Whenever I teach a class on personal finance, everyone asks about retirement planning. Therefore, I ask all my students to explain what they are doing to prepare for retirement. The most common answers that come back to me are things like, “which is better, saving in a 401(k) or an IRA?” I search for more by asking if they can tell me how much money they will have at retirement and how long it will last. Or I ask if they have a specific retirement date in mind. Never have I had any student be able to answer these key, important questions… they’re just constantly caught up in the rhetoric they’ve heard from so-called “experts” about 401(k)s and IRAs. Let me tell you, a 401(k) or an IRA is one of the least important things you should be worried about when it comes to retirement planning. What people really ought to be worried about is how to create a predictable retirement income they cannot outlive.
Most people do not know how to go about calculating what their money will do for them in retirement. And their 401(k) money manager can only tell them about where their money is invested in the stock market and how to change things up to hopefully maximize returns. This tells a person nothing about what will actually happen in retirement years. I have found that most people do a lot of hoping, but hope will not predict an adequate retirement income.
As I listen to hundreds of folks talk about their greatest fears in retirement years, here are just a few of the risks they are not comfortable with:
- Risk of living so long that they will run out of money.
- Rick of dying too soon.
- Risk of a stock market decline so that they lose money.
- Risk of inflation and rising costs of almost everything.
- Risk of increasing taxes.
- Risk of health changing.
- Risk of needing long-term care and how to pay for it.
- Risk of Social Security not being there for them.
- Risk of their financial institution going broke.
- Risk of rising healthcare costs and how to pay for them.
- Risk of not knowing how to project future retirement income.
This list of eleven major retirement concerns is only the beginning of possible troubles. There are at least eleven additional items I can think of that could undermine your retirement nest egg. In future posts I’d like to take each of the items on this list and deal with them specifically. After coaching thousands of people for over 45 years, I do have some good ideas that are time-tested and proven to be successful. Stay tuned.