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Retirement Checkup

FaithFi: Faith & Finance | Mar 3, 2023

Show Notes

Do you know your retirement plans are on track? Or do you just hope they are? Maybe it’s time for a checkup. At least one study shows that many people aren’t aware of how much they need to save and will likely fall short of their goals. Rob West talks about that in today's show. This is Faith and Finance - biblical wisdom for your financial journey.

  • A survey conducted by Fidelity Investments with over 1200 respondents showed that a great number of them lack understanding of five key components of investing.

    1. The first misconception involves your basic retirement nest egg. Many financial advisors will tell you that by the time you retire, you should have 10 to 12 times your last year’s income in your portfolio.
      Of course, that amount will vary based on several factors, like how frugal you are, your retirement expenses and life expectancy.
      The survey showed that far too many people underestimate how much they’ll need in their retirement sayings. 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.
    2. The next mistake those retirees are likely to make concerns how much to withdraw from those savings each year during retirement. We always recommend the 4% rule. That’s the amount you can safely withdraw each year without dipping into your principal.
      Some advisors will tell you as much as 6%, but that’s risky. Still, more than a quarter of the respondents believed they could withdraw up to 10 to 15% of their savings each year, or two to three times the safe amount.
      Doing that would mean, in most years, you’d be dipping deeply into your principal. Before long, you’d have to drastically reduce your lifestyle or return to the workforce.
    3. The next misconception involves the history of the stock market and assuming the market will be down more than it’s up. 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.
      Few of us could expect to live 35 years after retiring, but over the last three and a half decades, the market has ended up 26 out of those 35 years. But a whopping 75% of respondents incorrectly believed the market had been down more years than up 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 mutual funds and stocks. But unless you’re completely risk-averse, you 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.
    4. The next misconception many folks have involves health care. specifically, how expensive it will be during retirement. The survey revealed that more than a third of respondents significantly underestimated their out-of-pocket health care expenses during their retirement years. They guessed the average retired couple would spend a total of $50,000 - $100,000 dollars on health care, but the insurance industry estimates the number is much higher than that. So make sure you have adequate coverage and don’t rely too much on Medicare - it doesn’t pay for everything.
    5. The last misconception involves the full retirement age for Social Security. For most folks now that’s 66 or 67. But surprisingly, fewer than one out of five respondents knew 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 you take benefits before your full retirement, and that reduction is permanent. So you have to think carefully before choosing to receive benefits Social Security benefits. It’s important to check your statements to determine your full retirement age.
      But you can look at it from a positive perspective, too. Delaying will get you about 8% more in benefits for each year you wait, up to age 70.

Next, Rob answers these questions at 800-525-7000 or via email at askrob@FaithFi.com:

  • Can you give tax-free funds from a 401k or IRA at age 70.5 to your church for a capital fundraising campaign?
  • What's the best way to invest $55,000 if you have $13,000 in credit card debt incurred during a divorce, and you are currently looking for work and living off your savings?
  • If you are age 71, recently divorced and have $120,000 in hand after selling a home, should you invest the proceeds in a $200,000 rental home, or in a balanced portfolio of stocks and bonds?

Remember, you can call in to ask your questions most days at (800) 525-7000. Also, visit our website at FaithFi.com where you can join the FaithFi Community, and even download the free FaithFi app.





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