Never Make These 12 Mistakes if You Want to Retire

Hey, there. Real quick, before we jump into the episode, listen, if your earnings treadmill hasn't set you free yet, running faster won't either. Listen, hustle without principles just going to burn you out. So here's what I want for you. I want you to join me for my money machine experience. Live it is three free trainings. Deep dive into how to escape the treadmill and build a money machine that actually works for you. All right, grab your spot here by going to moneymachinelive.com and I'll see you in the free training. Curious, everyone. Just why some people spent 40 years working hard, saving faithfully, and still end up broke or stressed out in retirement. Listen, spoiler alert. It's not because they didn't work hard. It's because they made a handful of mistakes, and they didn't even realize that there were mistakes. And so here's the thing. That's what we're tackling today. I'm going to pull back the curtain on the three biggest myths that you've been told about retirement, plus 12 mistakes that might silently be sabotaging people's freedom. More importantly, I'll show you how to avoid them so you can actually live the retirement you've been dreaming about. This is building your money machine, where we help you master your money, eliminate financial stress so you can live a life of choice. Listen, earning more doesn't make you free. A money machine does. And that freedom, it doesn't start with your next raise or your next paycheck. It starts the moment you get your money to start working harder for you than you did for it. All right, I'm your host, Mel Abraham. And when I started out, I literally thought that my corner office, a spreadsheet, not talking to anyone, that was success for me. And I found out real quickly that money without meaning doesn't make it make a fulfilled life. And so if you're ready to retire without regret, if you're ready to do it by choice, let's jump into the episode. Let's do this. All right, let's start with the myths. I'm going to break down the first of the three myths that I think hold people back or mess with their mind or their retirement. All right, and the myth number one is you need that magic million dollars to retire. Look. That's a mirage. Your retirement number isn't some magical figure that you pulled out of thin air. It's your freedom number. It's based on your lifestyle, not someone else's. But there's this feeling about a million Dollars. I get it. Because I was there. I was the one that was chasing the million, then I was chasing two, then I was chasing five, then I was chasing 10, but it was just a number. And then all of a sudden, you get there and you don't realize what matters. And so for you, it might be 500,000, it might be 5 million, it might be 50 million. I don't know. But the number isn't the point. The life you want is. And so this first myth is really about defining your life before we define the number and then use that to come up with the number. Okay, so here's where I want you to focus on, is what kind of life do you want? And if you have a spouse, significant other, someone that is an intimate partner, what kind of life do you both want? Decide on that, and then do me a favor. Then you figure out what that number is. It could be 500, it could be 5 million. It could be anywhere in between or above it. It doesn't matter. Okay, but then you figure it out. In fact, I've got a tool that'll make it easy for you called the freedom number calculator. We'll hook it up for you. It's totally free. Just go. Go to melabraham.com number. We'll get it. Get it to you. But that way you're not guessing and everything. So that's myth number one. Myth number two, Social Security will cover you. Oh, man. Listen, Social Security is nothing more than a side salad that comes with your steak. Nice to have, but if that's all you're eating, you're going to go home hungry. Social Security was never meant to replace your income. It was never meant to be a pension. It was never meant to support you. It was meant to supplement you. It was meant to be a safety net. And now we see it. You know, there's all this talk about, is it going to be around? Is it not going to be around? I don't know. You know, there's a lot to go on with that. There's a lot of politics, which I don't want to get involved with. There's a lot of economics to deal with it. And so the first thing is to realize that it's not your savior. It may be a bumper, it might be a safety net, it might be a supplement, but it is not the solution. The solution, unfortunately, is sitting in your lap. It's in your hands to build it. We'll help you get there. So that's myth number two. And then myth number three, before we get into the 12 mistakes, is that the idea of retirement means no income. That's not true. See, retirement doesn't mean that you're not earning. Retirement doesn't mean that you're not making money. I have effectively been retired for over a decade. I still work. I still earn. But retirement means choice. It means that you've transitioned from a time in your life where you had to work to pay the bills and by the demands of the day to you work by choice, by the desires of your heart. And that retirement doesn't mean zero income. It means freedom to choose. And that income can come from working. It can come from rentals. It can come from dividends. It can come from your intellectual property. It can come from all kinds of things. But you're getting paid in multiple different ways to allow you to have choice. And so that's the thing that we need to think about, is that this isn't this weird time where you go, okay, today I'm retired, and all income stops. No, it just transitions. It changes. That's the power of building the money machine, is that you are building a machine that's going to replace the income that you have been earning. Remember, it's about getting your money to work harder for you than you did for it. You no longer depend on punching the time clock. It's the thing that allowed me to navigate the financial side of cancer by shutting everything down so I could fight the demon. All right? And so that's the third myth. Let's get to the mistakes, because I think these are the things that are truly powerful. And I'm gonna walk through 12 practical mistakes, some mathematical mistakes, some other mistakes that come into play that, if you're not careful, can absolutely destroy your retirement. All right, mistake number one. Starting with investments before a plan. Now, this is something that happens a lot. I'll get a call from someone, say, I came into some money. What should I invest in? The answer is, I don't know. I don't know. See, we need to realize that all the investing we do, the building of the money machine, is to create the life that you want. So without me understanding the vision for your life, I can't create a plan. The plan is important because the plan is to achieve the vision. That plan sets the strategy. The strategy defines the tactics. The tactics will tell you what your actions are, what to invest in. And starting to invest is a tactical choice. But that choice may be good for me because it fits my plan and vision. It may not be good for you if it doesn't fit your plan and vision. There isn't a one size fits all box. So we don't start investing before we have a plan. Buying stocks without knowing your lifestyle needs is like shopping for power tools before you know if you're building a birdhouse or a mansion. Okay, I once had someone tell me to look at, I've got $200,000 saves. I'm going to sell options to generate $8,000 a month. He says, do the math. That's 48% return. And if hedge funds can pull that off risk free, then, then, you know, great, but they can't. He was gambling, he wasn't planning. Now, full disclosure, do I use options? Yes, I do. But I use them strategically and specifically based upon a plan. So the fix is this, is that first you start off with your lifestyle target. You define what the vision is for your plan for your, for your life. Then you create the plan to make it. Now, one of the things that helps is understanding what your freedom number is. What's the number that you need? What's the thing that's going to going to be the number that's going to give you the life you want. And to help you with that, we created, I created a freedom number calculator that you can get for free. We'll hook it up down below, but you can go to melabraham.com forward/number to grab it. But here's that piece of it is that start with life first, create the plan second. Then we can talk about the strategy, then we can talk about the investments. So the investments are down. The total poll mistake number two is not stress testing your plan. All right, so great. We got the vision, we created the plan, and on paper everything looks good and you built it out. And at 8% returns or 7% returns, things look great. And 2% inflation and 30 years of smooth sailing in the marketplace. The spreadsheet is a masterpiece. Okay, near perfect. Until life happens, until the economy happens. One of the things that we do when we do our money machine master plans or work with our clients is to make sure that you're stress testing the plan. Because it's never a straight line. The market goes up and down like crazy. Inflation can be 4%. Could be we ran up at 9%. Now we're down to below 3%. You don't know what's going to happen. So. But we do know that the economy, the stock market, everything goes in cycles. That means there's ups and there's downs. Okay? So we want to Stress test the plan and ask it and say, okay, what happens if Instead of getting 8% average returns over the long term, we only get 5? What happens if we get 10? What happens if your income slows down? What happens if you stop working three years earlier? All these inputs we put into the dynamic planning process to stress test the plan because it's important for us to understand what happens when life happens. Okay, what happens if there's a health need, a long term care need? You know what happens if the stock market drops 20%? What does that do to you, to your plan? Is the probability of success above 90%? Is it above 80%? Is it below 60%? We try to build it in a, in a way and we stress test it using something called Monte Carlo simulation. But we stress test it in a way to try and hit where we are at least 80 to 85% probability of success, meaning that 85% of the time we're not going to run out of money based on the assumptions and everything. So, so it's really starting to understand that it's not about perfect spreadsheets. It's about building resilience into your plan for when reality hits. That leads me to mistake number three. Mistake number three. And I know that I can get some pushback on this and that is claiming Social Security too early. See a lot of people hit that age of 62 and think, well, it's free money, I'm just going to grab it. But claiming it early, that can lock, lock in a permanent pay cut, you know. And so what we really need to think about is when it makes sense to take it. Take Social Security, some people to take it early, it may make sense. Others maybe we need to wait till full retirement age. Depending on when you're born 65, 67, maybe extended time and age to 70, but it's different for everyone. But here's what we do know is that there's an 8% difference every year you wait. If you'd get 2,000amonth at full retirement age, but you claim it at 62, it might cut it down to $1,400. That's $600 a month less for the rest of your Life. And over 25 years that could be $200,000 gone. That's not just a dessert before dinner, that's dessert instead of dinner. That's the thing that's happening. So it's important for us to understand. And then if you have a, there's an important, and there's an age difference in the spouse, you have to be really careful because Social Security can be complicated if you don't integrate it in a plan. And so as much as I said is a myth, it's not there to save you. It's there to supplement you. Well, let's get the max supplement that we can. That means we got to do the math. We got to look at the Social Security and say, what happens if I claim it at 62, 63, 64, 65, whatever, up to age 70? And if you want to figure that out, all you need to do is first off, go to the SSA.gov site, get your report. And the first thing I want you to do is I want you to go through that report. I want you to look at all the income for each of the years, because they report all the income. They have a record of all the income that you've had reported on your tax returns. Make sure it's correct. If it isn't correct, get it corrected, get it fixed. Because you want to make sure you have credits, all the credits you deserve to calculate your number on that report. It'll tell you if you did it at 62, at full retirement age at 70, it'll tell you exactly what your benefits are. So, you know, and now you can enter it into your planning process. Okay, that leads me to mistake number four. And now these are more mindset types of mistakes. But number four is really believing that retirement is the finish line. See, I don't. I don't believe that there's this moment in time where you say, I'm retired and life's going to change. Now I'm on the porch, I'm smoking cigars, I'm golfing, I'm playing bridge. I'm playing, you know, bocce ball, and everything else changes. No, I don't think. I don't think that's the case. I think that there's plenty of debt out there. There's plenty of examples out there. When people retired to nothing the rest their life, they lost purpose, and a lot of them died prematurely. A lot of them struggled psychologically. And so I think that we need to understand that retirement is just a shift in our focus and our time and the things that we do, but our purpose and everything. We actually should be gearing up for retirement and practicing retirement along the way. See, it's not to look at retirement as some final trophy that you cross the line and you grab the gold watch and sit on that porch. I've watched people retire at 62 and sit at home and within five years, their health, their happiness just tanked because there was no purpose behind it. There was no purpose behind stopping work except for age. The money machine mindset is the thing where we're saying we're shifting gears to different focuses, but higher purposes and causes and movements because we have more time, because we have more options, because we can make more choices. You're looking at it not like a finish line, but now you're looking at it and saying, oh, it's like a relay race. And now your working life just handed the baton to your retired life to carry it forward and keep on going. Mistake number five, letting fear run the plan. This is a huge one. I've worked with millionaires. I've worked with folks whose pensions literally covered everything, but they still were hoarding cash because they were terrified of health costs. They skipped vacations while they were actually healthy enough to travel. And that's not a plan that's barely making. That's just trying to survive. The reason we need a plan and the reason that we need the retirement planning process and stay in the process is to know where your fin. What that number is, what that finish line looks like, where you have now a life of choice, a life of options versus sitting back and just, Just keep. I'm just going to keep accumulating and accumulating cash. Cash, cash, cash. Investments, investments, Assets. Assets. Because that race is a racial. Never win. The numbers just get bigger. You keep moving the goalpost, and for some reason, you. You're trying to figure out why you're stressed, why you're struggling, why you don't feel like it's enough because you haven't tested it. When you sit back and look at all of this and you say, I've got a plan that allows me to spend $20,000 a month, and if the market drops, I have to drop that by maybe to 18,000, but I could still make it, and I still have a 90% probability of success. That's why you do the plan. Stress test the plan. Yes, but don't allow fear to run the decisions you make. Don't sit there and hoard and become myopic, because that's not joy, that's not fulfillment. And you should be in a place and a time that we're in a good space. This is why I want you to start thinking about if I'm going to start, if I'm going to Retire, say, at 65, start practicing retirement at 62. In other words, taking those mini vacations, starting to do the things that you want to do little by little to get used to it, to transition so it's not cold turkey. Okay, Mistake number six, Comparing your retirement to others. Yes, comparison still hits us at retirement age. I remember a client that looked at me and said, hey, my brother retired at 60 with a million dollars, so I need to do the same. But here's the thing. The brother was living in Iowa, mortgage free with a modest lifestyle. My client, California kids in college, two big trips a year, expensive cars, and they were spenders. Okay? The number is not the matter. The same number isn't going to work because they want completely different outcomes. Comparison is you running a race in someone else's lane. Okay, that's not what we're trying to do. We're not using someone else's math for our life. There may be some people around you that need a million dollars, there may be some that need 500,000, there may be some that need $10 million. But that doesn't define you. And so when you're creating your retirement, when you're looking at it, we create your retirement, your life, your way on, your rules, no one else's. Mistake number seven, analysis paralysis. Oh man. My left brain thinkers. Yeah, I'm speaking to you. I met a brilliant engineer who researched retirement for three years. He knew the Social Security break even points better than I did. But all his money was sitting in savings earning half a percent. Why? Because he was so afraid of making the wrong move, he was spending all his time analyzing and not taking actions. Here's what we know. Investing has risk and don't let anyone tell you any different. Is there a possibility of loss? Yes. But the idea behind asset allocation diversification and long term investing is that the market, it recovers. The market isn't going to zero. If it does, we got bigger problems. But the market goes up 8 out of 10 years. The market has historically averaged between 8 and 11%. So when we look at it, and we look at it through a long term view, we just need to make sure that we're in the right asset allocation, the right, the right diversification to make it happen. But too often we're analyzing, trying to make the perfect move at the perfect time and you can't do it. And that actually is a bigger mistake that costs more because of the lost growth than making the wrong decision based on a proper plan. Retirement isn't won by the best researcher. It's won by the person who acts. The knowledge without action is kind of like an expensive trivia game. So the key is to look at this and say, I'm going to research it, I'm going to understand it, I'm going to talk to people and get advice and I'm going to make an informed decision with some risk parameters and boundaries so I know what my potential loss is and try to put myself in the most optimal position I can be in. Okay, mistake number eight, using rules of thumb blindly. And now look, I use this as a benchmark. But for instance, you'll hear people say, oh, the 4% rule, and this is a you a withdrawal rule where they assume that you can withdraw 4% every year for a 30 year retirement without running out of money. Now that's great if you're 65 with a 30 year retirement to 95. But what if you're kind of in the fire movement, financial independence. Retire early and you want to retire at 45. Well now your wealth, your money has to last 20 years longer, okay? So instead of a 30 year retirement, you're talking about a 50 year retirement where there's a whole lot of volatility, there's a whole lot of potential with that and the money has to last longer. So all of a sudden 4% on their portfolio that has no margin for error could be way too high. And if inflation starts to run rampant or anything like that, it becomes a problem. So rules of thumb are just that. They're not a rule, they're a guideline, a benchmark and a place to at least start. They're like training wheels. But at some point we got to take those training wheels off. We got to test it, we got to beat it up, we got to really build it without the training wheels and literally know your numbers. All right, mistake number nine, ignoring taxes. Think about this. Two engineers, same salary, same age, both retiring at 65. One lives in California with a giant pre tax balance. In other words, the, they have it in an IRA account, okay, or a 401k. The other moves to Florida with no state income tax, with a mix of Roth and pre tax accounts. On paper they literally look exactly the same. Okay? 65, same salary, same age, you know, same amounts, but in different accounts. But from a tax standpoint, they're vastly different. Okay? California, you're one of the most expensive tax states in the country, okay? And they have the money in a pre tax account, which means that they're going to pay federal taxes and California taxes. And so they could be paying upwards of 50% in taxes, depending on the income to do it. Ignoring taxes is a problem. Now the one in Florida going to avoid the state income tax, they still have federal income tax, but you're avoiding all the state income tax. And the amount of money they have in the Roth is never going to be taxed at all, federal or state. And so the dollar amounts in the accounts may look identical, but the tax implications of it are dramatic and they're very different. And so when you're building a plan out, when you're working through it, this is why you got to look at, okay, what are you invested in? But where are you invested? Is it in pre taxes, is in tax deferred? Is it in, in taxable accounts? Is it in Roth tax free? Where you invest is as important as what you invest in. Okay, mistake number 10, underestimating inflation. Man, this one's a big one. And as I started to plan for my wife and I going through things, this actual metric, the change in inflation had the biggest impact on our plan, the probability of success. And so when you think about it this way, $5,000 a month today doesn't mean $5,000 a month forever. Because 3% inflation means that it's closer to $9,000 necessary in 20 years. It's like termites that are eating away at your ability to buy things. And if we don't plan for that, what seems like would be enough for us to live today could be half of what we need tomorrow or down the road when we retire. And so it's important when you're stress testing the plan or when you're looking at the plan and say, well, what would happen if inflation on average is 3%? Or what would happen if that went up to 4% and 5% and 6%. Because the reality is, is that, that those 1% changes inflation. And inflation over a longer period of time is devastating to retirement. And so we need to think about it. And this is why I say it's important to build not only the money machine. You need that freedom number, like I told you, where you can download the calculator, but to put a margin for error, a margin for volatility in there that allows you the latitude that, okay, if a million dollars would be enough for me, I'm gonna push to a million two to give me some margin for volatility for inflation, erosion down markets, things like that. Okay, leads me to mistake number 11, forgetting something called the sequence of return risks. Here's the nightmare. You retire, the market tanks 30% in your first two years, and you're forced to sell all your investments or a portion of your investments at a low value, locking in Losses just to pay bills. Okay? Now, my dad went through something like this, but he didn't have to sell. But his nest egg dropped. You know, he retired. And when that first two years, the market tanked, which meant that his nest egg dropped. Now they were fine, but it did change the dynamics of their retirement because they had to look at things differently and realize, hey, what we thought we had is 20% less and therefore we needed to be aware of it. That's again, the reason to have that margin for volatility in there. Because two people, when you look at this, two people could average 7% returns over 30 years. In other words, over 30 years there, if we took all the returns and took an average, it's 7% for both of them. But the one that ends up with the losses in the earlier years could literally go broke. And the one that has the, if we just reverse it and put the losses at the end, they could be thriving. It's all about timing. And that's why this, the idea of sequence of returns. So if we don't time the retirement right and the market drops in those first couple years, it could have a huge detrimental effect on your retirement. That's why you need a buffer, especially early on. It's why we have a, an emergency fund, why we call it a peace of mind fund, is that, let's say that the market drops in those first couple years. As long as I have the properly structured peace of mind fund, I'm not, I'm allowing my, my investments to recover. I'm working off my cash accounts so I'm not stuck and I'm not selling things at a loss. I've built a plan and I built a structure based on some, on the wealth priority ladder to allow me to sustain myself until things recover. All right, that leads me to mistake number 12, and that is assuming everything will go right. Listen, as soon as you do a plan, it's, it's wrong because we, we are making assumptions. We don't know what the market's going to do. We don't know what the politicians. We don't know if there's going to be a war that breaks out. We don't know any of that stuff. And I've literally seen where retirees build their plans and they build plans that only work if the market is steadily going up and their health stays perfect and inflation stays tame. Listen, if the plan for retirement requires all the planets to line up, that's not a plan. That's a hope and a prayer, okay? Because the planets don't line up. Life happens. Health care happens. I had no anticipation ever that I would ever be a candidate for cancer. No one in my family ever had it. Wasn't a smoker or drinker, but lo and behold, you know, had to deal with cancer, health care, those kinds of things. Living longer than expected. So when we create the plan, when you're creating a retirement plan, let's make sure that we're not trying to make it just fit, thread the needle to make it work. The planets aren't going to line up the way you have them. So that's again why we have the margin for volatility, the margin for error, and the margin for that and why we do the stress testing in doing that. So the best retirement plans have some levers you can pull, some dials you can turn when life throws your curve balls, because life will life happen. Okay, so there you have it. The three myths that keep people stuck. The 12 mistakes that can completely wreck your retirement if you don't deal with them. The mirage really is thinking that retirement is about luck, timing, and hitting some magic number. The machine, the money machine is knowing what your freedom number is, stress testing a plan and refusing to let fear or comparison or run your life. All right, so here's what I'd love for you to do is let me ask you this. Which of these mistakes are you guilty of right now? Not for judgment, but for awareness? Let me know. Drop them in the comments. Every single one of them. I will read. Okay? And if you're just starting out and you're trying to figure out your freedom number, remember to go grab the freedom Number calculator@melabraham.com Number totally free. And if you have questions or you have challenges, do me a favor, join me on this journey. Make sure you subscribe to the channel. Send me your questions, send me your comments, leave them below. Let's have the conversations. Let's light the path to financial freedom. Let's do it the right way. Let's start building the money machines instead of money mirages. Okay? Because retirement isn't a number, it's a choice. And earning more won't make you free. A money machine will. And I'm here to help you along that way. All right? I hope you found this valuable. And I can't wait to see you on your path to financial freedom. And until I get the chance to see you in the next one, as I always say, always, always strive to live a life that is, you see the next one. Thank you for listening to the Affluent entrepreneurship with me, your host, Mel Abraham. If you want to achieve financial liberation to create an affluent lifestyle, join me in the Affluent Entrepreneur Facebook group now by going to melabraham.com group and I'll see you there. And that's it for this episode of Building YOUR Money Machine, where we help you learn how to master your money, eliminate financial stress, and live a life of choice. If you found this valuable or helpful to you, here's what I'd love for you to do. If you do me a favor, go to Apple, Apple Podcast, or wherever you're listening to this podcast and rate and review the show. It helps us tremendously to keep us at the top of the list so we can continue to get this information and this message out to people. Because I truly believe that financial freedom is your birthright, and I want to help each and every one of you claim it. Thanks so much.