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Debunked: Top 5 Retirement Planning

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In this video, we discuss the Top 5 Retirement planning myths that people believe and how those myths end up impacting the goal of a successful retirement. We discuss whether or not you need a million dollars to retire, whether or not Social Security will go bankrupt, whether or not you will spend less in retirement, how much Medicare will pay for, and whether or not a Roth IRA/Roth 401(k) is better than a traditional IRA/401(k).


0:47 - Myth #1

2:47 – Myth #2

4:05 – Myth #3

5:49 – Myth #4

6:44 – Myth #5

Read The Transcript

If you believe in these retirement planning myths, then youmight be making your path to achieving your dream retirement a lot harder thanit needs to be. Whether you continue working longer than you really need to oryou just over complicate your path to retirement to the point of frustration,it could be because you are planning for your retirement based on one of the 5retirement planning myths that we will be covering in this episode.

If we haven’t met yet, I’m Johnathan Rankin from TheoremWealth Management, where our goal is to help you maximize your retirement.

I have been helping people plan and achieve their retirementgoals for going on 2 decades now and I have seen firsthand how someone canbecome overwhelmed when planning their retirement because they are stuck withthese beliefs about retirement that are nothing but a myth and I want to helpyou avoid that thought so that planning for your retirement can become a loteasier.

Myth #1: I need a Million Dollars To Retire

One of the most common retirement planning myths is the ideathat you need a million dollars to retire. This is a very common thoughtbecause of how much coverage there is around this topic. There are constantheadlines and articles that talk about having a million dollars to retire andwhat that looks like. To be fair, we even have a video discussing whether ornot a million dollars is enough to retire. The reality is that the amount ofmoney you need to retire is dependent on your individual circumstances, goals,and lifestyle. I have seen so many people retire with a lot less than a milliondollars. The problem with believing this myth is that it creates the wrongtarget for retirement. Getting to some arbitrary number does not consider whatyou actually need to retire and it could possibly delay your retirement foryears while you wait to get to this magic number. I once watched someone delaytheir retirement for 5 years because they had it in their mind they needed toget to $2 million dollars to retire. So they stayed at their job despite thefact they wanted to retire. In fact they had plans to buy a second home for thesummers and had a list of places they wanted to travel. Even though everyretirement model we would run showed that they could retire and not have toworry about money, there was this belief ingrained in their mind that theywouldn’t be successful unless they got to the $2million dollar market. Theyeventually got there and retired, and then after a few years, there were somehealth complications that prevented them from travelling like they hadoriginally planned. I know this is a unique circumstance, but it is somethingto keep in mind. Hitting a magic number might provide some comfort, but all toooften it could cause you to delay the retirement you dream about. It isimportant to understand how much income you need and what income sources youmight have coming in. Retirement itself is changing with how many people nowretire to something as opposed to from something. So on top of social securityand your savings, you might have pension income or rental income or even parttime employment that can help you achieve your retirement without getting tosome magic number.

Myth #2 Social Security is going bankrupt.

This is a very common belief because of the headlines outthere and how this program is easily politicized. The thought that socialsecurity could just go away can be scary for a lot of people, but in reality thatis just fear mongering by the media to get you to tune in so they can gethigher ratings. The truth is that yes, there is deficit that social security isrunning at right now and they project that by 2035, taxes will be enough to payfor only 75% of scheduled benefits. This is straight from the SSA’s website,they're very transparent about it. No matter what, it's still frustrating tothink of your benefits decreasing by 25%. You spend your entire career payinginto a system that you expect to be there for you, and then your benefits arereduced. But that is a worst case scenario. This is something that will have tobe solved in Washington and if you want to learn more about possible changes tothe social security program make sure you check out this video right here. Butdelaying your retirement or worrying about whether or not social security willbe there for you is something that can make retirement planning a lot morechallenging and it’s just not true.

Myth #3 - I Will Spend Less in Retirement

It is easy to think that when you retire you will naturallyspend less money, but in reality it rarely happens. Over the course of yourretirement you will naturally spend less, but it is not immediate. In fact whatwe have found is that there are 4 stages of retirement spending that you mightexperience. The first stage is the transition stage. This is where you mighttransition to part-time or to a different retirement job and during this stage,spending typically stays the same. That is because there is comfort in knowingthat there is some sort of income coming in and you are not relying solely onyour savings. The second stage is where you stop working all together. Thatlevel of comfort due to the income may be gone, but what replaces that comfortis attempting to fill the days of the week with things to do. This is wherespending might actually increase because you are taking the trips you wanted totake or spend time on the home renovations you wanted to get to when you hadthe time. Stage 3 is the slow down phase that happens as you get older and istypically caused by health. This is where spending starts to decline on leisureactivities, but medical costs likely increase. The last stage is often the mostexpensive stage and these are the last 2 years of life. That is because oflong-term care and medical costs that increase. Unless you have a specificspending plan for how you will reduce your spending dramatically, I would planon modest cuts over time.

Myth #4 Medicare will cover my medical expenses

Medicare covers some health care costs but not all medicalexpenses. It is a valuable program, but it wasn’t designed to cover everything.For example, deductibles and copayments (which can be significant), as well asthe cost of care for dental, vision and hearing conditions are not covered. Whenyou factor in coverage for nursing home and other long-term care, medicarecoverage is very limited. According to the Fidelity Retiree Health Care CostEstimate, an average retired couple age 65 in 2022 may need approximately$315,000 saved (after tax) to cover health care expenses in retirement. Whetherit is supplemental insurance, long-term care insurance or just self funding, itis best to have a plan for an increase in medical expenses above and beyondwhat medicare covers.

That brings us to Myth #5, but before we get into that, ifyou found this video useful, can you do me a favor and subscribe to thechannel. It helps us continue to put out content like this.

So myth #5 A Roth IRA is Better than a Traditional IRA

This topic has gotten extremely popular over the past fewyears especially as the market has fallen, there has been a lot of coverage inthe media about roth conversions. This is one aspect of retirement planningthat people often get confused on and make overly complicated, when in realityit is pretty straightforward. To understand which one is better than the other,let’s first go through the differences between the two account types. ATraditional IRA allows you to make tax-deductible contributions, which reducesyour taxable income for the year. The money in the account grows tax-free untilit is withdrawn during retirement. At that time, the withdrawals are taxed asordinary income.

On the other hand, a Roth IRA does not offer an upfront taxdeduction for contributions. Instead, contributions are made with after-taxdollars. The money in the account grows tax-free and withdrawals are tax-freeas well. Unlike a Traditional IRA, there are no RMDs for Roth IRAs, which meansthat you can leave the money in the account for as long as they want.

Both accounts have their pros and cons, but to simplify thedecision, it ultimately comes down to the answer to the question Will yourincome tax rate be higher now while you are working or later in retirement?. Ifyou think your tax rate will be higher while you are working, then atraditional IRA or 401k would be best. If not, then a roth may be best. That’sit, that’s all that matters in the decision making process. The whole goal isto pay uncle sam less. Now I know that it is hard to determine whether or notyour future tax rate will be higher or lower. On top of that, you might beliving in a state that has a high income tax rate today, but ultimately move toa different state in retirement that has a substantially lower tax rate. Whilethe thought of having a large sum of money in an account that will never betaxed sounds appealing, you really just want to think about your tax rate todayvs in retirement. If you aren’t in the lower tax brackets or the top taxbrackets but instead find yourself in the middle and are unsure of where yourtaxes will be later in retirement, there is nothing wrong with doing both.There is no rule that you can only contribute to one type of account as long asyou meet the IRS criteria. With that said, there is one reason why I typicallylean towards the traditional IRA or 401k option as opposed to the Roth. Andthat is optionality. When you contribute to a traditional account, you cancontrol when you pay your taxes. You have the option over time to convert fundsinto a roth account and be very intentional about what taxes you are paying.For example if there is ever a period of time in the future when your income islower, you can use that time to convert your traditional account into a rothaccount at a lower tax rate. I have seen clients do this when they temporarilyretire knowing that at some point they may do contract work or part-time workor clients who have sold their business and taken a few years off before theyreturned to the workforce. There really is no one size fits all solution thatis always better than the other. It is dependent on your circumstances andultimately your tax rate today vs your tax rate in retirement.

All 5 of these retirement planning myths arevery common and easy to believe, but knowing that they are nothing more thanmyths can hopefully make planning for your retirement a lot easier.

Registered Representative of Sanctuary Securities Inc. and Investment Advisor Representative of Sanctuary Advisors, LLC.– Securities offered through Sanctuary Securities, Inc., Member FINRA, SIPC. –  Advisory services offered through Sanctuary Advisors, LLC., an SEC Registered Investment Advisor. – Theorem Wealth Management is a DBA of Sanctuary Securities, Inc. and Sanctuary Advisors, LLC. This communication has not been reviewed for completeness or accuracy, does not necessarily reflect the views of Sanctuary Securities, Inc. or Sanctuary Advisors, LLC., and is not a recommendation or endorsement of any product, service, or issuer. Third party posts do not reflect the views of Theorem Wealth Management or Sanctuary Securities, Inc. or Sanctuary Advisors, LLC., and have not been reviewed for completeness and accuracy. All further communications from this representative must be sent from and received by johnathan@theoremwm.com. For additional information, please refer to one of the following consumer websites: www.FINRA.org, www.SIPC.org.

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