Retirement Answers

Jacob: 00:00

If you're getting close to retirement and you want to avoid the mistakes that quietly derail so many people's plans, this episode is for you because today we're talking about the five retirement beliefs, common assumptions that seem harmless, even logical on the surface, but they can actually jeopardize your entire future if you're not careful. And what's interesting is that most of these beliefs, they don't really come from bad intentions. They come from decades of savings and from stories we tell ourselves about money and what we've heard from friends or coworkers. And honestly, it's really just from a lifetime of thinking about finances through the accumulation mindset. But in retirement, it's a totally different world.

Jacob: 00:37

The rules change, the risks change, the decisions have to change. And if we don't revisit some of these common, just standard beliefs that we've carried with us into retirement, they can hold us back or even worse, steer us into decisions that create unnecessary stress. So today, we're gonna unpack these five common misconceptions and beliefs one by one. I want you to listen with an open mind and maybe even ask yourself, do I believe in these things? And is it helping me or hurting me?

Jacob: 01:03

But before we jump in, welcome back to the Retirement Answers podcast. My name is Jacob Duke. I'm a certified financial planner and the owner of River Tree Wealth, a retirement planning firm that helps people just like you plan smarter and retire better. And I've had the privilege of walking more than a 100 families into retirement. And one of the thing that I continue to notice is that the biggest obstacles aren't mathematical.

Jacob: 01:22

They're not the math, the data behind the scenes or the money, they're mental hurdles that have to be overcome. They come from assumptions that people didn't even realize they were making. So let's just go ahead and dive into this. Belief number one is I need to have a certain number or a big enough number or amount of money and I'll be fine. This is the most common misconception that I often run into.

Jacob: 01:42

We're conditioned to think that retirement is solved by getting to a certain number, dollars 1,000,000, dollars 2,000,000, $3,000,000 depending on who you are in your circumstances. And look, there's nothing wrong with having a target. It gives you structure. It gives you something to kind of aim for, but when that target becomes the only measure of your readiness, that's where people get into trouble. And here's what I mean by that.

Jacob: 02:04

Retirement is not just a math equation. It's not as simple as if I have this amount of money, everything else will fall into place. You've got to think about taxes and health care and inflation and spending patterns. And what happens if the market drops early in retirement? What happens if you lived in '95 or January?

Jacob: 02:19

There are so many moving parts and layers to everything that needs to be considered. And this is why I've seen people with $2,000,000 who still feel anxious and people with half that amount who feel confident and secure. The number is not what's actually creating the peace of mind. It's the plan behind it. The strategy that they're using, what they're doing behind the scenes, the clarity that comes from that.

Jacob: 02:39

Having a number is good, but having a roadmap is what actually carries you through. So remember this as you're thinking about. So remember this as you're thinking about how much money you need for retirement. It's not so much the number, it's about the plan with what you have to accomplish your true goals. It's not about how much, it's about how you're going to enjoy it.

Jacob: 02:59

Belief number two is I'm gonna spend less in retirement than I do right now. And man, this is a very interesting one because if you look at any sort of, you know, how much money do I need or how much of my income do I need to have in retirement? If you Google that or search for that online, it'll say somewhere between 7090% of your current income is how much you need to have an income once you're in retirement, and I don't know where that number comes from, maybe comes from the fact that you're paying certain amount of taxes on your income today, maybe you're saving your four zero one ks or have health insurance or FICA taxes, it's probably a number of those things. But the reality is that in the early years of retirement, the go go years, they're often the most expensive, you finally have the time and the freedom and the ability to go travel and spend more. Maybe you want to upgrade your house, maybe you want to upgrade your car finally that you've been putting off for so long.

Jacob: 03:46

You kind of want to spoil yourself in some ways like your reward for all of your hard work or maybe you want to spoil someone else, maybe it's the grandkids you want to go spoil. And honestly, you deserve to be able to do that in this stage of life. That's what it's for. But here's the danger. When someone plans around the idea that spending will automatically drop because you are retired, what you're gonna end up doing is underestimating what your retirement will actually cost.

Jacob: 04:08

And that leads to one of two things. Either you end up spending way too much money and running out a lot faster than you otherwise thought you were going to, or you have to cut back on your spending because you see the potential risk at hand, then you're not able to live the life you truly wanted to live or thought you could live in retirement. So I'm not saying that you can't reduce your spending as you go through retirement because you definitely can, but the belief that spending drops immediately is simply just not true for most people. Good planning accounts for the fact that higher early years in the spending that comes with that, that builds flexibility later on. So you want to anticipate spending more money in those first five to ten years during your go years, that's whenever you want to be able to do that, right?

Jacob: 04:50

While you have your health and your ability to go travel or go on that vacation or whatever it is that you've been longing to do, that's the timeframe to be able to do it. And that's your moment to spend more money. And then typically what I've seen with my clients anyway, is typically spending decreases over time. We've talked about the retirement spending smile, where typically on the front end of retirement, you spend more on the middle stages, you might spend a little bit less and on the back end, you might spend slightly more as well for long term care costs or health related issues that are expenditures there. So don't think that because just because you're stopping work and you're going to be retired, that your spending is also going to go down.

Jacob: 05:26

In fact, it should go up most of the time. You So might want to evaluate your spending today and see, hey, where am I at right now? And what if I added 20% to that? Am I still good with my plan if I add another 20% to my current spending amount? Because I will have the time and the ability and the freedom to go and actually spend more money on a day to day basis.

Jacob: 05:45

The third misconception here that I often hear is that I don't need a financial plan because I'm good with money. Now, this is an interesting one because it usually comes from people who've done extremely well for themselves. They've done a great job of saving. They built up their 401ks. They live below their means, made steady, disciplined decisions for decades.

Jacob: 06:03

And because of that, they think that, hey, I made it this far on my own. Why would retirement be any different? But retirement is different. In fact, it's completely different. The moment that you stop earning a paycheck, you move from the world of accumulation, which you've been doing your entire adult life while you're working into the world of decumulation and the rules, the risks and the decisions that come with that are no longer the same.

Jacob: 06:26

In fact, let me give you an example to kind of illustrate this. Most people build wealth gradually over time, right? You start with a small balance in your four zero one ks, it grows to $50,000 then, you know, it goes to a 100 and 150 and then $300,000. And maybe one day you look up and it's a million dollars or more. And that slow steady climb along the way, you've learned how to invest, you've learned how the market works, you've been through the ups and the downs, you've learned how to handle growth and the volatility that comes with that because you've actually lived through it gradually.

Jacob: 06:54

Now, imagine this. What if I handed you $2,000,000 in cash tomorrow and said, here you go, invest it however you think is best. Even people who've been great with their money their entire lives, they would suddenly feel overwhelmed. Now, why is that? Because they didn't ease into that experience of having $2,000,000 They didn't have the chance to build the confidence that comes with that slowly over time.

Jacob: 07:19

And this is exactly what happens in retirement. Most people, they don't get to ease into drawing down their assets. It's not a gradual transition most of the time. One day you're working and the next day everything changes. The income stops, the withdrawals begin and the tax rules, they completely change on you.

Jacob: 07:35

Your health care concerns and the rules around that, they shift as well. The stakes really, they get higher because you no longer have an income and now you're counting on your savings to provide that income. And the decisions that you make in the first five to ten years of your retirement, they're massive in terms of the impact they could have on your long term outlook. Now, by the time you're 75 or 80, you usually you're pretty settled in, right? Because you've done it.

Jacob: 07:58

You've kind of walked this retirement road up until that point. So you've had some time to grow into what retirement feels and looks like. But those early years, those are the years where the margin of error is the smallest. And that's why having help or at a minimum having a plan is so valuable. It's not about handing over control to someone like myself as an advisor, it's not about not being capable, it's about recognizing that decumulation, it's just a completely different game with different rules and you don't get the luxury of learning those rules slowly.

Jacob: 08:26

You have to get them right immediately. And a good advisor or even just a well built plan helps you bridge that gap so you're not learning through your own mistakes. And obviously, might be self serving for me as a financial advisor, I totally get that. But whether you use me or anyone else, just get some help in some capacity, whatever it looks like. If it's full service, if it's part time, if it's hourly, I don't really care how you want to get help, but I would encourage you to because there are so many pitfalls, there's so many little bitty details that matter in this transition, and simply having a coach or an advisor or a guide along the way could make the difference in your confidence levels, help you sleep at night or help your spouse sleep at night if you're married and they're worried about this whole retirement thing.

Jacob: 09:07

There's so many benefits to having objective third parties trust, that's the key that you trust and you know is is looking out for your best interest, that they can speak into your situation and say, hey, I've see what you're looking at there and because of the experience I've had with other people just like you, here's how you might wanna think about approaching that. So even though you might have been amazing with your money and you have done such a good job for yourself, don't think that you don't need any help right now. You absolutely might need help. And guess what? I like to say this when I'm talking to prospective clients, you probably don't need me.

Jacob: 09:37

Like you probably would be okay. You would make it to the end of life and not run out of money. That's not really the question. But what people come to me for is understanding, hey, I know I don't need you, but I want you. I want you to optimize this as much as possible.

Jacob: 09:50

I worked really hard for this money. I don't wanna give more away to the IRS than I otherwise have to. I don't wanna make a mistake here or there that leads to big repercussions down the road for myself, my spouse, my kids, my heirs, or whoever, Right? So they understand that there's so many things that that could get missed, even though I wouldn't run out of money necessarily, I wanna make the most of what I do have. Now, belief number four, the misconception here is that I should have all of my money in safe investments once I retire.

Jacob: 10:18

This one comes from a very understandable place, fear and worry and concern, right? When the paycheck stops, your margin for error, it goes down a lot. It feels a lot smaller. You don't have much room for error anymore. You don't wanna lose what you've built and it's very easy to think.

Jacob: 10:33

Well, if I just put everything in something safe like a CD or a money market or high yield savings, I can avoid all the risk. And here's the truth that most people don't realize, risk is gonna show up in more than one way. It's more than just market volatility. Volatility is definitely one kind of risk. Honestly, it's mostly just a short term risk.

Jacob: 10:51

Volatility only hurts you if you need to sell during that downturn to create income. If you don't need to touch that money for years, volatility is just noise. It's uncomfortable. Absolutely, I totally get it. I'm with you there as well.

Jacob: 11:03

But it's not actually dangerous to your plan. But there's another risk that's just as real and sometimes even more damaging. And that's the risk of being too conservative. Now, Jacob, how can I be too conservative in retirement? Well, when everything is in safe investments, you expose yourself to this thing called inflation.

Jacob: 11:22

Now, we've all experienced this together over the last four to five years more most recently. Obviously, there have been periods of time here that they have extended inflation, right? But because even though your account balances aren't bouncing up and down, your purchasing power is quietly shrinking in the background as inflation happens over twenty or thirty years throughout your retirement. And that erosion, that purchasing power going away, that adds up fast. And this is why I often say there's market risk and there's lifestyle risk.

Jacob: 11:51

And lifestyle risk running out of buying power is one that really hurts retirees over the long term. So how do you find this balance? How do you stay protected from volatility in the short term without putting yourself in danger in the long term? That's exactly why I love using the three bucket framework in retirement. Bucket number one, that's your cash bucket.

Jacob: 12:10

About two years of expenses, you want that sitting in cash safely or cash like investments like a money market. That's gonna get you some interest along the way, but it's also gonna protect you from having to sell anything in your stock bucket, which we'll get to in a second during a downturn. It keeps you calm, it helps you create that stable income during those volatile times, and really it's your sleep at night factor. It helps you know that I've got money readily available if I needed it. Bucket number two, that's your fixed income bucket.

Jacob: 12:35

That's gonna be about three years of expenses in bonds or fixed income and kind of conservative investments. And that's your additional buffer on top of the cash bucket. If the market goes down for longer than expected, that bucket, that again buys you more time. In addition to that cash bucket and that two years of expenses there, it's gonna shield you from that sequence of return risks that we often talk about, that's a big risk for retirees early on in retirement. And that final bucket number three, that's your growth bucket.

Jacob: 13:03

That's where everything else is gonna be in diversified stocks. That's your engine that protects you from inflation. The bucket is designed to grow and replenish the other two buckets, your cash and your bond bucket over time. It's designed to help your money last not just ten years, but for thirty years or more. So you can see kind of how this works together.

Jacob: 13:21

Bucket number one, that's going to cover your short term needs. Bucket number two protects against any other market timing or early retirement volatility. Bucket number three, that protects you against inflation over the long term and relative to your cost of living. And what's important to understand here is that all three of these buckets are reliant on the other. You can't invest long term in retirement in the stock bucket unless you have a short term bucket, right?

Jacob: 13:43

And then if you have a short term bucket like cash, you have to have a long term bucket like stocks in order to not have that inflation risk or that purchasing power risk that we talked about just a moment ago. So it's necessarily about being risky, it's not really about being conservative, it's about being complete and covering all of the risks, not just the obvious ones that we feel. And that's often the part that people miss or assume that, you know, safe means secure, that often leads to potential issues later in retirement, not so much immediately. And then finally, belief number five, that's often a misconception is that retirement will make me happier because I'm finally able to get to do nothing. And this is one of the biggest myths out there.

Jacob: 14:22

And honestly, one of the hardest ones for people to admit that they believe we spend our entire lives busy. We work hard, we raise families, we push, we sacrifice, we the idea of slowing down, it feels like relief. But here's the truth that I've learned from working with real retirees. Doing nothing feels good for about, I don't know, two weeks, maybe a month. After that, the lack of structure, the lack of purpose, the lack of challenge, it starts to catch up with you.

Jacob: 14:47

People lose their sense of identity, their sense of being needed. Less engaged and they can feel like there's boredom and frustration or even depression that starts to creep in. And so what I wanna encourage you with here is that retirement's not about escaping work. It's about replacing it with something better, something meaningful, something that gives you joy and contribution and purpose or connection. The happiest retirees I know, they don't retire from something, they retire to something, a hobby, a mission, a part time you know, job or passion, volunteering or grandkids or travel or starting something new.

Jacob: 15:22

Retirement is the next step. It's not necessarily the final step. Retirement thrives like you will thrive whenever you do it with intention. So as we wrap today, I want you to ask yourself a simple question. Which of these common beliefs or misconceptions have I been, you know, carrying with me?

Jacob: 15:40

You know, is it actually are they actually helping me? Because what's interesting is that awareness of these misconceptions is half of the battle. Once you shine the light on these beliefs that you're already kind of pre conditioned to believe, you're able to make better decisions based on those things with clarity. And that's ultimately what leads to a secure, meaningful and purposeful retirement. So I hope this has been encouraging.

Jacob: 16:01

If it has been helpful, I'd love for you to follow and subscribe here to the show, share with a friend. And if you feel led, you can leave a quick review there on Apple Podcasts or Spotify. It really does help the show grow and other people find it. And if you're looking for help with your retirement plan, you can schedule a free intro call with myself using the link in the description. Thanks so much for tuning into this week's episode.

Jacob: 16:20

We'll talk to you again very soon. Hey, it's Jacob again, and I wanted to remind you that nothing discussed in today's episode is meant to be financial, legal, or tax advice. Retirement Answers is for educational purposes only. Thanks for tuning into this week's episode. I look forward to talking with you again next week.