Looking to retire soon or alreadyretired and want to make sure you're on the right track financially? On this episode of the Retire Once Show,Johnathan and Melissa discuss popular retirement advice that you should ignore.
In this episode, we discuss some ofthe most important retirement planning questions that are on everyone's mind,such as: When should you claim Social Security? Should you take social securityat 70? Is it bad to take Social Security Early? Do you have to invest in a RothIRA? How should you choose your 401k investments? How should you benchmark yourportfolio?
With more information out there thanever before, retirement planning can become more complicated than it needs tobe. Our mission is to help simplify your retirement planning. That starts with ignoringadvice that is not right for you
Retirement planning is often made a lot more complicated because of how much information is out there, whether it's advice on social media or just videos and articles that are out there on the web. And in today's episode of The Retirement Show, we're gonna cover retirement advice that you should ignore because not all advice is good advice.
All that more on today's episode of The Retire One Show.
Hello and welcome to the Retire Want Show. The show designed to help you get to retirement, but most importantly, stay retired. I'm Yos Jonathan Rankin. I'm the founder and CEO O of Theor and Wealth Management, and I'm joined as always by my lovely co-host. Hi, I'm Melissa Inkin. Thank you so much for joining us.
Thank you for being here. I'm happy to be here. Aren't you always happy to? Today, we've got a great episode. We're gonna be covering retirement advice that you should be ignoring because as we said, not all advice is good advice. So true. I feel like nowadays it seems like anybody who's bought a share of stock or bought a share of a mutual fund or etf, they have some form of opinion now on social media and everybody's got an opinion.
It seems like it. So we're gonna cover some retirement advice that you should be ignoring. But before we jump into that, Mel, what do we want people to do? We want you to subscribe so that you never miss one of these amazing episodes. That's right. Don't miss an episode. Hit that button and, uh, join us on this journey cuz our goal is to help you achieve your dream retirement.
So with that, let's go ahead and get started. So we figured we would do this today with, um, some questions that we get that kind of help weed through some of the advice that might be good or bad. By way of the questions that we're actually getting from our listeners. Here we go. Okay, so our first question comes from Christie.
She says, hi, Jonathan and Melissa. I've been watching you guys since episode one and I love the show. Thanks, Christie. Happy to have you here. I'm 62 and looking to retire at 67. I've read a lot of articles that tell me it's a mistake if I do not delay my social security until age 70. Is this true? Well, first of all, Christie, thank you for being a part of this since episode one.
I bet you hit that subscribe button, so thank you for that. Um, but no, this is not true. I see this mistake listed all over the internet in different articles saying that you need to delay your social security till age 70 because you get that guaranteed 8% growth rate. I mean, who doesn't love 8% guarantee?
You hear that and you think, okay, well then yeah, I'll just do that. They also list, you know, there's advancements in medicine and everybody's gonna be living until they're in their nineties and hundreds. That's great, . I hope that's true. But the problem is, is that that's not personalized advice to you, Christie.
And uh, I saw an interesting note in an article that, uh, the full retirement age for Social security gradually increased from the year 2000 to 2022. It went from 65 to age 67. During that 22 year, 21 year time span, the life expectancy actually decline. It went from 76.8 years to 76.4 years. It seems like it should have been the other way around.
You would think so because of the advancements in medicine, and that's why we always believe that you want to base your social security on three factors. The first is your own health. I mean, if makes sense. Yeah, if, if you, and you gotta be honest with yourself. I mean, if you feel like you're the epitome of health and you exercise all the time, you go to the doctor and they tell you, Hey, you're in really good.
Then, okay. If you have, you know, and your health also includes your genetics. If your parents lived into their nineties and you're in great health, well there's a good chance you're probably gonna be around for a while. But if you are not, and I think everybody is honest about that, everybody's completely different.
Everybody is. So if you realize that, you know what, maybe I'm going to live until that 76.4 or somewhere around. Then base that Social Security on that fact. Not an article telling you that you're gonna live until you're in your nineties, when hopefully that's the case, . Um, also you wanna base on your own retirement plan because if it makes sense for you to take your income early because you are going to be able to fund your life and it's not going to have you take too much outta your portfolio and it's just going to be a supplement of income for you to be able to maintain your standard of living.
It's in your retirement plan, then take it whenever it makes sense for your retirement plan. Your retirement plan is unique to you. And the last factor that I think nobody really talks about is what makes you feel more comfortable now. Oh yeah. Nobody talks about that. No, this comes with a caveat though, as long as it doesn't negatively impact your retirement plan.
Ah, good point. So, If it's going to make you feel more comfortable to take your social security a little earlier than age 70 or even earlier than full retirement age, and your retirement plan doesn't necessarily change that much because of that, then take that because you're trying to retire and live a comfortable lifestyle, you know?
And part of it, living a comfortable lifestyle is not stressing out about. You know, you want to get to the point of retirement and not have to worry about, um, you know, am I drawing my portfolio down too much? Am I, you know, going in danger, running outta money? If it's gonna make you feel a little bit more comfortable, then you just have to look at that, you know, cost benefit.
And as long as your retirement plan is still intact, whether you take it early or delayed a little bit, make sure it fits your overall life because let's say you are in great. , you're the epitome of health and you are gonna live till 90. Your parents live until their nineties, they're still kicking. Yep.
And you are on track to be able to live that long as well. But it stresses you out so much. to think about, you know, dipping into your portfolio a little bit more each year. And you could easily take Social Security and you run the numbers and realize, okay, the Monte Carlo analysis says I'm a hundred percent funded in my retirement.
If I delay until 70 and I'm 99% funded, if I, you know, take it at 67. I, I think you should feel comfortable knowing that, you know, you could take, probably gonna be okay. Take it a little bit earlier. And that 1% is just the cost for mental sanity is the way. So I guess with this one, it's not necessarily that it's bad advice, it's just not specific advice.
Yep. Which is also something you wanna avoid. I mean, if it doesn't make sense for you, like we said, it's your retirement's unique, you are unique, everybody's different. So if it doesn't make sense to you specifically, it's probably not good advice. It's a great point. With that. Our next question comes from Peter.
He says, Hey there, I love your show and the videos that you guys put out. Thanks, Peter. I recently came across some advice from Sue Orman, Sue Orman, saying that you should be using the Roth 401k if it's offered, or a Roth ira. If it's not, is this something that I should be doing instead of my traditional account?
Well, I think Susie would feel a little bad knowing that we call her Suz, but it is spelled Suz, and we're gonna leave this in so in case she. I just read that fast. su I'm sorry. Um, I apologize, I should No, that's okay. We'll, we'll leave it up to Suz for that, so we're gonna leave that in. But, uh, no, it, I do know that it's su , everybody listening to them.
Sure she does. Uh, but no, this is, once again, one of those blanket things. It's got a lot of popularity lately. You need to be investing in a Roth. A Roth is the best thing since, you know, the, the invention of the wheel and the printing press, I guess. Um, but there are a lot of benefits with a Roth.
Obviously. We've gone over some of them. Yeah, we have, we did a whole video, uh, that we just released recently on everything Roth ira, the basics, all the way through the co, you know, conversion strategies, mistakes. So if you haven't watched that one, definitely check it out. We'll link it right here. Um, but there are a lot of benefits like the tax free withdrawals, tax-free growth.
But the problem is, is that the only decision that. Only decision that matters is whether or not your tax rate today is going to be higher than when it is in retirement. Your tax rate is high today and you expected to go down in retirement. Well then a traditional is still going to make sense to you.
And what I've seen is that a lot of people are just investing in a Roth even though they're in a high tax bracket today. They go, well, I, I, I'm, I'm reading articles that I should be, I'm told that I should do this. Yeah. I, Hey, I, I see Sue's Orman, you know, she tells me that I need to be, I'm never gonna live that day.
No, she's not that I need to be investing in a Roth, and that's what I have to do. But ultimately, you're gonna end up paying more taxes because a Roth IRA gives you, you know, all of the benefits, but you're still paying the taxes up front. And the best thing about a traditional account, whether that's traditional IRA or traditional four, Is that you have the optionality, you get the ability to convert that money at any point that you want into a Roth.
So if there's a year or two where your income is going to be lower, then use that time to convert that and look at it as you're doing your Roth contributions during that year. You're just converting the money during that time. Which is another way of saying, again, it depends on your situation. Yep. I mean, I think that's kind of the biggest.
Piece of advice, if you will, from us. It is, and, but one of the things that we see is you see headlines like you should be investing in a Roth. You know, the fa the founder of PayPal, you know, there's articles where he's got a 5 billion Roth IRA and it's never gonna be taxable income to him. That's fantastic.
The problem is, you know, now 401ks are starting to roll out more Roth 401ks, so you're getting. You're seeing articles saying, invest in a Roth ira, a Roth 401k, your plan starts coming out, Hey, introducing the new Roth portion of the 401k, and you automatically think, why should we doing that? Well, it's hard to ignore those headlines.
It is. And then if you actually run the numbers and you start looking at your individual circumstances, what is your taxable income today? What do you expect your lifestyle to look like in retirement? I mean, imagine if you lived in California or New York right now. And your state income taxes are extremely high, but you're going to retire in a state with no income taxes.
Well, that it's a big difference in, uh, in your tax rate. in retirement. So it's huge. It's just something that you want to consider your own personal circumstances and not just look at a headline or what our, our famous Sues Orman, uh, says in her articles. . Moving on from that question so that we can get over that from Brian.
He says, hi, Melissa. Jonathan. I was talking to a coworker the other day about our 401K investments and how to choose them. He said, the best strategy is to look at the ones with the best 10 year number and invest in those. Is this really the best? Well, I mean, I think we know the answer to that, uh, but we'll go through that with everybody.
We always see the disclaimer on everything past performances, no indication of future results, right? Absolutely. That's, you see that everywhere. The problem is the moment that somebody or anybody has a pool of money to invest, what's the first thing they do? , they look at past performance and it's just, it's natural.
It's natural. Yeah, it is. There's nothing wrong with that because we, most people, you want to know how something has done recently. You want a track record. You know, if you're buying a car, you wanna look at reliability ratings. You wanna know, is this car gonna be able to make it down the road for longer than, I don't know, 12 months?
Hopefully. That's, that's the hope. And so by, you know, if you're in, if you're hiring a contractor, you want to know. Show me some of the work that you've done. Similarly, all those houses that you've built are still standing. You wanna see stuff like that? That's right. Yeah. You don't wanna hire a contractor that you know, you don't know if they've ever built a house or not.
It's the same type of thing. The problem is that it does not hold up when it comes to investing, and that's because investments go in cycles and investing based on past performance. It really, what it does is it leads investors to buy high, then become disappointed and frustrated, and ultimately sell.
Creates a whole emotional rollercoaster. It does, because you're basing your investments on how something has done, not what's going to do well in the future. And I think we're going to see that a lot moving forward. You know, especially as we're going through this period of transition and, you know, bear markets, they typically, you know, lead, you know, have a new leadership coming out of this, uh, out of bear markets.
And what led us into this one. tech. You know, it was a lot of those, you know, Teslas and Googles and Apples and Facebooks, and I'm not saying those aren't gonna do well, but we typically see a change of leadership in new bull markets. So if people are still holding on to what did well before, you're likely to be underwhelmed as we go forward in the next phase.
And so when you think about investing in your 401k, you know, there's, the first thing you want to do is analyze what investment choices you. So you wanna look at all of the options you have and their risk scale. So that's stocks, bonds. A lot of funds now have our 401ks have target date funds and they should rank them on a, uh, or put them out in a list from most risky to least risky.
And that's gonna give you an idea of the fluctuation that you should expect cuz then you want to determine what your individual risk tolerance. . You know, if you don't have a tolerance for risk, there's no point in putting into the most risky thing because it's just gonna drive you insane. And so once you understand your own risk tolerance, you want to build an asset allocation that is a mix of stocks and bonds, now you can, the the most important factor that is picking a, an allocation that you can stick with that makes you feel comfortable.
That's it. That is the most important thing, because the worst thing you can do, what are we gonna say is when the market gets rough, the worst thing you can do is. Go on your, you know, what do you call it, the firing squad or that's it. You just bail out of everything. Yeah. That is not what you want to do.
So then once you create that asset allocation you could stick with, then you just create the portfolio of the funds that you went through, the options, and you the risk scale. You just basically fill those buckets. You know, if it's 60% stocks, we'll fill the bucket with 60% stocks and diversify in the different stock funds.
Or you can look at the target date fund, which kind of packages everything all. It's true. So, uh, you just wanna make sure you're diversified and base your investments on you and not the past performance of what it's done, because who knows what it's gonna do before, you know, do the next year and so on.
So there's no reason to to hold onto that. So again, that's kind of cookie cutter advice, if you will. I mean, again, it goes really, really can't stress this enough. It's based off of your personal. Experience and level of comfort and your situation. It's so unique. Well think about the contractor. You know, every single new build house has to go through an inspection.
What if the contractor said, you don't need to inspect this house because my last tenor still standing. This one's gonna be fine. Now you're still gonna want that inspect. Yeah. You still wanna make sure it's the same type of thing. You, you want to hope that that same strategy's going to do. But you wanna make sure that your investments are based on you and your individual retirement and risk tolerance.
Very good point. Our last question comes from Susan. She says, hello, Rankins. I'm a big fan of the show. Thanks, Susan. I'm a few years from retirement and I'm pretty balanced in my portfolio. I was recently talking to my son and he saw my performance and told me that I was under underperforming because I didn't perform in line with the s and p 500.
Is this something that I should be measuring my account against? Great question. One that honestly. Out there all the time. Thank you, Susan, for the question. Um, and we appreciate you joining the show. We appreciate, you know, the, absolutely the love of the show. Uh, but yeah, this is very common. We hear this all the time, but it's a very big mistake to benchmark two, just some index, because the reality is yes, P 500 is one out of literally hundreds of indices that are out there.
So many, and if you think about what the s and p 500 represents, it's 500 companies in the us. out of thousands of public companies in the us so thousands. Thousands. It doesn't factor in any sort of international exposure or any other asset classes if, even if you own a small cap company or midcap, it doesn't represent that.
So benchmarks, you know, they help in measure similar strategies. So if you're investing in, let's say, a large cap stock, Yeah, the s p 500 makes sense, but if you're investing in a international fund to then say, well, I'm underperforming against the s P 500. They're two different things. That's like, they're not really a level comparison.
No. That's like going to buy a car and saying, I'm gonna compare the features of a minivan to a sports car. I mean, the reality is, yeah, one might be the number one in, you know, cargo space. The other one might be the fastest car on the, you know, on the road completely different vehicles. It's the same type of thing.
You know, if you have a balanced portfolio of US stocks, international stocks, bonds, or let's say you're investing in one of those target date funds, we just mention. Well, you're not gonna base your benchmark as the s and p 500, and I love when people use the Dow Jones Industrial Average. I mean, I get it.
It's been around for centuries, you know, but it's 30 stocks. Yeah. And sometimes those 30 stocks change and there's different waiting and it's just, it is, uh, it's nice to be able to look at something and, you know, use it as a technical benchmark, but it doesn't necessarily represent your portfolio unless you're investing in something that's very similar to that.
So it's kind of like, you could look at it as like a, a guide, if you will. Mm-hmm. , I mean, if you, if you feel comfortable, more comfortable having something, I don't know where you can look at a value of it and kind of, but just keep in mind that, unless like Jonathan pointed out, unless you're. Invested similarly.
It just doesn't make sense. Well, and most of the time you'll even see that you can't directly invest in an index. It's not, you know, you can buy an ETF or a mutual fund that tracks that index, but there's always a tracking error to that. And if you really want to see how your performance stacks up versus any sort of, Generic index, whether it's the s and p or you know, the international index or whatever you want to base that in, you want to weight that index based on how you are weighted.
So if you've got a portfolio that's 50% large cap US stocks, 10% international, 10%, you know, small cap and the rest and fixed income, you want to build a a waiting of different benchmarks that are core, you know, the same. As what your portfolio's invested in, and then you can compare the two. But the really, the only benchmark that you should be caring about is the benchmark that matters to you, which is what do you need to actually achieve your goals?
Because if you need 6% to hit your long-term goals every single year, and you achieve that 6%, but the s and p 500 does 10, are you really that mad? But you're still hitting your goals and you're investing to hit those. What really matters is are you hitting your actual benchmark that matters to your plan.
So it really does start with planning, and I think that's where a lot of people get, uh, get mistaken, is that they just see, you know, you look on your iPhone and it's got. , the indices is right there. The, again, the headlines, the, yeah, it's right there at the headlines. That's what they talk about on the news.
The Dow Jones was down 150 points a day or whatever it is. Um, but the only benchmark that matters is the one that's relevant to you and your goals. So start with that financial plan. Figure out the rate of return that you need to hit your goals. Build a portfolio that's going to generate that, and then just ignore the noise because, you know, with a more balanced portfolio.
You know, you should have less volatility. So in a year, like last year, it might have been a lot nicer to be in a balanced portfolio than in a highly correlated to the s and p 500 base portfolio. So if you will, it's kind of like looking at advice as the noise. Mm-hmm. , I mean, a lot of it's not going to pertain to you, but you're still gonna hear it.
People are still going to give you advice. That's just human nature, I think. , that's true. I mean, especially, I mean, we've got young kids and I can tell you the amount of advice you get when you have kids. It's kind of the same thing. It's like, yeah, just because someone has a kid doesn't mean they're gonna be giving the best advice out there just because someone else.
Investing for their own retirement doesn't mean their advice is going to be applicable to you. So, uh, we want you to base your, your retirement on you alone, your goals, your ambitions. Before we get outta here, what do we want people to do? We want you to subscribe like all of our amazing listeners who sent in the questions so that you never miss an episode.
And if you have any questions yourself, you can ask them. Absolutely, uh, you could head to retire once, show.com, ask a question there. Uh, we will link to that in the show notes. And we also want to give a big shout out to our, uh, famous fan, uh, Suz Orman, uh, . So thank you for putting that article out there.
Su never read quickly, no on camera. And so, uh, we appreciate that. With that, I'm Jonathan Rankin. And I'm Melissa Rankin. Thank you so much for.
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