How To Prepare for Retirement Planning in Nashville

How To Prepare for Retirement Planning in Nashville - Retirement Renegade

The dream of retirement draws closer by the day – picturing relaxing afternoons on the porch, travelers to far-flung destinations, and hitting the links for a round of afternoon golf. But without diligent preparation, the reality of retirement may fail to live up to the dream. According to the Employee Benefit Research Institute’s 2022 Retirement Confidence Survey, only 28% of U.S. workers feel very confident about their retirement savings. Clearly, more work is needed for the average American to retire comfortably. Luckily, time is still on your side if retirement remains years down the road. And for residents of Nashville, Tennessee, ample retirement resources exist right in your backyard.

Known for its music scene, southern hospitality, and affordable cost of living, Nashville is an extremely popular destination for retirees. Before joining the retiree ranks, you’ll need a strategic blueprint for how to maximize savings while living in Nashville. 

This blog provides essential tips – from projecting your retirement income needs to consulting financial experts – to better and ready your finances for the next chapter ahead. Follow this retirement planning guide tailored for Nashville residents to help enable the retirement lifestyle you envision. 

Retirement Planning in Nashville - Why is Retirement Planning Important - Retirement RenegadeWhat is Retirement Planning?

Retirement planning is setting retirement income goals and determining your actions and decisions necessary to achieve those objectives. It involves identifying your various income sources, estimating your expenses, implementing a savings program, and managing assets and risk. 

Retirement planning ensures that you have sufficient income to live comfortably and securely after you stop working. It’s a long-term approach that considers inflation, health care costs, life expectancy, and desired lifestyle. Effective retirement planning requires regular assessment and adjustments to adapt to life’s changing circumstances, ensuring that your retirement years are financially secure and fulfilling.

Why is Retirement Planning Important?

Retirement planning greatly determines your financial security and quality of life in your later years. It involves more than just saving money; it’s about making informed decisions today to ensure a stable and comfortable future. Without a solid plan, you risk running out of funds, facing unexpected expenses, or being unable to maintain your desired lifestyle post-retirement.

Retirement planning helps you understand how much you need to save, the best investment strategies to grow your wealth, and how to protect yourself against inflation and other financial risks. Also, it gives you peace of mind, knowing that you’re prepared for the future, allowing you to enjoy your retirement years with confidence and security.

Factors to Consider When Planning for Retirement

When planning for retirement, several key factors need to be considered to ensure a comfortable and secure future. One of the primary considerations is your expected retirement age and the corresponding duration of your retirement, which influences how long your savings need to last. It’s also important to estimate your retirement expenses, including day-to-day living costs, healthcare, and leisure activities, and compare them against your anticipated retirement income from sources like savings, pensions, and Social Security. 

Also, accounting for inflation, investment risks, and potential changes in tax laws is necessary for a realistic and effective retirement plan. Collectively, these factors shape your retirement strategy and determine the necessary steps to take to achieve your retirement goals.

The First Steps of Retirement Planning

Your retirement planning today ensures financial security in your later years, but it can be a challenge to know where to start. This section will guide you through the first steps to take when planning for your retirement.

Determine Your Retirement Income Needs

To effectively prepare for retirement planning in Nashville, it’s crucial to apply a thoughtful and comprehensive approach. You must have a clear and better understanding of your income needs when planning for retirement in Nashville. This process involves several key steps:

Estimating Your Living Expenses

Your monthly financial statement is important for tracking your expenses and savings, helping you stay on course with your retirement planning objectives. 

Start by estimating your monthly and annual living expenses in retirement. Consider the cost of housing in Nashville, which may include mortgage payments, rent, property taxes, and homeowners’ insurance. Factor in utilities like electricity, water, and internet, as well as day-to-day expenses such as groceries, transportation, and dining out. Nashville’s vibrant culture also offers numerous entertainment options, so budget for leisure activities like attending concerts, visiting museums, and exploring local attractions.

Healthcare and Medical Costs

Healthcare costs can be a significant part of your retirement budget, especially as you age. Research the average healthcare costs in Nashville, including Medicare premiums, supplemental insurance, and out-of-pocket expenses for prescription medications, dental care, and vision services. Consider the proximity to healthcare facilities and services in Nashville, such as hospitals and specialty clinics.

Pension and Social Security

If you are entitled to a pension or social security income, calculate how much you can expect to receive monthly. For social security, use the Social Security Administration’s online calculators to estimate your benefits based on your earnings record and retirement age. If you have a pension, check with your employer or pension plan administrator for details about your expected benefits.

Calculating the Gap

Calculate the financial gap between your expected expenses and your guaranteed income (pension and social security). This gap represents the amount you’ll need to cover through other retirement savings and investments. Consider how living in Nashville, with its specific cost of living and tax advantages, impacts this calculation. The goal is to ensure that your retirement income comfortably covers your lifestyle in Nashville, allowing you to enjoy your retirement years without financial stress.

Retirement Planning in Nashville - Evaluate Your Current Savings and Investments - Retirement RenegadeEvaluate Your Current Savings and Investments

Taking Stock of Retirement Savings

Begin by assessing your existing retirement savings. Look into your 401k plans, IRAs (both Traditional and Roth), as well as any other retirement-specific accounts like a SEP IRA or a SIMPLE IRA if you’re self-employed or a small business owner. It’s important to know the total value of these accounts and how they’ve been growing over time.

Analyzing Contribution Rates

Examine your current contribution rates to these accounts. Are you maximizing your employer’s 401k match, if available? Are you contributing enough to IRAs to get the full tax advantage? Consider increasing your contributions if you’re not already maxing out these limits.

Investment Mix and Performance Review

Critically evaluate your investment allocation within these accounts. How much is invested in stocks, bonds, mutual funds, or other assets? Are your investments diversified to mitigate risk? Assess the performance of these investments compared to their respective benchmarks. If your portfolio hasn’t been rebalanced in a while, now might be a good time to do so, especially to align with your risk tolerance as you get closer to retirement. 

You can also engage with seasoned investors who can provide invaluable insights into the dynamic Nashville market, helping to shape a retirement strategy that maximizes potential returns.

Determining Your Retirement Timeline

Consider when you plan to retire. This timeline will impact how aggressively or conservatively you should be investing. The closer you are to retirement, the more conservative your portfolio typically becomes to preserve capital.

Understanding Tax Implications

Understand the tax implications of your investments, particularly the difference between traditional and Roth accounts. Withdrawals from traditional retirement accounts are taxed as regular income, while Roth accounts offer tax-free withdrawals in retirement.

Consulting with a Financial Advisor

If this process seems overwhelming, consulting with a financial advisor can provide clarity. They can help you understand your current position, suggest adjustments to your investment strategy, and ensure that your savings align with your retirement goals.

Assessing Additional Savings and Investments

Apart from retirement accounts, consider other savings and investments you may have and conduct a thorough analysis. This includes emergency funds, taxable brokerage accounts, real estate investments, and any other assets. These resources can play a crucial role in your overall retirement strategy.

By thoroughly evaluating your current savings and investments, you can make informed decisions to ensure a financially secure retirement. The key is to start early, make smart investment choices, and adjust your strategy as needed to stay on track toward your retirement goals in Nashville. 

Nashville Retirement Planning - Explore Relocating vs Staying in Nashville for Retirement - Retirement RenegadeExplore Relocating vs. Staying in Nashville for Retirement

Cost of Living in Nashville

When considering Nashville as your retirement haven, you must delve into the specific costs you’ll encounter. Nashville’s housing market, for example, has its unique characteristics; the median home cost is distinct from both national averages and those of nearby states. Investigate property taxes, which in Tennessee can be relatively lower compared to other states. Also, assess the average costs for utilities, groceries, and transportation in Nashville. Leisure activities, a significant aspect of retirement life, can vary in cost, too. From enjoying country music shows to participating in community events, each activity adds to your lifestyle expenses.

Comparing Other Locations

Retirement is an opportunity to reconsider your location. When looking beyond Nashville for relocation, analyze cities or states that align with your preferences. For example, compare the cost of living in a beachfront community in Florida or a quiet town in the Carolinas with Nashville. Examine relocation aspects like climate, which can greatly influence your daily life and health in retirement. Look into other states’ housing markets, utility costs, and lifestyle expenses. Also, consider the community amenities each location offers, such as access to healthcare facilities, recreational centers, and cultural activities that align with your interests.

Community and Family

The emotional and social aspects of retirement are as important as the financial ones. If your family is settled in or around Nashville, staying close to them might offer emotional security and practical support. Alternatively, if relocating brings you closer to family members, consider the benefits of being near loved ones, especially grandchildren. Also, reflect on your connection to the Nashville community. The social networks, friendships, and community involvement you’ve built over the years can be a significant source of support and happiness in retirement.

State-Specific Considerations

Tennessee, including Nashville, provides certain financial benefits for retirees. There is no state income tax on wages, and most interest and dividend income are tax-exempt. This can be particularly advantageous for retirees with investment income. However, consider the sales tax rate in Tennessee, which is one of the highest in the U.S., impacting your day-to-day expenses. Healthcare costs in Nashville and broader Tennessee also need to be assessed, including the availability of senior healthcare services and long-term care facilities. By understanding these state-specific factors, you can make a more informed decision about whether staying in Nashville or relocating aligns best with your retirement goals and financial situation.

Retirement Planning in Nashville - Find a Financial Advisor or Resources to Help - Retirement RenegadeFind a Financial Advisor or Resources to Help

Professional Guidance

Finding a reliable financial advisor is a crucial step in retirement planning. In Nashville, there’s a wealth of expertise available, with firms such as Retirement Renegade specializing in tailoring retirement strategies to individual needs. These advisors can help navigate the complexities of investment management, tax planning, and estate planning, ensuring that your retirement plan is robust and flexible. They can also guide you through the nuances of retiring in Nashville, from understanding state-specific tax benefits to optimizing your investments for the local economic climate.

Educational Resources

Nashville offers a plethora of educational resources for those planning retirement. The Nashville Public Library often hosts free financial planning workshops, and local community centers like the FiftyForward Donelson Station provide seminars specifically for retirees or those nearing retirement. Additionally, universities like Vanderbilt and Belmont occasionally offer community courses or lectures on financial literacy and retirement planning. These resources are invaluable for staying informed about the latest trends and strategies in retirement planning.

Personalized Recommendations

Conducting regular reviews of your financial portfolio is key to ensuring your retirement plan stays aligned with your goals and market conditions. With the assistance of a skilled financial advisor, you can receive personalized recommendations that are specifically tailored to your retirement objectives. They can help you determine the ideal balance between risk and return in your investment portfolio based on your individual risk tolerance and retirement timeline. Advisors can also assist with more complex decisions, like whether to opt for a traditional IRA or a Roth IRA, based on your current income and anticipated tax situation in retirement. By taking into account your personal goals, whether it’s traveling, purchasing a retirement home, or leaving a legacy, they can help craft a retirement plan that not only meets your financial needs but also aligns with your life aspirations.

Conclusion

Preparing for a rewarding and financially secure retirement in Nashville requires taking proactive steps today. From crunching the numbers on projected costs to evaluating options and seeking expert guidance, this retirement planning checklist solution has covered key bases. Implementing long-term preparation lets you learn and realize your retirement dreams right here in Music City.

Nashville offers appealing amenities for retirees, like a low cost of living, vibrant arts and dining scenes, community engagements, and outdoor lifestyle access. Protecting your ability to comfortably afford living here through methodical saving and investing ensures you can enjoy these perks. Consult trusted financial advisors to customize a comprehensive approach.

Retirement awaits as your chance to relax and pursue passions after years dedicated to work. Avoid just fantasy and myths by taking deliberate action to ready your Nashville retirement. The steps outlined equip you with control over your financial outlook. So breathe easier as your retirement edges nearer, redirect energy toward fun ventures, and look ahead to making priceless memories in the next vital chapter of living here.

Frequently Asked Questions

To find a financial advisor in Nashville, you can start by searching online financial advisor directories, asking for recommendations from friends or colleagues, or consulting local financial institutions. Websites like the Certified Financial Planner Board of Standards or the National Association of Personal Financial Advisors can be useful.

Retirement planning involves preparing financially and personally for the phase of life following the end of one's career. This process includes identifying retirement goals, estimating the amount needed to sustain the desired lifestyle, and devising a savings and investment strategy to achieve these objectives. It often encompasses considerations such as pension management, social security benefits, personal savings, and investment income and may also involve estate planning and healthcare provision.

Starting retirement planning involves several key steps. First, it's important to assess your retirement goals and the lifestyle you wish to maintain. This includes estimating necessary living expenses and any additional costs like travel or hobbies. Next, calculate your potential income sources in retirement, such as pensions, savings, and investments. Then, create a savings plan that includes regular contributions to your retirement accounts like 401(k)s or IRAs. Consider consulting with a financial advisor in Nashville for personalized advice and to develop an investment strategy compatible with your risk tolerance and time horizon.

Retirement planning is imperative for ensuring financial security and comfort in later life. It allows individuals to accumulate the necessary resources to sustain their desired lifestyle post-retirement without relying solely on external sources like government pensions. Effective retirement planning helps manage the risks associated with outliving savings, facing unexpected healthcare costs, and dealing with inflation. Additionally, it provides peace of mind and the freedom to enjoy retirement years with fewer financial worries, enabling a focus on personal interests, hobbies, and family.

It's advisable to begin planning for retirement as early as possible, ideally in your 20s or 30s. Starting early allows more time for your investments to grow through the power of compounding interest. Even if you start later, it's never too late to begin. The key is to start as soon as you can, adjusting your savings and investment strategies according to your age, retirement goals, and financial situation.

The first steps of retirement planning involve setting clear retirement goals, assessing your current financial situation, and estimating the amount you'll need to retire comfortably. This includes calculating your expected retirement expenses and considering potential income sources such as social security, pensions, and personal savings. Creating a savings plan, starting a retirement account like a 401(k) or IRA, and considering a diverse investment portfolio are also crucial initial steps. Seeking advice from a financial planner can be beneficial in navigating these early stages.

Investing is usually considered a better option than simply saving for retirement due to the potential for higher returns. While savings accounts provide stability and low risk, they usually offer lower returns, often not enough to keep pace with inflation. In contrast, investing in assets like stocks, bonds, or mutual funds can yield higher returns over time, helping to grow your retirement fund more significantly. This growth is crucial for ensuring that your retirement savings not only maintain but also increase in value, providing you with sufficient funds to support your lifestyle in retirement.

The rate of return you should use for retirement planning depends on your investment mix, risk tolerance, and time horizon. A common approach is to use historical averages as a guide, with a conservative estimate being around 4-6% for a balanced portfolio. Younger investors might aim for a higher rate due to a longer investment period and greater risk tolerance, potentially targeting 6-8%. However, it's important to remain realistic and adjust these expectations based on current market conditions and personal circumstances.

To account for inflation in retirement planning, it's crucial to use "real" rather than "nominal" numbers in your calculations. This means adjusting your retirement savings goals to reflect the expected future cost of living. Using an average long-term inflation rate (commonly around 2-3% per year) helps estimate how much your expenses could increase over time. Additionally, investing in assets that historically outpace inflation, such as real estate or stocks, can help preserve the purchasing power of your retirement funds.

Conducting a financial analysis for retirement planning involves evaluating your current financial status, including income, expenses, debts, and assets. You should consider your anticipated retirement age, expected lifestyle, and potential income sources like pensions or Social Security. It's also important to assess your risk tolerance and investment preferences, as these will shape your savings and investment strategies. Regular reviews and updates to your plan are necessary to accommodate life changes, economic fluctuations, and shifts in financial goals.

Life insurance can play a strategic role in retirement planning, particularly in managing risks and providing financial security for dependents. Permanent life insurance policies, like whole or universal life, can accumulate cash value over time, which can be a source of tax-advantaged income in retirement. The death benefit can also offer peace of mind by ensuring that your dependents are financially protected. It’s important to evaluate how life insurance fits into your overall financial plan and to choose a policy that aligns with your retirement goals and needs.

When planning for retirement, investors should consider their time horizon, risk tolerance, and investment goals. Diversifying investments to mitigate risk is vital, as is choosing a mix of stocks, bonds, and other assets suitable for their age and retirement timeline. They should also factor in retirement income sources, like pensions or Social Security, and plan for healthcare costs and potential long-term care needs. Regularly reviewing and adjusting the investment portfolio to align with changing market conditions and personal circumstances is crucial.

The inflation rate to use for retirement planning should be based on historical averages and future projections. A commonly used figure is around 2-3% per year, which has been the average over several decades. However, it's important to be flexible and adjust this rate as economic conditions change. Considering higher rates in your calculations can also provide a more conservative approach, ensuring that your retirement savings have a buffer against unexpected rises in inflation.

The best retirement planning software often depends on individual needs and preferences. Popular options include Personal Capital, which offers a comprehensive view of your finances and an effective retirement planner; Vanguard's Retirement Nest Egg Calculator for its simplicity and focus on investment-based retirement planning; and Quicken, known for its detailed budgeting and investment tracking tools. These tools often offer features like expense tracking, investment analysis, and scenario planning to help users make informed decisions about their retirement. It's advisable to choose software that aligns with your specific financial situation and retirement goals.

The best person to talk to about retirement planning is a certified financial planner (CFP) or a retirement advisor. These professionals are trained in retirement planning and can provide personalized advice based on your financial situation.

Retirement planners can be worth it as they offer expert advice tailored to your financial situation, help in creating a comprehensive retirement plan, and assist in managing investments and savings strategies. The value often depends on your individual needs and financial complexity.

Yes, there is a difference. While both can provide financial advice, a retirement advisor specializes in retirement planning, focusing on strategies for saving, investing, and distributing funds in retirement. A financial advisor offers broader financial planning services, including retirement planning.

The three big mistakes are: not starting to save early enough, underestimating the amount needed for retirement, and not considering the impact of inflation and healthcare costs on retirement savings.

The "golden age" of retirement traditionally refers to the age of 65, which has been a common retirement age in many countries. However, this can vary based on individual financial situations, health, and personal goals.

It's never too late to start saving for retirement. While starting earlier is beneficial, starting at any age can still help in accumulating savings and improving financial security during retirement.

Financial planners, retirement advisors, and investment advisors are professionals who help people plan for retirement. They provide advice on savings, investment strategies, and retirement income planning.

The two main types are fiduciary advisors, who are legally obligated to act in the client's best interest, and non-fiduciary advisors, who may have conflicts of interest and sell products on commission.

The biggest risk in retirement is outliving your savings, known as longevity risk. This is compounded by other factors like inflation, healthcare costs, and market volatility.

  • Start saving early.
  • Regularly contribute to a retirement account.
  • Diversify investments.
  • Plan for healthcare costs.
  • Consider the impact of inflation.
  • Set a retirement budget.
  • Understand Social Security benefits.
  • Plan for taxes in retirement.
  • Have an emergency fund.
  • Review and adjust the plan periodically.

The safest place to put your retirement money depends on your individual risk tolerance and financial goals. Typically, low-risk options include savings accounts, government bonds, and fixed annuities. Diversifying your investments across different asset classes can also help manage risk. It's advisable to consult with a financial advisor to tailor a strategy to your specific needs.

The best type of financial planner depends on your personal financial situation and goals. Certified Financial Planners (CFPs) are often recommended as they are required to meet rigorous education and ethical standards. Look for planners who act as fiduciaries, meaning they are legally obligated to put your interests first.

The best kind of financial planner is one who understands your financial goals, risk tolerance, and personal circumstances. A fiduciary financial planner, who is bound to act in your best interests, is generally considered preferable. Additionally, planners with a strong track record, transparent fee structure, and relevant certifications (like CFP or Chartered Financial Analyst) are often sought after.

Financial advisors might recommend different strategies for investing $10,000 based on your risk tolerance, financial goals, and time horizon. Common suggestions could include investing in a diversified mix of stocks and bonds, contributing to a retirement account like an IRA, or starting an emergency fund if you don't already have one.

Financial advisors can be paid through various methods: fee-only (charging a flat fee, hourly rate, or a percentage of assets managed), commission-based (earning commissions on products they sell), or a combination of both. Fee-only advisors are often recommended as they may present fewer conflicts of interest.

The cost of hiring a financial advisor varies widely. Fee-only advisors might charge a percentage of assets under management (AUM), typically ranging from 0.5% to 2% annually. Others may charge flat or hourly fees. Additional costs can include trading fees, fund expense ratios, and possible commissions.

Yes, you can hire someone to manage your finances for retirement. Financial advisors or planners can help you with retirement planning, investment management, and other financial decisions. Ensure that they understand your retirement goals and have the necessary expertise and credentials to assist you effectively.

In Nashville, the best place to get financial advice is typically through a certified financial planning (CFP) professional or a registered investment advisor (RIA). You can find such professionals through referrals from friends or family or by using reputable online platforms such as the Certified Financial Planner Board's website or the Financial Planning Association.

A good financial advisor should be certified (such as a CFP), have a strong track record, be transparent about their fees, and have no history of disciplinary actions. Additionally, they should listen to your goals and concerns, provide clear and understandable advice, and have a fiduciary responsibility to act in your best interest.

It is generally safe to use a financial advisor, especially if they are properly licensed and adhere to fiduciary standards. It's important to conduct due diligence by checking their credentials, understanding their fee structure, and ensuring they have a good reputation in the industry. Always verify their background through regulatory bodies like the SEC or FINRA.

Whether to use a financial advisor or do it yourself depends on your financial knowledge, the complexity of your financial situation, and the amount of time you can devote to managing your finances. If you have a straightforward financial situation and are comfortable managing your own investments, you might opt for a DIY approach. Otherwise, seeking professional advice can be beneficial.

To find a financial planner in Nashville, you can start by asking for referrals from friends, family, or colleagues. Additionally, you can use online resources like the Certified Financial Planner Board's website, the Financial Planning Association, or the National Association of Personal Financial Advisors (NAPFA) to find qualified planners in your area.

Five Things Most People Don’t Understand About FDIC Deposit Insurance

Five things most people don’t understand about FDIC deposit insurance

Some retirees object to moving their cash from a low-interest-paying bank account or CD to another type of “safe money” instrument because there is no FDIC insurance on those financial vehicles. 

This common fear stems, in part, from the fact that many younger retirees had parents who grew up during the Great Depression and have told them horror stories about bank failures. Nearly 9,000 banks failed between the late 1920s and 1930s, and Americans lost deposits equivalent to $140 BILLION in today’s dollars.

Since its creation by Congress in 1933 and through its deposit insurance coverage created a year later, the Federal Deposit Insurance Corporation (FDIC) has gained Americans’ confidence and trust. Since that time, no depositor has lost a penny due to a bank failure.

Unfortunately, some retirees continue to cling to a handful of myths about the FDIC and deposit insurance that can mislead them into overstating its’ ability to protect all their savings and investments.

Here are a few of the most common myths about the FDIC and its deposit insurance.

1. The FDIC will keep your money safe from fraud.

Typically, if your bank account has been compromised through unapproved access, fraud, or theft, you are only responsible for the first $50 of unauthorized funds. But this is due to Federal regulations and NOT FDIC insurance.

2. If I keep all of my accounts in the bank, the FDIC protects me.

Some people refuse to move their retirement money from their bank’s investment office because they believe that FDIC insurance covers every dollar they have in the bank, regardless of the type of accounts. However, FDIC insurance only covers specific kinds of accounts, like checking and savings. It does not protect any investments or insurance purchased through the bank. Talk with reliable retirement financial planning service provider before you keep all of your accounts in the bank!

3. FDIC insurance covers mutual funds.

Many people favor investing in mutual funds because they promise higher rates of returns than things such as Certificates of Deposit. They often purchase these from a bank, thinking that the FDIC automatically protects them. However, funds invested in mutual funds are NOT deposits. The FDIC or other federal agencies do not insure them.

4. Treasury securities are protected by FDIC insurance.

Treasury securities, including T-bills, are not covered by deposit insurance. Redemption proceeds, interest, and principal from treasury securities are covered, however, when deposited into your bank account, up to the $250,000 limit.

5. Safe deposit boxes are insured by the FDIC.

FDIC deposit insurance offers no protection for money, and valuables kept in a safe deposit box. 

As you can see, FDIC insurance covers actual bank deposits and no other products a bank may offer its’ customers.

Other types of financial vehicles, such as annuities and life insurance, have their own unique protection protocols in place if the company fails. At the same time, the Securities Investor Protection Corporation (SIPC) provides coverage for securities investors.

If you are hesitant to move your money out of underperforming bank accounts because you fear losing FIDC protection, I suggest that you do a bit of research.

Learn more about the FDIC and SIPC and the different ways annuity and insurance companies work to protect their clients.

While bank and insurance company failures do happen, a tighter regulatory environment, along with a more educated consumer base, has made those failures a lot less likely.

8 Keys to Financial Wisdom For Your Successful Retirement

8 Pieces of Financial Wisdom to avoid money mistakes

“Times are changing, society’s values are shifting, and the financial system is evolving. Are you still following 20th-century advice?” – Andrew Winnett 

A rapidly-changing economy and constantly morphing financial systems have rendered much of the sacred canon of money advice incomplete, obsolete, or just plain wrong.

So, whether you are getting your financial wisdom from your parents, colleagues, or television pundits, you need to avoid these tarnished pearls of wisdom. Economic survival post-COVID-19 requires all of us to take a different approach to our finances, especially if we plan on ever being able to retire.

Here are a few nuggets of financial wisdom that are long past their expiration date. Unfortunately, these stinky nuggets continue to spread through the population like bad cat memes and ice bucket challenge videos. Check these out before you make an embarrassing and potentially costly money mistake.

1. You should buy term insurance and invest the rest.

Buying term and investing the difference, also known as BTID, is a philosophy developed by insurance advisor A.L. Williams. It is regularly spouted by financial entertainers such as Suze Orman and Dave Ramsey. Because tons of books already exist on this subject, let’s not get bogged down in details in this short article. 

Succinctly stated, the problem with BTID is that you have to invest the difference for it to work. Most folks don’t, especially in perilous financial times. When their premiums start to go up, insureds tend to let their policies lapse and spend the difference. It’s a flaw in human nature that all the slick BTID marketing has failed to overcome.

Insurance does have a place in your financial health plan. But that place is not what you may think. Do yourself a favor and make an appointment with a financial advisor conversant in how smart people use life insurance to grow and protect wealth. Hint: They rarely buy term and invest the difference.

2. Find a great company and work there until you retire.

Back in the good old days (the 70s and 80s,) Dad donned his lime green leisure suit and headed off to work at ABC Widget Company. After 25 long years of ingratiating himself to his bosses and never missing a single sales meeting, Dad retired with a pension and a gold watch. He probably still believes that you will too.

Bureau of Labor Statistics reports make it apparent that a scenario of starting and ending your career with a single employer is highly unlikely. The Bureau says the average American changes jobs ten to fifteen times in their lifetime and spends under five years in every position. 

This isn’t necessarily a bad thing, though. Because if you transition strategically, improving your salary and benefits each time, you have a chance to improve your financial situation dramatically. Staying at one job might give you a sense of stability and security, but the trade-off is less money than you might have earned elsewhere. Toss the gold watch and go where you are valued.

3. Your home is your biggest ASSET.

No, Virginia, it’s not. When you have something that puts money IN your pocket, it’s an asset. When you have something that takes money OUT of your pocket, it’s a LIABILITY

Unless you rent your home out, it won’t be putting money into your bank account. Instead, your house will probably be a black hole that vacuums up every penny of disposable income you have. You’ll be paying for things such as roofs, HVAC, appliances, landscaping, and plumbing, to name just a few. Homes can be more expensive than you imagine.

Think long and hard before deciding to purchase one. If you’d like to own real estate, consider investing in a duplex or small apartment complex. Doing so will allow you to live in one unit and rent the rest to create cash flow for investing.

4. The correct asset allocation can be determined using your age

Your parents, siblings, or co-workers might have told you that you should invest your age (in percentages) in bonds and put the rest in stocks. The “60-40” rule means that if you are 40, you should have 40% in bonds and 60% in stocks. But, in an age of artificially low interest rates, bonds are no longer the profitable investment they used to be. Even government-backed bonds are sitting at deficient levels. You can and should do better.

5. A student loan is "good debt."

In the 1970s, only around 10% of the population had college degrees. Spending time and money to get a degree made sense because it helped set you apart from all those other job candidates. A degree demonstrated initiative and drive to prospective employers.

These days, thanks to a tsunami of student loan money, nearly everyone has a degree. From the Uber driver to the local barista to that guy walking around with a sign that says “Zombies Are Coming, ” we are now a population for whom degrees are a given.

In 2019, over 35% of Americans had at least a 2-year college degree. Yet, it is now evident that college is no longer the golden ticket to success. 

The Economic Policy Institute identified this shift as far back as 2015 when it observed that “…
Workers with a four-year college degree saw their hourly wages fall 1.3 percent from 2013 to 2014, while those with an advanced degree saw an hourly wage decline of 2.2 percent.”

(https://www.epi.org/publication/even-the-most-educated-workers-have-declining-wages/)

Our current higher education is a bloated, inefficient, and overpriced relic of bygone days. Having a student loan hanging over our heads has not proven to be synonymous with financial success.

6.You should always pay off your mortgage early if possible.

The keyword here is “always.”

You see, paying off a mortgage early, like many financial decisions, depends on your goals, risk tolerance, and current financial situation rather than some set-in-concrete rule.

Intuitively, getting out from under a heavy debt load seems like a great idea. But what if you have a low interest rate on your mortgage? What if you had a mortgage that was, say, 2.7%?

Would the extra dollars you use to pay off that mortgage early be better used to invest in an alternative investment where you might be able to earn twice as much? It’s something to think about.

The opposite is also true.

If your mortgage is locked into an uncomfortably high rate, paying it off early might make sense. Either way, you need to seek an expert’s advice before doing something you might later regret.

7. You should have an emergency fund to last 12 months.

You hear this a lot, especially during the pandemic. Overall, the concept is sound. You DO need an emergency fund. However, if you are financially stable with little debt, six months of emergency savings should be sufficient. Remember, unless you are following specific cash management strategies that allow your money to work more efficiently, emergency dollars become lazy money. That is, they sit around in low-interest money market accounts or CDs and do nothing. 

Once used, you lose these dollars, along with the opportunity for them to work harder for you. The current financial crisis has made it clear that every dollar you have needs to do the work of three or four.

8. Retirement should be built on a three-legged stool

Personal savings, pensions, and social security are the legs of a formula for retirement bliss known as the “three-legged stool.” The 21st Century has rendered this strategy useless, however.

Less than 15% of Americans have or will receive pensions (defined contribution plans) when they retire. That’s because employers wanting to shift the burdens and costs of retirement from the company to the employees, eagerly embraced “qualified plans” like 401ks and IRAs.

Making fee-laden, choice-restricted plans work to their advantage is entirely up to the employee. To date, the results of this experiment in the transfer of responsibility have been less than spectacular.

A 2019 survey by Gobankingrates.com revealed that almost 65% of Americans will not have enough money when they are ready to retire. This includes those with 401k and IRA money.

To sum it up, times are changing, perhaps even faster than most of us are willing to admit. It makes sense to filter the advice we use to create better financial outcomes through an entirely new set of lenses. It also makes sense to build a team of trustworthy, competent financial advisors who have the training, tools, and skillsets to help you discover the truth about money.

Coronavirus Has Exposed Retirement Financial Land Mines

coronavirus and retirement financial planning facts

If you’re like most people, you are somewhat, if not entirely, burned out on the whole coronavirus situation.
It’s understandable given the tsunami of confusing information directed at us over the past few weeks.

However, I advise you not to allow burnout to keep you from taking a closer look at how your finances fared during the pandemic. You need to look for weaknesses in your current money strategy and discover ways to eliminate those weak links. If you’re like most people, isolation, self-quarantine, and time off work gave you time to think about what matters most to you. You may have discovered how important it is to have contingency plans in place when disasters and economic downturns arrive.

What experts are saying about surviving financially after Coronavirus?

You probably also concluded that having reliable streams of income is essential, whether it’s to keep you afloat during a pandemic or to ensure that you have a retirement that is less stressful and more enjoyable. While we don’t know precisely what the world after COVID-19 will look like, most experts agree that it will be radically different in several key ways. If you want to survive financially, with your retirement blueprint intact, then you need to know what experts are saying about the new normal.

covid 19 pandemic financial crisis facts

Researchers recently surveyed a cross-section of working Americans to discover how the pandemic has altered their financial situations and shifted their areas of concern.

According to the survey, the use of savings as a backstop against the economic hardships created by job loss was a common occurrence. 63% of respondents surveyed worried about having to dip into this pot of cash and eventually running out of money later. Directly related to that loss of savings is, of course, the real fear of not having enough money in retirement. 30% of respondents also indicated that their stimulus checks, designed to help reboot the economy, are either being saved or used for necessary living expenses such as food. Few people are using them to buy consumer goods beyond those required for survival.

This means that the $1,200 stimulus checks received by most Americans will have a negligible impact on the economy as a whole. It seems as if we won’t be able to cure the effects of the coming recession by throwing money at it as we have done during past financial crises. That will make for a long road to full recovery.

What HAS the coronavirus taught us as far financial lessons are concerned?

Well, for one thing, it has hammered home the need to be prepared for health issues that will arise now and in the future. Coronavirus shone a spotlight on our fragmented and weak medical system and the high costs associated with long term illnesses. More people than ever have started asking questions about how they can protect their retirement cash and assets against the economic devastation of chronic or life-threatening diseases, accidents, or injuries.

Another thing, as I mentioned previously, is that many people have begun to understand how vital income planning is. People who plan to retire or downsize their lives within the next five years MUST have streams of income in place.

retirement income planning after covid

Often, the advisor who helped a person during the accumulation phase of their financial life is not qualified to set up this kind of income plan. The reason for this is that a typical financial advisor doesn’t have enough specialized knowledge about safe money products. Such knowledge is necessary for helping clients make the right choices to create lifetime income. When you are putting together an income plan, be sure to seek the advice of a qualified safe money expert who understands the right way to use products such as annuities, life insurance, and other risk-averse products.

Finally, coronavirus has revealed the debt monster.

People who have been laid off or have lost their businesses are learning some painful lessons about how much despair and anxiety debt can create. Many of us now question our decisions to purchase new cars, homes, and high-ticket items. We may wonder if the loan taken out for Jr’s college was worth the problems we are now experiencing.

I predict that in the future, people will be a lot more careful about how they spend their money and will better understand the concepts of compounding, inflation, and lost opportunity costs. While it may take some time and will undoubtedly be painful at first, I believe that our nation will be able to move past the pandemic and achieve some measure of economic recovery. It could take years, though, so we need to prepare mentally, financially, and physically for what lies ahead.

We will want to look at our finances in an entirely different way, realizing how much thoughtful, data-driven planning can help us overcome setbacks. We will also need to reformulate our current income and retirement plans to include new realities brought about by the pandemic.

It will not be impossible to accumulate wealth or retire after coronavirus.

Still, it will require us to take a fresh approach to how we view finances and to partner with advisors who have our best interests in mind.