Is the Fear of Running Out of Money in Retirement Overblown?

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The Hosts:

Kevin Kroskey, CFP®, MBA – About – Contact

Tyler Emrick, CFA®, CFP® – About – Contact

Episode Transcript:

Tyler Emrick:

Today we explore the disconnect between retirement expectations and reality and how your financial visor should be leading you to the path of financial independence. All coming up today on Retire Smarter.

Walter Storholt:

It is another episode of Retire Smarter. Walter Storholt here alongside Tyler Emrick, a chartered financial analyst, as well as a certified financial planner with True Wealth Design serving you throughout Northeast, Ohio, Southwest Florida, and other pockets and areas all across the U.S.

And from wherever you are, you can find us online at truewealthdesign.com for past episodes and ways to book appointments and all that good stuff. Again, truewealthdesign.com or just check the description of today’s show for links and important information. Tyler, it is good to be with you this week. What’s going on in your life?

Tyler Emrick:

Yeah, no, happy to be here, man. Nothing too exciting going on. I did find out this morning though that it is National Daughter’s Day, so I don’t know.

Walter Storholt:

National Daughter’s Day, really?

Tyler Emrick:

Yeah. I have to bring something home to the kids, considering I do have two of them. I don’t want to miss National Daughter’s Day.

Walter Storholt:

I’ve got to mark that on the calendar each year, I guess.

Tyler Emrick:

I know. Although it’s also National Quesadilla Day and National Lobster Day I found out. So I just them full of surprises this morning.

Walter Storholt:

So you could take your girls out to dinner and get them lobster quesadillas and cover all three.

Tyler Emrick:

Well, if you could get my two little toddlers to eat lobster, boy, you deserve a prize, let me tell you.

Walter Storholt:

Do you guys have a Bahama Breeze nearby?

Tyler Emrick:

Yeah, we have to, right? I mean I think there certainly when I was outside of Cincinnati, there was a Bahama Breeze. I’m not sure if I have one outside of the-

Walter Storholt:

I know that the Bahama Breeze I used to go to and have been to a couple of times over the years has a lobster quesadilla. That’s why I’m mentioning it.

Tyler Emrick:

Oh, you’re knocking two birds with one stone.

Walter Storholt:

I’m saying you get the daughters out and you get the lobster quesadilla. You could take them out to dinner, they don’t have to eat the lobster quesadilla. You eat the lobster quesadilla, they get to get taken out to dinner. You’re hitting all three holidays.

Tyler Emrick:

Champion dad for the day, huh?

Walter Storholt:

Yeah. I love it. How often can you combine three of those activities at once?

Tyler Emrick:

Yeah, we have team meetings mostly in the morning just to make sure everybody’s kind of set for the day. And it’s been a nice little thing that we do in the mornings where we bring up what today is National Day of whatever. But it’s amazing how every day has something tied to it and some of them can get pretty random.

Walter Storholt:

Not to get too far down into the weeds here, but who comes up with these? If I want to just come up with a national something day, national awesome podcaster awareness day-

Tyler Emrick:

That’s every day.

Walter Storholt:

… or National Podcasters named Walter Day, can I just make that up and start submitting it to websites and it just becomes a thing? Is there some formal approval process I need to go through?

Tyler Emrick:

Yeah, I think if you want it to happen, well, don’t let me stand anywhere. I think you should try to get that on the books. I don’t have good advice to get it accomplished, but I’m sure you can make it happen for sure.

Walter Storholt:

I wonder if there is a national Walter day. It just seems like the kind of name that would have some sort of celebration around it.

Tyler Emrick:

Yeah, no, that’s a good one. That’s a good one.

Walter Storholt:

There it is. National Walter Day is celebrated every year on March 2nd. Who would’ve known?

Tyler Emrick:

Is that it? See, I’m telling you, there’s something every single day, so pick the fun one out in the morning and go from there.

Walter Storholt:

Well, there’s got to be a Tyler Day. Let’s see when yours is. National Tyler Day is July 12th every year.

Tyler Emrick:

It was in January. I mean close to the birthday, but July, I don’t know. Nothing going on in my world in July. Yeah, summer days I guess, and spending time out on the weekends. That’s about it. Pretty good. All right, so now that we know about national days, we can kind of jump in and move into more fun finance stuff, right?

Walter Storholt:

Yes. So you tease things nicely for us, the fear of running out of money in retirement, but I like a little bit of a counterpoint here that you want to tackle this from and we hear that that is like, oh, it’s the greatest fear. People fear this more than dying and it’s this big thing. And you’re kind of saying, is this overblown a little bit this fear? And so I’m interested to see your perspective today.

Tyler Emrick:

Sure. Well, when we’re thinking about topics for the podcast and what do we want to cover, I mean one of the things we’re always looking at is like, well, hey, what are recent articles that are coming out? What are our families reading? What are our clients reading? And of course, headlines being catchy as they are, this one really kind of caught my attention and the headline on it was Retirement income worries often overblown survey shows.

When you get down into the article, it talks about a Gallup report. I’m sure many of the listeners have heard of Gallup before. I mean they’ve been tracking polls and stuff on retirement for over 20 years or so. But they were referencing one of their more recent polls where nearly 80% of retirees said that they had enough money to live comfortably in retirement, which is a stark contrast as you kind of alluded to earlier.

I mean generally this positive picture of retirement contrasts a ton with the negative expectations among those who have yet to retire. So it’s like that disconnect there I thought was pretty fascinating. The good news about Gallup, as I was researching them a little bit more and tend to look at the data they were trying to present, they go back to collecting information back to 2002.

So they were in a unique situation to be able to look at, all right, hey, we’ve got these retirees that we’re surveying today, individuals between 60 and 80 years old. They could actually go back and look at their polling 20 years ago from that same group of individuals who were much younger at the time leading up in their 40s and 50s and hadn’t yet to go into retirement and look and say, well, when they polled 20 years ago, did they think that they would have enough to retire?

And only about half of them at that time thought that they were on track and would have enough to retire, which I think goes along the lines of what you had mentioned where it’s like, hey, this retirement, it’s a big change for a lot of individuals and a lot of people are worried, hey, do I have enough?

So I figured today we dive in and kind of take a look at that disconnect and kind of say, hey, why are the retirement expectations so much different or a little different than some of the more positive outcomes when we’re speaking to some of our retirees? So the article mentioned and brought up a few good reasons that they thought kind of explains that disconnect.

So we’ll kind of dive into those and take a look at those and then we’ll finish up with some thoughts on just how I think individuals should be working with their financial advisor to help kind of bridge this gap and help give a little bit more clarity as they make that transition into retirement to really just set them up for success a little bit better.

Walter Storholt:

Well, no surprise that it looks like the first disconnect on the list here, Tyler, is social security when you’ve got one end of the spectrum saying it’s going to blow up and not exist anymore and others say not to worry about it, plenty of disconnect to be had there, it seems.

Tyler Emrick:

It was. And of course, they’re using data to bring this up. So if I can share a little bit about what they were coming up with here. They were saying, hey, when you look back through their survey results, it shows that just under about 60% of retirees polled said that social security was a major source of their retirement income.

So a big piece of the pie, right? A big piece of the equation as they start thinking about, well, where’s my money going to come from in retirement and am I going to have enough? And again, what I liked about this poll is, hey, it’s quite a bit of years of data. So when they go back and look at that same cohort of individuals, but younger, only about 35% of them actually thought social security would be a big source of their retirement income. And that’s a big difference.

Well, 60% say it’s important, it’s a big source and only 35% of them thought that it would actually be. Now obviously there could be a number of reasons for that disconnect. Hey, maybe they’re getting more from Social Security than what they expected. Certainly, maybe their spending is lower. So social security is a bigger piece of that pie. I’m helping them pay those month-in and month-out bills.

But in either case, whatever the reasoning is, I really want to just reiterate that it’s clearly a very, very important decision for retirees and retirees are bringing that backup and saying that that’s a big piece of the pie. And while as we’ve covered, I don’t know how many podcasts we’ve done on Social Security, we try to put out quite a bit because it’s a topic that many listeners like to try to understand and get to know.

But I wouldn’t say that when you look back on the data on the actual claiming strategies that’s maybe reflective of just how big of the pie Social Security is going to be. I think there’s been a lot of education over the years to help individuals wrap their arms around the decision around social security. I mean, there’s a very high percentage of non-retired individuals that say, hey, they understand that the basics of how Social Security works, hey, you can start it as early as potentially 62 for your own benefit.

And hey, each year you delay, or frankly each month that you delay, you potentially get a little bit more from that social security payment all the way up until the age of 70. Now, of course, there are a multitude of reasons and factors that come into play when you think about, well, when do you want to start your Social Security?

But what always got me Walt was that when you go back and poll retirees when they’ve started their Social Security specifically for the ones that have started Social Security early, and you look at some of the reasoning behind it, that’s where it kind of irks me a little bit, right? Because there are certainly times when taking Social Security makes sense. I mean, I think we did a whole podcast on, hey, when does taking Social Security early make sense? Sometimes towards the end of last year.

So we’re not saying that every individual should continue to wait, but when over a third of individuals say, hey, I started Social Security because I was worried about the social security system, I think that comes back to more of that education and really wrapping your arms around the understanding of like, well, hey, if you would’ve had a 10-minute conversation with your financial advisor around, well, how does social security work?

How is it funded? What are some of the issues that Social Security is facing? And then from those issues, what are some of the solutions that could potentially come up? I would find it very hard to believe that over a third of individuals would take social early just because they were worried about it. So that’s where I think leaning in and having a financial advisor in your corner if they’re not giving you that type of advice and not really making sure that you’re getting down into that why decision and what’s working best for you and your specific situation, I think that’s where a good financial advisor can really be worth their weight in gold to help you wade through some of the just negative headlines.

I mean, shoot, I’ve got this whole podcast because I got caught by a headline. So as you could imagine, I’m sure news stories around social security running out or being underfunded sometime within the next 10, 15 years here, or really 10 years, 2033 was when the Social Security funds were set to be depleted, that could be a very catchy headline.

And if you don’t get down into the actual nuts and bolts of what’s trying to be discussed and understand the situation, it can really lead to some poor decisions around what is very clear to these retirees as a major source of the income that they have coming in.

Walter Storholtz:

Never forget that they want your eyeballs and your ears. So if you see a flashy headline, a flashy thumbnail or picture or teaser, all of that’s to get that attention, I mean, hey, we do that on the show. We try not to get too much into the hyperbole and the hype and try to be a little bit more straightforward with, I think our presentation here Tyler, but at the same time, we put some thought into the headlines and try to attract the listeners and the attention in different ways. That’s just how the world works. But it’s always going to be reminded of those facts too, those motivations.

Tyler Emrick:

Absolutely. But Social Security was what they considered, the article considered to be the biggest disconnect between non-retirees and then actual retirees being into retirement. But they did bring up two others, and I can kind of lump them in together here as the spending expectations were different than reality. And they broke it down into two spending categories, healthcare and lifestyle spending.

Now, in healthcare, they were talking about Medicare maybe covering a little bit more of your actual healthcare costs. I would take it one step further, and especially for those listeners that are planning to retire before age 65, individual healthcare plans and how they work and the subsidies and the costs and so on and so forth, I mean, boy, it can get complex and it can get complex very, very quickly.

But as you start to peel back to the layers of the onion, it can get down into individual healthcare, I think a lot of individuals kind of say, hey, this might not be as bad as what I originally expected, and that too can go for Medicare as well, which is more so what the article was referencing, especially for those individuals that are on maybe employer plans that most people say, hey, employer plans are going to be the route to go.

But that’s not always the case sometimes, especially for small businesses and the like, those employer retirement plans can be just as expensive or more so. So that healthcare expense, especially early in retirement, that disconnect there is attributed to that. And then they mentioned the lifestyle. And the lifestyle spending is more so, hey, what are you doing in retirement and how is your expenses changing once you head into retirement?

They mentioned some of the typical ones that, reasonings that, I think if you’ve done any type of retirement planning research or read any articles, they always bring it up, right? Hey, you downsize your home. Hey, you don’t have as much spending on driving to work so your gas is lower or your child care expenses, because your children are likely out of the house or whatever the case is, right?

So they listed out some of the normal ones that I think would come up if you’ve done any type of research or whatever the case may be, but spending being different than reality is the last two disconnects that they brought up.

Walter Storholt:

Yeah, it’s interesting, those disconnects, and I can see how those disconnects lead to those fears, lead to those doubts, lead to those misunderstandings. And that’s probably the crux of the problem for a lot of people who then are afraid of running out of money. They’ve got all these question marks and unknowns about their plans still out there.

Tyler Emrick:

Oh, absolutely. And like I said, it can be complex and certainly it takes time to kind of arm yourself with the tools that you need to really make a decision that’s best for you. And that’s where we’ll kind of finish up the podcast for today is really getting into this idea of like, well, how should your advisor be helping you limit the disconnect between what your retirement expectations are and what reality might look like?

And a good financial advisor can really help you gain confidence and overcome maybe your healthy sense of doubt, hey, I can’t retire, or hey, I’m never going to be able to retire. I don’t know how many times I hear that sitting down with individuals, especially as we’re getting to know each other and starting to tackle this big idea of a, hey, how are we going to retire?

But that retiree spending is a good place to start and start to talk through not only understanding, well, what do you think you’re going to need to live off of? But also that conversation really can morph into, well, really what are you trying to accomplish in retirement and how are you going to be spending your time and where do you see yourself using your money? I mean, we’ve done, again, a multitude of podcasts on research on, well, how are retirees spending their money in retirement?

You always talk about the retirement smile with David Blanchett a couple of years ago. I bring up the retirement smile all the time, and for listeners that maybe aren’t familiar with the retirement smile, what that’s alluding to is the fact that when we look into retiree spending for most cases, what we find is that early in retirement, your spending is going to probably be the biggest that it’s going to be throughout the entirety of retirement. So each year that you progress into retirement, there’s a steady decline in spending.

Typically, things get paid off, maybe your mortgage is paid off, maybe your kids get through college, cars get paid off, and so on and so forth. But your spending traditionally will decrease each year into retirement and sort of bottom out in your mid-80s and then start to creep up again because of generally healthcare expenses start to have an impact on spending at that age.

So if you think about that, hey, steady decline in retirement each year of spending, it bottoms out at 80 and then starts to increase again, you can kind of see where we get that retirement smile outlook there. And I’ve been in the industry now a number of years, and I spent quite a bit of time at a very, very good company, almost 10 years at one of the big discount brokers, and we did quite a bit of retirement planning.

But over the years where I feel like I might’ve missed the boat earlier on in my career was when I started talking about spending with my clients, a lot of times it was just a simple conversation. Well, hey, what do you need per month to spend? Maybe I would break that spending number down into discretionary and essential expenses, but really that was the crux of it.

And then we would start to build that retirement plan around you needing or that family needing that spending throughout the entirety of their retirement. Well, the research just doesn’t suggest that, and in most cases, if we look at spending as just this linear function where you’re just going to spend about the same amount throughout the entirety of retirement, well that can have some pretty serious ramifications on your retirement plan.

One of the big ones that comes up in my opinion that we need to account for is, well, if we assume you’re going to need more to spend than what you actually will, well then you’re probably going to have to work longer to save up the money to be able to make that plan work. And the studies show that if we use linear spending where it doesn’t change and we don’t account for certain spending falling off as you age through retirement, then you typically will have to work about three years longer than what you really in actuality have to.

That’s a big deal. Maybe that’s not a big deal for everybody, right? You love your job, you’re going to work anyway. But for those individuals that are listening here and saying, hey, can I retire? Boy, I would love to retire. I have all these things that I want, working three more years is that’s a big task.

So that’s where I think that granularity in some of these conversations where when I look back earlier on in my career where maybe I didn’t have the time or explore as in-depth as what we should have, that’s a big piece of what we do here going forward and how I approach my retirement planning now and thinking, hey, those conversations have some pretty big ramifications.

And a lot of times it’s not like, hey, if you don’t get down in the weeds, you’re going to run out of money. Although in an extreme case, that could be, right? We don’t want to run out of money in retirement. So if you’re spending much more than what you build your plan around, that can be a big deal, of course. But it’s more so about those nuances to help you make decisions more appropriately and make sure that you’re tracking in a way that makes sense.

And when I say tracking what I’m not talking about just, hey, am I spending within budget? It can work both ways. I’d say in most cases, I’m having more conversations with families saying, hey, we had you expected to spend about this much last year and you only spent a fraction of that. Should we be revisiting your goals?

What’s the disconnect here? And I feel like those conversations and the outcome of them can really be impactful with the way individuals approach and live throughout retirement. You really want to make sure that you’re using your money in its best use case. And having those conversations, I think gets down to the crux of that decision and helping you to be able to do that, right?

Walter Storholt:

Yeah, absolutely. I mean, I think you’re right. It’s not so much, at least the clients that you seem to work with and interact with consistently, Tyler, people want to make decisions confidently not just making the decision, but making it with confidence, with understanding, with a little bit of background and know how, and they want to clear up a lot of that unknown, it seems. And your planning process just does such a great job at cutting through all of that.

Tyler Emrick:

Yeah, well, it’s about taking the time to be able to do it. I mean, when I was at that prior company I alluded to earlier, it wasn’t that I necessarily didn’t want to have those conversations, but it was a time issue. You talk to your financial advisor, ask them how many clients they service, and you think about just the time that they have in the day to be able to focus on your specific situation.

Are you in a good position to be able to do that? And when you’re talking to and what an advisor should be able to help you gain clarity on is, well, hey, am I going to reach financial independence earlier? Can I actually retire when I want to or am I going to have to work longer? I mean, that’s a life-changing decision. So if we can do a little bit more work up front to kind of help gain some clarity, and while it’s never going to be perfect, right, things change, that’s why we stay employed as financial advisors.

The game plan going in, it might change one or two years in. I mean, we just did a podcast on the Retirement Manifesto Blog, and we were talking about his real-life experience where he is saying, hey, I think the title of it was six lessons from one retiree, six years into retirement, he made a comment that said it took him five years after he retired before he realized that he could do more and spend more.

I mean, those are five years that are, I don’t want to say that aren’t wasted, but certainly if you could have more impactful conversations to kind of shore that up and gain clarity there, that’s just going to give you more power in the decisions that you make and how you plan on using the assets that you’ve accumulated for yourself.

So that spending, tracking and understanding those spending patterns really helps us as advisors kind of direct and say, hey, your plan’s looking really good, is there anything that you’re foregoing that if you felt comfortable about the plan that you would use your money to do, whether that’s gifting, helping out kids, buying whatever, and it doesn’t always come out to that.

But again, having that conversation, I feel like for some families can be very helpful. And so it’s not always negative. It’s not always the advisor coming back saying, hey, you overspent. You’ve overspent. Very, very, very, very often it kind of swings the other direction as people kind of wrap their arms around what retirement looks like and where they want to be using their funds.

We always try to look at data. I mean, we looked at the Gallup polls here today, which is what kind of gave us a starting point for the podcast. But Schroders has a retirement survey that I look at every year as well, and the percentages from that survey are pretty astounding as well. I mean, well, just over 60% of retirees wish they had done a little bit more planning prior to retirement and just under 60%, so they have no idea how long their savings will last.

And as I think about that from a financial planning standpoint, I’m like, that is why we have financial advisors. That is what we are here to do in here to help you feel more confident and gain some clarity on it. So certainly if there’s anybody here listening where you’re not having these types of conversations with your current financial advisor or you’re maybe on the fence of working with an advisor, I mean, I’d urge you, whether it’s us or anybody else, have that conversation and find someone that can help you drive these conversations because it’s a big change.

And as the studies have shown here today, I mean, a lot of times your expectations are going to be far different than what’s actually going to happen or what retirement’s going to look like. So an advisor can be a really good tool in your toolbox to help you gain that clarity and feel more confident.

Walter Storholt:

Sometimes it’s permission that people need, and that’s probably a more fun position for you to be in Tyler than having to tell people no all the time or cut it off or cut it back instead of being able to say, hey, spend more.

Tyler Emrick:

It’s pretty-

Walter Storholt:

Those are great meetings for sure.

… pretty fun when you can land in that spot. A little housekeeping I want to do here. We mentioned a couple of prior episodes, so the one that Tyler talked about, those six lessons, that retirement manifesto conversation, if you’re interested in tuning into that episode, that was just two episodes ago, so you go back to 154 or it was posted in late August here in 2024.

If you want to go check that one out, that should be very easy for you to find. The Social Security episode we were talking about was earlier on this year, it was episode 150. It actually wasn’t that long ago either, Tyler. Social security Timing, reframing, you were thinking for better where we went in depth a little bit more on social security. So if you’re listening to today’s show and you haven’t heard that episode, just scroll a little bit further back to early June and that’s when we taped and released that episode.

Again, that’s number 150, if you track things by episode numbers folks, and you can find the most recent Social Security episode that we’ve done. We did also do when that was specifically about when taking social security makes sense if you want to do it early, that was back at the very last episode of 2023. So a couple of different places to point people in if they want to get some more information.

We’ll link to those episodes in the description of today’s show as well, so you can find it easily. Tyler, great resources and breakdown today. Really appreciate your help as always my friend, and enjoy Daughter Day, Lobster Day, and what was it, the Quesadilla Day.

Tyler Emrick:

Quesadilla day.

Walter Storholtz:

Go find a Bahama Breeze somewhere and you’ll be hooked up.

Tyler Emrick:

Will do. Thanks Walt.

Walter Storholt:

All right, we’ll talk to you soon. That’s Tyler Emrick. I’m Walter Storholt reminding you that if you’ve got questions or want to set up a visit with Tyler and the team at True Wealth Design, all you have to do is go to truewealthdesign.com and click the button that says, are we right for you?

You’ll schedule a 15-minute call with an experienced advisor on the team that way and get your planning process started off right. That’s truewealthdesign.com or call 855 TWD plan, 855 TWD plan. All that contact information is also in the description of today’s show or coming up next time, we’ll see you again right back here on Retire Smarter. Take Care.

Speaker 3:

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