire as soon as possible but have significantly less in retirement saving than is necessary to do so. What’s more, many are staring at a number of risk factors that can create substantial problems later in life. Of course, there are abundant “financial myths” surrounding these scenarios.

Years ago, I was invited to listen to a gentleman named Nick Murray, one of the financial services industry’s most respected writers and speakers. I have all of his books, and each is marked up significantly. When he came to the podium, he loudly proclaimed: “I am a 65 year old man facing retirement, and I need you to help me negotiate a truce with reality!” This phrase has resonated with me since.

So, given the minefield of financial problems I’ve detailed above, how can I help you “negotiate a truce with reality?”

Do you have a “stress tested” plan for what your retirement looks like for you and your spouse? It’s easy to have a retirement account that is based on accumulation only, but what does your plan look like once you start “de-accumulating” or going into withdrawal mode?

Recognize the picture above? I’ve blogged on it before and it’s Chapter 28 in my book. Mt. Everest, the highest peak on the planet. So, when do you think people die climbing this mountain? Going up or coming down? Understandably, most people think the biggest dangers occur when you’re going up. However, it’s coming down. Think about it. You’ve gotten to the mountaintop. The adrenaline rush is off the charts. You’ve accomplished a lifetime goal. You made it! But now you’re tired, exhausted, and oxygen-deprived, and you’re in a bigger rush to get down than you were to get to the top. That’s where the accidents and fatal mishaps happen the most.

Using this as an example, when do people fail in retirement? Accumulating $$ via 401(k), IRAs, and other types of investments; or “de-accumulating” when you flip the switch to distribution and taking monthly income? If you’ve read this far, then you know people fail when they’re in retirement and distribution mode. I don’t have a statistic for this, but just assume it’s a lot of folks!

So what tools do you need to not only “scale the mountain” but get down successfully? Let’s look at some of the options available to you:

• Retirement Income Planning: How long do you plan on living in retirement?
• ROTH IRA and ROTH 401(k) options; creating tax-free income strategies
• Social Security & Medicare plans; optimizing your benefits
• Investment real estate
• Properly structured annuities
• Drafted and executed legal documents (will, advance directives, revocable living trusts, etc.)
• Budgets for living expenses and for extracurricular activities, such as travel and hobbies.

There are many more options I could add, but you get the idea. Retirement planning is not a do it yourself project; I’ve said this many times. There’s a reason I call myself a “financial psychologist!” When emotions get in the way of logical planning, failures can occur. Interview and hire a competent advisor that can help you integrate all of the bullet points into a meaningful and workable plan.

So tell me, does the TANSTAAFL Theory apply to you?  Or will you take total control of the next phase of your life?

(1) ASPPA Advertisement
(2) Northwestern Mutual News Releases
(3) CBS News Moneywatch

Many thanks,

Brian

**Examples are intended for illustrative purposes only and may be not indicative of your situation. Individual results may vary.