Small mistakes early in retirement can quietly derail even the best financial plan. In this episode of The Wise Money Show, we share five of the most common early retirement mistakes that can impact your taxes, withdrawal strategy, investment plan, healthcare costs, and long-term income. Learn how to avoid these traps and keep your retirement on track with a sustainable financial plan and proactive tax strategy.
Season 11, Episode 27
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Transcript: 5 Early Retirement Mistakes That Could Derail Your Entire Plan
It’s time for Wise Money with Korhorn Financial Group with certified financial planners Kevin Korhorn, Mike Bernard, and Josh Gregory.
Segment 1: Welcome to another episode of the Wise Money Show with Korhorn Financial Group, where every week we’re helping you take your next wise step in your financial life. Thanks for being here, friends. My name is Mike Bernard. I’m your host. I’m also one of the certified financial planners on the program. And with me in the KFG studios, my business partners and fellow CFPs, Kevin Korhorn and Josh Gregory. Mistakes in early retirement can spoil even the most confident retirement plans, moving them from successful to stressful almost overnight. So, what are uh some of the most overlooked early retirement mistakes that can derail a financial future? We’re sharing that and helping you avoid them. All that and more on this hour of the Wise Money Show. I you know, I I know you guys and I wouldn’t I wouldn’t say you’re golfers, right? You’ve golfed, right? But I wouldn’t classify you as as golfers. But it’s interesting, right? I mean, think about it. When you are going to that that uh that that par five, are you using the driver off the tea? Or do you say I got to hit this thing in the fairway otherwise it’s going to be a long hole, so I better just use the, you know, four iron or something like that because I have more control over it. And you think early in retirement, so right out of the gate, off the tea box, yeah, you can you can make some mistakes that just ruin the entire, you know, hole or the rest of your round. And we’re going to help you avoid and spot those early mistakes, pulling out the driver maybe on the T- box or or swinging too hard or whatever. And uh and how you can uh you know, avoid them and have a successful plan. If you have a question for the program, you need any help with your retirement plan, we are here for You can call or text us 574222000. That’s 5742222000. Online wise.com is where you can find us. Engage with us that way. And then all over social media wherever you’re at, we are there as well. Search the wise show. Kevin, I don’t know if I don’t think this is your phrasing, but early on in my career, you said there’s three stages or phases to retirement. The go-go years, the slowgo years, and then the no-go years. I don’t know if in your career you say, “Yeah, each of those they’re still the same or it seems like to me the go- go years have gotten bigger. People are enjoying, you know, longer, you know, life and longevity and and more uh active and and it also feels like those go- go years are the ones where there can be just a lot of mistakes.” Sure. And well, and it’s interesting because if those are not three equal periods. If you had a 30-year retirement, that doesn’t mean it’s going to be 10 years of go- go, 10 years of slowgo. And you some people retire to slowgo or no go. So, it totally depends on your situation and kind of depends on what you’re into. What are you interested in? Because if you’re not a goer, you might not say, “Hey, I’m I’m excited to retire and go go.” You might say, “Hey, I’m I’m excited to retire and work in my garden.” Yeah. Well, you’ve been a big proponent for people enjoying some of the go-go years while they’re still working, right? Sure. Because you don’t know whether your health is going to allow for you to do all the stuff you you want to do. the things that you picture when you think about retirement and not having to work anymore, the places you want to see and just the experiences that you want to have. More of that happening during your working career allows you to maybe check some boxes off uh while you’re a little bit younger. And it also just helps make sure that these are affordable things. You know, it’s a lot easier to do some of those trips when you still have a a paycheck and uh you’re not putting demands upon your investment accounts. Yeah. Um, and I think that’s one of the uh, mistakes that you kind of were referring to is putting too much pressure too early on those accounts. Well, so early on in retirement, you still have a long way to go and therefore some of the key decisions can have a a longer impact and can actually move your plan from, hey, well, I’m I’m on track to off track. I don’t know if the if the golf analogy worked there. I was getting some side eyes from Josh and Kevin. I’m assuming it didn’t, but but hopefully Yeah, you get the gist that early on retirement if you make a decision that seems innocent in the moment. Still getting the side eye by the way. I know. Yeah. I’m feeling a little bit sensitive right now. All right. So, here we go. Par five is like five swings of the driver for me. So, I I don’t know, Mike. Hey, you can make you can make a decision early in retirement that you think is maybe innocent and and fully rational at the time and yet it can it can impact the longevity of your dollars and move your retirement plan from ah I was on track this was working to all of a sudden it’s very stressful and it’s and it’s uh and it may not it may not work right might require some trade-offs. What are some of those early retirement traps that are and I would say traps because they’re very easy to make and and yet and and maybe a lot of people can succumb to these and yet they are traps because they do lead to less successful plans. And no particular order here, but we’re going to go through the top five. And first one is mismanaging market volatility early in retirement can drastically influence the longevity and confidence and success of your plan. Yeah. It’s it’s called sequence of returns risk. And so if you start it and we had clients that retired in 2008 and by 2009 they were looking and saying, “Hey, what is going on with my portfolio?” And if you didn’t have the proper balance within your portfolio to be able to take from the parts of your portfolio that were not kind of devastated by a 50% down stock market um and you needed to sell in order to raise money to live you were that put you in a bad spot. Yeah. I mean sequence of return risk that is the stock market performing in a certain way you know a certain performance one year and then a performance the next year and the next year and then comparing that to well what if you’re with making withdrawals during that time if you start early in retirement and the stock market is feeding you lemons it’s not doing very well so it’s declining in value and you’re withdrawing dollars when the stock market inevitably rebounds, you have fewer dollars there to experience that rebound because you’ve been withdrawing. And that can drastically change the longevity of your portfolio. Yeah. I I remember being at a conference, a very nerdy academic type conference where a researcher was laying this out for a room full of financial adviserss and he he basically said exactly what you guys were just describing that you’re going to have good years and bad years in retirement. But the order that they come has a major impact, maybe even an outsized impact on whether or not your outcomes are successful. Will the money last as long as you need it to? you have a whole lot easier time making the money last if you retire into some good years and then maybe the bad years come later. Actually, that might be counterintuitive to you. Some people might say, “Oh, wouldn’t it be better to just get the bad years out of the way early?” Uh, well, no, because in those early years, you are drawing off of your investment accounts. You may be selling out of investments at depressed prices potentially if you don’t put the right precautions in place. And uh that it does not have to be luck or um you know good luck or bad luck that determines your outcome in retirement. Just did I retire into the good period or a bad period? No. What did you how did you prepare for the inevitable bad periods that are going to come in retirement? So so how do you overcome sequence of return risk? And I wouldn’t I wouldn’t say that’s the only part of mismanaging market volatility. So there’s more to share but how do you overcome what’s one of the strategies to overcome sequence of return risk? We call it personal pension plan. Yeah. Personal pension plan is kind of a bucketing approach to your investment portfolio in retirement where you have some money that is set aside in safekeeping. It is liquid, fully safe. It’s what you’re going to be drawing off of over the course of maybe the first two years, maybe even three years of retirement. If you knew that you had your spending covered for those couple of years and you had the next bucket, an income producing bucket that will help replenish it as you go, it allows you to have more confidence in the third bucket, which is your growth portfolio. This is where you actually still have investments that are are positioned for the long term even though it’s early retirement. You might think, well, I shouldn’t have anything in growth investments at that point. No, you still need to because that smaller bucket can grow into a larger bucket and keep replenishing the earlier two that I was describing. Yeah. So, having dollars that are in short-term instruments because you’re going to be drawing those dollars out uh over the short term, that can help you manage the sequence of return risk, not needing to sell investments when they’re temporarily done. It also helps you manage the opposite end of the spectrum and that is being too conservative because this would be another form of mismanaging risk, taking too little risk, not giving yourself the ability to have growing investments that can keep up with inflation throughout your long retirement. Yeah. So think in terms of sequence of return risk and sequence of withdrawal strategy. But you you want to match those up. Yeah. And that’s yeah, I I I completely agree. And then Josh, I was going to go there and we’re going to pick this back up here in a moment, but but yeah, getting to another form of mismanaging market volatility that can drastically change the outcomes of your plan is, well, I just I we I had an event or something occurred and I don’t want to take any risk anymore. And that’s very common, but it can be very detrimental at any time in your portfolio or in retirement, but certainly early on. What are the other kind of early retirement traps that can torpedo your financial plan? We’ve got that and more coming up on the Wise Money Show with Korhorn Financial Group.
Break 1: Hello YouTube. Thanks for being here. This is the Wise Money Show. What you’re watching right now is our weekly 1-hour talk show. There is right here on this channel 10 a.m. Eastern time every Saturday morning. Also on podcast at the same time, but also on a couple local radio stations at the same time as well, which is why the content structured the way that it is. And we’ve got segments and commercial breaks, that sort of thing. All that’s for radio. I know that doesn’t always parlay great over to YouTube, but it’s a talk show and so uh but we’ve got next step videos or a lot of other content that airs right here on this channel uh all throughout the work week that are it’s more concentrated 8 minutes long, 10 minutes long, taking one financial concept and not not a lot of back and forth, but just direct and to the point and how you can apply it to your financial life. So, make sure you hit that subscribe button, turn on notifications here every time we drop new content and leave comments and questions below as well. We appreciate it. All right. I haven’t done any not doing any bonus content questions just because of how much we’re recording and keep going. So, all right. We’ll pick back up any any of that mismanaging market volatility, any stories or anything like that. I think that might be helpful. Then we’ll get into the second one. So, all right.
Segment 2: Falling into a a trap or making a a big financial mistake, even if at the time it feels minor mistakes early in retirement, can have an outsized influence on the rest of your retirement and the success of your financial plan. We’re going to point out some of these major traps in early retirement that people fall into to help you avoid them and and help you overcome them. We’re helping with that right now. This is the Wise Money Show with Korhorn Financial Group. Thanks for being here. My name is Mike Bernard with me in the KFG Studios, Kevin Korhorn and Josh Gregory. Every episode of the Wise Money Show is on podcast wherever you listen. Just search the Wise Money Show and subscribe to the channel and and uh rate the program there as well. We appreciate it. All right, so we’re talking down the or talking through the five most common or very detrimental early retirement traps. So mistakes that you can make early in retirement that really have an outsized influence and and at the top of the list mismanaging market volatility very common when you get into retirement or maybe even on the years right before retirement if the stock market starts trending down or during the inevitable period each year Kevin you said just uh recently that on average intraear so from a high point to a low point the market drops around 14% each here. So, at any one of those times, if you’re near retirement, early or early in retirement, you might feel the sense of, well, I I can’t afford to retire if my investments are going to do this. And that there’s really no defense to that question. I mean, you can look at history, you can look at, you can point to, well, this is fairly common, but in the moment, it’s just it it’s how we’re we’re wired to say, well, this is what’s happening. this is the only thing that will happen. I’m just going to assume this will happen into the future. I can’t stay retired if my portfolio is going to continue to cl to to drop like this. And those emotions cause you to make a change. And sometimes it’s a change where you don’t recover. You you can’t come back from that. And you have a confluence of events that are happening that can make it problematic. Because if I have a million dollars in an and on average in any year from 0% the stock market is down 14.2 I’m down $142,000. And I look in my investments and I say, “Wait a minute, Mike. I can’t afford to uh retire if this is going to happen and I can’t go back to work and make the money and put it back.” And so all of a sudden, and then because I’m retired, I have more time. And so what do I do with my more time? I fixate on the amount of money that I’m down. And then I go to the internet. Yeah. And on the internet, I find a bunch of really smart people that tell me, “Hey, 14.2%. That’s nothing.” Yeah. Wait to see where we’re going. Right. Just wait. So And they’re always there, aren’t they? They are always there. So having a game plan ahead of time and and it turns out that the game plan to overcome sequence of return risk is the exact same game plan that helps you overcome those sorts of emotions and that is aligning your investments with the time horizon so that the short-term dollars I just remember in in 08 Jim Kramer getting on the today’s show and saying if you don’t have three years in cash then you’re in trouble blah blah blah our clients did and yes that didn’t mean that well they didn’t have the you know dollars in the market that went down in value but if you’re using dollars in the short term because you’re retired. They need to be in short-term type instruments and therefore you can withstand and and overcome some of those emotions. That’s exactly right. You know, throughout your entire working career, you’re going to encounter bare markets where the market is down 20% or more. And during your working career, we would always be the ones telling you, okay, here’s how you take advantage of it. Here’s how you win in a bare market. You be a buyer. you go buy more shares because you’re buying them cheaper. Well, the second best win, which applies more when you get to retirement, is if you can’t be a buyer because you don’t have new uh contributions going in in retirement, at least don’t be a seller, right? Avoid selling at a depressed price. And the only way that you can avoid being a seller is if you already have the right amount of cash to live off of so that you can preserve and protect the money that is going for a temporary dip and will climb to the other side and be in a better spot maybe a few years from now. A second early retirement trap that we see a lot and again there’s a few different ways that this manifests itself is mismanaging your tax bill. And you know, one way that this pops up is early in retirement, you might find yourself in a very low tax uh environment, like a very low tax bracket. Uh we’re, you know, living on social security and we’ve got some extra cash. We’re drawing out of our investments, but we’re not drawing out a ton. And gosh, we’ve got this new senior deduction and gosh, yeah, I mean, we we’re in we’re barely into the 12% tax bracket or we’re in the middle of the 12% tax bracket. This is great. And mismanaging your tax bill could mean well just well we’re in a great tax right now. I’m assuming it’s going to stay that way. Nothing we need to do. and all of a sudden you get later in your years later into retirement drawing more out of your portfolio causing you to be in higher tax brackets or maybe RMDs come or maybe there’s an inheritance and all of a sudden you look and you say oh gosh we’ve got a lot of dollars now 5 10 years in retirement slipping through our fingers out of our portfolio slipping through our fingers going to Uncle Sam we could have done something differently early in retirement to avoid having these taxes out there in the future, you mismanaged your tax bill. Yeah, that could be uh making sure that you’ve got the right cash on hand so you don’t have to not only liquidate investments potentially at a depressed price, but overconentrate some distributions from retirement accounts all in one year and as you said, push yourself into a higher tax bracket, cross some thresholds where you start causing your Medicare Part B or D premiums to be higher. like there there’s a lot of things that you could do just because you’re retired and you want to go take those trips or you want to go make those purchases or or those home improvements. If you do it uh w with the wrong cash flow game plan, it could create um unintended consequences from a tax perspective, which perpetuates the cash flow problem, right? Just means you’re pulling even more money out now to pay some unexpectedly high tax bills. Yeah. And I’ve seen the exact opposite. I’ve seen folks, they get into retirement, their balance sheet is in good shape, they don’t have debt, and they don’t need a lot of money to live, and they say, “Okay, here’s the game. I’m going to stick it to the man. I’m going to pay no taxes or almost none taxes.” And that can work until you get up into required minimum distribution territory. And then you don’t have a choice. And then if one of the spouses is gone, the required minimum distribution on that whole pile of money is going to have basically the the tax bill is going to be twice as high as it would have been if it was one of you, both of you. Yeah. So, so mismanaging your tax bill that that’s that’s two sides. I just want to touch on one other and Josh you mentioned it, but the the home improvement or the big trip or the new car or and and these are all great things and they’re going to be attributes likely of your retirement and maybe are goals already. Being proactive and having a plan for the taxes that goes a long way. I cannot tell you not not that this is the base default advice but I cannot tell you how often folks have said yeah you know want to buy that new car and it’s going to be around 50 grand so you know can my portfolio sustain that yeah it can however and I a different idea what if you got a loan on the car and we pulled chunks out of your portfolio over the next few years to pay on that loan and that just sounds awful right but it’s they throw things at you sometimes. Are you kidding me, Mike? We’re We finally got debtree and you’re telling me to take a loan. Exactly. And it’s because, well, in order to buy that $50,000 vehicle based on taxes and potentially tax rates, you’ve got to draw 80 grand, let’s say, just for example, 80 grand to have 50 grand after taxes versus, well, we could take out 20 grand a year and have you stay in the same tax bracket and get that car paid off in three years, something like that, or or home improvements. I’m not saying that is exactly what would make sense for your situation. It’s just you’ve got to have some creativity in managing that tax bill, being proactive with your financial situation. And uh you know, early on in in my career, I remember a situation where, you know, retirement plan was all spelled out and it was very very clear and and the the taxes were a part of it. Health insurance was a part of it as well. And but those go- go years like we started talking about those go-go years were actually more expensive than what these folks anticipated. And it was our portfolio’s fine. We’re going to draw a little bit more out. Okay. Well, it’s going to create a little bit more taxes. Yeah, it’s okay. And then it was okay. We’re gonna do that again. And then we hit that market snafu. And and all of a sudden it went from yeah, we’re ticking more out to we’re you’re off track. you we too many dollars slipped out of your portfolio went to Uncle Sam and and then experienced a decline and now the recovery you’re not getting that upshoot on the other side of it because the portfolio is much smaller. So being proactive with your tax bill you know this is one of the six areas of your financial life tax planning being proactive throughout your career can put you in a better situation to manage your tax bill early in retirement and avoid this retirement trap. Those are just two. We’ve got three more major retirement traps you need to be on the lookout for that more coming up here on the Wise Money Show with Korhorn Financial Group.
Break 2: All righty. All right. So, this next one is pretty similar. I mean, we’re going to talk about uh personal pension plan further or uh we can Um, or are you referring more to um do you just know what you can afford to spend in retirement? That’s more I think that’s more the the thinking. So, all right, third segment.
Segment 3: As you’re marching towards retirement and and maybe you’re early into retirement, do you know what a sustainable withdrawal strategy is for you? That oftentimes is connected to some old old research called the, you know, 4% rule. There’s been a lot of debate around that, but really for your financial situation, do you know how much income is sustainable for your portfolio and how much isn’t? You want to make sure you’re aware of that. We’re helping with that right now. This is the Wise Money Show with Korhorn Financial Group. Thanks for being here. My name is Mike Bernard with me in the KFG studios. Kevin Korhorn and Josh Gregory. Stay up todate on all wise money content. Find us online wismoneyshow.com and then all over social media wherever you’re at, we are there as well. Search the Wise Money Show. Early in retirement, you make a decision, it can drastically shift the outcome of your plan. There’s five factors that need to be considered and and and all weigh in and go into determining whether you’re on track for a confident and successful retirement. We want you to build out that five-factor plan, but even as you get into retirement, it’s critical that you re you reanalyze that, that you update that and make sure, hey, are we on track? Are we on track? Have we maybe even unintentionally change some of the variables and now that’s going to impact the outcome. And we’re talking through a few of the biggest traps that people can make that throw them off track. And the third one, and it’s no particular order, but honestly, like it’s 1 A, 1 B, 1 C, like they’re all critical. And uh but this next one, this third one is is not having a sustainable withdrawal strategy. A few episodes ago, we talked about different withdrawal strategies that you can have in retirement. And the idea that this five factor retirement plan, that’s the approach. That’s that that’s the approach with when you’re in the airplane and you’re you’re you know you’re uh looking at landing at your destination. Okay. Is our approach right? Are we aiming at the right target? Yep. That’s that five factor retirement plan. But starting your descent that’s building out that income plan and knowing that okay, yep. this income plan that we’ve laid out, how much we’re drawing, which accounts we’re drawing from, how we’re going to optimize social security, what we’re going to do with our other income sources, that’s your descent that, okay, yep, not only are we pointing at the right place, we’re starting to land that plane and we’re taking the right approach and then sticking the landing is turning on those income sources and and yeah, not having that laid out or changing it and not realizing the impact. Yeah, that that’s a that’s a big trap. Okay. So, an example of someone changing their withdrawal plan and not realizing that it’s going to have implications. Sometimes, you know, the market is is really booming early in retirement. And so, it would be just common, you know, natural human inclination to want to be able to spend a little bit more. Maybe uh we’ll get the question, hey, can our portfolio handle this right now? Can we add a few things to our spending plan since the market’s doing so well? And what a lot of people don’t realize is well, yes, the portfolio is maybe climbing and it’s doing really well and it’s creating a little bit of a cushion or a buffer that might be very necessary for a storm that comes later on in retirement, right? And so if you spend all the goodness as it accumulates, then you’re not um or instead of letting it accumulate, you you may be leaving yourself in a position where ah boy during the bad times, do we also then have to shrink back a little bit on what we pull from our investment accounts. And uh the the the other place where I see this most often is in the very first year of retirement, a lot of people have heard the 4% rule. And so they’ll do the mental math. Okay, I know what my social security is going to be. Maybe I have a pension. Here’s all my sources of income. And then I want to throw my 4% on top of that, and that’s what I’m going to live off of. But what if that actually totals up to a bigger number than what is sustainable over the long term? What if that totals up to 100 grand, but your retirement forecast shows that 80,000 is the sweet spot for you to be spending? Yeah. you just happen to have more available to you early on if you start drawing 4% immediately. And it’s a hard thing for people to have it within their power. They have more income coming in than even what we had sort of budgeted for long term and to hold back. Like by definition, you’re actually still allowing some growth or accumulation early in retirement. That’s hard for people to hold back on. Mhm. I think in this area, making an errant or simply emotional social security decision is one that I’ I’d tuck into this. You know, it it’s that is only found in in in hindsight. Oh, I it would have been great to let my social security grow a little bit, maybe retire a little bit later, two years to let the social security grow a little bit. But, um, you know, making an making an errant decision sometimes, especially early retirement, we’re talking about traps uh that in early in retirement. I’m going to retire and work part-time and draw my social security. And then you realize I I I want to work more or I need to earn more and but my social security is getting penalized. And so yeah, I I think there’s a lot of different um ways that this issue, this trap can uh can can be brought up and manifested. Yeah. Yeah. And and you know, sometimes the word trap sounds a little scary. I mean, it’s actually easier than you might think to make a social security mistake. And I’ve um I’ve helped clients make those. They’re 62, the plan says they’re retired, they retire, and they’re happily drawing Social Security, and the plan works, and then they get a call from a buddy back at work, and uh they say, “Hey, do you want to do some consulting?” And next thing you know, Yeah. Mhm. Uh they’re they’re making more money than they’d ever planned on making. Um and they’re not it’s at a sustainable pace. So they say, “Well, what should I do?” And and so sometimes you have to backtrack or you have to make adjustments or change um what your strategy is because you don’t you just don’t know um even the best laid plans of mice and men. Yeah. that so that so social security ties right into the fourth trap and that is uh making an errant health insurance decision. So again, we’re talking about unique decisions or mistakes that can happen early in retirement. And you know, one of the ones that we see and we we prevent through the planning process, but not being aware how much health insurance is going to cost and that that not being built into your plan. And and so think about this. A lot of online retirement calculators. Or you might even say, uh, set the retirement calculator aside. This is just sort of common. Well, in order to project out what I’m going to need to spend in retirement, let me look at what I’m spending right now and and what’s my take-home and that’ll be what I’m what I project to spend. You’re not paying most likely most people who have health insurance through a group through your employer, you’re not paying the full cost of your health insurance right now. And if you plan on those spending numbers and say, “Well, yeah, I can be done at 60 or 62 and you think you’re going to spend that.” your plan. It might not work to assume or to to in actuality have you spend an extra thousand or even more than that per month on health insurance because it wasn’t factored into your plan. So making an errant decision or underplanning, underpreparing for health insurance and health care healthcare early in retirement can be a significant torpedo to your financial plan. Yeah. I mean, there’s there’s nothing worse than having someone draw Social Security and at 62 and then look and say, “Hey, almost every penny my social security is going to pay for my health insurance and that you want to talk about getting your feelings hurt, that will hurt your feelings.” Y I think also just you kind of alluded to this, Mike, but accounting for a higher inflation rate on your health care expense as well. Um, you know, I I remember uh early in my career, we were creating a retirement plan for a client who was very engaged and very uh analytical and we were assuming a 3% inflation rate. Once upon a time, we used to assume 4%. Um, but it was always higher for health care costs. We we assume 5%. And he he kind of accused me of trying to like pad the numbers like, “Hey, you’re going to need more for retirement than what he believed he would because we were living through very low inflation.” And he just couldn’t believe that inflation might ever be an issue because it’s not today. And here’s the reality. Inflation is real. We might go through stretches where it’s down in the 2 to 3% range and then some stretches where it’s higher than that. But you have to assume that inflation is going to continue and also assume that health care it is just going to grow at a faster rate. Um it always has I it’s hard for me to imagine that it would stop doing that as well. If we could get healthcare run by the guys that make the big screen TVs every time I go into Costco I’m like okay that TV got bigger, more pixels and cheaper. How do they do that? Yeah. Yeah. Yeah. we do need to bring that to health insurance and but but not planning properly, not being proactive enough and and building that health insurance decision in your plan. That’s that’s where the mistake is. So, how you counter that is plan for it early and your certified financial planner. That’s doing comprehensive financial planning. We call it one plan. It’s is is combining that as part of your retirement plan and it’s not going to catch you by surprise. All right, we got more coming up here on the Wise Money Show with Korhorn Financial Group.
Break 3: Fourth segment, I believe. So, is that right, Lindsey? Yes. Yes. Yes. Okay. So, here we are again. Do we get into a listener question? Is there one that’s kind of similar to this topic or complimentary to it? Yeah, I let me I know there’s a ton because I’ve been answering many of them. The marine I know that one’s not though necessarily connected. So that’d be a sharp sharp term deviation. Okay. So where which could be good maybe not? Well, I don’t know. Where do we look? Uh in the question bank in teams. Mhm. Okay, there we go. We’ve got our question and a little bit less dead air. Let’s really go. I’m trying to see if there’s a better one. Now we are landing the plane as Michael Paul Roth Bernard would say. And okay. All right. Here we go. But you know, we’ll see if we get into it because we’ve got to hit this fifth one. Which one are you leaning towards? um the a 61 I’m and I’m I’m going to tweak it just a little bit, but I’m not getting healthcare premiums. Um I’m sorry, advanced premium tax credits marketplace plan. So, okay. All right. Here we go.
Segment 4: Thanks for being here. This is the Wise Money Show with Korhorn Financial Group. My name is Mike Bernard here with me in the KFG studios, Kevin Korhorn and Josh Gregory. Every episode of the Wise Money Show as well as a lot of other content is on the Wise Money YouTube channel. Go to YouTube if you haven’t done so already and search the Wise Money Show. Subscribe to it there. Turn on notifications here every time we drop new content. And uh you can leave comments here. You can leave questions, questions for upcoming shows or for Next Yep videos that air on that channel as well. I address uh I try to address all of them, most of them, and it’s helpful content. So, go to YouTube, search the Wise Money Show, subscribe. There we’re talking through the decisions that turn out early in retirement that turn out to wreak havoc on your financial plan over the long term that seem maybe innocent that maybe you’re doing it because oh, this is this is what’s best for my financial situation, but end up throwing your what was successful retirement off track. mismanaging market volatility. That’s that’s one. And uh not having the right tax planning is another. And uh not having a sustainable withdrawal rate. And we talked about making a mistake with or or underplanning for your health insurance. All of this is leading towards what probably should have been the very first mistake and and that is retiring without a plan or making these decisions without a fivefactor and comprehensive plan to begin with. I mean, that’s the that’s the trap. That’s the mistake. We talked about this a few shows ago, like, you know, has how how close to retirement has a new client come in and said, hey, I need some help. There’s a comic out there that has someone where they step into a financial advisor’s office and says, uh, you know, here’s your chance to become a legend, right? I’m retiring tomorrow. Retiring tomorrow, haven’t saved anything. Here’s your chance to become a legend. Sort of thing. You you don’t want that. So, making sure that you’ve got the right plan and you’ve been preparing all along. Lack of that, not doing that, that that’s Yeah, that’s probably the the the early retirement mistake that kind of wins that runs the that ruins them all. Yeah. w without taking a financial planning approach to deciding on when to pull the trigger here with with retirement. When do you step away from a paycheck and start um trusting the fact that you have the right resources and income streams to be able to meet your needs and and hopefully a whole bunch of fun wants as well during retirement. I I don’t know how you would make that decision with any amount of confidence. You would just be kind of charging forward and hoping for the best, I suppose. But to me, a five-factor retirement plan is really the systematic way of you working with your certified financial planner to stress test your game plan. Do you know what age you’re targeting or or a range of ages? We’ve we’ve often talked about um do you know what your spending levels um you can confidently go up to? And going any higher might put you in a little bit more of a vulnerable spot. Do you know what your sources of income are? and have you calibrated those well? Have you made good choices on social security as we were saying earlier? Um, and then also are between here and retirement, are you saving the right amount? Are you contributing steadily to build up a retirement portfolio that’s large enough to support you? And then finally, do you have the right level of risk in that portfolio so that you uh give yourself a shot at continuing to compound during your working career and still keep up with inflation in retirement as well? Allow there to be growth ongoing. That type of stress testing, what we boil it all down to is what is the probability of success that your answer to those five questions works out well for you. that you get to the end of retirement and you you you pass away not having gone broke along the way and become uh you know dependent upon other people or or other assistants. And uh to to me to not know with some level of confidence that your next step into retirement is a solid one. You’ve got a firm foundation that you’re going to be able to step into because of the planning you’ve done. You’re really just leaving it all to hope and chance otherwise. And you won’t know. I mean early on if you haven’t done that long-term plan and that projecting out early on you might not realize it and but it might lead you right into these other four traps that we’ve mentioned and but you know there’s a lot more than what we’ve mentioned but you might overspend you might make an errant social security decision. You might not have plan well for health insurance and you might be paying more in taxes. is you might be more susceptible some to some emotional reactions to your investment management as as the market is volatile and without a plan you don’t know early on you won’t be able to tell the difference it’ll be five years it’ll be 10 years it’ll be 15 years where you’ll look and say oh oh gosh I I might have made a bad decision and at that point too late to go back and make some changes so the point is do that proactive planning that five factor retirement plan that Josh just mentioned, you can get started at wisemoneyguides.com. Download the guide there, get started, but work with your CFP because the other thing is not just a five factor plan. All of the variables or the the traps we’ve talked about are connected to the six areas of your financial life, right? So, your five factor retirement plan has to be connected to your comprehensive plan. We call it one plan. Cash flow is one of them. Tax planning is another, right? and your protection planning, your, you know, managing the health insurance, your estate plan, that that picture, it all needs to be considered. So that five-factor plan as part of a comprehensive plan, work with your CFP on that, overcome these traps and avoid them. I I’m glad that you point out though that you might go into retirement and maybe be in a very low probability of success situation, but you don’t know it early on because so much of this is revealed over time. I I’m remembering Kevin early on in my career, I remember you showing me sort of a whiteboard sketch or or way that we would explain to clients visually what’s likely to happen in retirement. We would draw these lines showing here’s what your income is likely to do. And it was a fairly flat line uh off, you know, from the left to the right on the whiteboard. And then we might even show a line that would be what your expenses are going to do over time. And it might start out lower than your income. You have more than enough income coming in to handle all your needs early in retirement, but the problem is that expense line for many people ends up being much more hockey stickish. It it climbs at a faster rate and there becomes this point out in the future where we refer to it as the crossover point where uh your expenses now exceed your income. And when that occurs, you’re having to start depleting the resources that you’ve built up for yourself. That is what we’re stress testing with this type of retirement plan. When you start to deplete your retirement assets, you draw them down over time. They are no longer growing with great market uh performance. They’re actually starting to shrink with time. How quickly do you deplete it down to critical levels? That’s what you need to know in my opinion when you step into retirement. Where’s that crossover point happening? How quickly are we going to deplete the assets? What are the things that we can do to improve our odds of success if we get into retirement and need to start doing some some pivoting, pulling some levers and uh adjusting your game plan that I I don’t know how you do that outside of a financial planning relationship with a certified financial planner. And boy, I hope that you have that relationship in place long before you’re at the eve of retirement and ready to step in and just charge forward. Figure this out now, like while there’s still maybe years to prepare uh so that you can have confidence that you’re on the right path towards that retirement. Yep, completely agree. Going to tuck in here a question from fan of the show that uh that that is related to some of the items we’re talking about. It’s from Teresa. She sent it uh on the Wise Money Show website. 61 years old, work for a small business and they don’t have health insurance. So, I get my insurance through the marketplace. Every year I owe thousands of dollars in taxes because I earn more than what they claim for my health insurance. What can I do to reduce this amount? I don’t make a lot of money, only 45 grand and and I’m single. It’s a real financial strain. I I would want you to sit down with a CFP who is collaborating with your health insurance expert. My hunch is it single and and with that amount of money you’re in you you shouldn’t have to pay back a bunch of your premium tax credits. It it might be that they are just not estimating correctly what your income is because you should still be eligible for premium tax credits at at that level. I don’t have the the the kind of grid right in front of me, but I I would make sure that the inputs are right on that. I would you might have other income landing on your tax return beyond that 45 grand that and that’s influencing it. Most people don’t realize they look at well here’s how much income I expect to make and that’s going to influence my premium tax credits. Notes your total income what lands on your taxes your your adjusted gross income. And then he asked what can I do each year to reduce what I owe. Yeah. IRA contributions pre-tax type contributions sheltering or hiding some of that income. Um but I would start even at at that income level. You might say, “Well, I don’t have a lot to shelter.” I’d make sure the inputs are right. Work work with your CFP. Make sure they’re collaborating with your health insurance professional and you got the right input so you avoid these surprises. Would you still heir on the side of a conservative assumption and taking less along the way? I’d rather be surprised that I get a bigger refund at the end of the year than uh have to pay back some of these uh premium tax credits if you got it wrong. Yep. Yep. So, great question right there. impacts a lot of people early in retirement. Work with your CFP on that. That’s all the time we have for today. On behalf of Josh Gregory, Kevin Korhorn, and all of us at KFG, have a great weekend. We’ll see you next Saturday for the Wise Money Show with Korhorn Financial Group. Securities offered through Silver Oak Securities, member FINRA/SIPC advisory services offered through KFG Wealth Management LLC. Join business as Korhorn Financial Group. KFG Wealth Management LLC and Silver Oak Securities Incorporated companies are unaffiliated.
