Top 10 Risks in Retirement

By Dean Barber

February 25, 2021

Top 10 Risks in Retirement

Key Points – Top 10 Risks in Retirement:

  • The top 10 risks in retirement
  • A quick discussion with insurance expert Darren Newell
  • Reviewing key parts of your plan
  • 25 minute read | 39 minutes to listen

When you ask the question, “What’s your biggest fear in retirement?” Most people will say it’s the fear of running out of money. Join Dean Barber and Bud Kasper, as they talk about the top 10 risks in retirement and what you can do to mitigate those risks.

Complimentary Consultation

Reviewing Your Property & Casualty Insurance    11 Tax Tips for Tax Time 

Top 10 Risks in Retirement

Dean Barber: Thanks so must for joining us here on America’s Wealth Management Show. I’m your host Dean Barber, along with Bud Kasper. Special guest with us today, Darren Newell of Midwest Insurance. Bud, good to see you, buddy.

Bud Kasper: You bet. We got a good show today. Let’s get started.

Dean Barber: And Darren, great to have you here.

Darren Newell: Thanks for having me. I appreciate it.

Dean Barber: All right. So just to set the stage here, what we’re going to be talking about today are the top 10 risks in retirement. And Darren Newell of Midwest Insurance is here to talk to us about accidental risk and sudden risk. And Darren, you’re a property-casualty, can I call you an expert or just call you a property-casualty insurance guy? What do you want me to call you?

Darren Newell: I appreciate the expert. Thank you.

A Quick Story About Darren Newell

Dean Barber: Well, it’s interesting. So I want to tell a quick story here. So Darren, when we decided that we would partner with you to work with our clients on their property-casualty needs, we had you do an analysis of our property casualty insurance for all the partners here at our firm.

I think that it would be fair to say that every one of us was very shocked at what we didn’t know about the property-casualty insurances we held. You were able to save us money and enhance the coverages that we had. 

When people think the number one risk in retirement, it’s always running out of money. And you can run out of money in a lot of different ways, but one way is not to have proper insurance. 

#10 Risk in Retirement – Accidental Loss

So let’s get started. Talk to us about how often people should be reviewing their insurance. How do they know if they’re properly covered? What do we need to know here?

Review Your Policies Every Year

Darren Newell: Well, I recommend reviewing every single year. And if you’re with a captive agent, the likelihood that they’re going to review with you every year is nominal. 

Because most often, captive agents don’t have anywhere to take you. As a broker, I’ve got eight to 10 different carriers that I can choose from to ensure that you’re adequately covered, but you’re also not paying too much.

The main thing to look at when you’re reviewing insurance is the value of your home, your liability limits, and really to make sure that you are fully covered. 

Low Liability Limits into Retirement

The biggest thing that I see, for example, going back into your office with your partners, is liability limits are typically a little low, especially retiring. Suppose something were to happen, like those accidents on your property, if you have a car accident. 

Suppose you exceed those liability limits and you don’t have an umbrella, for example. In that case, you’re going to probably come out of pocket to pay for those medical bills, those lawyer fees. So that’s the biggest thing that I see in reviewing insurance coverage.

Umbrella Policies

Dean Barber: If you’re ultra-wealthy, like Tiger Woods, do you even need an umbrella policy? 

Bud Kasper: No, you need a driver.

Darren Newell: Exactly.

Dean Barber: Bud’s always there for the comic relief.

Bud Kasper: And I’m not talking about the golf club. 

Darren Newell: I’m sure Tiger does have an umbrella policy because we’re in a very litigious society. And that’s where that umbrella comes in. It picks up lawyer fees. And you can give it to the insurance company to where you’re not going to have to manage that. The insurance company will manage those lawyers and the lawsuits and all of that thing that comes with that. So it takes that off of your plate as well.

Property & Casualty Insurance is a Risk Management Tool

Dean Barber: Yeah, people don’t typically think of property-casualty insurance as a risk management tool, but it certainly is. And risk management is the foundation of a good solid financial plan.

Darren Newell: I would agree 100%.

Umbrella Policy Costs & Limits

Bud Kasper: I got a question with that as well because I’m going to be somewhat suspicious with this. And that is, if you have an umbrella policy, of course with umbrellas, it’s usually relatively reasonably priced, do the attorneys, in the case of a lawsuit, know what your limit is on your umbrella policy if that were to occur?

Darren Newell: Yeah. They will know immediately precisely what that is. And typically, they know for a fact, if there’s a million-dollar umbrella policy, that they’re going to be awarded at least that million dollars plus whatever your underlying limits are. The likelihood of them coming after more than that is very unlikely because they already know that’s a slam dunk.

Dean Barber: Interesting.

Bud Kasper: I see issues with that, Dean.

Dean Barber: Yeah. Well, but here’s the thing, though. I mean, if you don’t have it, you can be in big trouble. You have to come out of pocket for that.

Why Review Annually?

But Darren, when you said earlier that you recommend reviewing property-casualty insurance once a year. So, you as a broker, when you’re reviewing people’s property-casualty insurance once a year, are you saying let’s shop the market? 

If you’ve done your job right the first time, everybody has the right coverage. They have the proper protection limits. Now so what are we doing? Are we shopping for better rates?

Darren Newell: Yeah, possibly. And really, the best thing about a review is reviewing what happened over the year. Did you get a new roof on your house? And if you did, your rates will go down quite a bit because roofs are expensive, and insurance companies like new roofs. And so, did you have a new addition to your house? Did you remodel it entirely? Do we need to increase the value of your home? Did you have to have something that you added on? 

Dean Barber: Well, that’s a good question. So let me bring this up real quick here, Darren. There was an article just out this week that home prices increased by an average of 10.3% over the last 12 months. If home prices increased by an average of 10.3%, does that mean my home coverage also goes up by 10.3%? Or do I need to adjust that?

Rising Material Costs

Darren Newell: No, you don’t. The market and what’s going on right now isn’t going to reflect today’s rebuilding costs. Now granted, wood has increased quite a bit. It used to be about 150 to $160 to rebuild per square foot. We’re looking anywhere from 170 to $190 per square foot to rebuild now with getting wood in this market. So that’s something you need to take a look at.

But back to shopping every single year. If you’re not shopping every year, insurance companies like to increase the home value, regardless of what’s happening, usually about 3% to 4%. Now, if you stay with someone for that long, for five or ten years, your home is already over-insured. So, shopping that every single year keeps that in line as well. 

Learn More About Property & Casualty Coverage

Dean Barber: All right. Great stuff, Darren. To find out more about making sure that you’re adequately covered, fully covered, check out the article, Reviewing Your Property and Casualty Insurance which includes a conversation we had with Darren Newell of Midwest Insurance. We also have an on-demand webinar with Darren called Are You Fully Covered?  

You can also request a complimentary consultation for all your financial needs. Just click the button, and we’ll schedule a meeting. 

Darren, thanks so much for being here.

Darren Newell: Thank you very much. Appreciate it, gentlemen.

#9 Risk in Retirement – Tax Risk

Dean Barber:  Number nine on our list, and these aren’t by order of importance. It’s just kind of how Bud and I put them together. We want to talk about tax risk, Bud. And this, to me, is an avoidable risk. 

Tax Planning ≠ Tax Prep

If you do tax planning, and we talk about tax planning all the time here on America’s Wealth Management Show. It’s not about tax preparation. It’s about understanding that as long as you live in the United States, as long as you have money or make money, taxes will be a fact of your life. 

Once you understand that, you don’t look at taxes from a year-by-year standpoint, you look at taxes for a lifetime, and you try to predict what those taxes will look like in future years. Then, you manage around that. If you do it properly, you can drastically reduce the amount of taxes you pay over a lifetime.

Bud Kasper: Absolutely. I can’t emphasize it enough. We always talk about the absolute need for retirees to have a comprehensive financial plan. But if you don’t have the tax overlay, the tax planning, not the tax return, the tax plan associated with that, then you have an incomplete plan.

Dean Barber: Tax risk is definitely a big one. Obviously, the one retirement risk that you can’t avoid when it comes to taxes is that you cannot avoid what the government will do. 

Will the new administration going to raise taxes? Again, taxes are going to be a fact of life, but there are tax mitigation strategies. To help you understand how to navigate that tax piece, we have a video, 11 Tax Tips for Tax Time. That’s out there right now. JoAnn Huber and I talk about tax tips. It’s worth going out and taking the time to go out and watch that.

#8 Risk in Retirement – Dying too Soon

Bud, the other risk in retirement is dying too soon. And you might say, “Well, how is that a retirement risk? If I’m dead, what’s the risk?”

Bud Kasper: Right. Well, especially for people with company pension plans, because if you didn’t have a survivor associated with the choice you took in your pension, that could be disastrous for the surviving spouse. 

That’s just one element associated with it, but it is one that you don’t want to make a mistake on, or more importantly, you want to plan for, if that’s the route that you’re going to take, meaning that you’re going to take a hundred percent of your benefit.

Dean Barber: Well, we’re working on an article that will look into whether or not you need life insurance in retirement. 

Dying too Soon and Social Security

So if you think about this dying too soon concept, if one spouse passes away, one of the Social Security checks will go away. So what happens here is that if you have one spouse that, say, is getting $2,500 a month Social Security, the other spouse is getting $1,500 a month. 

One spouse passes away. Well, the $1,500 a month benefit goes away, right? So the smaller benefit always goes away. How does that affect the surviving spouse, and can the surviving spouse get by without that?

Back to the Pension

Bud, like you said, if there is a pension out there, what precautions have you taken to make sure that if the person who is getting the pension happens to pass away, what is the survivor benefit? Is it half? Is it a whole benefit? And that’s where some real advanced planning comes in.

A Quick Example 

Here is an example that I just worked on last week with one of our advisors. We had a couple who could get the monthly pension difference to include the spouse with a hundred percent survivorship reduced the pension by almost a thousand dollars a month. So let’s call it $12,000 a year less income because we chose the survivor benefit.

So we said, “If we take the full pension and we go out and spend that thousand dollars a month on a life insurance policy for the surviving spouse, how much insurance can we get?” 

Well, we were able to secure a policy of almost three-quarters of a million dollars for that $1,000 a month. Well, that’s going to be more than if the person passed away and they continued the reduced pension amount, right?

The Problem with Pensions

The problem with those, Bud, is if the person if the spouse passes away, a lot of times you’re stuck with that lower benefit for the rest of your life. Now, some pensions will have a spring-back provision that allows that benefit to pop back up, but not all of them are that way. 

Keep These Things in Mind

So make sure that you’re checking on that pension. Understand that part of the Social Security check can go away. 

And, a big one here, that’s going to tie right back to taxes. When you’re a single taxpayer, you hit those higher tax rates at lower income levels, so the tax risk can come right back in if you haven’t planned for it if one of the spouses passes away.

Bud Kasper: Absolutely correct, Dean. You know, another thing, how much does the survivor need to be able to survive in retirement? Whatever that number is, 80%, 75% of what it was when the other spouse was still alive, that needs to be calculated into the plan and worked around with that.

#7 Risk in Retirement – Inflation Risk

So let’s go to item number seven on our top 10 risks in retirement. We’ve talked about tax risk, accidental risk, dying too soon. 

Now, perhaps the most insidious risk of all, and that is inflation risk. To battle the inflation risk, you have to make sure that you’ve created a financial plan. 

Again, assuming you’ve created a financial plan, but the financial plan you’ve created applies different inflation rates to different expenses that you have.

Mortgages and Inflation

If you’re carrying a mortgage into retirement, there’s no inflation on that mortgage payment, right?

Bud Kasper: Right.

Dean Barber: It’s going to stay the same until it ends. It’s got a finite period. What could inflate, though, is property taxes on that. So what are you going to assume that the property taxes are going to increase by? 

Health Care Inflation

Health care deserves an entirely different inflation rate! We apply a 6.5% inflation rate to our healthcare costs.

Consumer Good Inflation

What about your food, your clothing, electronics? Well, so electronics today are going the other way. They’re getting cheaper because they’re getting easier to make, and technology is getting better. 

You have to think through where you’re spending in your budget. Itemize those things out to apply different inflation rates to the various aspects of your spending. Then, you can fight off that insidious inflation.

What’s the Right Inflation Rate?

Bud Kasper: Right. And healthcare is the worst. We try to go somewhere around a 6% inflation rate, 6.5%. I can tell you that I rarely come across where somebody comes into the office who already has a plan. 

But if they do, the first question I’m going to ask is, “What are you inflating this plan at?” If they come at me with 1.5% or something like that, I give it back to them and say, “This is a joke.” They haven’t done their homework. They haven’t done it properly. All you’ve done is put that person at risk.

Dean Barber: Well, so what I think happens most often, and you see this really on many of the online retirement calculators that they just ask you, “What inflation rate do you want to apply?” Or they’ll go back and say, “Well, inflation over the last ten years has been 2%. Let’s apply a 2% inflation rate.”

Bud, you’re right. Many of the plans that we see, if people do have a plan, are using a very low inflation rate. I’d rather use a higher inflation rate because I think it’s more conservative. If we can keep up with that higher inflation rate, inflation isn’t there. That just makes more money that you can spend, leave behind, take extra trips with, or do whatever.

Bud Kasper: Right.

Get Some Help Building a Plan

Dean Barber: So we’re covering the top 10 risks in retirement. We’ve talked about tax risks, accidental risks, the risk of dying too soon. We’ve talked about the inflation risk. 

And really, the key here on each one of these risks is the very foundation of your retirement, which should be a financial plan. We use a proprietary system called our Guided Retirement System™. In that Guided Retirement System™, once we build the plan and get to where you say, this is your ideal life, where you want it to be, we start asking all the questions. What could possibly go wrong? 

Well, that’s what these top 10 risks in retirement are, all the things that could go wrong. We stress test the plan if these things happen, if we have higher inflation, increased tax rates, we have a spouse that passes away too soon, or some other type of accidental risk covers your property, casualty insurance. That’s all part of our Guided Retirement System™.

Schedule a Complimentary Consultation

Dean Barber: I encourage you to schedule a complimentary consultation with a CERTIFIED FINANCIAL PLANNER™. And let’s take you through our Guided Retirement System™ to see and experience for yourself how comprehensive this is and how much of a difference it can make in your overall peace of mind and your confidence in your ability to head into retirement and do it successfully. 

Bud Kasper: Yeah. You know, the Guided Retirement System™ was created to try to be able to identify all areas of financial planning that could upset the success that you’re hoping for. So, therefore, don’t miss out on a single one of these points.

Dean Barber: Well, and Bud, here’s the thing. We never know what the things are that can come at us. And so the guided retirement system looks forward and says, “What if these things do happen?” It’s like the checklist for a pilot.

#6 Risk in Retirement – Policy Risk

Dean Barber: We’ve done ten, nine, eight, and seven. Let’s do now policy risk. And this one was in your head when we came up with this top 10 list. And what were you thinking when you were thinking about policy risk?

New Administration 

Bud Kasper: Well, I’m thinking about the new administration and what has happened just since President Biden has come in. He cut the oil situation down there with the pipeline and everything.

What else is around the corner that’s going to affect me financially or could upset my plan? 

It’s our job to go in and identify each of those so we can find out whether or not it could be damaging or catastrophic to a plan, Dean. So policy risk is out there. 

Often, what ends up happening, especially with the new administration, is they move the goalpost. So whether it’s the amount of a stimulus plan that we have that might’ve been at one level with one president, and now it’s much greater. 

We see the need, if you will, to stay on top of this all the time. That’s why we like to meet with our clients minimally every six months to make sure that the data that we’ve been working on to create the plan is still making it sustainable.

Additional Policy Risks

Dean Barber:  Yes, so the policy risks there, what you’re talking about with the Keystone Pipeline. That could cause unforeseen inflation at the pocketbook, at the pump, so increased oil prices. We’ve seen that happen a lot just since that piece occurred. 

Monetary Policy Risk

Policy risks could also come from the Federal Reserve and their policy, their monetary policy, right? 

Bud Kasper: Well, I think that’s critical. When you look at the policy right now and where they’re saying they’re going to be with inflation, they don’t intend to rise above 2% on their target. 

I beg to differ. I think it’s going to be greater than that, especially by the time we get to the end of the year. Not tremendously so, but two and a half. So what does that mean? 

It means that you’ve got to go into your plan. If you don’t have a plan, you don’t know what the impact will be. So that’s the big void out there that you and I have drilled on for years because we want people to prepare for, not just react.

#5 Risk in Retirement – Health Care Risk

Dean Barber: Let’s go-to item number five, Bud, health care, health risk, and long-term care risk. These are big ones. 

Bud Kasper: They are. 

Dean Barber: And I won’t say that there’s nothing that you can do about these things, but there are things that you can do, but sometimes it requires some sacrifice. 

Take Care of Yourself

There is eating right, exercise, and those things that you should be doing. Going to your doctor regularly can help you make sure that you stay in the right shape for as long as possible. Don’t let yourself get sedentary and get sick, and those types of things. Your immune system breaks down, and there are all kinds of things that go along there.


Bud Kasper: A lot of you just go back to what we’re going to need with Medicare. People that haven’t factored in that perhaps they would be much better off from a planning perspective to wait until they’re 65 before they make that decision for the simple reason that health care is such an incredible cost any more, and one that is moving up with inflation.

A Health Care & Medicare Example 

Dean Barber: Well, I just had an example here just this last week of a couple that I’ve been working with for several years. The wife decided she would retire, and she’s just about 62 and a half years old. The husband is turning 66 next year. 

She went ahead and retired, and he plans to retire at 66. But he was nervous about paying for health care costs for her. So what we had to do was we had to factor in additional health insurance costs before her Medicare age to make sure that the plan could sustain it.

When we factored in that cost, and we did a little shopping for that health insurance, we noticed, you know what, it’s okay. We can afford to buy health insurance before Medicare, so go ahead and retire.

 Bud Kasper: Right.

Long-Term Care Risk 

Dean Barber: We also want to talk about long-term care risk, and long-term care risk is real. Long-term care risk is not for the individual that is in the long-term care facility. The risk is really for the surviving spouse, right? 

You need to consider the possibility that one spouse or the other could spend a significant amount of time in a long-term care facility. That occurs, and you have the surviving spouse out there, still living everyday life. They have all the expenses associated with that. 

You now have another $80, $90, $100 thousand of expenses coming in because of the spouse in the long-term care facility. It doesn’t take long to eat into even a good plan. 

So you have to consider, should I put life insurance on that person, or should I do long-term care insurance on that person? We have an on-demand webinar called Health Care Costs in Retirement. You can find that right here. Make sure you check it out because this is a real risk that you can cover in many different ways. 

Planning for Health Care Costs is Vital 

Bud Kasper: Yeah, no doubt about it. That’s such an important thing that we have with health care issues. I did run into a couple of just a few weeks ago, and they had a certain amount of money that they put aside for future health care costs. 

That was pretty interesting from my perspective because now they said, “Yeah, we’re not going to have Medicare for two more years. This is why we set this money aside.” Good for you. 

Dean Barber: So they chose the self-insured path, right?

Bud Kasper: Exactly. 

Dean Barber: They made sure that they had the resources there to cover that. And I’ve seen people do that same thing with potential of long-term care, saying, “Okay, this piece of money is going to be set aside in the event of long-term care. If we don’t need long-term care, this money is going to go down to the kids and the grandkids.”

#4 Risk – Interest Rate Risk

Dean Barber: Let’s go to number four, Bud. Interest rate risk. 

We see interest rate risk rock the markets. Right now, it’s driving the equity market is crazy, with interest rates rising on the 10-Year Treasury almost 40 basis points since January 1st.

Bud Kasper: The game’s changed over there. I was in a conference call just this last week, and they were talking specifically about what’s happening to the bond market with these rising interest rates. 

If you have been a bond investor, then you’ve probably seen the value of your bonds go down because of the higher interest rate scenarios that are manifesting themselves in the bond market at this time. 

Will this continue? Probably not. But most certainly, it is front and center. With the things that are going on, specifically the inflation factor we talked about a moment ago, it’s something that you better pay attention to.

Bonds & Interest Rates

Dean Barber: Well, but there are ways to tackle that. I was just doing a deep dive this last week, looking at all the different types of bonds out there. People need to understand that not all bonds are created equal. 

So while your treasury bonds are negatives, your corporate bonds are negative, some of your high yields are positive. Your senior secured debt notes are positive. Your mortgage-backed securities are positive on the year—many of those positive in the two to 3% range year to date. So there are alternatives to what people would say is the traditional bond aggregate. 

So, suppose bonds will be a part of your portfolio, which they what’s always should be because we consider bonds a stay-rich investment. In that case, this might be a great opportunity with what’s happening with interest rates and the interest rate risk that’s out there today to reassess the bonds within your portfolio and see if maybe you shouldn’t hold sometIt’s different. We can tell you that by scheduling a complimentary consultation here. 

Yellen on a 50-Year Bond

Bud Kasper: It’s interesting. Janet Yellen was on the other day re-introducing the possibility of hadn’t a 50-Year bond, which is almost unheard of from that perspective. 

But they brought back in a 20-year bond, which they hadn’t issued in quite some time. Things are going on in the bond market, and you better be aware of it because it can impact your total return.

Dean Barber: Right. If you own a lot of government bonds right now, and you just sit and do nothing, you will see the value of that erode as interest rates rise. If held to maturity, you are always going to get your money back. But bonds are triwe’reThat’s why I encourage you to schedule a complimentary consultation

#3 Risk in Retirement – Market Risk

Now we’re at risk number three. This is the one that I think almost everybody thinks about, Bud, and it is market risk. The risk of losing money in the market. 

All we have to do is think back to the Dot Com Bubble, the Great Financial Crisis. Think back to the Cdoesn’tisis that hit us in March 2020. Think about where the markets are now. 

Market risk is ever-present, Bud, and it doesn’t matter where the markets are; there’s always going to be some risk out there because of all the things we already talked about today. Those all impact the market becWe’vethe market is very emotional.

The Market Doesn’t Only Go Up

Bud Kasper: Absolutely. I think that we’ve had a good run. We’ve had two years of solid returns People need to back up a little bit and realize that this market will not go north forever. 

If you go in, and let’s say, I’m just going to make up some numbers, let’s say that you had a 16% return in 2019. Let’s say that you had an 8% return last year. 

This year, you have a what, 24%, 12% average over two years. And now the market is not providing the returns we have had, at least so far. And people get a little disgruntled with that. Put your big boy pants on here and realize that we’re doing a great job associated with that. But there’s always going to be concerns. 

We’re in one of those concerns right now with interest rates, the bond market, as you talked about, Dean. But we’re still factoring in a positive return for the year, but it could be a very bumpy road, at least for the next four to six months.

Equity Valuations 

Dean Barber: Well, there’s no question about it, Bud. When we look at where equity valuations are now, they are really, by just about any way you measure it, at historical highs. 

So that does create additional market risk. At this point, we’ve talked about this multiple times over the last several weeks. About this is the time when you don’t let greed control you. You want to go back and reassess where you are.

The “Goldilocks” Portfolio

If you do financial planning the right way as we do with our proprietary Guided Retirement System™, you can identify what we call your “goldilocks” portfolio. The portfolio that allows you to accomplish all of your financial objectives, short-term, intermediate, and long-term objectives, and do it with the least amount of risk possible. Once you’ve identified what that looks like and set up, you have to monitor that regularly.

Rebalancing Your Portfolio

Dean Barber: Your portfolio over the last couple of years, if you haven’t been proactive at doing rebalancing, is probably not anything close to what your “goldilocks” portfolio should be. 

You probably are now overweighted in equities, and it’s time to take some of that off the table. But be careful of what you do with that money. Because as we talked about a little bit ago, interest rate risk can negatively affect certain types of bonds as well.

You have to make sure, if you’re going to shift over to some fixed income, that you get into the right parts of fixed income, and don’t say, “Well, I’m going to put it into this AGG bond aggregate.” That’s not going to be your answer in a rising interest rate environment.

Bud Kasper: You’re right. And in fact, I was in a meeting just the other day with one of the biggest bond managers in the world. I had that same discussion with them. And it’s going to be more of a challenge this year. But there’s still a place for bonds in a portfolio, but you better have the right ones.

Assess Your Situation

Dean Barber: To understand where you’re at, what that looks like for you, I encourage you to schedule a complimentary consultation. We can do a virtual meeting, we can talk over the phone, we can meet in person, and we can take you through our Guided Retirement System™. 

Through that process, we can identify what that “goldilocks” portfolio for you should look like. And then analyze your existing portfolio. You’ll be able to see very clearly whether there are adjustments that need to be made.

It’s all complimentary. We’re not trying to sell you anything. We’re fiduciaries, and if you decide that you’d like to work with us in the future, we will lay out for you what that relationship would look like. 

But take advantage of this so that you can be more well-informed and fight off all of these risks that we’re talking about here. 

#2 Risk – Longevity Risk

Dean Barber: Bud, number two on our list is longevity risk. And longevity risk is the risk of living too long. And that kind of runs into risk number one, which is running out of money. 

You and I have both seen some plans that just put in the current mortality tables show as the average life expectancy. But I have many clients, Bud, who have lived well beyond that average life expectancy. If we had planned for the resources to last only until life expectancy, those people would be living on nothing but Social Security today. And that wouldn’t be a good thing.

Bud Kasper: No, it would not. As they say, follow the science. Well, following the science tells you that the probabilities of you living past a normal retirement age based upon our current numbers is relatively high. And I think people are getting smart about their lifestyle and how they’re treating their bodies and all the other preventative things as opposed to reactionary in terms of better health conditions.

So yes, it’s out there. When we do the plans, we ask people, how long did your mom live? Your dad live? All that kind of stuff. That’s pretty basic. But we’re adding to it. We are generally looking at 90 years of age to 95, and many times our clients will trump that. “Aunt Grace lived to 97.” 

Dean Barber: “Let’s put in age 100.”

Bud Kasper: That’s right. Plug it in.

An Example of Planning for Longevity

Dean Barber: One of my oldest clients passed away last year at the age of 104. So that’s a reality. It is happening. So if you don’t build that into your plan, that longevity risk, well- we might think great, as long as we have the quality of life and we can live that long, it’s awesome. But if you run out of resources that’s not a good thing.

Bud Kasper: Exactly right.

#1 Risk in Retirement – Running Out of Money

Dean Barber: Our number one risk in retirement, is running out of money. Of course, if you ask people what their biggest fear in retirement is, almost everybody says, “My number one fear is running out of money.”

We’ve talked about the top 10 risks in retirement. Every single one of these risks, if they aren’t addressed, can lead to you running out of money. All of the things can be addressed. 

Budget Appropriately

Bud, one of the things that I see when people have the risk of running out of money is they don’t have a budget. That’s one of the first things that we do with our Guided Retirement System™, we create a budget.

Dean Barber: And then we say, based on your resources, is your budget fair? Does it work? Could you spend more than what your budget is? Do you need to make some sacrifices or some concessions on some of the things that you wanted to do in retirement? 

Lay all that out there. Then when any of these unforeseen events come at you, a market takes a drop, we have the inflation risk comes out, and it’s higher than what we had put into our plan. 

Well, then all we do is adjust the plan and say, “Okay, where are we? And what adjustments do we need to make, if any?” In many cases, we don’t have to make a lot of adjustments because we have already considered those things that were a possibility.

Mortgage Example 

Bud Kasper: Sure. I’ll give you an example, a client of mine wants to go in, and he wants to pay off his mortgage. Well, we can most certainly do that. But when you look at the interest rate that he was paying, it was relatively reasonable. It was 2.6% or something. 

So, you have to go in there and weigh that. Is it worth paying it off at this particular time versus keeping your money perhaps invested where you’d get a higher return than the interest rate? These are fundamental questions.

But people get confused in terms of what their best interest is. They want to eliminate the debt. I get that. You probably should have done it in the process of getting to your retirement date, not where you’re actually in retirement. 

It All Connects, That’s Why You Need a Plan

But regardless of that, it’s all about planning. And the planning can work for you. And of course, this comes back to taxes, doesn’t it?

Dean Barber: Absolutely. Everything winds up on your tax return at some point in time. Get that complimentary consultation here. Let’s have a discussion and see if we can help you gain more confidence and clarity, and control of your financial situation. Schedule complimentary consultation. If you’re not ready to meet yet, at least get out there and check out all the educational materials that we have.

Dean Barber: Thanks for joining us here on America’s Wealth Management Show. I’m Dean Barber, along with Bud Kasper. Stay healthy, stay safe. We’ll be back with you next week, same time, same place.

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The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.