The Roadmap to Retirement: 6 Common Pitfalls

Episode Transcript

Speaker 1 (00:00):
And you know what that means. Phone lines they are
open for you right now. Love to get your retirement
related question answered right here on the show this morning.
It's the real leased to do. All I got to
do is pick up phone, dial in telephone number to
get on the air. Six oh eight three two one
thirteen ten. That's six oh eight three two one thirteen ten.
Love to have you join us. Got a retirement planning
professionals from Class Financial, CJ Closs and Eric Schwartz be

(00:23):
talking this week about some of the pitfalls to avoid
when it comes to retirement planning. Of course, as we
talk with Eric and CJ, as I mentioned, phone lines
are open to you, so it's a great opportunity to
get your question answered on air. Also, Class makes it
real easy to contact them if you head on over
to Classfinancial dot com. That's Coss k l aas Financial

(00:44):
dot com. They've got a great email address there. You
can also schedule a complementary chat right online at Cossfinancial
dot com. Or of course you can always give them
a call at the office six oh eight four four
two five six three seven. Don't forget that first conversation
that gets to know you. Chat with the phone at
Coss Financial. It will be complementary to you their number
six oh eight four four two five six three seven

(01:06):
And again phone lines are open to you this morning
at six oh eight three two one thirteen ten at
six oh eight three two one thirteen ten. And joining
us this morning are CJ. Closs and Eric Schwartz of
Klass Financial. CJ, how have you been? You got a
little time off there, Good to have you back.

Speaker 2 (01:21):
I did have a little time off. Yeah, it's good
to be back on the show with you, Sean.

Speaker 1 (01:24):
Perfect timing as well as as we've got a lot
of stuff to cover this week. And Eric, how have
you been.

Speaker 3 (01:31):
I'm doing great, Sean, just just holding things down here
while CJ was gone.

Speaker 1 (01:35):
Well, I know how this works between you and Malia.
You know, keep it, everybody, keep it, everybody on Tassy.
It's great to have both of you, and we've got
uh oh. By the way, I mentioned Malia, and obviously
a lot of folks know Malia from the program many
many years still of course with Class Financial and she
you can of course learn more about Malia CJ. Eric,
everybody at Class Financial. I mentioned the website. You can

(01:56):
get to know everybody there as well at classfinancial dot com. Uh,
let's let's get into this week's conversation, which is going
to be about about roadmaps and how to avoid some pitfalls.
Another cool thing is we get into that conversation, it's
a really great benefit to pay close attention. Not only
is there great information, there's a chance for you to
win a fantastic prize. Our friends from class Financial have
provided a twenty five dollars gift card to Sephora. I

(02:18):
tell you a little bit later on the program how
you can win that. But again, as we get into
this week's show, it's a really good good tip to
listen closer to the program because just about every show,
the question and answer come up during the program. Let's
actually roll back and take a look at last week's
Class Quiz question week get the question and answer there
as well.

Speaker 3 (02:35):
Eric absolutely Sean. So last week we talked about I
think probably one of our most popular topics, social security,
and also delved a little bit into the conspiracy of
Big Calculator as well. But the question last week was
what is the earliest age that you can begin collecting
traditional Social Security retirement benefits? And we gave you two

(02:57):
choices age sixty two or sixty five, and the answer is,
of course sixty two. And we actually had a winner
from near our other office last week, Arnie from Rockford.

Speaker 1 (03:08):
Oh, congratulations, I love that name. Arnie is well. Congratulations.
You can be like Arnie as well. Listen closely to
the program for your chance to win that prize against
twenty five dollars gift card to Sephora. So, as I mentioned,
of course, we're going to talk about some of the
pitfalls when it comes to things to avoid when it
comes to retirement planning, and there's some six mistakes that

(03:28):
folks really need to focus in on. CJ. Let's kind
of get the big picture of the overview of this stuff.

Speaker 2 (03:35):
Yeah, that's right, Sean. So, as retirement planners, we ideally
want to help people avoid these common these six common mistakes.
We want our listeners to hear these potential pitfalls and
proceed with caution. The more aware you are, the smoother
your retirement journey can be. As you can imagine, there's
obviously more than six pitfalls to avoid in retirement planning,

(03:57):
but we are highlighting the six most common we have
seen over the past fifty years of being in business.

Speaker 1 (04:03):
As we talk about this stuff, let's then kind of
jump in and kind of get that list going. CJ.

Speaker 2 (04:10):
Yeah. So I'm going to start with the first couple
of pitfalls here. Pitfall number one to avoid in retirement
planning is underestimating the cost of longevity and inflation. Again,
this is pitfall number one, underestimating the cost of longevity
and inflation. So we often refer to this pitfall as
the longevity tax, since it highlights the penalty of living

(04:31):
longer than expected and having your savings essentially taxed away
by the compounding costs of inflation. This pitfall centers on
two distinct but compounding risks that threaten to deplete your
savings faster than you expect living a long time, known
as longevity risk, that's the first factor, and the risk
of costs of goods going up, which is known as

(04:52):
the inflation factor of the inflation risk. So starting with
the longevity risk aka living too long. The problem is
that people tend to project a conservative lifespand often based
on family history or average life expectancy, and they structure
their savings to last only until that age you know,
think think age eighty. The real risk is that one

(05:15):
or both spouses live well into their nineties or beyond.
As you can imagine, that could become a problem. This
is the longevity risk factor. If you're running out of
money in your eighties and you're living into your nineties,
that's a problem. The second part of this is the content,
which is the inflation risk. We call this the silent
killer risk. The problem is that while your investments generate returns,

(05:38):
the cost of goods is also constantly rising you to inflation,
which is silently eroding the purchasing power of your fixed
income and savings. Therefore, as you can imagine, if you
underestimate your longevity and don't account properly for inflation, it's
entirely possible that you live the final years of your
life without sufficient resources to maintain you're expected standard of living.

(06:02):
So again, be cautious of that pitfall number one, which
is underestimating the cost of longevity and inflation. Now, pitfall
number two to avoid in retirement planning is ignoring long
term care costs. So we often refer to this pitfall
kind of in street terms as the wildfire risk, since
it has a low probability of happening to any one person,

(06:25):
but the cost can be catastrophic and quickly deplete a
lifetime of savings. So again, sometimes people go long term care. Wildfire.
What are you talking about? Well, what's the risk that
a wildfire is going to jump up near your house
and burn down your house? I suppose it depends where
you live. Right in parts of Canada or in California's
supposed to be a higher risk. But you get the

(06:46):
idea low probability. But if it happens, it's catastrophic. So
don't ignore the cost of long term care. This pitfall
is characterized by the failure to recognize that standard health insurance,
including Medicare, does not cover the expenses associated with extended

(07:08):
non medical, skilled nursing care to help you might need
with daily living activities bathing, dressing, eating, due to age,
chronic illness, or cognitive impairment. The costs associated with long
term care are often shocking to those who haven't planned
for them. The care is typically provided in three settings,
all of which carry a substantial price tag that varies

(07:29):
dramatically by state. The first of those three kind of
settings is home health aid, also known as in home care.
This carries a national annual median cost of about seventy
eight thousand dollars per year. The second category is assisted
living community. This carries a national annual median cost about

(07:49):
seventy one thousand dollars a year. And finally, the third
setting is nursing home also known as AKA A private room,
carries a national annual median cost of about one hundred
and twenty eight thousand dollars per year. So, as you
can see, ignoring long term care costs and ending up

(08:10):
with you in home care, assisted living communities, or nursing
home private room care can be catastrophic. Now, a common
retort we hear for this pitfall is well, it's not
very common and it probably won't happen to me. However,
let's address that. According to the US Department of Health
and Human Services and its agencies, approximately seventy percent of

(08:33):
people turning age sixty five today will need some form
of long term care during their lifetime, and the average
length of time that care is needed is over three years. Now,
please don't misunderstand me, everybody, this I'm not saying therefore
go out and buy long term care insurance. That's that's
not what we're saying here. What we're saying is don't

(08:56):
ignore it, don't not pay attention to this, because there's
a bunch of research that's been done. It's actually called
the spending smile in retirement or the spending frown in
retirement that looks at people spending throughout retirement. It tends
to grow in the early years and then go down
in the later years, but the last few years before
death skyrocket. And who can tell me, well, there you go.

(09:18):
It's the in home care, the assisted living, and the
nursing home care costs. And if those final years get
extended out, because say you have Alzheimer's but your body
is still alive, it can be catastrophic to the value
of your portfolio.

Speaker 1 (09:32):
Those are some pretty big numbers. As we talked this
morning with CJ. Closs and Eric Schwartz, they are our
retirement planning professionals from Class Financial. Of course, you can
learn more about Class Financial all on their website Class
financial dot com. That's Coss klaas Financial dot com. Great
website resource. Not only to learn more about Class Financial,
you can schedule a conversation right online. You can also
sign up for the weekly Market Pulse newsletter. It's a

(09:54):
nice weekly snapshot of what's been going on in the markets.
Also linked to the most recent podcasts. Speaking of those podcasts,
when you're at class financial dot com, you can listen
back to this in previous shows as well. Again, that
available to you at coss financial dot com. That's Class
k l aa s Financial dot com. They're tele for
number six oh eight four four two five six three seven.
Don't forget that first conversation at Class Financial. It will

(10:15):
be complimentary to you. It's not going to cost you
a thing. They're tel for number six oh eight four
four two five six three seven. Looks into our conversation
with Cjen Eric, we'll talk a little bit more about
and work our way through our retirement planning roadmap and
those pit falls you want to avoid. We will do
that next as Money in Motion with Coss Financial continues
right here on thirteen ten. Wu ib A, you've got
a question, still got a line open for you. Love

(10:36):
to hear from you this morning six oh eight three
two one thirteen ten. That's six oh eight three two
one thirteen ten, joined this morning by CJ. Closs and
Eric Schwartz. Our retirement planning for professionals from Class Financial website.
Cossfinancial dot Com. That's Coss k l a A S
Financial dot Com. They're teugh for number six O eight
four four, two, five, six, three seven talking about the
six pitfalls to avoid in retirement planning. We got the

(10:59):
first two down, and Eric, what's the next retirement planning
pitfall that folks need to need to avoid?

Speaker 3 (11:07):
Yeah, So, pitfall number three that we're gonna be talking
about here is entering retirement with significant debt. So we
often refer to this pitfall as the retirement squeeze, since
debt payments can severely compress retirees budget and really leave
a little room for essential expenses or even beyond that,

(11:27):
leisure expenses.

Speaker 1 (11:28):
Right.

Speaker 3 (11:29):
The core problem with debt as you enter retirement, regardless
of the type of debt or the interest rate associated
with it, is that consumers often underestimate the swing in
moving from working income to retirement income, which is often
based on social security and pensions and portfolio withdrawals. Right,
there's a shift as you move from your working years

(11:51):
to your retirement years. And when you're working, right, you
have the option of finding a higher paying job or
getting a second job. If you have significant debt and
you're your expenses are kind of closing in on you
in retirement. The last thing you want to do is
go back to work right and feel like you're being
pressured into finding a part time job just to make
ends meet. Not to mention that sometimes in retirement your

(12:13):
health can decline and pretty rapidly, and that can make
it difficult for you to continue working to find that
extra income and cover your expenses. So, as a retirement
planning firm with about fifty years of experience, we highly
suggest that our clients and the general public plan to
retire debt free. Now, we are also realistic. We understand

(12:34):
that sometimes this may not be possible, but so if
you do have debt remaining as you enter retirement, it
should be at a really manageable level. So typically, keeping
your debt payments to no more than about twenty percent
of your gross retirement income is a good rule of
some and hopefully as you move into retirement there's a

(12:55):
plan to actually pay that off in a reasonable amount
of time. So that's pitfall number three, entering retirement with
significant debt.

Speaker 1 (13:02):
Talking about number four.

Speaker 3 (13:03):
Here, the pitfall we want to avoid is failing to
create a realistic retirement budget. So this is a really
really common one. As you can imagine, as people get
close to retiring, they get very anxious to retire. And
so CJ and I will talk to folks and they
you know, you start you suddenly start to realize that

(13:24):
they're they're shrinking their budget really rapidly in hopes that
it will allow them to retire earlier, not understanding that
you know, a lower budget means maybe not the retirement
lifestyle they imagined. Right, So we often refer to this
pitfalls as budget blindness, and so many consumers will refuse
to look honestly at those future costs, you know, leading

(13:44):
to a financial surprise and retirement. The main issue really
is miscalculating the true cost of retirement living. And CJ
was talking earlier about the spending smile, which basically describes
the fact that spending early in retirement is generally higher.
We call these the go go years, the early active

(14:07):
years where you're spending spending more money traveling or just
getting out and doing things, and then followed by the
slow Goo years and then the no go years. Right,
So expenses will change over time, but it's really important,
you know, as you're moving into retirement, not to just
assume while I can live on less just because I

(14:27):
want to be done working sooner. And a lot of
people assume that their expenses are going to drop significantly
once they stop working. It's just not what we see
in reality. It's true that that retirement income is often
less taxed than you're working income, you know, because you
don't have payroll tax withholdings and maybe your income's coming
from more tax resources. That does not necessarily mean that

(14:51):
you will spend less, and in fact, in our experience,
it's actually the opposite, which is why when we're helping
people get ready to retire, we just are are sort
of hardwired to add in additional spending just to make
sure that people are in a good spot. So we
suggest creating a realistic, detailed retirement budget prior to actually,

(15:13):
you know, telling your boss you're not coming back.

Speaker 1 (15:15):
In which which feels good by the way, from what
I talking this morning with Eric Schwartz and CJ. Class.
They are our retirement planning professionals from Class Financial. Of course,
you can learn more online great website Class financial dot
com that's Class klaas financial dot com. A lot of
great stuff for you there also great opportunity to give
them a call six so eight four four two five

(15:36):
six three seven. That first get to know your conversation
at Class Financial. It will be complementary to you again.
They're telephone number six oh eight four four two five
six three seven. We'll consider our conversation with Cjen Eric,
we'll talk about pitfall number five and number six. We'll
do the class quiz question League. We'll do all of
that next as Money in Motion with Class Financial continues
right here on thirteen ten, Wuibi talking about retirement roadmap,

(15:59):
the pitfalls you should avoid and when it comes to
retirement planning. Of course, talking this morning with CJ. Closs
and Eric Schwartz. They come to us from Class Financial.
They are our retirement planning professionals. You can learn more
online the website class financial dot com. That's k l
AA S Financial dot com right telphone number six oh
eight four four two five six three seven. No charge

(16:20):
for that initial get to know your appointment tech claus Financial.
It will be complimentary to you again. Their number six
oh eight four four two five six three seven. So
we've we've really got some great information so far on
the first four. Let's keep that going CJ. Let's talk
about number five and and how folks should avoid that
as they approach retirement.

Speaker 2 (16:41):
Yeah, so pitfall number five to avoid in retirement planning
is assuming your home is your retirement plan. So there
are many different street names for this risk, including some
of the following. House rich cash four is one of
those names. Another street name is the downs downsizing delusion,

(17:02):
or my personal favorite, which is the reverse mortgage roulette.
So you know these are again these are different street
names for the pitfall, which is assuming your home is
your retirement plan. So assuming your equity in your home
is your retirement plan simply because you will downsize in
retirement is not only super risky, but also may not materialize.

(17:26):
Many retirees' wealth is heavily concentrated in their home equity,
often at the expense of liquid investments, savings, and retirement accounts.
This creates a financial situation where a person may be
house rich but simultaneously cash poor. Now, I do just
want to address something here because for some of you
you may be going, how could this be a pitfall?

(17:47):
Given that I've heard cost financial do entire shows on
eliminating debt as they head into retirement, As a matter
of fact, Eric just addressed you know, carrying too much
debt as a pitfall. So how can I I both
pay off my mortgage, be debt free and have that
be a risk. Well, just like in everything in life, everyone,

(18:09):
there's balance here. So if you do a good job
and you pay off your mortgage, you know, we're happy
for you. Good job, big thumbs up. But if you
do that at the expense of saving anything into retirement
accounts or investments, and so you end up with a
lot of equity in your home but no money to
live off of. And then you come to Eric and

(18:31):
I and say, but good news, don't worry. My home
is my retirement plan. This is the scenario we're talking about. So,
while your home is a super valuable asset, it is
not easily converted into the cash flow you need for
daily living in retirement without significant costs, risks, or relocation headaches. Furthermore,

(18:52):
while you may be able to downsize in retirement, there's
no guarantee that the new home you purchase will actually
cost less. Therefore, we suggest that you both pay off
your mortgage and consider downsizing in retirement as needed, while
also saving into retirement accounts at work and in taxable
investment accounts for diversification, liquidity, and risk mitigation. So listen, everybody.

(19:15):
Here's a simple example of this. We have a lot
of people we work with in northern Illinois with an
office in the Love's Park, Illinois area. And for those
of you who can hear us on the air, you
can attest about what I'm about to say. The homes there,
the price of the home compared to say Madison, Wisconsin
is significantly less, probably half on average. Now, I don't

(19:36):
want to go down the rabbit trail property taxes in
northern Illinois because those are quite high, but they're also
high in Madison as well. But here's the problem. If
I can buy a home for say three hundred grand
in Love's Park, Illinois, that would be worth six hundred
thousand in Madison. Good news, I can probably get that
paid off faster. Bad news when I go to downsize

(19:58):
and move from love Park, Illinois to Nashville, Tennessee, or
to know parts of Florida, because I heard there's no
state income taxes there. What's the problem. Well, my three
hundred thousand dollars home that is a downsized home in
one of those communities is actually not enough to cover

(20:18):
half the purchase price. So be ever so cautious with
assuming that your home is your retirement plan. You need
to probably meet with a financial advisor, talk about your
future goals and make sure that you're balancing between paying
off the mortgage, saving into retirement accounts, so on and
so forth.

Speaker 1 (20:36):
Great perspectives this morning. As we talked this morning with CJ.
Closs and Eric Schwartz of Kloss Financial online Class financial
dot com that's class klaas financial dot com. Talking about
the six pitfalls to avoid in retirement planning, We've got five,
which brings us to number six. Eric, take us down
that home stretch with number six, my friend, all.

Speaker 3 (20:56):
Right, pitfoun number six to avoid in retirement planning is
neglect to plan for incapacity and asset transfer. So let
me just briefly define what we're talking about here. When
we say incapacity, we mean you have not passed away,
but you are not for some reason, you are not
able to make decisions. Maybe it's a cognitive decline, or

(21:17):
you know, maybe you're in some sort of accident and
you cannot make your own decisions. So it's one piece
of this, that's the incapacity portion, and then the asset
transfer is obviously when folks pass away where their assets go.

Speaker 1 (21:30):
At that point in time.

Speaker 3 (21:31):
So we refer to this pitfall as the legacy leak,
since there's a financial cost associated with poor planning. Now,
these costs can be court fees, legal costs, unnecessary taxes,
and inheritances of assets by the wrong beneficiaries. So this
pitfall is basically the failure to complete the essential legal
and administrative paperwork right when you are making decisions about

(21:56):
where your money is going to go at death. It
is some thing that nobody likes to do, and when
they finally do it once, it's difficult to get people
to revisit it. Then after it's like, hey, I checked
that box like you told me too. But your loved
ones will thank you so because they will not be
forced into slow, expensive and stressful court processes. Okay, Therefore,

(22:19):
we suggest to our clients and the public that they
review their beneficiary designations every few years or whenever there's
a major life change, and that they plan for their
incapacity by drafting documents like a durable power of attorney
for finance and a Healthcare directive for medical decisions. One
thing I hear all the time from clients, Well, my

(22:41):
will says that it gets split up among my kids,
So I'm not worried about the beneficiary designation. If you
have a beneficiary designation on an account, it does not
care what your will says. The will has no influence there.
So we need to make sure that when you're opening
retirement accounts or even investment accounts that you put beneficiaries on,
that those are set up correctly. And now I'm not

(23:04):
suggesting that it's not important to make sure you draft
a will and maybe even a trust to handle a
state administration, but beneficiary designations are also super important and
it's it's very accessible in something you can easily talk
through with an advisor or retirement plan custodian.

Speaker 1 (23:23):
A lot of great stuff this week, Eric, you had
one one more thing. I apologize that I feel like
IM gonna know.

Speaker 3 (23:28):
That was actually all I was going to go over there.

Speaker 1 (23:30):
Shot that's good stuff as always from CJ and Eric,
a retirement planning professionals from Class Financially. You can learn
more online thwbside class Financial dot com. That's coss k
l A a S Financial dot com. You can listen
back to this previous shows on the website. You can
also do a conversation. Start a conversation right online at

(23:50):
class financial dot com. There's a nice little link right
at the top to do just that again. The website
coss financial dot com. That's coss k l a A
S Financial dot com. And now's give them a call
six oh eight four four two five six three seven.
Don't forget no charge for that initial get to know
your appointment tech Loss Financial. It will be complimentary to
you again their telephon number six oh eight four four

(24:11):
two five six three seven. You're also going to want
to hold on to that telephone number because it's time
now for the class quiz question the week. It works
like this, just moment to ask you the class quiz
question leak. You will then have thirty minutes from the
today's program to call the Class Financial office right here
in Madison at six oh eight four four two five
six three seven. If you are the first caller with
the correct answer, will win this week's prize, which is

(24:32):
a twenty five dollars gift card to Sephara. This week's
class quiz question of the week. Is this true or false?
According to the US Department of Health and Human Services
and its agencies, approximately seventy percent of people turning sixty
five today will need some form of long term care
during their lifetime. Is that true or is that false?

(24:53):
Telephone number six oh eight four four two five six
three seven, first call. Correct answer when the twenty five
dollars gift cards is four and again, don't forget. That's
Class Financial's office right here in Madison at number six
O eight four four two five six three seven. The
website class financial dot com. That's Class klaas Financial dot com. CJ. Eric,
it's always fantastic hanging out with both of you guys.

(25:15):
Have a great day and we'll do it all again
real soon.

Speaker 2 (25:18):
Thanks Sean, Thanks Sean.

Speaker 1 (25:19):
Dake care of course. CJ Eric come to us from
Class Financial website, Class financial dot com. We're gonna head
out to the National Dog Show where doctor Marty Greer
is standing by. Yes, she will be showing dogs at
the dogs show. As a matter of fact, Thanksgiving Day
you'll see the doctor on national television. So we'll talk
with uh doctor Greer from Philadelphia. We will do that
next as Madison, the morning and ask the experts continues

(25:42):
right here. I'm thirteen ten double you, I B I