Today’s Wisdom:

Be careful of making assumptions in retirement planning before you know the facts. Some of these assumptions could be correct, but they could just as likely be wrong… On today’s show, Joel Johnson will cover some of the common assumptions people make about retirement planning and he’ll point out the flaw in taking that guidance blindly. We’ll also talk about how to set reasonable expectations for your retirement. And don’t miss the two great listener questions on this show about making estimated tax payments in year one of retirement and how to deal with “golden handcuffs”.

[0:53] – New Book: “The People’s Retirement Handbook”

• Joel gives some details about his new book.
• It’s a practical guide to living a good financial life, but includes a lot of stories about Joel’s personal life.

[2:33] – John previews the show.

[2:45] – Mailbag question about estimated tax payments in retirement.

• Kathy’s income will be different when she retires in a few months, so she’s wondering how to determine how much tax she’s going to owe with a big change in her take-home pay.
• Joel shares a story about a recent visit from a client who was in a similar situation.
• Making estimated taxes isn’t really the easiest way. You can actually, with a good financial plan, just have taxes withheld from your withdrawal from your accounts just like what used to happen to your paycheck.

[4:10] – First year of retirement = moving target.

• You really don’t know how much you’re going to spend. Your lifestyle might change a lot in that first year of retirement when you suddenly have a lot more free time on your hand.
• Trying to figure out that moving target is a big part of a comprehensive financial plan.

Things You Should Never Assume In Retirement Planning

[5:29] – Bad assumption: A Roth (or Traditional) IRA is the best way to save money.

• This is a blind assumption. There are a lot of variables from person to person.
• Ask yourself some key questions… How old are you? How long are you going to leave the money alone? Who is the money for? Do you have extra money? Is the money likely going to be inherited by someone else?

[7:08] – Bad assumption: Delaying Social Security is going make you the most money over the long haul.

• Joel sees this messaging a lot. Pick up any magazine about finance at the grocery store and almost all of the advice surrounding Social Security is to wait as long as possible before you take it.
• This kind of advice is way too simplistic and Joel has seen plenty of examples of people who benefit from taking Social Security earlier.

[8:30] – Bad assumption: Taking a lump sum pension buyout is always best.

• Joel says there are indeed benefits to this approach (more control over those dollars as an example) and that is beneficial for most people. But as always, it’s not a blanket assumption and there are some people who would be hurt by defaulting to this option.
• Ask yourself a question. Are you and your spouse good at managing your money? If not, a pension helps protect you from mismanaging your money.
• Do you want to pass money onto kids or grandkids? You can’t do that with a pension, so that’s an argument back on the side of the pension buyout. This is why it’s a decision that varies depending on the individual.

[10:08] – A recap of the Money Map Retirement Plan.

[11:40] – Mailbag question about “golden handcuffs”.

• James doesn’t want to keep working, but he keeps getting bonuses each year. It ropes him back in.
• Joel doesn’t see this as a money question at first, but more of a philosophical one. Determine what you want to do the rest of your life if money wasn’t an option. Then, stop looking ahead at the next bonus and future salaries. See what the future would look like from a financial standpoint if you walked away right now. If you can accomplish those goals and that vision you outlined, then you have your answer and your plan.

Great Expectations For Your Money

[14:50] – Joel gives an example of someone who came in for a visit and had unreasonable expectations about their financial situation.

• Sometimes delivering that level of honesty can be hard for people to hear.
• Make sure you work with an advisor who is going to be honest and deliver you the good and the bad news.
• The great news is people are usually in better shape than think they are.

[16:26] – Someone in better shape than they thought.

• It’s funny, people who are horrible with money don’t listen to the podcast. They don’t come to workshops. They aren’t invested like you probably are. It’s usually just a matter of lacking confidence in your financial future.

[18:20] – What’s a reasonable rate of return to expect on your money?

• Joel says that’s the wrong way to start the conversation. You need to back up and determine what you NEED to make first.
• Then it usually turns into a debate about what balance of risk vs. safety is appropriate to meet that need. After that is done, you can start setting suitable expectations.

[20:26] – Joel explains how the planning process specifically works at Johnson Brunetti.

Related Items & Resources:

• Podcast: Understanding Confusing Statements – Read & Listen