Retirement Misconceptions

This is Doug Hastings, VP of Moody radio and were thankful for support from our listeners, and businesses like United faith mortgage heading into spring. I've been spending a lot of time pondering, analyzing and debating something extremely important to men and even many women and that's whether a new driver would improve my golf game I would see them somewhere between embarrassing and appalling at golf man do I love it and all my buddies show up with these epic/big maverick Bertha drivers and I can't help but feel like they've got this massive advantage on me and my persimmons. It's right that our family mortgage team were proud to have a pretty special advantage ourselves and one that can be a big deal for you. Our team is an arm of the company who is a direct lender, which means our company uses its own money and make its own decisions within its own walls. There's no middleman in this advantage often allows us to get you a better rate, saving monthly and lifelong money on a refinance or new home purchase were much better in mortgages than I am at golf. We are United faith mortgage United faith mortgage is a DBA of United mortgage Corp. 25 Belleville Park Rd., Melville, NY. Licensed mortgage banker for all licensing information, go to an MLS consumer access.org corporate MLS number 1330. Equal housing lender not licensed in Alaska, Hawaii, Georgia, Massachusetts, North Dakota, South Dakota and Utah retirement plans are untried or do you just think you retarded players are on track. Or maybe you just hope they are Rob West, a brand-new study has revealed that a surprising number of people are for retirement, probably due to misconceptions about what they need to reach their goals will talk about that first today that will take your calls on any financial topic that 800-525-7000 800-525-7000.

This is moneywise live God's truth is the letter that spews our financial ship so this survey I mentioned done by Fidelity invest's with over 1200 respondents. It showed that a great number of them lack understanding of five key components of investing now as we go through them. You might find you've been laboring under some of these misconceptions. But don't worry, it just means you have to make some adjustments which you can do once you're armed with the facts. So here goes the first misconception involves the basic retirement nest egg.

And as we've said many times on this program and Fidelity evidently agrees, you should have in your portfolio.

10 to 12 times your last year's income.

By the time you retire.

Of course, that amount will vary based on several factors such as how frugal you are. Your life expectancy and others that the survey showed that far too many people underestimate how much they'll need in their retirement savings. Only one out of four respondents knew the actual number and about half thought they'd only need five times their salary in savings. That means a lot of people are on track to start retirement with far less savings than they'll need but it gets worse.

The second misconception concerns how much to withdraw from those savings each year during retirement that we always recommend 4% is a safe amount to withdrawal each year.

Some advisors will tell you as much is 6% but more than 1/4 of the respondents believed they could withdraw 10 to 15% of their retirement savings each year, 2 to 3 times the safe about doing that would mean that in most years they'll be dipping deeply into their principal. Before long, those folks will have to drastically alter their lifestyle or return to the workforce.

The next misconception involves the history of the stock market and assuming the market will be down more than it's up now, you can always pick a range of years when the market shows negative returns, but overall the market tends to move up. Think about it. If that weren't the case, people wouldn't invest in stocks at all. Now, few of us could expect to live 35 years after retiring but over the last 35 years. The market has ended up 26 years, but a whopping 75% of respondents incorrectly believe that the market had been down more years than during that time, and because of that they may move too much of their portfolio out of stocks as they near retirement and during their retirement years.

Yes, you want to rebalance your portfolio as the years go on reducing the percentage held in stocks and mutual funds but most people should never be completely out of the market. Even during retirement because that smaller percentage of your portfolio will almost certainly produce greater gains than bonds will over a long period of time. Okay that's enough about retirement savings.

The next misconception. Many folks have involves healthcare specifically how expensive it will be during retirement. The survey revealed that more than 1/3 of respondents significantly underestimated their out-of-pocket healthcare expenses during retirement. They guess the average retired couple would spend between 50 and $100,000 on healthcare while the insurance industry estimates the number to be much higher than that. Our last misconception involves the full retirement age for Social Security for most folks that's 66 or 67 depending upon when you were born, but surprisingly fewer than 1/5 new their correct full retirement age for Social Security.

You can start receiving benefits as early as age 62, but that will cost you 8% in reduced benefits for each year under your full retirement age and that reduction is permanent. So you have to think carefully before electing to receive benefits and knowing your full retirement age is really important about what you can look at it from a positive perspective to delaying will get you about 8% more in benefits for each year you wait till age 70 and there's another benefit to waiting to take Social Security once you reach full retirement age continue to work your benefits will be reduced from earning extra income. Well, now we cleared up those misconceptions and you have a lot more information to successfully plan your retirement goals and asked 800-525-7000. This is moneywise live the intersection of your money will be right back to moneywise live with this damn round glass.

This is the program were God's word intersects with your financial life and that's what we want to hear from you about what's going on in your financial life.

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That's 800-525-7000. All right, let's dive into some phone calls today were to start in Davenport, Iowa, and we welcome Ashley to the broadcast current question. My husband had 100 and 5000 $50,000 life insurance whole life policy and we paid almost $14,000 into it so far. We borrowed 5000 when times got cash but now we keep getting notices that it's up to just over 7000 now because the interest in our representative told us that we didn't have to pay it back because that would just end up being awash yes and what is value in the policy right now hundred and 50,000. Well, that's the death benefit, but you should have accumulated cash value 1500 okay 1500 over and above the loan amount yet yes yes if we were to have a call today.

That's what's available got it okay very good and what you think you really need in terms of the death benefit. I assume this is a policy on your husband's life payable to you is that right and his daughter okay to just over 200 a month for it select our best. What should we be doing with our money well on the big proponent of pure insurance what's called term insurance you know there's not a cash value component because you're not mixing your savings in your insurance like you are with a whole life policy that you have here. It's just pure insurance to your paying the mortality expense only. So you you're not, you know, and accumulating anything you can take out down the road.

But what you're doing is offsetting the risk that exists if something were to happen to him while you're still accumulating wealth so that you know you would have a significant hardship if his income goes away and that's where the death benefit comes in. But we don't need that for the rest of your life or his life. We only need that into you all reach a season of life where you've accumulated enough through your retirement savings that your self-insured in the sense that he's no longer working or doesn't have to work and therefore if something were to happen to him.

The Lord calls him home that doesn't create any hardship for you whatsoever because you got Social Security in your drawing and income from your retirement investments.

Things like that. And so it's the least expensive way to get the proper amount of coverage because that's the other piece of this. We want to fit well within the budget, but we also want you to get the amount of coverage you really need. So as a starting point before we had in things like it, or perhaps the cost of college for your daughter paying off the house does things like that you wanted a minimum, probably 10 to 12 times his income in the way of coverage so he's making you know 75,000 a year would want to start with a $750,000 death benefit policy on a term basis, so the 20 year level term or could even be 30 year level term we need to make sure it fits in the budget then if something were to happen to him now 750,000 is paid out and that could be converted into an income stream that would at least get you through to that retirement season so you can maintain your lifestyle continue to save, pay off the house fund. The college things like that. So that would be my preferred approach is can we must let much less expensive and again. It's just purely offsetting the risk that exists if you decided to do that.

The way you approach that is to get approved for that policy. First, you'd want to have him go through the underwriting. Find out the policy from a highly rated company that's most cost-effective going to fit into the budget get that all in place and in a go and make that payments of the policies in force. Then you go back and cancel that other policy take your $1500 in cash value which would in effect pay back that loan.

The policy is canceled and then you drop that coverage that would typically be without knowing you know anything else about your financial life. The approach I would take. Does that make sense though… Term life was like throwing money away because don't you lose that lunch or a certain age. Even if you're still alive you do, do you think about it like this you know inside that policy you're paying right now you're paying the same mortality expense that you would be paying with the term policy and that's"" being thrown away. You're just paying for the offsetting the risk kinda like you know it's like if you were to pay your car insurance for a year and you say well I didn't have an accident. So I threw that money away know you really didn't because you were insured.

So if you did have an accident you're covering the cost of what it takes for the company that carries you to provide coverage to you to make sure that in the event of an accident whether there's medical expenses or damage to the car that they're gonna pay those bills and the same thing is true with life insurance, you're going to pay that mortality expense anyway.

Whether it's a whole life policy return policy. The question is whether you're adding in a savings component to it on top of the death benefit. The mortality expense but I would say I'd rather you redirect that portion of what you're paying every month into an investment that you control as opposed to an insurance product so into your 401(k) or into an IRA word can be invested on a tax-deferred basis and you're not borrowing from the policy and paying interest to yourself and all those kinds of things that you're doing now, I realize it's a different way of thinking, but I think it's a much more prudent approach to offsetting the risk, but also saving for the future is that make sense. Better yet, yet then will we still have to pay all of that back of what we borrowed our hill in a sense in gonna reduce the cash value that's available. Once you collapse the policy. So in a sense the 1500 that's available over and above the borrowed balance is what would be paid out to you but keep in mind you don't want to go without coverage.

So make sure you get that new term policy in place with the proper amount of coverage that you really need to offset the risk of his premature death so that you could cover all of your needs for you and your daughter and your family. Until such time as you have enough accumulated outside of the of the death benefit. Hopefully that helps you Ashley.

We appreciate you listening. Thanks for your call today. May the Lord bless you.

Let's head to Lehigh acres Florida Angel your next go ahead. Yes sir, I have a 03P and I'm thinking about switching it over to one of old IRA that that goal could you please let me know what you think about that idea you know I'm not a big sin of that Angel you know that gold is a store of value.

It's a hedge against a weak dollar falling stock market tends to do very well when everything else is declining when the stock market takes a dive. Everyone begins putting their faith in gold instead. But with the higher demand in gold and the limited supply price goes up massively in some cases based on market uncertainty.

So in a sense, it's the type of investment you don't want to do well because everything else is doing poorly. The problem is, historically speaking, we look over a long time.

It just doesn't perform as well I mean if you compare putting 10,000 in gold versus 10,000 in bonds and 10,000 in stocks and you look at pretty much any time. Greater than 10 years you're going to see that stocks are away.

Outperform gold in terms of the overall historical annualized return. It also becomes somewhat challenging if things were to get really bad. I mean if that's the reason you're buying it.

You know you have, to really turn that into something that would be a means of exchange for you to survive if that's you know what you're looking to do and it only earns money when you sell it because you know it can only provide you an income when you turn it into a sale and actually liquidate the position as opposed to other types of investments that can be income generating like bonds or even dividends with stocks. So for those reasons I would say as a hedge, or perhaps a protection in your portfolio.

I like it but only in small percentages and so I'm to say 5% of your portfolio for the average person is really all you want in the precious metals. Apart from that, you really want to have a properly diversified portfolio of stocks and bonds that's really consistent overall with your goals and objectives. What is your age you trying to save for and recognizing the in any given decade, we have our challenges right now it's looking out with the prospects of the a lot of debt in this country it would have to deal with higher taxes. Perhaps coming. All that can be addressed in historically to minimize live around West phone lines open the day taking your calls and questions on anything natural as we try to apply the truth of God's word to your financial life. Here's the number 800-525-7000 lines available 800-525-7000 and you want to take moneywise. The radio broadcast with you on the go you want to connect with the money wise community for encouragement or to ask a question maybe you want to build your own spending plan and manage a daily through the digital envelope system will all of that is in the moneywise app you can download it today for free in the app store that you use, it could be the Apple App Store the Google play store. Here's what you want to search for just put in moneywise biblical finance. You can download it today. We'd love to have you participate with us again. It's moneywise local finance lines available 800-525-7000 to Stuart, Florida Sandy, you're next on the program. How can we help you, the older you are when you start collecting your benefit, the more your benefits will be hell my plan to retire in 16 now working at a gear and then stopped working that I don't and I had and will continue to work. We have a family that I cannot start applying or drawing on my benefits until I'm 67 or 70 mom and dad. When I depend on my thinking are what are the implications for doing that well. If you wait till full retirement age, which in your case will either be 66 or 67 that will ensure that you get the full amount of the benefits that were projected to come your way.

Based on your prior years of work and so you could check with the Social Security Administration or look at the annual statement that they send you of what was supposed to be paid to you and get if you wait till that full retirement age, which you should be there based on what you describe to me then you would likely get the full benefits. The question is if you take it early. You're going to be penalized so you'll get an amount less than that. And if you wait every year past full retirement age until age 70. That check amount is going to increase by 8% so you don't start collecting as soon but you get a higher check for life.

And so as long as you live a long time.

You know you should do come out ahead in terms of waiting, even though there's years where you're not collecting that higher amount at some point will offset those years you were collecting and then you'll enjoy that higher check for life. So no penalty. If you wait till full retirement age.

The question is just are. You can wait long enough where you can increase that check in again. That number is 8% a year each year until age 70.

At that point there's no reason not to collect because it's going to Your benefits at that point. Does that make sense Sandy, why don't start collecting until think that they'll get that 8%.

Now that I would've gotten if I still worked you will you know what you're giving up is you could the other way to increase your benefits other than waiting in a cost-of-living adjustment which there's nothing you can do about that.

That's the government decides that would be continuing to work at a higher amount than some of your lower earning years. Perhaps you don't. Decades ago, when you first started working, things like that where you could replace some of those lower years of earnings with higher amounts that would then recalculate your benefit to a higher amount you're giving up some of that by not working now where arguably you're probably making more today were, would have, then you were early on in your work life. That's what you're giving up. But whatever your benefits are today. Every year you wait beyond full retirement age, you still get to see that increase of 8% by waiting and so that's something to take a look at annual audit think and plan with regard to you when you take yours versus when you take your husbands because it may make sense for one of you to take it earlier than the other. While that check continues to grow and then you could switch over to spousal benefits. For instance, at some point if that was higher than what you're earning. So I do contact the Social Security administration set up a virtual meeting and exit walk through those scenarios, but that's in essence how it works. We appreciate your call today taking your calls 800-525-7000 St. Cloud, Minnesota met you next on the program. How can we help user take my call.

My name's Matt 36 years old. Husband and father for 12 and under and that we just recently became hundred percent debt-free helmsman no debts and that about $50,000 in IRAs between me and my wife, split between rocks and traditional enema business owner and are doing really well to start the 401(k) for business and looking for advice and recommendations on what to do and what next goals to set for ourselves, but needs more money. Retirement investment property here. Any other advice you yeah very good. Well, I think you clearly are on the right track. Your business owner. I love the fact that you prioritize Matt being debt-free.

I decided to put away some money in retirement.

Got it on a tax-deferred and a tax-free growth basis. All of that is really good and go to serve you well. Over time, I think the next step really is. Once you Your lifestyle is only two options one is to continue to save the other is to increase your giving outside be looking at things like near-term goals, like perhaps college funds setting that aside.

In a 529 doing some planning to see how much you ultimately want to accumulate retirement savings that you diversify in terms of other asset classes real estate would be a great example and then more giving on top of that. Hope that helps. We appreciate your call today will be right back to moneywise live on Rob last back to moneywise live the question why God's truth.

Your financial life or in addition only.

By the way, all the lines are full so just hold tight. There are other ways to get through where you can get an answer based on biblical principles and give it to one is you can email us questions@moneywise.org questions@moneywise.org we try to get as many of those that come in through that email box on the year picking one or two each day, or you can connect with one of our moneywise coaches. These are men and women who are trained where as a part of their ministry. They really come alongside folks to either answer their questions through email or they use one-on-one coaching, using zoom and other virtual technology to actually connect with you over series of weeks to help you get a spending plan set up walk you through some very short Bible studies on money management. So you understand that from God's perspective help you establish a debt repayment and giving plan. It's called her moneywise coaches and they love to walk alongside you or answer your email question. So here so you can take advantage of that. Just head over to moneywise live.org and click on connect with the coach or ask a question either one of those will go right into our trained coaches. They'd love to assist you in there ready to serve you.

Let's go back to the phones. Joliet, Illinois. Don your next on the program what your question related to withdrawing retirement assets hi Rob, thanks for taking my call this or I have currently.

Actually I retired at 55 Fisher help take care of my parents. I was with my company for 31 years and throughout that time I invested heavily in stock and 401(k) plan. I don't look penchant for my company and I have a balance of $695,000 in my former 1K an additional 70,000 in the company stock ownership plan at the advice of my financial advisor. He had recommended that I decrease my stock portfolio, which I did to 50. Excuse me, a 40, 52%. I feel like because of my age that I could increase that stock amount a little bit more so that my funds will last through my retirement. My tithers obviously my first priority as we strive to the Lord.

I wanted what your opinion was on how much are you pulling out those this account is anything with. If you were to think about both of these together is around 765,000 or so Don, are you drawing rain come off of this I know because I don't get attention and I'm young for such security. So on, pulling out 4250 a month, 20% of that automatically goes toward federal withholding. Okay good night have no debt, everything is paid off my house. I have no doubt at all. So that's a good thing. Yeah, you know, the only thing I would ask. There is you whether or not you would be comfortable with the downside so typically we get into this season of life when were thinking about converting investments to an income stream where were trying to preserve what we have. The principal and then draw an income. Ideally we try to match a 4% number two that just based on that, rule that's been around for long time. Which by the way, the guy that came up with that have been getting recently revised.

That's all right.

I think you can take 5% because we came up with that 4% based on the worse and there was a blood stick with 4% for second, you know, that would essentially in a 765,004%. That would throw off about 30,600. You're obviously pulling a bit more than that. So the question is do you want to increase the amount of stock exposure. You have now. Keep in mind in your situation when you finally get to that age where you can start drawing Social Security that's gonna take a little bit of the pressure off. So when I could do this for life. But clearly you are gonna be pulling some of this principle out just based on the amount you're withdrawing. The only concern I would have is if we go up from typically maybe a 30% stock exposure was 70% fixed income to 52 you're saying.

Perhaps even more. Let's say we went to 60%. Your normally I would say with a full when you're fully exposed to stocks you should be willing to whether a 35% downturn. Now you wouldn't sell during that time and taken unrealized loss and converted to a realized loss you would want to wait that out and let that come back, but that's why we would only invest in a fully stock invested portfolio with a really long time horizon at least 10 years or more so for that portion.

Let's say you were to take 60% of your portfolio put in stocks well. 60% of 35%.

On the downside, is about a 20% downside so I guess that would be my question to you is if you got your statement in your 750,000 or 65,000 was now at 612,000 would you be okay with that. Again, you're not selling and realizing that loss but you are recognizing that you know if we get into a bear market here year or two or three down the road it could last 18 months or two years, maybe more, and you need to be willing to let that portion ride and just live off of the fixed income portion and be okay with that and still be able to sleep at night so you think you'd be able to do that done. I think I would based on what happened last year with the markets when not when the downturn occurred in April or so. I was thinking, retirement, what needn't be possible, but found by the end of the year. My total return on my portfolio was just over 9%.

So, I mean based on that scenario I really market downturns. Don't bother me because I i.e. I'm in it for the long haul and I figured since I'm only 55 that I could take a little bit more risk. That was my thought process when I think that's right. And since clearly you've thought through that and I would say at this point you are you are taking a little bit more risk even though you're young, you've already gotten to the point where you're relying on this money for your income, and in fact in this season at your only source of income. So we need to not treat you like the typical 55-year-old just based on the fact that it's really your support. So we've automatically got a get more conservative just to preserve what you have. But as long as you're willing to recognize that additional risk and you're looking at the reward potential. Being greater which it is and you're willing to let that ride you're knocking to get into a situation where that 765 is down 20%. Now at 612 in your sin, and I need to sell some. I just don't feel good about this. I need to go to cash that would be the worst possible scenario.

So as long as you go into it, with your eyes wide open. You've got to get out an investment advisor helping you make those decisions were were you delegated that that I think you certainly could.

I think you just need to make sure you you assess that risk and you're willing to take on the front end, but I like your plan, and I'm also encouraged by the fact that down the road you'll be reducing your monthly need one so Social Security kicks and we appreciate your call today. Let's quickly go to Elizabeth and Springhill, Tennessee. Elizabeth your next on the program calling me really appreciate thank you are considering buying a condo or a townhome out of state and Mississippi. If that matters in Tennessee where our college student is going to be there another for five years getting a few degree and went to get your chips today on out-of-state rental property and owning that mental property we don't have any debt limit paid in cash and we would hope to acquire some rental income from her roommate for also. Perhaps when she's not there summer break Christmas break that hunting and then we went to her graduation.

If we would keep the property long-term are not configured question why pre-said that Elizabeth and you know this is something a lot of folks are thinking about working to pause and take a quick break. You hold the line, we come back to give you my thoughts on this is moneywise live moneywise live.

So glad to have you along with us today. This is where God's word intersects with your financial life and just before the regular talking with Elizabeth and Springhill, Tennessee. They're looking to buy a condo state college student in the city and they would be buying with LOOKING for some tips and Elizabeth this is a great way to reduce the boarding costs as you buy into a place you perhaps look at to bringing in some roommates obviously would you be great. I think some questions to ask would be first of all, how long do you think your son or daughter is going to be there. What will it cost to sell the property got a factor that in.

Usually there's notes can be six or 7%. What are the current rental rates in the neighborhoods you want to connect with a few real realtors in that area just to find out what that looks like most students these days don't graduate in four years so your money could be tied up longer than you think. Interestingly, only 60% graduate within six here is not to scare you that going back to those roommate. You also want to consider whether you're going to look at renting out other rooms so municipalities will limit the number of people living in those units and then you can want to look at the inventory of condo units in that college area you in some areas developers have overbuilt condos to accommodate student housing so there's a bit of you know in abundance there and there, then you may have trouble getting out of the unit at the price you like. So there are a number of factors, I think you just need to do your homework.

I perhaps connect with a realtor in that area. If you haven't already, just to get a lay of the land. Do some comps do your own research on what's available in terms of the prices and then I think once you can't have all that data you can compare that in terms of your ability to go in by that accomplish what you want which is to reduce the overall cost.

Perhaps you even if you just yell came out even through some modest appreciation in the next few years may not be a great thing right and I love that you're doing it with cash, which tells me that you have a real strong financial footing under you as you make this decision. So this all sounds good to me and hopefully those ideas help.

Is that what you were looking for.

Thank you. We did have a realtor we've been looking at property. Their inventory in the market is good.

If a large university with a large master suite program as well so there's always young folks coming in and out, but it's not a surplus of inventory Matthew, click into account Eric unit on here take on a condo or townhome with an account Eric unit where it can't likely hearing from her insurance company and from a lot of different condo ownership and HLA coverage that encounters units are not covered. The exterior insurance of the property and that perhaps State Farm and others are not also going to cover any kind of damage on the air delete downstairs with a slow leak in a mold or mildew or a flooding situation. Do you have any to come downstairs unit renting it out. You know it's something you need to look me. I am very familiar with the fact that is in many cases the situation where homeowners insurance just doesn't cover damage to downstairs because you know you've got a