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3 Unexpected Challenges You May Face Heading Into Retirement

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You may have heard this before, but if you think your retirement situation will be similar to that of your grandparents or parents, you may be in for a rude awakening.

This episode of ATP will focus on Three Unexpected Challenges You May Face Heading In To Retirement.

In this episode, Sam and Adam discuss:

  • WHAT these challenges are
  • Why they might affect your retirement planning situation
  • How you can address each challenge today



Challenge 1: The Landscape Has Changed

What do we mean by “the landscape has changed?”

  • Primary retirement vehicles used include pensions, Social Security, and personal savings (aka THE 3-LEGGED STOOL)
  • In the past, people didn’t need to worry as much about saving because they knew they would have a pension for reliable income in retirement.
  • 401ks started in 1978 (by accident). Congress passed the Revenue Act of 1978 which included a provision added to the internal revenue code section 401 (K) which allowed employees to be taxed on deferred compensation. The retirement planning burden is then shifted to the individual, but not everyone saves.
  • To replace a $40k lifetime pension with low interest rates you may well need $1-2million of savings in 401k
  • When Social Security was passed in 1935 by president Roosevelt, life expectancy was about 60 for men, 64 for women. Today it's closer to 80.
  • Social security was never meant to replace all income, just a % of it. Today social security trust fund project to be insolvent by 2035.

Why might this affect your retirement planning situation?

  • Starting in 2012, roughly 10,000 baby boomers turn 65 PER DAY, and will until about 2031, putting tremendous strain on Social Security.
  • Almost 100% of people we meet have some sort of 401k (take advantage of tax deferral and company match). It represents a large percentage of their retirement savings. While this allows a person to ride the wave with the market, it may have have them in a riskier asset allocation than they should be this close to retirement.
  • Because retirement is a lot longer (and could easily be 1/3 of your life), those accounts need to be able to provide more income, and for longer period of time.

How can you address this challenge?

Understand what your income sources are going to be in retirement, and how much you will need each year to sustain your desired lifestyle.

Challenge 2:  Falling Interest Rates

What does “falling/low interest rates” mean:

  • interest rates are at an all time low. a big local bank 1 year CD is .50%. ($1,000,000 generates $5000)
  • A 10 year treasury bond is currently hovering at around 1.3%
    (On the plus side - average 30 year mortgage is 2.5% - 3%)

Why are they so low?

Federal reserve lowers interest rates in order to stimulate growth during a period of economic decline. That means businesses can borrow money for their business for less. 

Why might this affect your retirement planning situation?

Low interest rates means its harder for your savings to generate money to replenish what you spend down in your accounts in retirement.

Putting your retirement accounts in a more aggressive portfolio may subject you to sequence of returns risk

How can you address this challenge?

Working with a financial professional BEFORE retirement to ensure your portfolio is properly managed to balance growth while shielding you from Sequence Of Returns & inflation risks.

Challenge 3: National Debt 

What IS the national debt?
That national debt is how much the federal government (the level of federal debt held by the public) owes its creditors. Foreign governments hold about a third of the public debt, while the rest is owned by U.S. banks & investors, the Federal Reserve, state and local governments, mutual funds & pensions funds, insurance companies, and savings bonds.

Our national debt as of the end of February 2021, is over $27.8 Trillion!1

Why might this affect your retirement planning situation?

One major way for the government to start paying off the National Debt?

...An increase in taxes.

With the assumption that taxes must increase, that means in the future you are likely to be in a higher tax bracket. So when you start making withdrawals from your retirement accounts, you're going to owe more to Uncle Sam, and you are going to net less. That means either you have to:

  • Earn more
  • Save more
  • or Protect what you have so you don't have a correction and you LOSE more.

How can you address this challenge?

Working with a financial professional BEFORE retirement to ensure your portfolio is properly managed to balance growth while understanding your tax situation, not only TODAY, but what it may be in the future based on the types of retirement accounts you have and their tax designation (taxable, tax-deferred, tax-free).

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Have a list of questions around your finances? Thinking about your retirement situation?

Let’s chat.

Let’s take some time to talk about the money obstacles you may be facing.

Whether you’re asking questions about when you can retire, how to manage your investments, or if you have enough to leave the impact you want for your family and community, we’re here to help.

Our 365 Retirement Plan Process is designed to create a personal relationship with our clients, taking the time to truly understand their unique personal and financial situation. Just as no two people are alike, we believe no two retirement plans should be, either. We take the time to create customized strategies to help our clients pursue their retirement goals.

Enter your email in the calendar below to find a time to schedule your 15 minute complimentary introductory call directly with either Sam, John, or Ryan of Rubino & Liang Wealth Partners. We'll use this time to get to know you and your needs.