Retire With Confidence – 3 Critical Things Every Retirement Plan Needs.

Today Matt & Alex discuss the 3 critical things you need to factor in your plan so you can retire with confidence.

Retire With Confidence


Full transcript:


Alex Okugawa & Matt Calcagno

Alex Okugawa 0:00
If you ask people what a successful retirement looks like, you could get 100 different answers. Some people say it’s giving to charity, for others, it’s spending time with family, and for others, it’s doing what they want, when they want. But we found that there are three critical factors to make sure that you can retire with confidence. The first is making sure that your plan has a margin for error, basically, a cushion. The second thing is making sure that you are considering the “what-ifs” of life. And the third and final thing is making sure that you’re aware of inflation eating into your expenses. Today, we’re going to talk about it.

Hey, there, it’s Alex and Matt, from One Degree Advisors, if you’re new here, we are Certified Financial Planners that help folks with all things tax, retirement, and investment related. So you know, for those of you that are watching, that are watching this video, maybe you’re five or 10 years out from retirement. So you know, if you’re a pre-retiree, or you’re already retired, every retirement plan needs three critical factors, like we mentioned, in the introduction, you need to have a margin for error, which we commonly refer to that as a cushion. You need to have a plan for the what-ifs of life, and you need to make sure that you’re considering inflation in your retirement plan. It’s such a critical factor. A lot of people miss that. So Matt, why don’t we get into the first critical point, which is making sure that your plan has a cushion, it has a margin for error?

Matthew Calcagno 1:27
Look, the future is really hard to predict. And unless you’re Doc and Marty McFly, you can’t hop in a DeLorean and go 30 years from now to see exactly how things change. And when people come to us to get them through retirement, we always want to leave a cushion for things like what happens if Social Security looks different going forward? Or what happens if my tax rate increases in the future? And by having this cushion as part of the process, we can see how confident retirees are knowing that whatever life throws our way, you know, we have a plan, and we are prepared to take action.

Alex Okugawa 2:11
So you know what is cushion look like? I mean, for a lot of folks that we work with that can mean making sure that you have adequate cash reserves, right, you built up this cash cushion that you have in your financial plan that you can always tap into, let’s say if markets get bad or something happens that is unexpected that you can turn to access to, I’d say a big thing as well as we can run plan projections and show folks okay, well what happens if you just spend a little bit less per month, right, when you spend a little bit less per month, that gives your overall projection a bigger cushion. So now instead of running your plan, dry, you know, we would all love to spend it that common phrase where I want my last check to bounce before I take my last breath. And that’s a great thing to aspire to. The problem is we don’t know the expiration date on our birth certificate. And a lot of people will likely live longer than they expect to. And so making sure we have that cushion there can help make sure that you don’t run out of money, right? Now, that brings us to our second point. And that’s every retirement plan needs to account for the what-ifs of life and we call this Murphy’s Law, which is anything that can go wrong will go wrong.

Matthew Calcagno 3:24
What we do know is that change is inevitable, but being completely derailed by it isn’t. So you don’t have to sit back and take that wait-and-see approach. Let’s see what happens. And if you remember the movie Jaws, you know Hooper’s diving underneath the wreckage of the boat, and all of sudden he finds a massive shark too. But then boom, all of sudden the head pops up and drops everything. So when he goes to the mayor, later on, he’s like, look, there’s a massive man-eating shark that’s out there, we need to close the beaches. The mayor says, well, until I see that tooth, I’m not going to shut those beaches down. So my point here is that you don’t always have to take that wait-and-see approach before it’s too late. You know, we have to address things like, what happens if my spouse passes away? Or what happens if, you know things look differently going forward from a medical perspective? So, you know, although these sound morbid to talk about, we have to make sure we address these things.

Alex Okugawa 4:25
That’s the thing. Usually, the what ifs in a financial plan are towards the negative side the things like the catastrophic side because those are usually the things that keep people up at night. The most common what-if scenario we will run for folks is, Well, what happens if I have a major medical event like long-term care? A lot of folks, just do not want to become a burden to their kids. It’s an unpleasant thing to think about the fact that you will need medical care and it’s hard to care for yourself. But statistically, this happens a lot. And so if we can help Prepare for those things, say, you know, hey, maybe you don’t have long-term care insurance. So we need to prepare to self-fund such an event and those expenses and we can show, hey, if you do this, you know, it’s very likely that we’ll be able to self-fund and prepare for such a medical event. That often helps people. I’ve seen people sitting in that chair, when we go through a presentation, it’s like, okay, like, I’m, I feel better, it gives me confidence. I don’t know. And I can’t control if I’m going to have a medical event or not. But I can control if my plan is prepared for me to have such a medical event. All right. Like, you know, plans have twists and turn the last thing here we talked about earlier, and I think something that inflation is tricky for people to wrap their heads around. It’s like compounding things, right? Compounding numbers is hard for people. But people need to make sure that they’re not failing to incorporate inflation into their plans.

Matthew Calcagno 5:55
Yeah, inflation is that killer, that silent killer in retirement plans, because you just don’t see the effects. Right away, it takes years of compounding to see that your dollar just doesn’t go quite as far as it once did. And what used to cover all your expenses, now is only covering a sliver or portion. And we don’t know, you know, right now, eggs and milk down the line, is it going to cost $50? We’re not here to predict that. And we don’t know. But over time, we know that those costs are going to go up.

Alex Okugawa 6:29
When we do retirement planning, I mean, very commonly, we’ll use an inflation rate, maybe three to 4%. And I remember doing this, you know, 10 years ago, or, I mean, looking at plans like 10 years ago, or even five years ago, and showing people and saying like, you know, we’re including an inflation rate of three to 4%. And people like you’re making my plan look bad, right? Inflation is so low that I make my plan look bad. And now inflation is high. And people are going well, are you sure you’re using the right inflation, maybe you should be higher, the long-term averages in that three to four range. But the point being is that by including that rate and a long-term average rate, you don’t have to be worried. But inflation goes up because like, Hey, we’ve been incorporating this. And then if inflation goes down, you’re like, if it comes back up again, at least we’re prepared. And that’s important. And you know, when we think about Social Security, that’s a major chunk of retirees’ source of income. And in 2023, it’s expected to have one of the largest increase increases in a decade and we talked about that in a previous video, which we’ll link above, people can watch that important as you continue to think about planning for the next year planning out your income sources. If you found today’s video helpful. We wrote a guide to five retirement mistakes to avoid which you can download in the description below. And if you’re already in retirement, let us know how is inflation impacting your costs and how are you preparing for that in your retirement plan. Let us know your thoughts in the comments down below. And if you enjoyed today’s video, please like and subscribe for more. Thanks for watching.

Transcribed by

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