5 Retirement Surprises No One Warns You About (Part 2)

In part two of this two-part series, Tony and Derek break down the remaining five retirement surprises that catch most people completely off guard. From boredom-driven overspending and down markets early in retirement to required minimum distributions, caring for aging parents, and why your money still needs to grow, this episode focuses on the real-life challenges retirees actually face.

This conversation goes beyond market returns and dives into planning realities that can derail even the best-looking retirement accounts. Whether retirement is around the corner or still years away, this episode highlights why having a real plan matters more than chasing performance.

Transcript

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So last week, you heard part one of a part two series of our top ten retirement surprises that no one warned you about. It. What's up man? Hey Tony. How we doing, man? Good, good. Ready for part two of ten retirement surprises no one warns you about. Yeah, yeah. Let's recap. The the you know, the first part of last week really quick number ten tax increase or decrease. You know, I, I did make a case for a tax decrease. Health care. It ain't cheap. Right. So how do you build around that sequence of returns that, you know, the market does not go up in a straight line. So how do you build your portfolio in the for the down year to still extract money without being a detriment to your retirement? Inflation? Yeah. You know, I don't know, solutions. Just you got to know it exist. Right. There's invisible headwind. And then longevity risk, making sure that we are planning for extended life because of technology, better health, whatever we may doing. But that's that's another thing that we need to look out for this week. We're going to hit you with part two. So we're going to go 5432 and number one. All right all. Right let's do it. Go for it baby. Let's go. All right. Number five is something I feel no one really talks about but is definitely a real thing. Basically, boredom in retirement, not knowing what to do in retirement and that leave leading to overspending. You know, that is a you don't really have to be retired to do that nowadays. With, you know, everything in your face 24 seven by this, by this, you know, Instagram, Facebook, whatever you're on, there is constant ads. I'll never buy anything off of Instagram ever again. And I've only purchased, like two things off of. Yeah, but took two months to get here. And it's it's half the size of what you thought. Just absolute shite. We're all very. So, so, yeah, you know, it's a it is definitely a real phenomenon, you know, kind of getting bored and then just deciding, you know, looking at your balance in your retirement account and, you know, just start spending money. Yeah. I mean, it's it's crazy. The, the, the psyche is know, I don't know what I'm going to do when I'm retired. I'm used to going to work. And then, you know, I'll talk to somebody, you know, three months, six months later and be like, I don't even know how I got anything done. I'm so busy in retirement. But now how do you fill your voids? Are you doing housework? Are you traveling like you need to find a hobby? And and my my, my. You know, it's like you can't do everything right. And and and you have to, you know, when we talk with somebody like, give me an expense budget, I want to build it inside the plan. Right. So it's on top of your expenses. It's not part of your expenses. Right. So you know what your guidelines are for spending on a, on a vacation, right? And if you want to have a blowout every three years and spend rather than spending 5 or 10 grand, you're spending 20 grand because you want to go to Hawaii for a month or what? I don't whatever that might look like. But you know, you know, be careful. You know, boats, golf, racing cars, whatever, whatever these there's some high octane, high exotic hobbies. You can get into. Just know your lifestyle, right. Build a plan. Figure out like what your your vacation boredom budget is. It's like that. So, All right. Cool. Yeah. It is surprising, though a lot of people are actually surprised on how busy they are. Yeah, yeah for sure. Yeah. Everyone's different. And, you know, boredom. Does not sound like any. Doesn't sound like anyone's bored and looking to go back to work, right. I haven't heard that one yet. So yeah. All right. Number four. Yeah. Down market's ruining early plans. So we kind of touched on this a little bit last week with like the the sequence of return risk right. Kind of pointed out like hey you know the market just doesn't go up you know 15% every year. Right. So, we might have been, a little bit spoiled. But, you know, this is an example that we talk about, all the time, especially in, you know, educational classes, you know, down markets at the beginning of a retirement, retirement plan, you know, are are extremely detrimental to the overall plan because you're basically what you're starting with, especially if it's over like a two year period. You know, what you're starting with is in growing and you're pulling out big chunks. To start off, it is a, is definitely going to have a, a higher effect on your plan than if you had a down year, you know, 12 years. Yeah. The the what if scenario inside of our planning, is, you know, what if what if a bear market smacks me the day I retire, and we're very aggressive with that, too. You know, it's like the day you retire. You are your accounts are immediately the next day down 20%. We know that that probably can't happen, you know, can't predict the future. But God, I hope that doesn't happen. Everyone be freaking out real bad, right? But but think about this like you're done earning, you're done saving, you're now spending, and now you have 20% less money. Like, that is a great, you know what ifs scenario inside the plan because it's like, okay, like I'm a 100% plan, but like, how how high of 100? Because the program stops at 100 or 200. Are you a 105 successful? 100 and 105% successful, your 200% success. So building that and it is very extreme like that is, you know, usually wrecks most people's plans. Right? Right. So how about this? Like, how about we just build a portfolio that really can't experience a 20% yet, right. Yep. You know and and just know that like we're going to do our best. So like you can't experience that. You know and it's based on comfort risk level you know you name it. Yep. And income you know building out that income strategy. So what you're pulling from isn't the best down you know assets right. Also very very important. Yep. All right. Next one. Yeah. Number three required minimum. Required. Minimum distributions. Yeah. RMDs RMDs. Yeah. You saved all this money. Tax deferred. And the government wants their money back. Yep. Right. They gave you a, tax deduction upfront now like they want it. And now I did use this earlier where it's like, hey, some people aren't there. Their distributions from their IRA are actually lower than their RMD. So when you hit the RMD age and now you're you're forced to take out more than you spend. Like you said D like what do we do with this? And now it's like, well I don't need it. I don't like every D. Is there a vehicle we can invest it in? It's like, yeah, it's not. Maybe the most tax efficient. It's a non-qualified account is still grow right. And there's different tax. But it's it's not a tax deferred account like a traditional a Roth. So it's something that most people don't really think about until it hits you. And what do you do then. Yeah absolutely. You know we've been saying you know we said quite a bit, you know, the tax planning portion of your retirement plan starts well before you retire. And, you know, we talk about, you know, not putting all your eggs in one basket and not just saving every single dollar that you have into your 401 K, you know, you get a little tax diversification in there. You know, these are things that you can do to set up yourself for success in retirement, you know, long before you retire. So, you know, understanding, hey, you know, if all of my money is saved into a qualified plan and by the time I'm 73 is going to be, you know, $1.5 million, and that's going to throw off, you know, $90,000 of income. And I only need 40, right? You know that that's exactly what we're talking about, right. Make sure you plan for that. And it but the planning part isn't like the planning part of it is prepaying the tax. Exactly. Is that be a Roth conversion? Yeah. Right. So it's one way to do it. But you got to be comfortable paying the task. But I want to pay tax and you know like well you're going to pay it at some point. But now we can maybe be, you know, diligent with it. Yep. So just just avoiding tax, delaying tax as long as possible isn't necessarily attack strategy. So you know, make sure you're, you're thinking about those RMDs down the road. All right. Next one, you know something I, you know, unfortunately, you know, hear about all the time, caring for aging parents, you know, it's, when you talk about time in retirement, and, you know, people being busy, I feel like, you know, kind of a lot of my clients are kind of in in that right now where they're, a big chunk of their time is is devoted to caring for their parents. Right. So, yeah, it's something, this is this is why it's number two. Like, no one really thinks about it. Some people don't want to think about it. You know, it's it's one of those things. So my actually, my personal story right now is like, my mom is, you know, she's I'm like in her mid 80s. Right. And I found her an assisted living facility. And, you know, unfortunately she's starting to show, you know, early onset dementia. And I'm, I'm actually worried about her running out of money. Right. Because there's only I wasn't even in the industry when she retired. Right. And she was almost forced into it because of her. You know my stepfather, he's like I want I want to retire early and and expedited her exit and their plan. There was no plan. Let's just put it that way. But their quote unquote financial plan was a back of the envelope math saying, what could we got enough money and we're going to do it. And and there was no inflation and adjusted. There was no emergency like, oh man, this happens. Like there's there was really none of that, you know, and from my, from now that I can see what happened, that they're planning as I look back as a planner now, it's like it's like, man, like, yeah. You people dated was definitely not something on their radar at all. Right? So, but it's it's not on their radar, like, it's on my radar now. Right. But. And I'm not retired by any means, but I could see, you know, I could see that how that is. It's it's, you know, it's I can't use the I don't know what the proper word to use for it, but it's, unexpected. And you're, you're you're involved because you have to be. Yeah. Because I look at it as, you know what? My mom took care of me for the half of my life. Yeah. Now it's it's my turn to give back, right? That's what you do. And so it's just something that people don't think about. Yeah. Until it's here. And you know, it's, you know we are. Thanks for you know sharing your, your, your story. But you know it's, it's a, it's a difficult thing to talk about. It's a difficult thing to plan for because you don't really want to think about it. And then all of a sudden it's upon you. Right. So, you know, we say all the time because, you know, people come in, right? And, you know, we're talking to them and it's, you know, return, return, return, return. And the guys at the end of the day, you know, outperforming one financial advisor by 1% is not going to make a difference in your retirement plan. Right. But talking about this stuff is definitely going to you know, it's a it's this list is is things that not a lot of people think about. And if you do beforehand, you're going to be much more successful than the person, you know, just managing their assets to try to, you know, eke out every percent gain that they can. Yeah. So, you. Know, it's yeah, it's, it's, it's that ones, it's just heart strings on that one. Yep. Right. So all right. And number one is to did it at, you might still needs to grow, man. Yeah. Like, let's you can't dig a hole in your backyard and bury your money, and, you know, you just can't do that. Yeah, right. It's, Again, the invisible force in retirement is, is inflation. And if your money's buried in the backyard earning nothing, actually losing value day to day, like you're not going to make it. Yep. Right. However, you know, it's you still need to grow. Just, you know, it's not just a safe portfolio. Oh, it can be if it's if it's managed correctly. And we figure out the needs and the needs are what your budget is essentially. Right. But we just can't, you know, we just can't lock it up. Hey, I found a bunch of 3% CDs. Cool. Like the key. If you have an an absorbent amount of money. Sure, you can do that. Yeah, right. But, you know, it's it's it's not practical. Yeah. That's you know, that's why we always continue to go back to building a plan because no one can predict the future, you know? But throwing all your money under the mattress is probably not a luxury that most people have nowadays, that it has to grow. And you have to assign the proper amount to, to the growth portion of your portfolio. You know, I, I'm a big proponent of some boring investments as small pieces of your portfolio, not the whole thing. You know, small pieces. Those investment investments are boring. They're easily beaten by the stock market, like, I understand all of that, but I also because I, I it's my job to understand the pain that people go through when there's down markets. Yeah. Right. And it actually the pain of a down market is exponential these days because the last three years have been up, no one, even the market goes down 5% and they're like, oh my God exists it I'm like, the market's up 15%. If we if I guaranteed you 10% on January 1st, and close your eyes and hold your nose and just come back on December 30th and you're up 10%, would you be would you take that? Would you be happy? Yeah, I would, I would take. That in my would. Yeah. But guess what. We're gonna probably we're going to succeed that this year. But we were down 18. The market was down 18% this year. Yeah I like conceptualize that. Like that is it's insane. The market is not a straight line. Yep. For sure. Right. So if you got a plan you have a prudent investment strategy. And you tie this stuff together and somebody helping you through this that those are the keys. Because they're going to walk you, they're going to walk you off the ledge and say come back. Come on let's it's it's okay. We designed that. We actually designed this in your plan. Right. So like we build 6% rates of return in your plan if the market does 15. Guess what I hit the reset button. Your plan is better right. Because I designed it for six. So if we're down ten and you you know like it's designed because it's a dynamic plan. So it's, it's it's an it's interesting dynamic like little blips in the market are highly, sensitive these days to say the least. Yeah. For sure. So and that, you know, that's that's the last thing I'll say, you know, that that's in my time in this industry that that's really probably the, the number one thing that I've learned over just watching things over time is that pulling out emotion, sticking to your plan, are really the two of the most important things that you can possibly do is the people, the panic. It's the people that don't have a plan. It's the people trying to time the market. Those are the people that are going to get hurt. You know, even if they're not hurt this year, it'll it'll catch up with them eventually. You know, understanding the, the, the, the movements of the markets, they're not always going to go up, panicking every time the market drops 5% after this ten, 12 year run we've been on is Crazy Town USA. Well think big about like think about like the tariffs. Yeah I like the market was already down eight and it decided to go down another ten when he wrote out that tariff board. And for you know some clients were just like I don't want to look I haven't looked. And I'm like, well I did because we're on a review meeting and and in the in the conversation ended up being like, and this is where I'm actually I'm so proud of like our, our investment team on this. It's like when I'm talent like hey we you I know the market's down nearly 18% and you're you're down single digits. Yeah we're down half of that. Yeah. If less right. Because of the way they manage money. What we are involved in what we are not involved in. Right. Right. And how we move and shake the active management really came into play or like during that portion where we still down, of course we were. Yeah. It's just how severe. Yeah. No question. You know. And I don't bring it up too often. But yeah 2022 is probably, probably one of our best years, in my time at this firm. And, you know, it was a negative, but, you know, it was not nearly as negative as as it could be or what everyone else was doing. Right. And that's that is the key, you know, being able to you still need growth, right? That's what we're talking about. You need growth. But you know, you can do it in a way in which it's safer than, you know, just putting 60% of your money in the S&P 540% of your money in the bond market. You know, there's there's things you can do along the way to, to keep your money safe while still growing. But it involves sticking to a plan long term. Yeah. I mean, again, just think of it like if you're down 20% to get back to quote unquote even, you need 25%. If you're down eight, you probably need 11. Yeah. What do you want? Which hole do you want to crawl out of? Exactly right. So again, managing the risk on the downside is a big deal. Yeah. So I mean. All right, well, good stuff there, Tony. An excellent two parter there about the retirement surprises no one warns you about. Those that list right there is, is a great summary of everything that that you need to be thinking about, whether you're about to retire or you're 45. So, you know, great. So the last couple weeks, if you guys have any, questions, comments, ideas for a show, hit us up at info@connect.com, and we'll talk to you next week. The opinions expressed in the podcast. Are for general informational purposes only, and are not intended to provide specific advice or recommendations for any investment, legal, financial or tax strategy. It is only intended to provide education about the financial industry. Please consult a qualified professional about your individual needs.