Gabe Fransen | January 21, 2025
As we work with clients and prospective clients to help solidify retirement plans, we have some topics that come up where we believe couples and individuals have been misled or at least misunderstand some areas that could lead to making suboptimal financial decisions. With our goal of helping clients with their retirement plans, we believe it is important to shed light on some of these areas. Here are 5 common topics that come up in our conversations:
Social Security Will Cover My Living Expenses
Some folks believe that Social Security benefits alone will provide a comfortable retirement. The reality is that Social Security rarely provides enough income to meet the financial demands of retiree’s. Without saying so, the IRS and its passing of the SECURE (Setting Every Community Up for Retirement) Act 2.0 is indicating that it is becoming increasingly more important to have incentives for employees to have and employers to offer retirement accounts to supplement their income in retirement.
I Can Start Planning for Retirement Later
We believe that the idea that retirement planning isn’t beneficial until closer to retirement age is dangerously misleading. The power of compounding interest means the earlier you start saving/investing, you may be able to save less on a monthly basis to reach your retirement goals or you may be able to retire earlier. We believe the sooner individuals and couples start retirement planning, the more time there is to make corrective actions in their retirement plans if they are not on track to meet their retirement goals
I’ll Need Less Money in Retirement
Some folks assume that expenses will decrease in retirement. We have seen that this is not typically the case. While work-related costs may go down, other expenses like healthcare, vacation and leisure activities in addition to inflation can drastically increase the household spending needs in retirement.
Medicare Covers All Healthcare Needs
As medical costs continue to rapidly increase and the complexity of the medical industry, some believe that once the age of 65 is reached, Medicare will cover all Healthcare needs. The reality is Medicare has significant gaps, not covering long-term care, dental, vision, hearing services, among others. There are supplemental insurance like Medigap, Medicare Advantage plans, long-term care insurance and others that will cover these gaps, but if these areas go unplanned, they can create an unforeseen financial hurdle in retirement.
Investment Risk Tolerance Should Decrease as You Reach Retirement
The blanket statement that one should not take on investment risk strictly due to their age or how close they are to retirement can be misleading and is probably overly simplistic. While we strongly believe that risk should be managed, completely eliminating growth potential might leave you vulnerable to inflation and longevity risks. We believe it is important for every dollar in a portfolio should have an earmarked purpose and timeline, which helps guide our investment advice as we look to help clients achieve their financial goals.