3101: Four Things That Can Derail Your Retirement Plans by Mike Ballew of EggStack on Financial Freedom

[00:00:00] Have you ever noticed how a calm mind can really set the stage for a good night's sleep? That's the idea behind our new podcast, Good Sleep. Greg, our host from Optimal Relationships Daily, is here to help ease you into a peaceful night's rest with some positive affirmations. And these affirmations aren't just comforting. They can help ease anxiety and nurture positive thoughts, setting you up for true good sleep.

[00:00:25] So press play on Good Sleep Tonight, because a good tomorrow starts with a good night's sleep. Just search for Good Sleep in your podcast app and be sure to pick the one from Optimal Living Daily. This is Optimal Finance Daily, Four Things That Can Derail Your Retirement Plans by Mike Ballew of EggStack.com.

[00:00:50] Life is unpredictable and even the best laid plans can go astray. If you want to improve the odds of a successful retirement, you need to consider the risks along the way. Here are four things that can derail your retirement plans. Number one, health issues. When things are going well, it's human nature to believe everything will stay that way. Unfortunately, sometimes our bodies have other plans.

[00:01:17] Even if your job's only physical requirement is that you sit behind a desk, health issues can prevent you from working. A recent study found that 30% of Americans plan to work beyond age 65. If you're one of them, you need to consider the possibility that you might not be able to do that. In fact, almost half of all current retirees were forced to retire earlier than planned due to unforeseen circumstances such as health issues.

[00:01:46] An unexpected end to your working days can stem from your declining health or that of your spouse or partner. Your significant other could experience health issues to the extent that you have to retire early to become their caregiver. Think about it. If your spouse or partner is forced to retire early and you quit your job to become their caregiver, that's a financial double whammy.

[00:02:11] Many employers offer disability insurance designed to replace some or all of your income in the event you become disabled. There's something else you can do to help mitigate this risk. Stay healthy. You have tremendous influence over your health. Regular exercise and eating right goes a long way towards keeping your body fit and healthy. Avoid unhealthy lifestyle choices like overeating, inactivity, smoking, and alcohol abuse.

[00:02:41] Number two, job loss. Another life event that can derail your retirement plans is a job loss. Besides the obvious loss of income, you also stop contributing to your 401k and lose any employer match. If it takes a long time for you to secure another position, the bills will start piling up. You might be forced to take out a 401k loan or worse, make an early withdrawal.

[00:03:08] When you withdraw funds from a tax-deferred retirement account, such as a 401k, the amount is taxed as ordinary income. In addition, if you're under 59 and a half years of age, a 10% penalty tax is assessed. While you're repaying the loan, which can take years, you're most likely not making any contributions or receiving any employer match. At best, it's not helpful. At worst, it's a knockout blow that you will never recover from.

[00:03:38] There are two approaches to minimize your risk that a job loss will derail your retirement plans. First, have an emergency fund. Depending on how employable you are, you should have between one and six months' salary in savings. Having those funds available can be the difference between being able to pay your bills or having to rob your retirement savings. Second, maintain a social network.

[00:04:05] Within your chosen field, make it a point to attend professional society meetings, seminars, and other networking opportunities. Develop new business relationships, and keep up with old colleagues. It's the best way to ensure that you'll be able to find a new position should the need ever arise. Number three, failure to launch adult children.

[00:04:30] The biggest reason Americans fail to adequately save for retirement is failure to launch adult children. Instead of saving for retirement, too many parents are providing financial support for adult children who are perfectly capable of supporting themselves. It's not selfish to stash your hard-earned cash into a retirement account instead of handing it over to your 30-something offspring.

[00:04:55] You'll be doing both of you a favor by telling them to step away from the video game and go get a job. And number four, loss of a spouse or partner. Whether by death or divorce, the loss of a spouse or partner can have a negative effect on your retirement plans. Setting aside the obvious emotional devastation, the financial impact can be significant.

[00:05:19] If it's a divorce that makes you suddenly single, depending on your situation, you may be liable for alimony and or child support. Huge payments like these make it almost impossible to save for retirement. That's why, if you get married later in life, it's important to have a prenuptial agreement. It can be as simple as agreeing that if you ever divorce, both parties will return to their premarital financial state,

[00:05:45] plus or minus an even split of any change in net worth that occurred over the course of the marriage. It's not romantic, but neither is having nothing but Social Security to retire on because you let somebody run off with your life savings. Social Security was never meant to be a retiree's sole source of income, and it is woefully inadequate to sustain the typical American lifestyle.

[00:06:09] If the loss of a spouse is due to their passing, Social Security defaults to the higher of your two benefits. That sounds good on paper, but if you think about it, you're still losing out. Before, you had one big check and one smaller check. Now, you have one big check and no smaller check. You're down one whole check. Conclusion Retirement planning is about planning. It's even in the name.

[00:06:36] But saving for retirement and having a decent plan is not enough. You need to consider these risks and any others that might apply to your particular situation. Things do not always go as planned. You will benefit greatly by considering these potential risks and having a contingency plan in place to deal with them. You just listened to the post titled,

[00:07:03] Four Things That Can Derail Your Retirement Plans by Mike Ballou of Eggstack.com. And now a word from our sponsors at Betterment. When investing your money starts to feel like a second job, Betterment steps in with a little work-life balance. They're an automated investing and savings app, which means they do the work. While they build and manage your portfolio, you build and manage your weekend plans.

[00:07:29] While they make it easy to invest for what matters, you just get to enjoy what matters. Their automated tools simplify the complex and put your money to work, optimizing day after day and again and again. So go ahead, take your time to rest and recharge. Because while your money doesn't need a work-life balance, you do. Make your money hustle with Betterment. Get started at Betterment.com.

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[00:09:16] I think this article did a good job of outlining some of the potential obstacles to retirement without too much fear-mongering. The reality is, life will throw us obstacles and we should be prepared as possible. But it will also throw us opportunities. And I believe financial stability helps us seize the opportunities just as much as it helps us navigate the obstacles.

[00:09:44] Sometimes, what appears to be an obstacle is actually an opportunity in disguise. I expected to keep my W-2 job until I reached financial independence, which I was projected to hit at 40 years old. But life threw me an obstacle in the form of a new boss that made my W-2 job intolerable. In retrospect, this was actually an opportunity.

[00:10:07] My circumstances forced me to explore self-employment, which has led me to enjoy all of the benefits of a financially independent life without actually being financially independent. My financial runway in the form of my emergency slash opportunity fund, my Coast Fi status, and my ridiculously low expenses has allowed me to create a work situation that I feel no need to retire from.

[00:10:35] For many things on this list, I think it's super important to focus on the things you can control and not worry about the rest. You can't control a job loss, but you can be ready with an emergency fund and establish side hustles for other sources of income. You can't control if you're in a tragic accident tomorrow or if you develop cancer at some point. But you can control your health insurance coverage and how you take care of your body.

[00:11:05] You can't control if your children fail to launch, even if you are the best parent in the world. But you can maintain your boundaries and allow your children to learn how to be independent on their own terms. You can't control the death of a spouse or the death of a marriage. But you can do proper estate planning and get insurance in the form of a prenup to soften the blow.

[00:11:30] So much of life is beyond our control, but that doesn't mean we're powerless. That should do it for today. Have a happy rest of your day and I'll see you on the Wednesday show tomorrow, where your optimal life awaits. And then you can do the rest of your day and I'll see you on the Wednesday show tomorrow. Thank you.