Avoid these 6 retirement planning mistakes. In this episode, we are going to
address the question "Why do so many people run out of money in retirement?" So,
I'm Doug Andrew and this is my radio studio. I've been very blessed to have a
national radio show for this is my 12th year. And also I've written 11 books. And
so, I wanted to share with you some of the key concepts that I've talked about
on the radio and TV and in all of my books. How people miss out on fortunes
because they simply don't know what they don't know. It was the title of my first
book in fact. And then my second best-selling book was called Missed
Fortune 101. So, let's get down to some of these reasons why people do not have the
money they could have accumulated and they outlive their money in retirement.
In an episode, I talk about an article that I wrote called 31 flavors of Missed
Fortune. 31 is the best in Robin's number. So, in this episode, I'm going to go through
6 mistakes that people make as it relates to retirement planning. They're
choosing the wrong investments and so, I'll just go write down these bullet
points and I'll read it to you and then I'll comment on it. So, the very first one
is using short term investments for long-range goals and long term
investments for short range goals. I have seen people do that for years where they
put away money into a long term investment. What would that be? Maybe a
mutual fund. Usually a mutual fund you should not use that investment for goals
less than 5 years. Usually it's it's five 10 years or longer. And I've seen
people put money in mutual funds and they treat it like it's a drive up
window at the bank. Like they sit there and they put and take the money. You
don't do that. Especially if the market goes down, people panic and they wait and
wait and wait and then they sell low and then they wait, wait, wait until the
market comes back and they buy high. This is one of the biggest mistakes
people make but the opposite is true. Many times they put money in the bank
earning less than 1%. That's a short-term investment. Maybe if you're saving for a
baby for 9 months or to buy a grand piano for a year. But see, people put
money in the bank and they leave it there for years. And I've come across so
many people. I go, "Wow, you have 500,000 in the bank earning
less than 1%. What's that earmarked for?" "Well, my retirement." "Your retirement!? That's
20 years out. What do you have it in the bank for?" That is a huge mistake. They're
missing out on a fortune. They're not even earning the inflation rate. They're
rowing upstream at the rate of one mile an hour and the current of inflation is
coming down at 3 or 4 they're going backwards. So, this is a huge mistake when
people put that in. Sometimes I've had people sort of be embarrassed. "Well,
I was thinking about taking a trip." With 500,000? Where you're going? To the moon?
You should only have enough in the bank or the credit union for an emergency. Now,
the next big reason people miss out on fortunes is because they are putting
their money into what I call Crawl Investments. I used to have a diagram of
what I called the million dollar dash. And so, let's say the goal is to get around
the racetrack and the finish line is a million bucks. Net a million after tax.
Everything a million dollars for your retirement. Because in my books, I talk
about how a million bucks can generate 70 to 100 thousand dollars a year of tax-free income
into perpetuity. You need to learn how to do that. But see, first of all, let's get
the million bucks. Well, if you put money into crawl investments, this would be
rates of return of only 1, 2 or 3 percent in a bank or credit union. That's
a crawl investment. Huge mistake and I can't believe how many people put too
much money into those low yielding investments. And I say, "Why do you do that?"
Well, because a bank is insured by FDIC. Well, correct. But do you know what banks
do with your money? Yeah, back in 2007-2008, 400 banks went
under 900 more on the brink. They're on the watch list is
what it's called. Do you know what happened? They asked the five major banks
in America. Where do you have your tier 1 assets? That's the money they have to
have on hand liquid and safe. In case you need to run to the bank, if there's a run
on the bank for money. You know where they put it? Into the multi-trillion
dollar life insurance companies. They put 30 to 40% of their assets there and they
are borrowing our money. They only pay us 1% interest when we put our money to
bank. And they earn at least 5%. How much more is 5 than 1? So, one of the keys is
don't use a crawl investment for long and long-range goals which sort of
connects into the first one. The next bullet point to that sort of relates to
the same metaphor. And that's putting money into walk investments. You
don't want to crawl. Well, why are you walking around a racetrack? What would
that be? Putting after-tax money into a tax-deferred account like an annuity. And
then when you take it out, you have to pay tax.
You only have one advantage. It's tax-deferred but you're funding it with
after-tax dollars. As soon as you take the money out, you're taxed what is
called LIFO. The last interest you're earning is the first money coming out.
Unless you start to deplete the principle. That's called a walk
investment. Let's go to the jogging investments that it's not sprinting. If
you want to sprint towards financial independence, that's finish line, I'll share
at the end what that is. But let's talk about the 2 kinds of jogging. So, I
would say a traditional IRA or 401K would be like jogging around that
racetrack with the wind at the back at the beginning of the race. In other words,
you're getting a tax break on the seed money you're putting into your
investment. But when you come around to the finish line, the second half of the
track, now you got the wind against you because that's retirement. That's the
back 9 in an 18-hole golf game of life. And now, you agree to pay tax. I
can prove to you this is a big reason why people outlive their money because
they don't realize the impact of taxes taking 25 to 33 percent. Sometimes 40%
of your nest egg. If you have a million bucks only about 6 or 7
hundred thousand of that is your money. The rest belongs to the government. If
you pull out 90,000 a year, 30,000 goes to the government only 60,000 goes for
you for gas, groceries, prescriptions, golf green fees
and so forth. And then what happens is when people do approach retirement in
those types of accounts, there is an RMD. See, most people go, "I don't need the
money out of my IRA's yet. What should I do?" Most CPAs and tax attorneys say, "Oh, well
then keep deferring until you're age 70 and a half." Now, that age is age 72. But at
those ages, if you don't start accessing what the government says you're supposed
to take out, it's called the life expectancy formula. It's called the
required minimum distribution. If you don't take your required minimum
distribution, that's called an RMD, it's a 50% penalty on top of the tax. They want
that money out in tax before you die so they can tax it again when you do die.
Folks, most people think, "Oh, well then. Let's avoid it by putting it off." You're
not saving anything. You're compounding the problem. That's why in my books and
my various educational training, I teach people to do a strategic rollout. So,
don't make the mistake of thinking that you can keep putting that off especially
later in life when taxes are so high. And I'm going to go through and share the last
reason why people don't make it to the end and highlight these 6 mistakes so
you don't make them. Now, the sixth mistake (There's several but I chose the
top 6) is that many times retirees are really hurting financially and they're
not utilizing one of their greatest assets. What is it? It's usually their
home. I see many people with homes especially in the San Francisco Bay Area.
And it's a little two-bedroom home and it's worth 1.3 million bucks. I see other
people with 5 bedroom homes in Palo Alto and it's worth 4.8 million
dollars. I said, "Well, do you want to stay in the home?" "Well, I don't know what
to do." I said, "You're sitting on this huge asset." The couple with a 5 bedroom
home in Palo Alto, they sold that house. We were able to save them a lot of money
on capital gain tax by doing some 1031 exchanges. But they turned around and
built a home twice that big in a retirement community in Utah for
600,000. They're getting over 200 thousand a year of tax-free income
off of lazy idle equity it used to sit in their house in
California. Or many times that we've advised people "You know what? Have you
considered a reverse mortgage? This is where you can utilize that money or get
an income the rest of your life. And you don't have to make a mortgage payment
anymore. But when you die, the mortgage can be paid off with your death benefit
or your heirs can sell it." And it's sometimes a good solution and strategy.
but people sometimes they're scared of a reversed mortgage. So, going down the list,
let's make sure you understand these 6 mistakes. People using short term
investments for long range goals or long term investments for short range goals.
Don't do that. Putting money in crawl investments like
CDs and bank accounts. Or maybe putting money in wok investments after tax money
into a tax deferred annuity. That's not going to get you around that racetrack.
Oft times, thinking that IRA's and 401K's are the best way to jog around that
racetrack. Well, you're going to have to pay tax. At the end, if it's a traditional, on
a Roth, you're paying tax on the front end. There's something far better. I'd
rather sprint around that racetrack and that's by using what I call the Laser
Fund. And I want you to watch this episode next so that you can see how you
can get a free copy of my most recent book called the Laser Fund because it
knocks the socks off of any of these. And you sprint around that racetrack. Then
the last is understanding that you don't take RMD's --required minimum
distributions. That's actually mistake number 5. And the sixth is not using
maybe your house or your real estate to turn it into a tax advantaged income. So,
those are 6 mistakes you can avoid. And if you don't know how to do that
or you're wondering, "Golly, this is resonating." But I want you to watch this
episode and then take advantage of getting a free copy of my most recent
book The Laser Fund. You just cover shipping and handling and I'll fire one
out to you.