Questioning the “What Ifs” Might Save Your Retirement, Ep #151

What could go wrong in retirement? What if the “what-ifs” become realities? How will it impact your 30-year retirement? We don’t know what the future holds which is why it’s important to think about the variables. There will be things outside your control but you can reduce risks by taking retirement planning seriously.

No one plans on “failing” at retirement but many people fail to plan ahead of time. But the choices you make will have long-lasting implications. You need a game plan in place. In this episode of Retirement Made Easy, I talk about some of the “what-ifs” and what you can do about them.

You will want to hear this episode if you are interested in…

[4:59] My biggest recommendation
[5:53] Why a nonchalant mindset makes me anxious
[8:10] What if you’re overly concentrated in a single stock?
[10:51] What if you overspend during retirement?
[15:22] What if you waste money on something you “want?”
[18:13] What if you accidentally trap your money?
[20:26] The importance of identifying the what-ifs

What if you’re overly concentrated in a single stock?

One of the big risks I see more and more is with people who have high concentrations in a single stock. I’ve met people who have 90% of their investments in one stock (like Tesla or Amazon). But what if the company goes belly up and you lose 90% of your savings? It’s game over. You’re betting the success of your retirement on how well one stock does. What could you do? You could sell out of the stock over time to reduce your risk and diversify your investments.

What if you overspend in retirement?

Once you’re retired, you have to control your spending. Many people retire and start spending without planning. Suddenly, their portfolio is down 30%. Because they’re down 30%, you have to sell 30% more shares to get the same amount of money you did previously. That retirement nest egg will shrink quickly.

Haphazard spending in retirement has sad implications: You will spend through your retirement nest egg. Suddenly, you’ll have to maintain your lifestyle on fixed income streams, like social security and pensions. If it’s not enough, you’ll have to get a part-time job to fill the gap…or run up credit cards and increase debt. That is a recipe for disaster.

What if you waste money on something you “want?”

Someone I spoke with was a year away from retiring and wanted to give themselves an early retirement gift: a luxury car valued around $100,000. They didn’t have the money on hand, so they cashed out $130,000 of their IRA. $30,000 went toward taxes and $100,000 went to the car.

Not only is that money not growing anymore but it’s now purchased a depreciating asset. If this person had waited until they retired, they could’ve saved probably half of their tax bill. This purchase cost them $15,000 and the growth they could’ve realized in their portfolio.

Lastly, that’s $130,000 less—at a minimum—to live on in retirement. That’s $433 a month or $5,200 a year less. While there’s nothing wrong with wanting nice things, they need to be planned for carefully.

What if you accidentally trap your money?

One of the custodians of a local 403B, TIAA-CREF, offers an investment option in their 4013B. A lot of people unknowingly select this option and their money is locked up for nine years, trapped in an annuity contract. They could only take out 10 payments over nine years. And sadly, once you take out a payment, they lower the interest rate they’re paying you.

There’s no getting out of this contract. This can negatively impact your retirement for nine years. I could share story after story of people placing their retirement nest egg in an annuity. When you give up control, you’re risking everything.

There is a lot at stake here. Some people don’t understand the magnitude of importance.

If the goal is a positive outcome in retirement, you want to maintain your lifestyle, travel, and continue your hobbies and passions. Many things need to be addressed before you retire and it takes planning. The more time you give yourself to make corrections, the better off you’ll be.