The 7 Biggest Mistakes People Make in Retirement (And How to Avoid them!)

23:25Also choosing the right Medicare plan. Now, I am no Medicare expert at all, but making sure you compare original Medicare versus Medigap versus Medicare Advantage to see which one's going to fit in the right way for you is important. And then planning for long-term care. So let me say this up front. Long-term care insurance is one of the most complicated insurances that are out there. My head spins every time I read these policies. And when I look at these policies, they are frustrating to say the least. They are also very, very expensive. And so this is something where you can consider, you know, some sort of hybrid life insurance option and long term care policies and or you can self insure with dedicated savings.

24:03That is probably the way I would compartmentalize. One of the thoughts that I have in my head currently is my HSA savings is going to be compartmentalized for long term care in addition to health care savings. So I'm trying to grow a big old HSA because of that. I want to have a big number in my HSA because I want to make sure that I can utilize it for various things. And so I would be setting aside some extra cash on hand in retirement for long-term care, just to make sure that you were thinking about that. And so you can use retirement buckets for healthcare. So bucket one would be your cash or your, in your HSA two would be your bond and conservative investments.

24:37And then three could be something like your growth investments for the inflation rates and those types of things. So ignoring healthcare is not about just the medical bills. It's about protecting your retirement lifestyle, because if you don't plan for this, it is a huge, huge mistake that most people need to make sure they don't avoid. All right, let's jump to number three. Number three is not planning for inflation. Now, inflation, when you start to do the math, makes retirement feel a little bit scary to some people. Now, when I go through some of these numbers, I do not want you to become fearful because this is why we invest our dollars.

25:09We invest our dollars in order to outpace inflation. That is the number one reason, truthfully, that we get our dollars invested into index funds, to ETFs, to dividend stocks, to real estate. We are trying to outpace inflation. Otherwise, inflation is going to eat away at our dollars. If you stuff your money under a mattress like a drug dealer, your money is going to be worth significantly less in 30 years than it is worth now. It's inflation 101. You're buying power. The amount that single dollar will be worth is going to be less. So we must invest our dollars. And so when we think about this, we want to make sure that we are accounting for inflation.

25:46So let's talk about this for a second. A 3 % inflation rate, if you use something like the rule of 72, it works for inflation as well, not just investment returns. But if you use the rule of 72, which is going to tell you how long will it take for an investment to double, it would also tell you how long will it take for prices to double. And so if we have an average of 3 % inflation rate, which is kind of the standard average that most people talk about, and prices would double roughly every 24 years. So let me give you an example here. Let's just say you bought eggs, okay? And so right now, eggs are costing you what?

26:19You can get cheaper eggs for$3. At the time of recording this, egg prices are all over the place every single month. So if you're listening to this in the future, it may be way higher. And then you can get the higher quality eggs for$5, okay? So let's use the higher quality eggs for easy math. 24 years from now, the$5 eggs are likely, if the inflation rate paces at 3%, going to cost you$10. Your rent, if it's$2 ,000, will likely in 24 years cost you$4 ,000. And this is because the inflation rate is rising over time. And so when we think about, well, prices are going to rise over time, that means I'm going to need a lot more in retirement than I actually think I do, especially if retirement is way out.

27:01So if a retiree needs$60 ,000 per year today, they will need$97 ,000 15 years from now. And$145 ,000. And even more than that, 25 years from now. You know, if you took that and you doubled it, it'd be$120 ,000 25 years from now. A little bit more than that, actually. And so this is something we got to make sure that we account for inflation because you can see how important this is. Now, this may sound daunting where I'm going through these points. So we just talked about healthcare and how the rising costs are crazy. Now we're talking about inflation and everything is going to cost double in the next 24 years.

27:33How do I even plan for this? Investing is how you plan for this. So just keep that in the back of your head as we talk through this. Now, retirees are also living longer. So inflation is going to matter even more for them. So a 65 year old today has a 50 % chance of living into their 90s, according to the Social Security Administration. That's potentially 30 years of retirement. And so we got to make sure that over the course of those 30 years, we account for the cost of living to double. Now, recent history also shows that inflation spikes can still happen. So between 2021 to 2023, that became complicated because inflation actually surged 6%.

28:09Do you remember when grocery prices were just one day, they felt pretty normal and you're just getting your groceries. And then all of a sudden, one year later, everything felt like it was way more expensive. That's because we had a surge in inflation right after COVID and during COVID because it was part of 2021 as well. And a retiree with fixed withdrawals during that period saw their purchasing power drop by more than 10 % in two years. 10 % in two years. So if you had$10, every$10 that you had was now worth$9. And that is a hard problem to deal with if you do not plan for it. Also, healthcare inflation is outpacing general inflation.

28:44We've just talked about that. So it's between 5.4 % to 7%. And fixed income investments are at risk as well. And so according to JP Morgan's guide to retirement, a portfolio heavy in bonds or cash without equities, loses purchasing power over time. So an example would be 100K in cash savings over 20 years ago has the buying power of just 60K today. We know that. We've been talking about that. But what is really important about this is to note, you don't want to have too much in cash. So I'm talking about, you know, I want to have five years of cash on hand. I am not going to have five years of cash on hand unless I have my portfolio set to a point in time that makes a lot of sense.

29:20I'm not going to keep five years in cash until I make sure that I hit those retirement goals. So my cash accumulation is going to be towards the end of my wealth accumulation. I'm not going to just do it all at once. Instead, it's going to be gradual over time. And I'm going to find ways to ladder that so that I can at least outpace inflation. Okay. This is the reason why, because inflation is a very big problem that we need to make sure that we account for. Again, don't get scared. We'll show you how to do this. Now, why does this happen? Well, a lot of people have recency bias. They think everything is going to be like it is today.

29:48It's not. It's going to cost a lot more in the future. their over-reliance on a fixed income. They think whatever their fixed income is going to be, if you're on a fine line, and if you're retiring on a fine line, I really don't want you to do that. I want you to make sure you have a little bit of cushion because over time, we've got to make sure that we are not too conservative. There's also the psychological anchor. So a lot of retirees think in today's dollars only. They don't think in future dollars because they don't have that financial education. You, my friends, now have the financial education to understand this is something I need to account for.

30:18And then they underestimate longevity again you're going to live longer, most likely. And if you don't, it's because you have some pre-existing condition or you didn't take care of your health or you have some sort of genetic condition. But it's probably going to be something health related. And so taking care of your health early is really important. Now, how do we protect against inflation? So stocks historically have outpaced inflation dramatically. And so if you look at the S &P 500 over the course of the last 30 to 40 years, you can see that it is right around 9.7 to 10 percent is what the rate of return has been over the long run.

30:48From 1926 to 2023, it was 10%. A balanced portfolio that has 30 % to 60 % equities helps keep purchasing power intact. For me, I have no issue with a little bit of risk. So your boy has a huge, huge weight in his portfolio of stocks. I don't have a lot of bonds. I have a lot of stocks in my portfolio because I want to outpace inflation as long as I possibly can. Also, as you can consider inflation-protected securities. So when you keep your money in cash, you can consider things like TIPS, which is the Treasury Inflation Protected Securities, which adjust principle based on CPI, ensuring purchasing power isn't lost.

31:23When we had those really high inflation rates, TIPS were great investments during that timeframe because they had really high rates of return. We had them up to 7.2 % on some of those TIPS. So it's really, really cool to see how that can adjust, but they help you keep up with inflation is what the key is. Number three is using that dynamic withdrawal strategy. When the market is down, we're going to withdraw less. When the market is up, we can withdraw a little bit more so that we're dynamic about when we are pulling and spending our money based on inflation and portfolio performance. Those two things actually matter.

31:53So for example, in the year of 2021, when inflation was six or 7%, I would be spending less in retirement during that year because inflation was too high. It was just too high to spend the normal amount. Instead, my goal would be to spend a little bit less and make sure that I can actually handle that. And then also running retirement numbers at 0 % inflation gives you a very dangerous false sense of security. Do not do this. Do not run it at 0 % inflation. You make sure you factor in inflation into your retirement goals. And this is something we're gonna be talking about a lot in Master Money Academy is talking about how to integrate inflation into your retirement plan because it's very, very important.

32:32Now, diversifying income sources is another big one. So Social Security has a built-in cost of living adjustment. It is going to adjust for you if you rely on Social Security. Is Social Security guaranteed? We're learning very quickly it's not, but it is something that does have that cost of living adjustment. Pensions, on the other hand, if you're relying on a pension, do not adjust. So typically, unless there's something baked in there, most of them do not adjust. And so you're going to have to think through, well, as costs of living rises, I need to make sure I have some extra retirement money on hand.

33:02If your pension is your only retirement plan, you got to have some extra cash from somewhere else. And so pairing guaranteed income with growth assets like stocks and bonds is going to be very beneficial for those with a pension. Again, inflation is the silent retirement killer. And so we need to make sure that we factor this in and avoid this mistake at all costs. Otherwise, we could be in for a rude awakening when we get to retirement age. So one other thing I'll note is to outpace inflation. Here's one thing that on a tip that I have talked about on this podcast before. Every single year, what I want you to do is I want you to look at what the inflation rate was in the previous year.

33:38Let's say the inflation rate for a year is 3%, okay? And so if you are investing$500 per month into your portfolio, and you know that that is going to help you hit your retirement goal by the time you retire, I want you to increase every year the amount that you are putting into and contributing to that retirement account by the inflation rate. Why? This is going to make sure that you are still contributing the same purchasing power as when you started. So because of this, this is going to allow you to keep up with inflation with your contributions. And so it's very, very important. And I encourage everybody to make sure they are increasing the amount that they are investing at least by the rate of inflation.

34:20Secondly, is making sure your job at least gives you a raise by the rate of inflation. Otherwise, you just took a pay cut the second year because that buying power needs to be utilized to increase the amount that you're investing every year. And so negotiating that is very important. If they don't at least give you a 3 % raise, I want you to get more than that. But if they don't at least give you that 3 % raise, then we need to get into negotiation mode. Now, number four is chasing returns to aggressively. This is another big mistake that people make. So there was a study of investor behavior found that over the past 30 years, the average equity investor earned 6.81 % annually, while the S &P 500 returned 9.65 % over the course of the last 30 years.

35:01That gap, which is nearly 3%, is largely due to poor timing, buying high and selling low from chasing returns. If you are someone who is a non-passive investor, you're trying to chase returns, you're trying to buy something low and then sell at the top, most of the time you fail. And in fact, on average, you lose about 3 % per year by doing that. And so becoming someone who is a low cost index fund ETF investor, or someone who just dollar costs averages into the market, or someone who just buys target date retirement funds every single year, or someone who goes out and buys target date ETFs or dividend stocks, whatever else, and just continues your plan over and over again.

35:36You're not trying to time the market. You're just trying to get your dollars invested so they can grow over time. That's the way to go, my friends. That's the way to do it. And we want to make sure that we are doing that over time. Otherwise, we're going to lose out on returns. Most of us do not have the skills to be able to try to get in and get out. In fact, during the 2000 to 2002.com crash, the NASDAQ fell 78 % wiping out aggressive investors who piled into tech stocks and those who stayed diversified saw losses, but they also recovered much faster. So in our episode where we talk about different portfolios, we talked through how those portfolios rebound.

36:11And it's very important to note how those portfolios rebound so that you can ensure that you're really, really on top of it. Okay. Three is volatility hurts retirees more than sequence risk. So research from Morningstar shows that retirees who enter retirement with a high stock allocation, meaning 80 to 100%, face dramatically higher failure rates if a downturn occurs in the first five years. And so as you start to approach retirement age, making sure you have some bond exposure is going to be important. It's going to be something that is going to help you in the long run because it helps ensure that your failure rate is lower because there's less volatility within that market.

36:46For example, a retiree withdrawing 5 % annually with 100 % stocks in 2000 would have run out of money in 20 years. So if you started during the tech bubble where it just dropped really dramatically those first two years, you would have run out of money in 20 years if you were withdrawing 5 % annually. And so making sure that you have some bond exposure is going to be helpful to weather against those downturns. And what I'll say is boring diversification wins long-term. Being a boring investor, long-term typically will win a 60-40 portfolio return on average 8.8 % annually from 1926 to 2023, according to Vanguard.

37:21And so because of this, this is going to be kind of the safe rate of return. You have some bonds, 40 % bonds, 60 % stocks, and you're going to have that rate of return over the long run that is going to help protect you against downturns, but also help you grow at a rapid rate. So this is something I think a lot of folks need to make sure that they watch out for this mistake. Now, why this mistake happens? Investors chase last year's winners. So a lot of times people will look at the last couple of years. So like, for example, tech in 2020 and 2021, energy in 2022 was huge. AI stocks now from 2023 to the time recording this.

37:55And so a lot of people just see that stuff and they start to get involved. Also is FOMO, fear of missing out. Seeing others profit from fads makes people want to get in even faster. We see this with crypto all the time, where if Bitcoin starts to surge, a lot of people start to pile more money in because they don't want to miss. And I get it. I get the feeling of that. And I understand how that feels. But just making sure that you can identify that is happening is really important. Overconfidence. So retirees with a nest egg feel they need to make it grow faster and secure their future. And so some people are overconfident in what the market can do and are not thinking through downturns and then misunderstanding risk tolerance.

38:34So if you assume you can handle volatility until the downturn comes and you can't handle volatility, you gotta make sure that you understand your risk tolerance upfront. And if you're not sure how to understand your risk tolerance, then we will do a separate episode on that. Shoot me an email and we will do a separate episode on that. Now, how do you avoid chasing investment returns? So number one is I think you need to have a written investment policy statement, meaning your policies to investing and why you're doing what you're doing. So you're gonna define your asset allocation, you're gonna define your risk tolerance, your rules for rebalancing, and if it's not in the plan, don't buy it.

39:07If it's not in your investment plan, don't go and buy it. So if crypto is not in your investment plan currently, you don't go out and just buy it unless it's a small portion of your portfolio. Or if dividend stocks are not in your portfolio currently and it's not in your plan, there's no reason to go buy it. Just stick to your plan and keep moving on. You knew why when you were level-headed, why you set up this investment plan and don't react on emotions based on what's happening in the world, okay? Two, stick to diversification. Diversify, diversify, diversify. It is very important to make sure that we are diversified and having those core holdings.

39:40If you wanna have a three fund portfolio, great. If you wanna have a two fund portfolio, great. If you wanna have a four or five fund portfolio, fantastic. All of those are really real reasons why you wanna think through this. Three, rebalance instead of chasing, okay? Rebalancing can be something that is helpful for people, especially when you hit retirement age. If you wanna keep that 70, 30 portfolio, you gotta rebalance every year to make sure it is balanced correctly. Now, we've done episodes on rebalancing and the pros and cons of it. For some people, it is not worth it at all if you have a small portfolio.

40:09But if you have a larger portfolio and you're at retirement age and you want to make sure that it is balanced, I think it is important for those folks. Also, the goal of retirement is for portfolio longevity, not beating the market. I think some people need to hear that. Let me say it louder for the people in the back. The goal of retirement is for portfolio longevity. It is not for beating the market. You're not trying to beat out the market and maximize your returns. Instead, you just want to make sure you are in preservation mode. This is what you really, really want to be doing. And so a portfolio that grows steadily at 6 % to 7 % is far safer than these dramatic swings of 30 % to 40 % that some people have in retirement.

40:44If you're okay with that, fine. But most people are not the best when they have these rapid swings, especially when they're living on that in their portfolio. I cannot imagine my portfolio swinging 40 % and 50%. And I'm sitting in retirement saying to myself, well, I got to live on this money. And my portfolio just went down 50%. What am I supposed to do here? So that would just be a dramatic thing for most people. And it would cause way too much emotion to come into play for most human beings. All right, let's jump into number five. All right. If you've ever felt like your bank is working against you instead of for you, you're not alone.

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41:58Honestly, my younger self would have benefited from something just like this. Chime is not just smarter banking. It is the most rewarding way to bank. Join the millions who are already banking fee-free today. Head to chime.com slash PFP. That's chime.com slash PFP. It only takes a few minutes to sign up. Chime is a fintech, not a bank. Banking services for MyPay and Chime card provided by Chime Bank Partners. Optional products and services may have fees or charges. For more information on APY rates, MyPay, SpotMe, and Travel Perks, go to chime.com slash disclosures. One thing I've learned from running multiple businesses is there's usually a gap between how you think work is getting done and how it's actually getting done.

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43:57So withdrawals from 401ks and traditional IRAs are taxed as ordinary income. And according to the IRS, over 60 % of retirees rely on taxable distributions from these accounts as their primary income. So many assume that they'll be in a lower tax bracket, but with required minimum distributions, some actually end up in higher tax brackets than they were before. And so because of this, it is really important to make sure we are planning for taxes. If you leave this portion out and you don't have a CPA in your corner, it is going to be something that could be a wild surprise for you if you don't plan for this.

44:29Let's think about this for a second. Inflation could be eating away at our retirement funds. Healthcare can be eating away at our retirement funds. And now taxes can be eating away at our retirement funds. We got to have a plan in place. Every single person, you cannot go into retirement willy-nilly not knowing what you're doing. And so this is why it is so important for all of us to continue to learn and continue stress testing our portfolio. And I think for most people, once you start to realize that if I do this properly, it's a lot easier than I think it's going to be. And I don't have to stress about it as much as time goes on.

44:59It may sound stressful in the beginning, but it's not going to be stressful once we get the ball rolling. Now, number two is social security can be taxed. So some people don't know this, but up to 85 % of social security benefits can be taxable depending on your combined income within the household. So this is your adjusted gross income plus your non-taxable interest plus half of your social security benefits. So that is taxable. And roughly 40 % of social security recipients pay federal income taxes on their benefits, according to the social security administration. Now, RMDs or required minimum distributions can trigger big tax bill.

45:34So at age 73, and it's moving to 75 for some under the secure 2.0 act, retirees must start withdrawing from pre-tax accounts, whether they need the money or not. Uncle Sam wants to get paid. They want that tax money. And so they want to make sure that you start withdrawing on that. So an example of this would be a million dollar traditional IRA requires a first year RMD of about$36 ,500, all taxable. All of it is taxable, which is why I like the Roth IRA because it grows tax free and you can pull it out tax free and there's no RMDs. But that's another story. This can push retirees into higher tax brackets and trigger IRMA surcharges on Medicare.

46:08Now, taxes can also erode away your inheritance goals. So you got to make sure you're planning on them when you're going to hand this money down. So for a$500 ,000 IRA, for example, left to adult children, that can mean a$50 ,000 taxable income per year added on top of their salary, potentially pushing them into higher tax brackets. So you just got to make sure you plan for that. And then state taxes can also make a big difference. So some states tax tax retirement income, like California and New York, while others like Florida and Texas do not. So where you retire is also a big, big deal. Now, why does this mistake happen where people overlook this?

46:41Assumption of lower taxes in retirement is the biggest one. Most people assume their tax situation will be lower and their income will drop. So taxes will too. That's not always true. So having a CPA run your scenario for you to tell you where your tax situation will be as important and having a tax strategist in your corner is also very important. Secondly, is they lack diversification. So many save only in pre-tax accounts, like their 401k and IRA, without Roth or taxable. Having both is really important. Surprise RMD. So required minimum distributions. A lot of people who just open a 401k willy-nilly with their employer don't know that this is a requirement, that you're going to have to withdraw money at some point in time.

47:18And so if they don't account for those mandatory withdrawals, then they stack with Social Security and pensions, and all of a sudden your income is much higher than you ever thought it was. So making sure you know that is really important. And then higher taxable income can raise Medicare Part D and B premiums by hundreds every single month. Your premiums can be way higher than you thought they were because you did not account for some of this tax stuff. So how do you avoid underestimating taxes? How do we avoid this? Okay, number one is we're going to diversify our tax buckets. This means that we save across pre-tax, which is your 401k IRA, post-tax, which is your Roth accounts, and taxable, which is your brokerage account.

47:57This creates flexibility within withdrawals. And so it allows you to have flexibility in retirement, which is the name of the game. I like for you to have all three in retirement if you can. Also, strategic Roth conversions. So converting portions of a traditional IRA to a Roth IRA in lower income years can reduce future RMDs and provide tax-free withdrawals later. Okay? And then managing withdrawals by your bracket. So instead of pulling large lump sums, spread withdrawals strategically to stay in lower tax brackets. It's going to be very important to spread out your withdrawals in different ways to stay in lower tax brackets.

48:30And there are ways to do this with your CPA. You can kind of strategize this. We have an episode with Katie Gatti Tassin from Money with Katie, which also will talk about this. It talks through how to pay way less taxes in retirement, how to make sure you do those strategic Roth conversions. And so make sure you check that out if you haven't heard it already. Also, you can delay Social Security to reduce taxable income early. I probably wouldn't do that personally, but that is up to you. That is an option for you. And then you can plan around RMDs and Medicare surcharges when you start to have to pull those out.

48:59So you can project future RMDs starting at age 73 and plan ahead with conversions and withdrawals to make sure that you can help reduce some of that taxable income. So taxes don't stop when you retire. They just change form. And so you got to make sure you're planning for it. All right. Number six is not having a withdrawal plan, not having a plan to start withdrawing money. So Vanguard research shows that retirees with a structured withdrawal plan, like the 4 % rule or the guardrails approach, have a 90 % plus success rate in 30 year simulations. That's really powerful. It's just having a plan in place when you go into retirement means that you have a 90 % success rate.

49:37And by contrast, retirees who withdraw randomly or based on only needs saw their success rate fall below 60%. My friends, when it comes to retirement and managing your money, willy nilly doesn't work. And if your success rate is going to drop below 60%, that's a scary place to be. We want to make sure that we have a withdrawal plan in place. Okay. And so because of this, we need to look deeper into this. Now, why does this happen? Because most people focus on saving and not spending. They have a fear versus freedom, meaning retirees either withdraw too cautiously, living below their means or too aggressively and tax confusion.

50:09They don't know which accounts to use first, which leads to inefficiency, okay? So we got to think about this. And really, it's making sure that you follow the safe withdrawal rate with flexibility. And over time, we may see the safe withdrawal rate studied even more because I'm seeing new studies come out every single year, which is going to help us tremendously when we start to reach retirement age. But starting with a three and a half to 4 % of your initial portfolio is going to be number one. And using guardrails, increases withdrawals after strong years and cut after bad years. Meaning when the market is up, we are going to increase the amount that we're spending.

50:41When the market is down, we're gonna cut back how much we're spending and having these guardrails in place where you can kind of shift back and forth is gonna be really helpful. Now, we also need a sequence of withdrawals for tax efficiency. Which order should I be withdrawing from my accounts so that I can have the most tax-efficient withdrawal strategy? Generally, the rules of thumb are, number one, taxable accounts to harvest gains, okay? And use the standard deductions. Two, tax deferred accounts. So your 401k or your IRA. And then three, Roth accounts last to maximize that tax free compounding.

51:13Okay. But this could be a very different for other people based on your personal bracket management. And so we'll have a whole episode on kind of the sequence of withdrawals with tax efficiency. We're going to talk all about which accounts to withdraw from, in which order. We'll do a entire episode on that and kind of look at the research based on that as well. Now, matching buckets with time horizons. Okay. So cash and short-term bonds, having two to three years of expenses, I think can be really, really helpful. And then having intermediate bonds and conservative funds for your next five to seven years, and then bucket three is your growth stocks for 10 years or longer, is also something that people put into place.

51:47And this prevents selling during downturns and then align withdrawals with RMDs and Social Security. So you got to plan ahead for those required minimum distributions at 73. And so coordinating your withdrawals so Social Security and RMDs don't push you into higher tax brackets can also be very important. And then if you automate your withdrawals, so you set up a system to automatically get your withdrawals either quarterly or monthly, like a retirement paycheck is going to help you a lot because this keeps lifestyle consistent and reduces that emotional decision making that a lot of people make.

52:17So making sure that you just automate your withdrawals is a much easier process. And then if there is a downturn, then you can adjust those withdrawals based on that. All right. The last one is neglecting estate planning. So my wife and I just had a meeting for our estate plan. with a new attorney because there are some complicated things that I want to do in our estate plan. And so because of that, we just had a meeting with an attorney really well. We're going to do some really cool things. But most people, it is fascinating how many people have zero estate plan whatsoever. And so the majority of Americans don't even have a will.

52:50In fact, only 32 % of US adults have a will or estate plan in place, according to a caring.com survey. And even among those over 55, less than half have completed these documents, meaning most retirees risk leaving loved ones with legal and financial messes. Just had a friend whose father just passed away and left them with an entire massive mess where everything is going into probate and it is a whole complicated situation because they did not have an estate plan or a will. And so it's really important to have that in place. And so now they're just dealing with all kinds of different situations that they would not have to deal with if there was just a will or estate plan in place.

53:27Now, estate taxes can also erode wealth. The current federal estate tax exemption is$13.61 million per person in 2024, but that's scheduled to drop by half in 2026 unless Congress extends it. Now, this could suddenly expose many upper middle class families to estate taxes of up to 40%. Probate is also costly and time consuming because estates that go through probate take 12 to 18 months to settle with costs ranging from 3 to 7 % of the estate value. So a$1 million estate could lose$30 ,000 to$70 ,000 because you don't not have an estate plan in place. Now, a Vanguard study found that 20 % of retirement accounts have outdated or missing beneficiaries.

54:07And so if you have a retirement account or if you have an investment account, make sure you go in there and identify your beneficiaries. It's very important to do that. This can lead to assets going to an ex-spouse, a distant relative, or even to the state instead of an intended loved one. So you want to make sure it's going to the right person that you want it to go to. So why does this mistake happen for a lot of people? Procrastination. A lot of people just procrastinate on doing this. They assume that people think estate planning is only for the wealthy. It's not. It's for a lot of folks. They think it's too complex with the tax laws, the trust, the legal jargon, the overwhelm.

54:41They don't want to deal with it. And emotional avoidance. They just don't even want to think about this happening to them. And so they don't want to put this into place. So here's how to avoid this mistake. One is to create or update your will or trust. So there are places like Trust and Will that you can go to. That's pretty easy to deal with. And or you can go to an attorney. I started with Trust and Will. I had to go to an attorney because there were some complex things that I wanted to do. And so for me specifically, that's how I have to set up. Number two is you can check and update beneficiaries.

55:09So review your designations on your retirement accounts. Make sure you know who it's going to, your life insurance, your bank accounts every two to three years. And then making sure you plan for taxes when you actually hand those things down is really important. And then setting up powers of attorney, your financial power of attorney and your healthcare power of attorney. Need to make sure you have the right people in place for that. And then communicate with family that they are the power of attorney. Do not avoid surprises. Tell them where your money's going, what's going to happen, all those different kinds of things so there's not some huge issue after the fact.

55:41Okay. So these are all the things when it comes to estate planning. We have some full episodes on that. But I'm going to have even deeper dives into some of the stuff I'm doing because I'm doing some unique things that I think some of you can benefit from as well. So this is the seven biggest mistakes that people make in retirement. If you guys have any questions per usual, make sure you join the Master Money newsletter. You can ask your questions there. Also, get ready. Master Money Academy is going to be opening up to everyone. Again, our founding wealth builders, our beta members are absolutely amazing in there.

56:09So really excited for you to see what it's like inside Master Money Academy here in the near future. So just stay tuned for that. And can't wait to see each and every single one of you on the next episode. Have a great week.