Power Up Wealth podcast – Retirement Numbers – Episode 13 transcript:
James Derrick 0:00
Americans are living longer than previous generations, but retirement ages don’t reflect this. Are Americans making mistakes with a crucial decision to retire? I’m James Derrick, and today I will be joined by Sharla Jessop to discuss what the numbers teach us, why people retire so early, and how we should really be planning our own retirement.
Sharla Jessop 0:31
Welcome to the SFS Power Up Wealth podcast where we provide impactful insight and expert opinions on timeless financial principles and timely investment topics, preparing you to make smarter decisions with your money.
James Derrick 0:54
Sharla, thank you for allowing me to interview you today.
Sharla Jessop 0:57
Thanks for doing it, James. Thanks for being on the other side of the microphone.
James Derrick 1:01
Yes, absolutely. Sharla is the President of Smedley Financial Services and the usual host of the SFS Power Up Wealth podcast. She is a Certified Financial Planner and holds the Behavior Financial Advisor designation as well. Sharla, I’ve been doing some a bit of research on life expectancy and retirement in preparation for this interview. And I found some pretty shocking numbers. When the Social Security Act was passed in 19, I believe in late 1934 and then it became effective in 1935, the age of retirement was 65. And nothing shocking there. It’s about the same today as it was then. But life expectancy back then was only 62. So you have to think that not that many people were even getting Social Security, even though so many people were paying into it. So give us an idea of how longevity and retirement have changed. And what does that mean for people’s finances?
Sharla Jessop 1:52
You know, longevity has changed dramatically since Social Security was enacted. Longevity now is average age, depending on your male or female anywhere between the ages of 82 and 86. In fact, a married couple age 65 retiring now has a 50% chance that one of them’s gonna live till 95. And you know, that’s not so unusual. You probably know people. I know people who’ve lived into their 90s and some into their hundreds. It’s just very common and the impact on Social Security or on retirement as a whole, not just Social Security, but on their retirement as a whole is significant. Because in order to live longer, you need to have more money. You have to have a bigger nest egg to provide for that longer period of time.
James Derrick 2:36
Yeah, I find that fascinating. I mean, I always think about life expectancy it at 82, 83 years old. But so a couple that 65, one of them is going to live to 95. And I bet they because they have family members who have been there, you don’t many of them will not be surprised by that. But it’s got to change the planning, especially because they’re spending more money on other things like health care, which you know, I mean, when you’re young just isn’t as big of a deal. But as you get older, it’s a major expense.
Sharla Jessop 3:03
It is you know, when you’re younger, you have health insurance through your employer, you might pay a portion of it, but it’s subsidized. Generally, your employer pays a portion of it. And you might have to pay your deductibles and coinsurance and some other things and but your health insurance needs are probably minimal compared to what they are, in your later years of retirement when they’re huge. And you’re putting a large portion of the bill and coinsurance and things like that. Health insurance costs in retirement are bigger than most people believe.
James Derrick 3:30
Oh, absolutely. And so it makes me think that it might be good advice to tell people like if you can just work as long as you can. In actuality, what I see here in the Money Moxie newsletter article that you have, only 28% of people make it to full retirement age. That is shockingly low.
Sharla Jessop 3:48
It is! Average age that people think they’re going to retire is 65. But the actual average age when people retire is 62. That’s three years difference. It doesn’t sound a big gap. But that’s the average. It is huge. People plan on working to a certain age. We get it in our mind that we’re going to retire to, you know, 65 or it’s just a number that we come up with, mentally that we plan on. But you know, 41% of those people who had to retire early did so because of health care concerns. Something that is completely out of their control. So even if they had the desire to work longer, they might not have been able to. They were forced into retirement. On top of that, you have downsizing of companies. You know, as companies downsize and consolidate, it changes and 32% of the people retired because of company downsizing. And then another thing that’s very big, especially for those of us who have aging parents, or who’ve dealt with aging parents is a lot of people retired to care for family members. Now that may have been for taking care of aging parents, but also through the pandemic we saw a totally different demographic. We saw grandparents retiring to help out with their grandchildren who were home from school who maybe they couldn’t find daycare providers. And the parents still needed to work to be able to provide the income for the family. Big change.
James Derrick 5:07
Oh, absolutely. And that seems like a change that many people probably welcomed spending time with their grandchildren.
Sharla Jessop 5:13
Well, as a grandparent, I can tell you, nobody minds spending time with their grandkids.
James Derrick 5:17
So then there are a lot of things outside of people’s control. You know, Mike Tyson famously said, everyone has plans until they get hit. And I’ve heard this quote a few different ways. But I believe that to be the correct version, and I think it applies to retirement and what we’re talking about here. People think of retirement as an age. Sometimes they think of it as $1 amount, which is a little more sophisticated. But it’s really neither of those. It’s a combination of so many factors, as you mentioned, because you’ve got personal health and family health and the situation with maybe your parents who could be in their 90s, or your children who could be raising grandchildren. So just a lot to think about.
Sharla Jessop 5:57
And when we’re doing plans, you know, the goal is to plan for the best, but also plan for the worst. The importance of doing that is you’re taking into consideration all scenarios. What if your plan is to work till 65, and something comes up? You know, what if you’re hit, as Mike Tyson would say, by something out of the blue that you weren’t expecting? If you haven’t prepared for that, or put that into your plan, then you’re going to be blindsided financially, and probably emotionally as well, because finances and emotion and health all go really, they’re tied together. So you have to have a plan that encompasses the good and the bad.
James Derrick 6:30
That makes a lot of sense. We could have led with this question. But let’s let’s finish up with this one. What is retirement? Because we’ve talked about this before, and I’ve heard, you know, you want to retire to something, not just from something, could you expound on what retirement is and how we should think about it?
Sharla Jessop 6:50
Yes, there are many faces of retirement, and they’ve changed and they’re always evolving. But to go back to those numbers we were talking about earlier, the people who were able to work beyond that, to 65 and beyond, they were doing it for many different reasons. A lot of them were doing it because of their social network. You know when we go to work every day, and we see the same people, eight hours a day for five days a week. That’s a huge portion of our time, and it becomes a lot of our social network. And we just enjoy being around other people. So many people, 28%, continue to work, because of that. Many of them did it for health insurance reasons, you know, health insurance is a large expense. And so they were offered health insurance benefits that they could continue for a period of time. Some of them actually needed the money. But a lot of the people who work beyond that their retirement year, you know, that number we say is in their head. It really just becomes a pre-retirement age. Because retirement is not just quitting, you know, sitting on the couch, and watching TV, that’s not what retirement is about for most people now. They’re doing things that they’ve always wanted to do. So they’re retiring from the job that they did for 30 – 35 years, nine to five, and now they’re doing things that they really enjoy, whether it’s going to the school and reading to children. Doing charity work. Or maybe doing some things that they enjoy. Consulting for some extra money. But they’re doing it on their terms, because they want to and mostly because they want to stay active. They want to stay involved, and they want to do something that brings them fulfillment and enjoyment, and sharing their time with other people. If we find that if people don’t have something to retire to, their health deteriorates, and they’re not in a good, a good position. So all the money in the world can’t prevent that.
James Derrick 8:40
Sharla knowing that people are retiring earlier than planned. That maybe some of these decisions are outside of their control. What advice would you give to those retiring?
Sharla Jessop 8:50
I would say that it’s really important and actually critical that you start saving early and that you save as much as possible. Rule of thumb is between 10% and 15% of your income towards retirement. And the reason you want to start early is because you have compounding on your side. So maybe 50% of what you have in your nest egg when you retire, if you start early, could have come from the growth and the earnings on that. The other reason to start early is you know, sometimes we look at retirement as something in the future. And we’re so busy dealing with the day-to-day raising the children, you know, just making the mortgage payment doing the things that have to be done. But retirement will be here before you know it. And because there may be things that are out of your control that cause you to retire early. You want to do everything you can to build that nest egg up as quickly as you can so that if something happens, it’s not going to change your lifestyle or the way that you want to live in retirement. You’re still able to do that, financially speaking.
James Derrick 9:48
I think that makes a ton of sense. And it’s interesting. People may not realize this, but the savings rate in the United States varies so much over time. I mean it can it’s even at times gone down to zero. And we’ve seen it during the pandemic even go as high as 20%. And so the amount of money that people save is critically important and it fluctuates. I think consistency is probably going to give people a better result though. And so automating some of that is always good advice. Sharla thank you for joining me today. Thank you for talking about savings rates and retiring to something and understanding that it might not all be under your control. Another thing that you talked about was easing into retirement. For those who don’t have a plan, it might make sense to go part-time or do some consulting and I think that was fantastic advice. People just need to know that they’re going to live a long time on average anyway, but it’s important to plan for that. Thank you, Sharla.
Sharla Jessop 10:46
Thanks, James.
Shane Thomas 10:52
Thank you for joining the Power Up Wealth podcast. Smedley Financial is located at 102 S 200 E Ste 100 in Salt Lake City, UT 84111. Call us today at 800-748-4788. You can also find us on the web at Smedleyfinancial.com, Facebook, Instagram, Twitter, and LinkedIn.
The views expressed are Smedley Financials and should not be construed directly or indirectly as an offer to buy or sell any securities or services mentioned herein. Investing is subject to risks, including loss of principal invested. Past performance is not a guarantee of future results. No strategy can assure a profit nor protect against loss. Please note that individual situations can vary. Therefore, the information should only be relied upon when coordinated with individual professional advice. Securities offered through Securities America. Inc., Member FlNRA/SIPC. Roger M. Smedley, Sharla J. Jessop, James R. Derrick, Shane P. Thomas, Mikal B. Aune, Jordan R. Hadfield, Lorayne B. Taylor, Registered Representatives. Investment Advisor Representatives of Smedley Financial Services, Inc.®. Advisory services offered through Smedley Financial Services, Inc.® Smedley Financial Services, Inc.®, and Securities America, Inc. are separate entities.
