November 2020 - KMH Wealth Management

The holidays are officially upon us and with a house full of young kids that can only mean one thing: time to start planning. If your family is anything like mine, planning for Thanksgiving doesn’t start the week of. Even though there’s a pretty set standard of how the day will go, there’s been an family email chain for the past week where we clarified what time we are expected to arrive and most importantly who was bringing what dishes.

I read recently that the average American plans more for vacation than they do for retirement and it is safe to say the same about the holidays. Why is that most will take the time to plan out every detail of an event that will last a few hours, but take at face value assumptions that could affect the rest of their lives? This holiday season, I encourage you to spend at least a few minutes of your time digging a little deeper into some age-old retirement traditions (or rather misconceptions) that need to be set straight.

Myth #1: ‘If I have $_____, I will be able to live comfortably in retirement.’ Reality: There is no magic number. Maybe you have an idea of what it takes you to retire, but that number could look substantially different from your friend down the street. The amount you need in retirement is driven primarily by your retirement spending and long term goals. Does your current employer pay for the cost of your medical care? You may not need as much as someone else who has to pay these bills out of pocket. Planning to buy a second residence out of state? You’ll need to account for that as well.

Myth #2: ‘Once I retire, all of my money should be in ‘conservative’ investments like bonds, cash, and CDs.’ Reality: Asset allocation is specific to a person/couple, not an entire life-stage group. This may have been true fifty years ago when life expectancy through retirement was relatively short. Today, the average couple has a 97% chance of at least one spouse making it until age 93. If that same couple retires at age 65, they need their funds to last them for another 28 years! This isn’t exactly a short-term investment outlook and you’ll likely need more saved up than those with a long-term investment strategy.

Myth #3: As long as I only withdraw 4% of my portfolio, I will have enough money to live off of. Reality: This is one of the oldest retirement assumptions in the book driven largely by market assumptions. While it may not be entirely wrong, it was never meant to provide a guarantee of security in retirement. Similar to Myth #1 above, this assumption isn’t dynamic enough to forecast what retirement looks like for you, your way.

So just like with the holidays, you could assume that the way things have always been with retirement planning are the way they will continue to be. Nevertheless, just like your family member that changes up the recipe on her dish each year, the truth is that the difference is in the details and minor changes can make a big impact on the end result.

Work with a CFP® professional to see if you are on track for the retirement you’re expecting.

Published in the Victoria Advocate

Sara Potts is a CFP® professional for KMH Wealth Management, LLC.

“When you’re young you have time and energy but no money. When you get older you have money and energy but no time. And later when you finally have time and money, you no longer have energy.” – Anonymous

During our early adulthood, prior to or at the start of entering the working world, we have what seems like endless amounts of time and energy. I remember my summer breaks from high school thinking, I am “so bored,” only to wish now I had the free time that I so easily squandered. After this phase of life passes, each day seems to have less and less free time, but in replacement, a job provides money and coffee now provides energy. This adage of time, energy, and money has the same application in life as it does for savings and investments.

While you are young, you have years of being in the working world and, receiving a steady income. Years to dream about how you will spend your retired days when you are no longer working. Even though I enjoy my job, I still find myself daydreaming about how I will one day be relaxing at the beach with a fruity drink in hand as opposed to the annual vacation. During the beginning of your career, time and energy are truly your greatest asset. While you dream…your long time-horizon, with help from compound interest, can allow any amount of money you are able to save to grow into a sizable amount.

However, when you are closer to the golden years when you are going to be needing these saved dollars, you have less time for the power of compounding to work. At this point, you are lacking the lengthy time horizon and energy you once had. On a plus side, you probably have a higher earning potential than you did at the start of your working life. You have more money to apply to saving for your financial goals. If you are just starting to save for retirement at this point, you must save a larger portion of income to load up the retirement bucket since you lack the gifts you once had in your youth.

It goes to say, when you have nothing else but time and energy of your youth, you must use them to your advantage. Make the momentum of your early years count, by letting your assets of time and energy grow your limited money into something substantial.

Give a bit of your time and energy and find a CERTIFIED FINANCIAL PLANNER™ professional to help you start the process toward growing your money and making your early years count.

Published in the Victoria Advocate

Beth Koonce is a CFP® Professional for KMH Wealth Management, LLC. She has been with the firm for over four years.

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