Episode Summary

In today’s episode, Mary Beth Storjohann, CFP® and Neela Neela Hummel, CFP® dive into common misconceptions and hidden truths about retirement planning. They unpack quotes and beliefs about retirement, investing, and saving, providing clarity on important financial concepts that directly impact your retirement future. Tune in to see if you know which of these sayings are true and which ones are lies!

What You’ll Learn in this Episode:

• Why you should examine your retirement plan before approaching retirement age
• Why it’s important to start early when saving and investing
• How to approach Social Security when it comes to retirement planning
• The truth about long-term healthcare costs and what to consider
• Why even saving a small amount consistently can help in the long run
• How to approach retirement if you are a small business owner
• The difference between saving and investing
• Tools to leverage for retirement planning

Stay Connected:

• Connect with Mary Beth on Twitter, Instagram, and on LinkedIn
• Connect with Neela on Twitter, Instagram, and on LinkedIn
• Join the Abacus community by connecting with us on Facebook, Twitter, Instagram, and on LinkedIn

Transcript of the Episode

Mary Beth [00:00:14]:

Hey there. Welcome to the If Money Were Easy podcast, the show where we teach you how to expand what’s possible with your money. We’re your hosts, Mary Beth Storjohann 

Neela [00:00:23]:

and Neela Hummel, 

Mary Beth [00:00:24]:

certified financial planners and co CEO’s of Abacus Wealth Partners. Today on the show, we are talking about truth and lies, about retirement planning. It’s very exciting.

Neela [00:00:37]:

Very exciting. Retirement.

Mary Beth [00:00:39]:

Retirement. 

Neela [00:00:41]:

Feels like an old word.

Mary Beth [00:00:43]:

It is an old word. Well, I mean, it’s a word that we associate with being older. Right, right. But we’re looking to retire tomorrow so we could maybe rebrand it. Right. Okay, I’m going to tell you all that Neela had some quotes on here. And so if you’re listening, depending on where you are in your career, I would like somebody to email me afterwards and tell me if you have heard of the first quote over hitting and whether or not it’s a truth or a lie, because I haven’t heard of it, but I know, I know some of our Abacus employees listen to this, so I bet you they have heard it and you are not alone. But go ahead, tell us what the quote is.

Neela [00:01:17]:

So as we were designing this episode, we were thinking about, okay, what are the quotes that we tend to hear a lot as advisors, being in financial media, et cetera? What are the things that we tend to see often? What are the quotes that we tend to hear from clients and prospective clients alike? So I’m gonna lead with the one that Mary Beth’s gonna completely make fun of me of, but I have heard it… 

Mary Beth [00:01:39]:

Only cause I love it.

 Neela [00:01:40]:

I promise you, dozens. 

Mary Beth [00:01:41]:

You wouldn’t have made this up, I mean, I believe you. And that people say it. I just don’t know when the last time somebody said it. Dozens of dozens of people, dozens of people have said this, I’m sure. 

Neela [00:01:54]:

So oftentimes with investment allocations, there’s stocks and there’s bonds, and people have said, well, I heard that you should have your age in bonds. Drum roll. That was it. 

Mary Beth [00:02:07]:

That’s it. 

Neela [00:02:07]:

That was the quote. 

Mary Beth [00:02:09]:

Paint the picture here. What does that look like to have one’s age and bonds for our listeners? 

Neela [00:02:12]:

So what people are essentially saying is that as they get older, their investments should get more conservative. Now, the problem with this particular quote for all of those people listening who have maybe thought this or heard it before, is that what that tends to do is it puts everybody in the same bucket financially and that they’re all playing the same financial game. 

Mary Beth [00:02:37]:

But you haven’t told us what the picture looks like. Though. So if I’m 67, I should have 67 bonds. Are you talking about allocation to bonds?

Neela [00:02:43]:

Thank you. Thank you. That picture. 

Mary Beth [00:02:45]:

That picture. Great. And then go back, though, because you’re right, you’re on track. Yes. 

Neela [00:02:49]:

Let’s just take a 60 year old individual that would basically say, if I’m 60, then 60% of my investments should be in bonds or cash, which is a lot of money. If we’re talking about like 100 pieces of the pie and 60 of them are in bonds and cash, that often means that people’s portfolios are A more conservative than we would like them to because people are living longer. We run our financial plans to age 100. So you’re like, oh, that’s a lot of bonds. Kind of early. And then, second of all, everybody’s got different financial goals. So you might have a client in their twenties who has a more conservative portfolio than a client in their eighties because they have different investment objectives. 

Mary Beth [00:03:35]:

Like those that are looking to retire tomorrow. 

Neela [00:03:37]:

Exactly. 

Mary Beth [00:03:38]:

For example. 

Neela [00:03:39]:

For example. So I’m going to call this one. You should have your age and bonds. I’m going to call that one a big false. 

Mary Beth [00:03:45]:

False. We should have gotten a button.

Neela [00:03:46]:

A button. 

Mary Beth [00:03:47]:

Buzzer. Yeah, like a buzzer. 

Neela [00:03:48]:

Yes, buzzer. False. 

Mary Beth [00:03:51]:

False. Your allocation should be customized toward your risk tolerance and unique financial circumstances. 

Neela [00:03:55]:

That is right. 

Mary Beth [00:03:56]:

That’s a good disclosure. All right. Okay, so that one, maybe I’m just such a young, young millennial that I just hadn’t heard that one before. That’s what we’ll think. We’ll get like write ins afterwards where everybody’s heard it. 

Neela [00:04:11]:

Right. 

Mary Beth [00:04:12]:

That’s fine. 

Neela [00:04:12]:

That’s been the gospel. 

Mary Beth [00:04:13]:

I’m obviously hanging out with a different crowd. Okay, next is it’s never too late to start. This is obviously in reference to investing. 

Neela [00:04:23]:

Right. Saving and investing. 

Mary Beth [00:04:25]:

Yes. 

Neela [00:04:25]:

Okay, I’m going to kick this one over to you. Have you heard that one? 

Mary Beth [00:04:29]:

Yes. I think I say it on every podcast. Do we say it every other podcast? Yes. It’s a quote by Neela and Mary Beth and everybody. Every other financial planner in existence. 

Neela [00:04:41]:

So true, false? 

Mary Beth [00:04:43]:

Absolutely true. It’s never too late to start. However, comma, the longer you wait, obviously, the more you have to save to make up for it. So if you need $5 million by the time you retire and you start saving when you’re in your twenties, that’s great. Those are going to be some smaller increments that you could set aside and invest towards your future. If you’re not starting to save until you’re 50 and you’re looking to retire at 60. That’s going to be a much, much larger chunk of change that you’re looking to set aside and potentially an achievable goal. 

Neela [00:05:13]:

Totally. And the goal is you want to get started early and you want to build those habits early. And the longer you have for your money to grow, the more the investments can work for you and they compound over time. 

Mary Beth [00:05:24]:

Yep. Great. Ooh, I like this next one. 

Neela [00:05:28]:

All right, so using the big r word, Social Security is my retirement plan. Said another way. Why do I have to save when I have Social Security? This one’s a little spicy. It’s kind of interesting because I’m going to give it like a partially true. 

Mary Beth [00:05:48]:

Yeah, partially true. And then I also want to know how you talk to clients about Social Security. Yeah. Those that are in their sixties as well as what you would advise somebody in their thirties. 

Neela [00:05:58]:

Oh, great setup. So first off, Social Security right now, as is in force, is part of many people’s retirement plan. The reason I say it’s partially true is that the stats are that 40% of retirees rely solely on Social Security. So almost half of the population Social Security is their retirement plan. 

Mary Beth [00:06:23]:

Right.

Neela [00:06:24]:

But the average benefit is quite low. And so that means that a lot of people are having not been able to save or having started earlier, they are only reliant on Social Security and they’re having to make do with a lot less because Social Security just doesn’t go as far as many people think it does. 

Mary Beth [00:06:42]:

Absolutely. And so what are you advising? So knowing that Social Security and then the constant articles that are coming out, that’s going to go broke by insert whatever future age here because the articles continue to come out. 

Neela [00:06:53]:

Right. 

Mary Beth [00:06:54]:

Annual basis, it’s funded and refunded. 

Neela [00:06:57]:

So clients in their like mid fifties and above, I’ll definitely say Social Security is going to be there for you. Right. Does the entire system need to be reworked so that it continues to be solvent? You bet. That is also a such a political issue that it is a really hard one for legislators to attack because they’re also going after the demographic that is the largest voting bloc, which is older people tend to do the best job of voting. And so, you know, the reality is you pay when you get income, you are paying into the Social Security system. And so it’s almost like a government forced savings vehicle, but they want it to last longer. People are living longer. It’s capped at a certain dollar amount. And so to your point, is it going to be around for people in their thirties? I would say you kind of don’t want to plan on it going away, and yet you still have enough good working years that I would focus on the things that you can control. So let’s not entertain the conversation around will Social Security be there for me when I graduate or when I, when I graduate, graduate to retirement? Will it be there for me? 

Mary Beth [00:08:10]:

That’s how we should rebrand it. Graduation. 

Neela [00:08:14]:

Celebration. You know, the Spanish word for retirement is jubilación, which is like jubilation. 

Mary Beth [00:08:21]:

Jubilation. Nice. That is nice. 

Neela [00:08:23]:

It’s like a really nice rebrand. So maybe we should start referring to it as your jubilation. But so anyway, it’s less of a point, I think, for younger people who still have decades where they can save. And so, you know, like, I have full confidence that the system is going to be reworked. It will be, continue to be solvent. I don’t think it’s going to look the way it does right now. And we don’t know what it’s going to look like. You know, they’ll probably index earnings up, push the date out, make you wait longer to take benefits. 

Mary Beth [00:08:55]:

Until like 85 at this point in time, probably, right? 

Neela [00:08:57]:

Yeah. I mean, when Social Security was first created, it was only designed to last people for like several years. And so now people are taking it and they’re living on it for decades. 

Mary Beth [00:09:07]:

Which was not part of the original plan.

Neela [00:09:09]:

Not part of the plan. 

Mary Beth [00:09:10]:

Okay, so follow up question. Do you factor it into your financial plan? 

Neela [00:09:17]:

No. Well. Hmm.

Mary Beth [00:09:19]:

Because the software defaults to factoring it in.

Neela [00:09:24]:

I guess. I guess I do. But I don’t really think about it.

Mary Beth [00:09:29]:

Like when you think of your number that you need. 

Neela [00:09:31]:

I don’t incorporate it when I think about my number. 

Mary Beth [00:09:33]:

Yeah. 

Neela [00:09:34]:

So it’s not that I don’t believe it’s going to be there, but I’m very much focused on what are the things that I can control. And at our age right now, we still have earning and saving years ahead of us that are going to move the needle more than any Social Security benefits that we’re going to get. 

Mary Beth [00:09:50]:

Yep. Solid answer. 

Neela [00:09:52]:

Solid. Thank you.

Mary Beth [00:09:52]:

We don’t have a partially true buzzer. We have no buzzers, but no buzzers. I don’t know what that sound would be like. I don’t know, like a ring. 

Neela [00:09:59]:

I think one would be like an optimistic bell and the other would be buzzer. 

Mary Beth [00:10:03]:

Optimistic bell. And then. Yeah, something in between. Something in between, yeah. Okay, next. I’ll never retire, so I don’t need to save. I’ve heard that one. That’s a quote. 

Neela [00:10:14]:

Yeah. 

Mary Beth [00:10:15]:

From particular gender is where I hear it most from, but it is. I haven’t heard any women say, I’m sorry, men that are listening, I’m sorry. I don’t typically hear it, but this is false, not true. It’s not a safe bet. Maybe you’ll never retire, but there are plenty of risks factored into this assumption that you never will because your body does not necessarily keep up with your mind, and your mind might necessarily keep up with what you’re wishing either. So whether it’s a sickness, illness, other externalities might change your plans. Thinking about disabilities, thinking about health issues that come into play. Whatever your family situation might be, there are other factors that will pop up over time that you unfortunately won’t have control over. And so having that savings in place for retirement is incredibly important, whether you use it or not. You always tinker. When it comes to financial planning and software. You know, we can assume that you live till 100. We can assume that you live until 75. We always have other factors we can move the needle on. At the end of the day, it actually is out of our hands in terms of what actually happens. And so having that retirement cushion is necessary. It’s a risky bet to say that you will never retire. 

Neela [00:11:25]:

Yeah, I love that because it’s like you might think that you will never stop working, and I believe you that you never want to stop working. That’s not what’s being questioned. It’s, you might have your hand forced. 

Mary Beth [00:11:40]:

Right. Or, I hear a lot. I’ll die young. That’s the thing that I hear quite a bit. I’ll die young. My family has health issues. It’s hereditary. I’m not going to make it till 90. And then what happens if you do, though? Then what? 

Neela [00:11:52]:

Yeah. Okay, next one. I need to save more because healthcare is getting more expensive. This one’s a hard one.

Mary Beth [00:12:02]:

This is true. True. It’s true. It’s sad and true. 

Neela [00:12:06]:

Yeah. It’s tough because it’s emotionally hard. But the reality is one of the things that happens when longevity is expanded to what it is now is that your later years tend to be your most expensive years. And if you factor in advanced care, long term care, living in a facility, people are living longer, and people use more healthcare the older they get. And so we’ve really seen that the rate of inflation on health related costs has been like double what it’s been of typical inflation. 

Mary Beth [00:12:40]:

Healthcare gets its own separate inflation rate in our financial projections, our nerdy financial planning software. Healthcare has its own assumptions. 

Neela [00:12:48]:

Doozy so if you feel like each year you’re paying more for your premiums, and then you extrapolate that for the next couple of decades. It’s a rough one, but it’s true. 

Mary Beth [00:12:59]:

It’s true. So talk with your financial planner about how you can start saving now. 

Neela [00:13:03]:

Yeah. 

Mary Beth [00:13:04]:

Okay. Next. I can’t save now because I’m in debt, because I’m building a business, because I’m putting my children through college. What other ones? What are the other fill in the blanks for? I can’t save now because… 

Neela [00:13:21]:

I don’t have any room at the end of the month, I’m tapped. I’m supporting my parents. Hear that one? Daycare. Childcare, right. If you have kids that are young, you are probably spending a fortune on childcare. There’s always something, right? 

Mary Beth [00:13:35]:

Yes. 

Neela [00:13:36]:

And it’s not that those expenses aren’t high, but that it’s almost like when I talked to my mom about having kids, she was like, you know, it’s just never a good time, so you kind of just have to do it. I was like, okay, I’m a planner, but I get that. And I kind of think about that with saving in that it’s never going to feel easy. And so you just got to start, and you got to start somewhere. And it reminds me of when we had Bahar on the podcast and she talks about she got so intimidated by how much she was told she had had to save that she didn’t even get started. So do something. Start somewhere. Start building the habit, and it’ll make an impact over time lately because it’s never going to feel like a good time. 

Mary Beth [00:14:23]:

It’s never a good time. Correct. To piggyback on this one before we go to the last one. My business is my retirement plan. I would say my business is my retirement plan. What do you say to that one? 

Neela [00:14:37]:

It’s kind of like my house is my retirement plan. It’s hard to cut off a toilet and sell that. It’s very concentrated. So what’s the plan? If the business is the retirement plan, that’s a pretty big egg in one single basket. 

Mary Beth [00:14:52]:

Yep. 

Neela [00:14:53]:

Are you working on succession planning? Are you bringing in other buyers? Eventually. What is your plan to get out of it? Because if you have one highly illiquid asset that you are building, you got to navigate that in a different way than you do a pile of cash or stocks and bonds. 

Mary Beth [00:15:12]:

Yep.

Neela [00:15:12]:

What would you say? 

Mary Beth [00:15:13]:

Same. I think the risk involved with one egg in one basket is incredibly high, and it’s a push pull for business owners, entrepreneurs looking to invest and grow their business and grow the value, as opposed to investing in the market, for example, and getting that growth. And I think there’s a tension there. But my financial planner cap, you do both an entrepreneur or business owner might not invest for their future in terms of 401k retirement plans to the rate that I would advise as an advisor. But I would be hopeful that we could meet in the middle if my advice would be set aside. 50,000. Hopefully we can get you to 25,000. So at least something is happening there. When all of the money is dumped into the business in hopes of a future sale or some multiple for valuation, there is a lot of risk there. It could be a great payoff. But it’s the same thing as I look at it as waiting for some sort of stock to hit an all time high. Right. And then you’re going to sell it at x point, or I’m just holding onto it like, great. When are you selling it? What’s the point? When are you going to exit? Because it could continue to go up. But how do you know, what’s the psychology around it? But there is still an awful lot of risk in terms of industry exposure, the length of term until you actually plan to retire and make that sell. So it’s a whole separate podcast episode. 

Neela [00:16:33]:

But, yeah, I love the parallel to an individual stock because, like, it can go gangbusters and you can do really, really well. But if it’s all riding on Apple or Tesla or Google or, I don’t know, Kodak films or, like Blockbuster Industries, things can go south, too. And so it cuts both ways. 

Mary Beth [00:16:55]:

Yes. And that’s where, you know, having multiple eggs and multiple baskets, very helpful. 

Neela [00:16:59]:

Love those eggs. Especially because the Easter candy eggs, the ones that are just, like so full of dyed. Bring them on. Can’t get enough. I’m such a fan of Easter. 

Mary Beth [00:17:09]:

I’m a peeps person. Peeps. Marshmallows covered in sugar just melt. 

Neela [00:17:13]:

You think you know a girl and then you find out she’s a peeps person. 

Mary Beth [00:17:16]:

I know. 

Neela [00:17:17]:

Like, what do you do? 

Mary Beth [00:17:17]:

I only have, like two, though. It’s two and then. But I still get them. My mom still buys them for me every Easter. Because that’s what you’re known for. I do like vegetables, too, though. Yeah. Okay, next.

 Neela [00:17:32]:

All right, saving is the same as investing. So this is false. 

Mary Beth [00:17:37]:

False, hard. 

Neela [00:17:38]:

Hard false, false, false, false. 

Mary Beth [00:17:40]:

I hit my hand on the desk like there was a buzzer.

Neela [00:17:42]:

Yeah, that’s a no. So saving, which is basically the argument that’s like cash is king. That’s. That’s kind of the same side of this coin, is if you’re doing a good job saving, great, you don’t need that much money in cash. At a certain point, you’re going to have too much money in cash. And, Mary Beth, why would you not want to have too much money in cash? 

Mary Beth [00:18:02]:

Opportunity cost. You’re losing out on growth of your funds. That’s it.

Neela [00:18:08]:

Cash doesn’t keep up with inflation, y’all. So while you’ll never see the principle go down with cash, it’s not going to keep up. So in the future, when a single burrito is $98, your cash won’t go as far as you hope it will. 

Mary Beth [00:18:22]:

Exactly.

Neela [00:18:23]:

And investing is the number one way to fight that inflation, your money will grow a lot more. 

Mary Beth [00:18:29]:

This is a fair one because a lot of people use the words interchangeably. Saving, investment, retirement. I think people just use vocabulary, assuming they all mean the same thing and they don’t. Saving, we liken to you’re putting money in your bank account, into cash, into your high yield savings, etcetera. That’s what you’re doing with that. Investing is actually putting the money into your retirement or trust investment account. And then, like we talked about in the past episode, not just leaving it there, then you are taking action to invest that money into a fund, into a stock, into a bond, et cetera. 

Neela [00:19:03]:

Get in the market. 

Mary Beth [00:19:04]:

Yeah. Putting it into the account does not necessarily mean that you’ve invested it. Yeah. Sitting in cash inside of your IRA. 

Neela [00:19:10]:

Please check all of your accounts and make sure that you’re not sitting in cash when you think that you are invested. Please, please do it right now. We’ll wait. 

Mary Beth [00:19:17]:

Okay, I’m going to read this last one, and Neela then is going to read a quote. 

Neela [00:19:21]:

This is a completely planted question.

Mary Beth [00:19:24]:

Compound interest is wasted on the young. 

Neela [00:19:27]:

I just had to get that one in there because it is. So just get started. Just get started. Compound interest, which is basically the early on in your investing journey, the bulk of the growth of your account is going to be from your contributions. But as time goes on, and the longer that money works for you, the more your interest and dividends and the growth of the money is going to then grow on itself. And so you can run all kinds of calculations that show the difference between starting early in investing and starting later. And it’s because those years of compound interest are gold. 

Mary Beth [00:20:07]:

In one of my favorite presentations, I do. I have early Eleanor and late Lauren. Those are my two investors for the example of compound interest and how it works. 

Neela [00:20:16]:

And tell us what does early Eleanor do versus late Lauren? 

Mary Beth [00:20:19]:

Early Eleanor starts sooner, ten years sooner than late Lauren, and she ends up with $200,000 more over time. 

Neela [00:20:28]:

and having saved less, right? 

Mary Beth [00:20:29]:

Having saved less. Exactly. She starts ten years sooner, saves for 20 years. Late Lauren starts ten years later, saves for those 20 years as well. And early Eleanor, just because time is on her side, ends up with more. 

Neela [00:20:44]:

Get on that front end and we got to leave with the quote from our dear Albert Einstein who said, “Compound interest is the 8th wonder of the world. He who understands it, earns it. He who doesn’t, pays it.” 

Mary Beth [00:20:58]:

That’s it. 

Neela [00:20:59]:

That’s what we got. Truth and lies. Let us know what we missed. 

Mary Beth [00:21:03]:

Thanks y’all. 

Neela [00:21:04]:

Thank you. 

Mary Beth [00:21:07]:

Financial knowledge is for everyone. If you enjoyed today’s episode of If Money Were Easy and you’re looking for more tools and resources to expand what’s possible with your money, head to www.learnwithabacus.com, Abacus Wealth Partners elearning platform offering a variety of courses to empower you in your financial life.

Mary Beth [00:21:50]:

Abacus Wealth Partners is an SEC registered investment advisor. SEC registration does not constitute an endorsement of Abacus Wealth Partners by the SEC, nor does it indicate that Abacus Wealth Partners has attained a particular level of skill or ability. This material prepared by Abacus Wealth Partners is for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security strategy or investment product. Opinions expressed by Abacus Wealth Partners are based on economic or market conditions at the time this material was written. Facts presented have been obtained from sources believed to be reliable. Abacus Wealth Partners, however, cannot guarantee the accuracy or completeness of such information and certain information presented here may have been condensed or summarized from its original source. Abacus Wealth Partners does not provide tax or legal advice, and nothing contained in these materials should be taken as tax or legal advice. Economies and markets fluctuate. Actual economic or market events may turn out differently than anticipated. No investor should assume that future performance will be profitable or equal either the previous reflected performance or that of the reference benchmarks. The historical performance results of the comparative benchmark do not reflect the deduction of transaction and custodial charges or the deduction of an investment management fee, the incurrence of which would decrease indicated historical performance. The S&P index includes 500 leading companies in the US and is widely regarded as the best single gauge of large cap US equities. The holdings and performance of Abacus Wealth Partners. Client accounts may vary widely from those of the presented indices. Advisory services are only offered to clients or prospective clients where Abacus Wealth Partners and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Abacus Wealth Partners unless a client service agreement is in place.