When Guessing At Retirement’s Most Important Questions Goes Wrong

Most people, when trying to plan their retirement, have to guess about the answers to some important questions. Let’s talk about some of those questions and why you need to have a better answer than just a guess.

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Transcript Of Today's Show:

Speaker 1: Hey everybody. Welcome into the podcast. It's Plan with the Tax Man, with Tony Mauro and myself talking about investing finance retirement. And this time on the podcast, when guessing at retirement's most important questions goes wrong. Most people when trying to plan their retirement have to guess about some of the answers to some important questions, especially if you're not working with a professional like yourself, Tony. So we're going to talk about that this week. How you doing my friend?

 

Tony Mauro: I'm doing good, right in the midst of tax season, but the weather's good here. So no complaints really.

 

Speaker 1: Fantastic. Yeah. So, obviously you're very busy this time in the year. You're rocking and rolling, and there's a lot going on in the world. Right?

 

Tony Mauro: Yes.

 

Speaker 1: We're definitely in some crazy times, it seems like still. If it's not one thing, it's another over the last couple of years. But you know, if you don't have a strategy in place a lot of times, and you're guessing, this is basically just dumping fuel on the fire, right? You're setting yourself up for some issues. So let's go through a couple of these basic things I got here, Tony, I got three or four of these. How much monthly income do we need? So guessing at this, many people guess at this, and it seems kind of wild that they do that. But I guess if you lived your life that way and where you're, "Okay. I've got my paycheck, this is what I have. So this is probably what I'm going to need in retirement." But it's probably not a good way to go about guessing it.

 

Tony Mauro: I don't think so. This topic today is, I think, is timely as ever, because of course during tax season, we get a lot of these questions at this time, even just from tax clients. And so, a lot of people, I think what happens with their income, is they adjust it as they go through their life when they have a regular paycheck coming in and they fit their expenses to what that paycheck will cover. And then when those are done, it is a big wake up call for a lot of people. They don't really know what they have. They don't know how much income it's going to throw off. Most of them don't really track very accurately what their monthly expenses are. They just know they haven't overdrawn their checking account.

 

Tony Mauro: So a lot of times, it does take some planning and this is one of the things that I think everybody, especially going into retirement, needs to understand is, what are your monthly expenses? How much income are you going to need to cover everything? And then if there's anything left for an anything else is important as well. So yeah. I mean-

 

Speaker 1: I was going to say, you would think the shortfall would be the biggest thing you probably see. But it can go the other direction too. What if you think you need a lot more income than you really do. And so you've done all that and maybe you work longer than you actually wound up having to, you could have retired a little sooner because you were over estimating.

 

Tony Mauro: Yeah. You overestimate it, think you're going to need all this stuff. I have seen that. And I wonder about that for my own self. You've always got these goals in mind and you start to think about as you get a little closer to it, do I really need that much? And is that worth toiling along for two, three, four more years to get that. So it pays to plan, pays to at least have some thoughts in mind and then... It's a moving target, but as you get closer, needs to be monitored closely.

 

Speaker 1: Right. And that's why the strategy of having a good plan in place and then working through that plan and updating and visiting with your advisor is important because as you're getting closer, especially the longer time you have to do it, because as you're getting closer, you might find, "Yes, hey, we can make some tweaks." All right. So that's the first one there with the income. And again, you think about it. We tend to guess at a lot of this stuff, especially if you... Many people, I think, approach retirement or have approached retirement for a long time is, "Well, just whatever happens, happens. I'll eventually get there and I'll have this stuff and it is what it is." But with a little planning you can go a long way and not have to guess at some of these important things.

 

Speaker 1: What about major purchases? So I guess what we're talking about really here, Tony, is the emergency fund. Certainly the current state of the world, just like right before COVID or during COVID, people learned, hey, an emergency fund can be quite useful. Right now we're thinking about or hearing that we might be seeing 6, 7, $8 at the pump. That's going to change our regular cash flow. Well, what might that do to emergency or major purchases because of shipping costs going up and energy costs going up and all these things we're dealing with right now. So do you have an emergency plan?

 

Tony Mauro: I think everybody should have an emergency fund for those types of things. And we preach it a lot to our plan and clients on the emergency fund, but we try to take it a step further and say, we think you need what I call a spending funding fund or a fund for major purchases outside of the emergency fund, because things do happen, especially as you get into retirement. A lot of our clients, their houses are aging and they need new things, whether it's a furnace, windows, whatever, or a lot of times the retirees drive their cars for a long time, but eventually they conk out and you might need a new one. There's that, there's other things that you may just kind of want to do.

 

Tony Mauro: I like to have the spending fund just for stuff that is going to wear out and that you don't have to dip into your emergency fund for, or your current income for. You can build that, even if it's just a little bit at a time and you know you've always got that on the side for those types of things, the dishwasher goes out, the stuff you don't expect. [crosstalk 00:05:30].

 

Speaker 1: Any kind of numbers in mind that you go with that? Do you do the three months, the six months? What's some thoughts there?

 

Tony Mauro: Well, for the emergency fund, we generally will do three to six. And then what we work with clients on, just like a spending fund is we try to take a little bit of an inventory of what they think in their own mind maybe is going to need to be replaced in the next one, three and five years. And if we haven't started saving for that, let's start saving for that a little bit and just set some money aside. So you've got it when you need it. But I don't really have a set amount. I kind of let them dictate it. Some people want a lot of that in there. I know for myself, I like to keep about at least 15,000 in there because I like to use it for myself for car repairs or refrigerator goes on the fritz or my mower stops working, anything. And then I know I always have the money sitting there.

 

Speaker 1: Yeah. Okay. All right. So definitely, again, not guessing having some stuff there. Now sometimes maybe with the major purchases, we got to guess a little bit, because again, right now we're dealing with so much with inflation, which is going to be my next one as well. And that could be pushing prices higher than we expected them to be on those major purchases.

 

Speaker 1: But let's go to number three, which again is the impact of inflation. So with this one, Tony, yes, the land that we're in right now that's bordering on, or maybe it even is hyperinflation. I don't know. They're really scared to say that word, aren't they?

 

Tony Mauro: Yeah, they really are.

 

Speaker 1: But if you look at the definition, technically, I would say we're in hyperinflation. You're a tax professional, what do you think?

 

Tony Mauro: We're definitely in some kind of inflation, if I'm not going to say that word.

 

Speaker 1: Okay. It's big inflation.

 

Tony Mauro: Yeah. Big inflation. It's obvious, things are going up because of COVID and all the things that have gone on in the last couple of years. I just saw a saying... I was just looking for it as we were talking. I ran across it on Facebook. It was a great one. It said something along the lines, if you had put $10,000 in a bank, January 1st of, I think it was 2020, you'd have like $9,700 right now. So it made the comparison of that versus investing. So, the saying kind of went along the lines of, you need to invest, not save because obviously inflation is there. And right now, it's there more so than it was a few years ago. And just sticking some money aside, isn't going to get you where you need to be.

 

Speaker 1: Oh, for sure. Yeah. And we-

 

Tony Mauro: Yeah, things are just going up.

 

Speaker 1: We know that typically... I think most people realize, look, if you're getting close to retirement, you want to be safe with your money, you're starting to pull some stuff off the table, maybe you're not being as heavily as aggressive and you're investing. But the only way you're going to keep up with normal inflation is still within the stock market. You still have to have some risk out there because you want to outpace inflation. Whether you're talking 2.75, 3.25, 4%, some of those like more normal numbers, but we're talking... The official numbers aren't out for February, Tony, but at the time we're doing this, we're early March here. It's probably going to be 8%. Some are even saying 10. We might see double digits here before much longer within March or even April at 10% in this inflation environment we're in. And nothing's going to really keep up... And there's very little, that's going to keep up with that. Right?

 

Tony Mauro: Very little. Yeah. We're going through one of those times where, until it comes back down, unless you're going to take some real risks, is going to keep up with that, but you got to at least try to get a little bit closer than that. And even in regular times, stuff today, I'm 55 right now. In 10 years when I'm 65 and then 75, [crosstalk 00:09:06] cost more. I've got to prepare for that. Everybody's got to prepare for that.

 

Speaker 1: Oh yeah.

 

Tony Mauro: But I don't think anybody, sometimes... I shouldn't say anybody, but a lot of people don't take that into account that you're going to need more to do the same things.

 

Speaker 1: Well, we guess at it. If we're going to keep this as our topic conversation, so we'll remove the crazy inflationary period we're in right this minute, assuming things get back to something a bit more normal, but keeping in mind, folks, we have been experiencing and enjoying really low inflation for a while now. So let's just call it 4%, Tony, something average, 3, 4%, something like that. What is it, 20 years basically? So if you're guessing, if you're this whole conversation, so if you're guessing, "Hey honey, we're going to need 5,000 a month to live off of income wise, monthly as we go into retirement. So then we'll just guess that in 10 years we're going to need $6,000 a month." Well, you'd be wrong, right?

 

Tony Mauro: You're wrong.

 

Speaker 1: Because it's going to be more like 7,500 or 8,000. Because in 20 years, it's going to be double.

 

Tony Mauro: I think that, over time, you go out 10, 20 years, and many people live that long in retirement now. Obviously, you don't have to do a whole lot of complicated math to understand just looking back 20 years what things cost, where it's going to be and you need to take that into account. And really if... Some people would argue, "Well, yeah. But by the time I'm 85, I'm not going to be spending a whole lot. And I'll be okay." You very well may be. But that's kind of a pretty generic hope there. You want to make sure that your money's not going to going to run out. Inflation is real. Even when it's at 4%, you've got to always know that it's there and nipping at you. I think too many people don't take that into account.

 

Speaker 1: Hopefully we're learning some lessons right now while we're dealing with this crazy high inflation so that when it does get back to normal, we can say, "Let's make sure we're..." Because a lot of times, especially over the last few years, Tony, the markets have been doing great. You could pretty much throw a dart, pick an investment or pick an index and you probably did pretty well. You're not thinking about inflation. It's like calories. We don't think about it a lot of times. Just like, "Hey, that cheeseburger looks good. Let me eat it." Regardless of how many calories it has in it. Same thing with inflation.

 

Speaker 1: But right now, we're becoming more, I'll use the word again, we're becoming more hyper aware because of the amount of inflation that we're dealing with. So don't guess at this stuff, folks, just make sure that we're having a strategy or plan put in place.

 

Speaker 1: Healthcare cost, Tony, was also on my list. I will give the argument that this one, you might have to guess a little bit because we just don't know what's going to happen, but you can still strategize and plan for the fact that it should be going up and putting something into your structure, your portfolio, your budgeting, all that kind of stuff for retirement under that premise. You might not know the exact numbers, but start budgeting for something.

 

Tony Mauro: You got to budget for something because this is going to be one of the biggest costs, seniors and retirees are going to have as they age. And I mean, insurance-

 

Speaker 1: It normally outpaces regular inflation. Right?

 

Tony Mauro: Yeah. It's closer to double regular inflation. Right now, in the last 10 years, you know how things have gone with the health insurance industry. There's really no end in sight it seems like. If you talk to people, it's the first thing they say when we talk to them is, "But my health insurance is out of control. It's too high." And with all that's gone on in the world and the politics over the last 10 years, it has changed there. But even if you get beyond that and just start talking about just your regular doctor visits, things that you need as you start aging, it starts to become more and more. My dad goes through it right now. He's 80 and we've talked about him before. He's fairly healthy, but he's still got his share of doctor visits. He just went in this week because he was real lightheaded and they ended up staying in the hospital at night.

 

Tony Mauro: So even though he's got insurance, he's going to have some out of pocket costs. That wasn't planned, because they thought his blood count was low and he just... He's all right now, but it's that kind of stuff that starts happening. We're not even talking about the big ones, the assisted living, nursing home that just gets outrageously expensive.

 

Speaker 1: I think it was a couple years ago, Tony, wasn't it that they were saying the average out of pocket over the course of per person in retirement is something like 270 or 80,000?

 

Tony Mauro: In that neighborhood. Yeah.

 

Speaker 1: And that was a couple of years ago. So just think about that over the course of retirement. That's hefty. So that was over a long period, but still, if you're digging into your pocket for that and everything is going up, it's going to continue to go up. Are you guessing at this stuff or are you strategizing and really, Tony, at the end of the day, that's the point, right? That's why you need to get a plan so that you can start to structure some of the stuff out and it's not perfect. That's why it ebbs and flows. That's why you guys do reviews and you update and you change things, but at least you've got a good structure to work from.

 

Tony Mauro: You do. Yeah. And with the retirees, that's the basis of the whole review is some of the things we've just talked about. Because this is what needs to be adjusted and reviewed every year with most of the people living in retirement, just to make sure that changes, if they are needed, that we can get them made and readjust some things and then you go about your life and revisit it, next year.

 

Speaker 1: Exactly. Yeah. You adjust the emergency fund, you adjust the inflation amounts, you adjust what accounts you're pulling from, when, or how you're allocated or whatever the case might be, weighted in this investment and so on and so forth. So that's the point, get yourself a plan versus just guessing into retirement. And if you're already working with Tony, well, you already know that. But if you're not and need some help, as always, make sure you check with a qualified professional before you take any action. Tony's got 20 plus years of helping people get to and through retirement. He is an EA and a CFP, a certified financial professional. You can reach out to him at 844-707-7381 or just stop by the website, yourplanningpros.com. That's, yourplanningpros.com.

 

Speaker 1: Tony, thanks for hanging out with me this week. I appreciate it. I'm going to let you go so you can get back to those fun, fun taxes.

 

Tony Mauro: All right. We'll talk to you next time.

 

Speaker 1: All right, we'll see you in a couple of weeks here on Plan with the Tax Man. Don't forget to subscribe on Apple, Google, Spotify, iHeart, Stitcher, whatever platform you use. Find it all at yourplanningpros.com.

 

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