Retirement Answers

Jacob: 00:01

We also make up fears in our minds around retirement or we also maybe inflate them in our minds. I wanted to talk through these seven common fears and I wanted to share with you what they are, but then also how to overcome them so you can have a fun and worry free retirement and enjoy these golden years. Welcome to Retirement Answers, a podcast built to answer your most pressing retirement questions. If you're someone who's either thinking about retirement or already in retirement, well, you're in the right place. Hey there.

Jacob: 00:32

My name is Jacob Duke, and each week, I'll be walking through different tips and strategies to help you succeed in retirement. So let's go ahead and get started with today's show. Hey, friends, welcome back to another episode of Retirement Answers. As always, my name is Jacob Duke. I'm a certified financial planner.

Jacob: 00:51

And, the purpose of this podcast is to help you learn and grow in these different ideas and strategies so that you can have a successful retirement. So that's the purpose of the show, and I hope you find value in it. And, if you do, I would love it if you can give a rating review that helps me out so much and also helps other people find the show that can learn from these same ideas. So by the title of today's episode, you can see that we're gonna be talking about fears in retirement and just kind of how to overcome them. Wanted to do that for today's episode, but just like Halloween, whenever we're kind of talking about these things are they're technically made up or not real.

Jacob: 01:25

We also make up fears in our minds around retirement, or we also maybe inflate them in our minds, even if they are a legitimate fear. So I wanted to talk through these seven primary fears that I think are relevant to retirees. Obviously, there's gonna be more or others that are maybe unique to you, but these are seven common fears. And I wanted to share with you what they are, but then also how to overcome them so that you can have a fun and worry free retirement and enjoy these golden years. So with that being said, let's go ahead and jump into the first fear that I find that many retirees struggle with.

Jacob: 01:56

Okay, so the first fear is the fear of inflation or purchasing power risk, right? Our money not actually being able to buy what we needed to buy ten, fifteen, twenty, thirty years down the road. And this is a very valid fear because we've seen over time, typically things simply just cost more. They don't go down in price most of the time. And on average, over the last thirty plus years, the average inflation is around 3.3%.

Jacob: 02:19

Now there's obviously gonna be higher inflationary periods like the seventies and eighties, and more recently here since 2020, but there's also gonna be lower inflationary periods of time, you know, the late nineties through the early two thousands. Those periods of time are all gonna average out to around 3.3% or somewhere between 34% overall, but depending on each year, it could be very different. So inflation, regardless over time is gonna make things cost more, whether that's healthcare costs, whether that's the cost of a new car or a new house or whatever it might be, you're gonna be paying more money in the future for the same items you could be buying today, right? So we know that that's probably gonna happen. It's almost certain that that will happen.

Jacob: 02:56

So how do we beat inflation or combat this fear that kind of comes with it? Well, we have to have an investment plan that is meant to accomplish that specific goal. Right? One of the biggest mistakes, that I see many retirees make is they get really conservative in retirement. And this isn't necessarily a fault of their own.

Jacob: 03:13

Number one, it's probably something we've just heard our whole lives. You know, we've got to have a sixtyforty portfolio or a fortysixty or a fiftyfifty, and just kind of follow the rules of thumb or just watching our account balances go up and down every single day or every single week or month is just not fun, especially whenever we don't have that income to rely on anymore from our career or our job. So the fear of volatility or watching your account balances go up or down is not something I wanna say, hey, don't be fearful of that because it's just an emotional thing. It's just a part of who we are as humans. But I will say that in order to combat this fear of inflation, we have to take some risk in your portfolio in order to combat that over the long term.

Jacob: 03:49

So just really quickly, if you've listened to me for very long, you know that I like to build out a three bucket income strategy, and that ultimately tells us how we need to be investing our money. So I like to have a cash bucket, a bond bucket, and then a stock bucket, and be sure, you know, if you haven't heard me talk about this, go back and listen to an episode I've done previously called the three bucket retirement plan, where I kind of explain this in detail and you can learn more about how it works. But the idea is one have money in the short term cash, midterm bonds, treasuries, and then long term stocks. So the purpose of the stock bucket, that's what we can use to beat this fear inflation or beat inflation that's gonna be happening over the next twenty, thirty years. That particular bucket of money is not designed to be used today.

Jacob: 04:26

It's not designed to be sold and create income for yourself. It's designed to be there in twenty or thirty years and not lose value over time due to inflation that's gonna be occurring. So that's how we can overcome that fear is we have to have a properly allocated portfolio, but we also have a plan that that meets our needs both short, mid and long term. And then we can sleep at night understanding, hey, no matter what, if the market goes up or down, I'm still good because I've got cash and bonds to rely on their producing dividends and interest. But then also, I've still got my stock bucket that is gonna be beating inflation over time so that I had money to live in those later years of retirement being 80, 85, 90, 95 and so forth.

Jacob: 05:02

So having a plan like this helps you beat the fears of inflation and all the fears of losing your purchasing power over time. So that's number one, the fear of inflation. We have to have a plan from an investment standpoint to help beat that over time. Therefore you have money in the later years of your retirement. All right, fear number two is that there is instability within the social security system.

Jacob: 05:24

And this is a really valid fear based on recent numbers and everything coming out about it in regards to social security not being able to fund itself after 2035 or 2033, whatever it is. And so I would say that these fears are definitely important and something to pay attention to and we should be concerned with because there is some sort of change that needs to be made obviously. And the reason for the instability is the fact that there are more retirees compared to the number of workers who are paying into the system nowadays. And this was opposite back whenever boomers were not yet retired. And so there were more workers compared to retirees at that point, but now that has flipped and now there are more retirees compared to workers in the system right now today.

Jacob: 06:07

So that's kind of where this money shortage regarding social security is coming from. Now, are a few things that obviously could happen and change over time regarding, you know, how they make up the difference or where that money is gonna come from. But one thing that I think will never change, is they're not gonna start taking benefits away from you or reducing your benefits. I don't think that's even gonna be an option on the table. There would be quite an uproar, I think if that were an option that actually got passed and went through.

Jacob: 06:32

I think what's more likely to happen is it's gonna be more a higher tax on current wage earners, and it's gonna perhaps be a no maximum on the wage base. So there's no limit on how much you have to pay social security income tax on, or they might have a higher tax related to social security. And that falls under your FICA taxes for those of you who are earning an income. So they might do it that way to kind of replenish or fund social security moving forward. But I think from a fear standpoint regarding, are they gonna be keep paying me?

Jacob: 07:02

Are my benefits gonna go down? Like what's gonna happen? Is it just gonna go away entirely? I don't think that is ever gonna be on the table. I think that your benefits will stay just like they are.

Jacob: 07:11

I think that they will not go away for sure. And I think they're gonna have to find a way to fund it differently with current workers right now in the system. And so that might mean higher taxes for wage earners right now today, but that does not mean that your benefits are gonna go down. So I would think of it more that way. Yes, there is some instability there with the social security system and kind of how it's working right now.

Jacob: 07:33

I think there's gonna have to be legislation here really soon that will be changing how this works or increasing taxes somewhere to fund it fully. So, I think as a retiree, someone who's already retired or even better yet, I think anyone who's above age 50, I think you're gonna be locked into what your current benefits are, how the system works right now. For those of you who are under age 50 or are obviously working still, who knows what the future holds for us, right? But those of you who are probably 50 or older, think there's gonna be a cutoff somewhere in there that says, look, you're good, everything's gonna stay the same. But I think that, you know, the fear around it is for sure valid, but I think they're gonna find a solution that doesn't affect retirees and their income that they're getting from it.

Jacob: 08:10

So that's number two, a fear of social security, maybe going away or just being unstable. I think that it's gonna impact workers today more than it'll impact retirees. Okay, fear number three is volatility within the stock market. Now, as a retiree, this is definitely one that makes you feel uneasy, Because no one likes watching your million dollar account balances go down to 800,000 or 700,000. No one likes your your $2,000,000 account balance is going down to 1,500,000.

Jacob: 08:36

Obviously, that's not a good thing. That's not what we want to happen, but it is a reality when it comes to investing. Things are volatile. Now I want to make a point here. Volatility is not risk if we have enough time on our side.

Jacob: 08:51

Okay. So many people going back to point number one, in terms of how we invest for retirement, you know, many people think I need all my money today whenever I retire. So I need to be ultra conservative and I don't want any volatility. Right? But the truth is you don't need all of your money right now today.

Jacob: 09:05

You need your money yesterday, but you need it tomorrow and the next day and you need it for the next twenty, thirty, thirty five years, depending on when you retire. So we have to have a plan that meets the needs of each one of those years. And so, volatility is gonna be a part of your plan. It's gonna be a part of what is necessary to have a plan that's successful over the next thirty or plus years. So fear around stock markets and the volatility that comes with them is definitely a part of being a retiree, totally get it.

Jacob: 09:31

But there are a couple of ways that we can combat this. Number one, going back to the three bucket retirement plan. You know, if we have bucket number one, bucket number two fully funded, well, means we have room in bucket number three to allow for volatility to take place. And if you think about it, if there's no volatility being quote risk and some people associate volatility with risk. I don't necessarily associate it that way because if we have enough time on our side, then the risk kind of goes away or dissipates.

Jacob: 09:56

But let's say that volatility is risk. Well, risk there is having to sell a portion of your position that has gone down in order to create income for yourself. But remember, if we've got bucket number one and bucket number two, fully funded and be able to access that during those hard times, well, we don't have to sell when the market is down, therefore we can let it recover on its own, and then we can refund back bucket number one and bucket number two and replenish those once the market has recovered. So that's how that will work. Now, another way that we can kind of, I guess, reduce market volatility within your portfolio is diversification.

Jacob: 10:28

And this is an important tenant of any good financial plan or investment plan in my particular opinion is diversification. Right? Around the whole world, there's around 15,000 stocks depending on the day that we can invest in between The US and international markets. And in my opinion, I wanna be owning as many of those as possible, right? Because it's kind of like the law law of large numbers.

Jacob: 10:48

If we own every one of those stocks, the only way to lose all of our money is for every single one of those companies to go to zero. And at that point, I feel like we've got bigger issues on our hands, right? So the difference is if we buy only Apple or only Amazon, remember this is not investment advice in any way, this is just an example, but let's say we buy only Apple or only Amazon. Well, we're writing everything on those companies and maybe we only buy one sector perhaps, maybe oil and gas or healthcare stocks or whatever it might be. If we buy only one particular section of the market or one particular stock within the market, we are betting all of our chips on that one company, and it might produce really good returns or it might produce really bad returns.

Jacob: 11:27

So the risk is greater to invest in one or a few or even only half of the market, right? Let's say only the S and P 500, the risk is greater to do that than to buy the full market being international and US small, mid and large cap stocks. So if we buy the full market, we eliminate or kind of reduce the amount of volatility we're gonna be having. And what we're doing is we're getting the highest amount of return for the least amount of risk within the asset class of stocks. So that's what we can do to help mitigate or reduce the risk of volatility within your stock bucket of your portfolio is be diversified.

Jacob: 12:02

So that's the second point I wanted to make. And then also finally, just know that there's always gonna be a crisis. There's always gonna be something each day or each month or each week that's gonna be on the news that is gonna be happening that's not good. And if we look back throughout time, is constantly that way. There's always been something to worry about, yet over time, the stock market as a fully diversified portfolio has produced around 10% returns annually, regardless of all those things happening.

Jacob: 12:28

Now, any given year, like 2020 COVID, you're down 33 in a month and a half. But the following year, you know, you're up 19 and 2020, you actually went down thirteen percent, but for the year you finished up 18% as well. So anything can happen at any given moment, but we have to remember when time is on your side, being the stock bucket inside of your three bucket plan, we have time on our side, we can allow volatility to take place and know that over time that the volatility will smooth itself out because of the way markets have worked historically. Now, no guarantees to work always that way, but that's all we have to go on is historical markets. And one final point, just think of it this way.

Jacob: 13:05

No matter what's going on in the world, you know, companies are built and designed simply to make money. So Apple, for example, regardless of what's going on anywhere in the world or here in The States, they're gonna find a way to sell us another iPhone or whatever it might be, Amazon, they're gonna find a way to sell some of their product and deliver another package. So their job is simply to make money and increase their revenue. So regardless of the regulatory environments or craziness going on out in the world around us, they are gonna find a way to make money. And I would bet on them to be able to find a way to make money through all of that, then find a way myself.

Jacob: 13:39

So that's why I think investing in a stock market regardless of the volatility, is gonna be important. Now that's all assuming that we have a full kind of income and investment plan built and in place. So don't just go willy nilly by the stock market because you want to like have a plan in place so that you can do so wisely. So those are some ways that you can kind of combat that the volatility that comes with investing in the stock market and think about it in a different light. Okay, the fourth fear that I have written down here is the fear of the unknown.

Jacob: 14:08

And this might be one of the biggest ones out there because think about it this way, you know, you never retired before. Like you've never done this before. Typically, as we do things more than once and kind of get accustomed to the routine of it, we get more comfortable with it, right? Like if you move to a new neighborhood and, you like to go walking, so you go on a walk and you're like, I wanna figure out which path or kind of route I wanna take when I do this. Well, the first few times you're gonna try different things and ultimately you're gonna find the one you like the most or most comfortable with.

Jacob: 14:35

But with retirement, we don't really have that option. We don't have the option to try a few things for a couple of years and see how it goes or doesn't go and things like that. So the fear of the unknown in regards to your money, yes, but also the fear of the unknown of what am I gonna do with my time? Like what am I gonna do each day? I've gone to work every day.

Jacob: 14:53

I've had people there that I know and enjoy and enjoyed working with. What am I gonna do whenever I don't have to go to the structure of a job or being employed? Right? I've gotta have a purpose outside of just being an employee. And so the fear of the unknown financially, but also the fear of the unknown regards to just everyday life is really hard for a lot of people.

Jacob: 15:15

So, how do we actually combat this? Well, number one, I think that we have to develop beforehand, before we jump into retirement, we have to develop our plan for the non financial side of things. We have to do the hard work of finding like, what are we gonna do? Like what hobbies are we gonna pick up? What things are we gonna start?

Jacob: 15:31

What are we gonna learn how to do? Who are we gonna do those things with? How are we gonna build community or make new friends? Or are we gonna move across country to a different state? What does that all look like to you?

Jacob: 15:41

And how are you gonna do that? Really think through and it's really hard work to be honest with you. Like the money side of things can be easier sometimes, but developing what we call your why or your purpose in retirement can be some of the hardest things that you do as you enter retirement. And when you do this though, and you create a vision or just kind of create clarity around how you're gonna spend your days and what you're gonna do and how how you want to do things, that fear of the unknown kind of goes away because then you can say, I've got a purpose and a mission for my money order to help me do the things that I want to do. So if we don't do that hard work of finding out our purpose and our why, we're always gonna have this fear of what tomorrow holds, and we're never gonna be satisfied with the current environment we're in.

Jacob: 16:22

So the fear of the unknown as a retiree is a huge one, and it might be one of the biggest ones here in this list because you've never retired before. So my encouragement for you is think through what you want your retirement to look like. Think through the vision you have for it, the people you wanna be with, and family members you wanna go visit and the way you wanna live. Think about it that way and then that will help ease your mind a little bit when it comes to how you're gonna spend your time, but also how you're gonna spend your money because having a spending plan for your money will help easy anxiety around always wanting to hold on to it really tightly. The fifth fear is the fear of outliving your money.

Jacob: 16:56

So longevity risk. What happens if I'm healthy and I live to a 100 years old? Do I have enough money to do so? That's a big question for a lot of people. And I think the most important thing here is you have to have a spending plan.

Jacob: 17:11

Like you have to have a purpose to how you're spending and you have to be able to, project forward with all the assumptions, know, in there, knowing that your assumptions are gonna be wrong and things are not gonna take place the way that you think that they are. But you need to have a trajectory. We need to have a plan for what we think might happen that way every single month, every quarter, every year, we can kind of make adjustments or tweaks along the way if need be, but we have to have a plan for our spending, which comes back to our investment plan. So back to that three bucket strategy, we have to have an investment plan, but the purpose of having that plan built is to meet your spending or your expense needs. So we have to spend wisely and we have to spend thoughtfully.

Jacob: 17:49

Now, many people ultimately die with more money than they started retirement with because of this fear. So they have this fear of outliving their money, therefore they just never spend a dime. They never spend anything or go on that trip they've always wanted to go on because they have this huge fear. So there's two ends of the spectrum. You could be a really big spender and spend all your money too fast, which means maybe pull back a little bit, or you could be really frugal and the fear of running out of money is is kind of debilitating.

Jacob: 18:14

Therefore, you're not going to go on those trips. You're not going to spend the time with the family or pay for the family vacation or whatever it might be that you would enjoy. You might not end up doing those things because of your fear of running out of money. So having a thoughtful spending plan for each of those different scenarios is important, right? We can't spend too much money too quickly, but we also don't wanna just never spend our money and end up with way more than we ever needed.

Jacob: 18:35

And we didn't enjoy life when we had the chance. So having a plan for spending, understanding this ties into even having a plan for social security and when you decide to take it, right? Because you're trying to get the highest benefit possible, that means you're gonna have to spend your other assets to get to that point, depending on when you retire. Or if having the highest benefit is not important to you, that means you can take it maybe a little bit earlier and, you don't have to spend down your assets in your retirement portfolio as quickly. So having a plan for spending, understanding what you're gonna be spending your money on, and having proper expectations on how much those things are gonna be increasing over time is important.

Jacob: 19:07

That way you can help eliminate the fear of outliving your money because you know, every single month when I spend $6,000 a month out of my portfolio, number one, my portfolio can support it. But number two, I know that I can never run out of money because the investment plan is tied into that as well. And I know that I'm investing for those later years, even while I'm still able to spend money today. So the fear of outliving your money, that's the fifth year I wanted to talk about today. And the way to combat that is having a thoughtful investment and thoughtful spending plan.

Jacob: 19:33

The sixth fear is one that definitely hits hard whenever it happens, but it's the fear of losing a spouse or the death of a spouse, right? Whenever this happens, it's never enjoyable for anyone because especially if this has been a lifelong partner for you, someone who's been there with you through all the good and the bad times. And now it seems like there's just an emptiness. And it's definitely a fear that's valid and one that's not easy to go through. So how would I combat this?

Jacob: 20:03

How would I say, what can you do on the front end to help you through those times when it comes, it's not an if it's gonna be a win. But I would say build a community of people around you that you enjoy. Now, what does that look like? That can be many different things. It could be, you know, whether you have a church community, it could be a hobby community, whether you like to bike or play pickleball or go rock climbing or whatever the thing is you like to do.

Jacob: 20:27

Having community of people around you that can support you through that so that you don't, have a spouse pass away if you survive them and you're sitting home by yourself. Like you have to do something outside of your home, I think to have a healthy relationship, with other people. And then ultimately you can lean on them and they can lean on you whenever those hard times come later on in life. So the fear is definitely real and the results of that fear are definitely crippling sometimes as well. So combating that by having a community of people around you that you can trust in, lean on, and confide in through those hard times, think is important.

Jacob: 21:01

But the work of that starts now, or it starts early in your retirement because if you don't start building that community early on, it's harder to do it once you're in that emotional state of just loss, right? So it's harder to say I wanna get up and go talk to somebody or go make new friends whenever you've just lost someone so important to you. It's easier to do that whenever everyone is still here and we can go build friends together and know that we have a community to trust in when those hard times come. So that's fear number six, the fear of losing a spouse and building community is maybe just a way that you can help yourself out in the future and combat some of the difficulties that come with that. All right, the final and seventh fear that many retirees face is the fear of increasing healthcare costs or long term care costs.

Jacob: 21:45

And this is definitely something to pay attention to because obviously as we get older and age takes place, we're gonna have more health concerns or more things come up that require, doctor's visits or just healthcare in general. So the cost of those things are definitely not going down. Like we see the average cost of nursing home stay or home healthcare, all those things are increasing over time, as well as just normal hospital visits, doctor visits, everything like that, or the insurance that comes along with it. So, how can we kind of combat these rising costs? Well, number one, I think I'll talk about long term care first.

Jacob: 22:18

I think having a long term care plan is very important. Now, notice that there I didn't say having a long term care insurance is important. I said that having a plan is important. So that can look like a couple of things that could be insurance if it's something that you think is valuable or you can afford. But I think most of the time, a lot of people are gonna end up with what I call self insured.

Jacob: 22:39

So being self insured for long term care is thinking of it this way. If I ever had to leave my house and go to a facility, well, I can sell my house and therefore I have the funds from the proceeds of my house that I can now pay for my extended care or my facilities, that I wanna buy and pay for. And so that's one way to be self insured. Another way is to simply invest a portion of your money that's dedicated for those last, you know, two, three, four perhaps years of your life. And so you can build a plan yourself, an insurance plan yourself by thinking of it in buckets, kind of allocating money towards it throughout the first however many years of your retirement until you actually might need care.

Jacob: 23:18

And then the other option, like I said, is to have an insurance plan. Now, there are a couple different kind of drawbacks of having a long term care insurance plan, is that the costs are really high. They just are especially depending on when you go get your policy, but then also some of the nuances within the plan in terms of how much they'll actually pay, during your whole life, a total maximum, but then also how long, in terms of years they might pay that amount. So there are some different things there. You know, obviously, you want it to last throughout the rest of your life and have the best care ever, you're gonna pay a pretty penny for those premiums each year.

Jacob: 23:51

And one of the things that I don't like about long term care insurance is that you could pay these premiums forever and never use the insurance itself. Obviously that's the way insurance works, but if it were me and I had the option, I would prefer to self insure and then pay myself those premiums, let's say, and then I can have a bucket of money to draw on at that point, also have maybe real estate or other assets I can sell to pay for myself in that situation as well. So that's how maybe I would kind of combat long term care rising costs over time is to think about it one of two ways I can buy insurance, or I can self insure depending on my different assets and kind of where I stand overall in terms of total assets. The other factor here is gonna be healthcare. So, I would say, you know, number one, obviously you have to have Medicare part A and B.

Jacob: 24:35

If you wanna have, I guess like a Cadillac plan, could do a Medicare supplement or Medigap policy on top of that, along with part D or any other individual specific type plans that you might need, whether it be vision or dental or anything like that, you can add those on outside of that, but that's gonna cost you more in premiums every single month than if you go buy a Medicare Advantage plan. Now, obviously there are different benefits or drawbacks of the Medicare Advantage plan, compared to the Medigap plan with the Part D. So it just depends on what's best for you and your situation, what you think you can afford or want to pay for, and then kind of what you need from a healthcare standpoint as well. So these are just some thoughts here on different healthcare costs or long term care costs that might be rising or obviously will be rising over time and how you can combat those different things going on. So this is obviously not a comprehensive list of the different fears that you might have.

Jacob: 25:27

Now, if you do have fears around retirement, you know, I wanted to say really quickly, feel free to reach out to me, you know, if nothing else, maybe I can give you some comfort. Maybe I can relieve some stress or anxiety that might be there and just kind of give you, hey, look, you're on the right track. Here's some things maybe to think about. So if you'd like to kind of hear from me, there's a couple of different ways you could do that. You could reach out to me via email, jacobretirementanswers dot net, or there's gonna be a link down in the description below that you can click on and just schedule a quick little call with me and just talk to me really quickly.

Jacob: 25:53

I'd love to hear about your fears or concerns if you have any. So with that being said, I hope you have a happy Halloween and you treat the, trick or treaters that come along. I hope you treat them well, give them a lot of candy. Or if you're a trick or treater yourself, make sure you get yourself a bunch of candy, just make sure not to eat it all at once. So thank you so much for tuning into this week's episode of Retirement Answers.

Jacob: 26:12

As always, feel free to reach out if you need me. And, other than that, look forward to seeing you again next week. Hey, it's Jacob again, and I wanted to extend a quick offer to you. If you have a question and you would like to have it answered here on the show, please email me at jacobretirementanswers dot net. And I'd love to answer that question for you right here on the show.

Jacob: 26:33

Also, 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.