Avoiding the Top 5 Retirement Mistakes Disney Professionals Make
Probably shouldn’t have done that. That’s what went through my mind during a recent conversation with a prospective client. She was approaching retirement after working at Disney for many years and told me about changes she’d made to her investment allocation within her 401(k). Those changes potentially cost her thousands of dollars.
I tried to hide my reaction, but I think she noticed my concern. Her decision came after speaking with someone who didn’t have complete information about her financial situation and recommended changes without considering the overall implications.
I’ve seen this happen often enough that I wanted to share five common retirement mistakes that Disney employees make when planning for retirement. If you’re a salaried Disney professional preparing for retirement, these insights could help you avoid costly errors.
Mistake #1: Claiming Social Security or Disney Pension Too Early
Many people assume that since Social Security is retirement income, they should start taking it as soon as they retire. I understand that logic. Some people also say, “I want to take the money while it’s still there” or “while I’m still alive.”
However, when we run the numbers and understand the odds, the picture sometimes changes. If you’re in your 50s or 60s and healthy, and your spouse is healthy too, the odds are that one of you will live into your late 80s or early 90s. If your retirement timeframe is potentially 20-30 years, taking Social Security early can cost you significantly.
This is especially true if you also take your Disney pension early, because the pension does not adjust for inflation. Many people don’t realize that even if they pass away earlier than expected, their spouse would only receive one Social Security benefit. There are numerous misconceptions about Social Security that can lead to costly mistakes.
Mistake #2: Underestimating Healthcare Costs
When planning for retirement, many Disney employees significantly underestimate healthcare costs. Some long-time Disney employees who started before 1994 have access to a company healthcare plan in retirement; however, even this plan typically only begins at age 65 and primarily serves as a supplement to Medicare Part B.
This plan doesn’t necessarily provide good or affordable health insurance options before age 65. Even after the age of 65, it’s comparable to what you can probably get through the different types of Medicare. Medicare Part B alone costs over $170 per month per person, and that’s before adding other plans or supplements.
Beyond insurance premiums, you need to consider out-of-pocket expenses for doctor visits, prescriptions, and other healthcare needs. These costs tend to increase as you age, with the final years of life often being the most expensive. Your Disney retirement planning should include provisions for potential in-home care or assistance as you age.
Mistake #3: Forgetting About Tax Diversification
We all understand the concept of diversification in our investments. You don’t want to put all of your money into one investment. However, it’s equally important to have different income sources with different tax implications as you approach retirement.
Beyond contributing to your traditional Disney 401(k) retirement savings plan, it may be prudent to use Roth 401(k) contributions or even after-tax accounts. The right approach depends on when you want to retire, your lifestyle needs, your current income, and your projected future income.
I often meet clients who have what the book The Millionaire Next Door describes – a house, a Honda, and a million dollars in their 401(k). While I’m glad they saved, having all your retirement funds in one type of account can end up being painful.
For example, I have a client who bristles every time we take a distribution because we have to withhold 15-25% for taxes. If he wants $10,000 for monthly expenses, we need to withdraw between $12,500 and $14,000 from his portfolio. This can be uncomfortable when you’re depending on that money to last your lifetime.
Mistake #4: Relying Too Heavily on Disney Stock
This mistake is less common, but still occurs frequently enough to warrant attention. It typically occurs in three ways:
Employee Stock Purchase Program (ESPP)
At one time, Disney offered an Employee Stock Purchase Program (ESPP), which allowed employees to buy company stock at a 15% discount through payroll deductions. Disney discontinued this benefit in the early 2000s; however, employees who worked there in the 1980s, 1990s, or early 2000s may still hold significant Disney stock holdings.
Purchasing Disney Stock Through the 401(k) Plan
Disney allows you to purchase company stock through the 401(k) plan. I once met with a prospective client who had her entire 401(k) invested in Disney stock. This was before the stock took a nosedive. The stock was between $120 and $200 per share, then dropped to the $80s before partially recovering. I can only imagine the emotional roller coaster she experienced as her retirement savings fluctuated dramatically.
Remember, any individual stock – not just Disney – carries the risk of significant decline or even going to zero. Diversification is crucial for managing this risk.
Taxes
There are some special tax advantages for Disney stock held in your 401(k) when you leave the company. This topic deserves more detailed discussion than I can provide here, but be aware that there are important tax considerations to understand before selling or cashing out Disney stock from your retirement plan.
Mistake #5: Failing to Plan for Inflation
Inflation has been top of mind for everyone over the past couple of years, as prices have skyrocketed. Before 2020-2021, there was almost no inflation for about 10 years. Inflation can be easy to forget about and even harder to plan for, especially in retirement planning.
The cost of goods will continue to rise, but it’s difficult to project what things will cost 5, 10, or 15 years from now. We need to assume a standard rate of inflation and model whether your savings and retirement investment approach will be able to keep up.
Many people become too conservative with their investments as they approach retirement. If your investment approach doesn’t keep up with inflation, you’re effectively losing money slowly as inflation outpaces what your investments are able to earn.
Understanding the impact of inflation on your Disney pension is especially important. Your pension amount does not increase with inflation. Whatever you receive when you claim it remains fixed forever. This might be fine for the first 5-10 years of retirement, but after that, inflation can significantly erode the purchasing power of that income. It’s crucial to factor inflation into your long-term planning.
Create a Strong Retirement Plan
The five retirement mistakes to keep in mind are:
- Claiming Social Security too early
- Underestimating healthcare costs
- Forgetting tax diversification
- Relying too heavily on Disney stock
- Failing to plan for inflation
Paying attention to these can help you avoid potential retirement mistakes and be a strategic part of achieving the retirement you deserve.
Newell Wealth Management, LLC (“NWM”) is a registered investment advisor offering advisory services in the State of FL and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. The presence of this website on the Internet shall not be directly or indirectly interpreted as a solicitation of investment advisory services to persons of another jurisdiction unless otherwise permitted by statute. NWM will not provide follow-up or individualized responses to consumers in a particular state when rendering personalized investment advice for compensation without first complying with jurisdiction requirements or qualifying for an applicable state exemption.
All written content on this site is for information purposes only and is not intended to provide specific advice or recommendations for any individual. Opinions expressed herein are solely those of NWM, unless otherwise specifically cited.
Kyle Newell and NWM are neither an attorney nor an accountant, and no portion of this website content should be interpreted as legal, accounting or tax advice. Material presented is believed to be from reliable sources and no representations are made by our firm as to other parties’ informational accuracy or completeness. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investment involves risks including possible loss of principal and unless otherwise stated, are not guaranteed. Any economic forecasts set forth may not develop as predicted and are subject to change. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.