5 Long-Term Strategies for a Better Retirement

Key Points – 5 Long-Term Strategies for a Better Retirement

Creating Tax Diversification in Pre-Retirement Savings
Coordinating Claiming of Social Security Strategies with Other Sources of Income
The Creation of a Distribution Strategy
The Creation of a Long-Term Tax Plan
Create the Plan, See If It’s Reality, Then Live It
19 minutes to read | 29 minutes to listen

There are few things that make Dean Barber and Bud Kasper happier than seeing the fruits of the forward-looking planning pay dividends for their clients. In this week’s edition of America’s Wealth Management Show, they offer five long-term strategies for a better retirement.

Video and Article: Retiring with $1 Million

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How Long-Term Strategies Make for a Better Retirement

Dean Barber: Thanks so much for joining us here on America’s Wealth Management Show. I’m your host, Dean Barber, along with Bud Kasper. What’s up, Bud?

Bud Kasper: Things are going well. We’re preparing for the end of the year, doing all those little things that we need to do before the advantages of planning go away. And then we start again on January 1.

Dean Barber: We were talking last week with JoAnn Huber, who is on our staff of in-house CPAs, about how this is A Critical Time of the Year for Tax Planning. We’re trying to plan for 2022, 2023, and 2024. Our goal is to get people to know that if you live in the United States and have money or make money, taxes are going to be a fact to your life.

During this part of the year, we’re aiming to create that tax strategy for the coming years to make those future taxes as low as possible. Tax planning doesn’t solely have to do with preparing a tax return, gathering documents, or whatever. You’re also looking into the future, but you need to do that after the creation of the financial plan.

That’s one of the components that we want to talk a little bit more because we’re going to highlight five long-term strategies for a better retirement. Think about all the things that you plan for that are meaningful in your life.

5 Long-Term Strategies for a Better Retirement

Creating Tax Diversification in Pre-Retirement Savings
Coordinating Claiming of Social Security Strategies with Other Sources of Income
The Creation of a Distribution Strategy
The Creation of a Long-Term Tax Plan
Create the Plan, See If It’s Reality, Then Live It

We’re Going to Disney World!

Bud just mentioned to me that he’s got a little trip to Disney World coming up. His daughter is a cheerleader and is going to be she’s going to be part of a special event.

Bud Kasper: Captains and co-captains of high school cheerleading squads nationwide have been invited to go to Disney World. They’re doing a routine that will be featured in the Disney’s Christmas parade. By the way, it’s also my daughter’s 17^th birthday this week.

Dean Barber: Happy birthday to Katie!

Bud Kasper: It’s an exciting time for her and our family. What an invitation.

Dean Barber: That is cool. The point I wanted to make is that with knowing your wife, I imagine that she has spent quite a bit of time planning all the details of this trip.

Bud Kasper: Oh, you do know her.

Just Like Disney, Retirement Can Be Magical

Dean Barber: This trip will only be a few days. I would venture to guess that she has spent more time planning this trip than most people have on planning their retirement this year. Your retirement is supposed to be the longest vacation of your life.

Bud Kasper: Unfortunately, that’s true. A lot of times, people are very shortsighted because you don’t know what you don’t know. How many times have we said that over the last 15-plus years?

When you were talking about doing the tax strategy for this year, next year, and the following year, nobody thinks about that. They always think of the present tax situation. When you see the dollars saved by having a tax plan that covers a continuous five-year period, it’s incredible what the results can be.

Create the Plan that Helps You Live Your One Best Financial Life

Dean Barber: Just this last week, I was meeting with a long-time client couple and two of our CPAs. We were going through everything, and the husband sat back and said, “Do you guys realize how unique what you’re doing is? This doesn’t happen with most firms.”

This guy is a retired executive and has worked with firms from California to New York. What we do is critical. He said that it’s made a huge difference during the years he’s been working with us. We know that’s the case, so that’s why we think it’s such a critical thing.

1. Creating Tax Diversification in Pre-Retirement Savings

Let’s talk about what leads into that tax plan because it’s number one of our five long-term strategies for a better retirement. If you’re already retired, don’t worry. While you can’t go back and undo the past, we can still help you fix whatever situation you find yourself in.

As you’re heading toward retirement, a long-term strategy is tax diversification. It’s all about where the pre-tax money goes.

Where should you be saving your pre-retirement savings?
Should it be going to traditional IRA or Roth IRA?
Should it be going into a taxable account?
What are you going to spend in the future and when?
What are the tax impacts are of that?

I talked to someone in Virginia who watched our The Guided Retirement Show™ podcast. He had $3.6 million and only $15,000 of it was in a liquid situation. The rest of it was in IRA/401(k) plans. He felt like he was painting himself into a corner where Uncle Sam was waiting to get a big chunk of it because he missed the number one step of creating tax diversification before retirement.

Bud Kasper: He saw the light, didn’t he?

Dean Barber: But now he’s 67 and has five years before RMDs start. There are some things that we’re going to work on to alleviate a lot of his situation. Had we started working with him years before, his situation would be totally different.

Bud Kasper: Time counts when planning is in front of you. There are too many little nuances that make big differences monetarily, especially when you compound them over time.

Dean Barber: No question about it. One of the keys to a successful retirement is the right tax diversification. You’ll also see exactly what we mean by that in our video, Retiring with $1 Million.

Special Shoutouts to Our Marines and Veterans

Before we get to our second long-term strategies for a better retirement, I want to give a couple of special shoutouts to some special people. First, I want to recognize all veterans for Veterans Day and thank them for their service. Wednesday was also the 246th birthday of the United States Marine Corps.

Modern Wealth Management Chief of Staff Chad Webb gave 20 years of service in the Marine Corps. I want to thank him for his service and wish a happy birthday to the Marines.

Happy 246th Birthday, Marines!

Chad Webb: I appreciate it. I don’t feel like I’m 246, but on Wednesday, my wife came into the bathroom as I was getting ready for work and asked what kind of cake I wanted. Any Marine or former service member knows that military birthdays are much more revered than their personal birthday.

So yeah, 246 years old. I have some knee and shoulder pain, but happy birthday to all those Marines out there. I appreciate your service. Serving 20 years was an honor.

Dean Barber: This is a special deal. Can you give me some of the highlights of your time in the Marines? What was the morale of the Marines as you were leaving? I know you lost some friends in the exit from Afghanistan and that it was a big deal for you. You’ve seen a lot and been all over the world. Give us a few highlights.

Chad Webb: Thinking of the construct of the military, they brought in a high school kid hadn’t really had much life experience. The highlight is watching kids become adults. It’s fun to watch them grow, become leaders, make decisions independently, and lead and direct their own teams. That’s really the highlight is being along for the ride, mentoring, and having some type of positive impact on their lives. That’s what always made me thrive and kept me around for 20 years.

Dean Barber: Awesome. If you happen to get into the Modern Wealth Management office, you’ll run into Chad. He has a great role here in helping execute all the visions that we’ve created over the years. Chad, thanks for service and for being part of Modern Wealth Management now that you’ve retired from Marine Corps.

Chad Webb: It’s my honor. I appreciate you, Dean and Bud.

2. Coordinating Claiming of Social Security Strategies with Other Sources of Income

Dean Barber: Now, let’s switch gears back to discussing five long-term strategies for a better retirement. After talking about creating tax diversification in pre-retirement savings, our second long-term strategy for a better retirement involves the coordination of your Social Security claiming strategies with other sources of income.

Most people think that the day that they claim their Social Security is synonymous with their retirement date. Bud and I know that that’s not right at all. For most couples, the difference between the best and the worst claiming strategy for Social Security can mean an additional $100,000 or more of lifetime income from the same Social Security with the same earnings history.

Making that decision first is going to be critical before you can start to create that distribution strategy. Let’s share what we go through and how we put that together for people.

Seizing Your Opportunities

Bud Kasper: First, there’s opportunity that lies there. It’s opportunity that you have worked your entire life for, so you want to maximize the results. There might be circumstances where you want to take Social Security at the earlier part of your retirement. There are also advantages of postponing that as well because your Social Security is still growing at 6% per year up until full retirement age.

If you still haven’t taken it up until the time that you’re forced to take it out, you’re growing at 8%. The advantage associated with that is numerical. We can calculate what that difference would be over time.

The other aspect of that is taxes because Social Security on its own is not taxable. However, when we look at our other sources of income, it becomes taxable. So, the question would be, how do we align these sources of income, including Social Security, to maximize the result for our clients over their retirement lifetime?

What a Difference Financial Education Can Make

Dean Barber: You’re exactly right. Here’s a quick story from a conversation I had with a gentleman last week. This individual was watching our YouTube channel for The Guided Retirement Show™. He then called in with some questions because he started taking his Social Security and thought he was doing it wrong.

The gentleman said he’d only been doing it for a year but was past his full retirement age. After watching the The Guided Retirement Show™, he realized he could withdraw his benefit. He wanted to do that but wanted to talk with me first. He also mentioned that he wished he would’ve watched that podcast prior to retiring. That goes back to the whole idea that you have long-term strategies and need to think about Social Security as your own money before retirement.

Think about this. If somebody has a pension plan, they’re getting a statement asking how it fit into their overall retirement success. They think of that as their money.

What All Goes into the Social Security System?

People tend to think of Social Security as an entitlement program. The reality is that from the day you started working, you’ve been putting money into that system. Your employer has also been forced to make a dollar-for-dollar match to that same system. The money that’s coming out of there is indeed your money and that of your employers that you worked for in the past. Therefore, it warrants some discussion and strategy on how you’re going to claim that Social Security.

Bud Kasper: I’m glad you brought up that there’s a contribution from the employer that is part of it as well. All that is saying is that’s allegedly when you maximize and get all that you put in. It’s very close to that. Then, we need to go past that point.

You made the point that you had a person who might have started Social Security as early as they could and now wishes they didn’t. You can rescind that. When you do that and put it back into the pot, now what happens? You’re starting to accumulate returns again on that money.

Bringing in Social Security Cost-of-Living Adjustment into the Equation

Dean Barber: Right. It continues to grow from that point. Another thing I don’t think people realize is that once you reach your earliest retirement age for Social Security, which is 62, your Social Security starts increasing with whatever the cost of living increases that Social Security recipients are receiving.

If you’re sitting there at 60 and looking at your estimated Social Security for full retirement age, it’s going to be 66 years and seven months or something like that. That means that number is not accurate because you will start receiving cost of living adjustments on that benefit as early as 62. You need to put that into your overall plan.

Bud Kasper: That hasn’t been terribly impactful in prior years, but it was a pretty good bonus this year for people. The Social Security Cost-of-Living Adjustment is set for a 5.9% increase in 2022. It’s all part of the equation, isn’t it? It’s not necessarily about the decision you made as to when you want to claim. You need to know what the ramifications are. Even though Uncles Sam is providing the Social Security member, that’s really your money that you’re getting back along with your employer.

Dean Barber: We also highlight how important your Social Security claiming strategy is to your overall retirement in the Retiring with $1 Million video that I mentioned earlier. The Social Security claiming strategy shows you the difference between somebody who claims it as soon as they can versus somebody who goes through the exercise and maximizes their Social Security.

Are You Over 55 and Still Working? If So, Why?

Before we move on to our third long-term strategy for a better retirement, I want to pose a question for anyone who is over the age of 55 and is still working: Why?

Most of the time when people first visit with us, the number one reason they might still be working is because they don’t know if they have enough to sustain the lifestyle they want to have in retirement. That is a legitimate concern, but the good news is it’s probably not as bad as they think.

A lot of times, people are already to the point where they can retire and don’t even know it because they lacked that overall plan. So, they’re going, “I could have retired two years ago and instead have been putting up with my jerk of a boss for the last two years.”

Bud Kasper: It’s a mathematical issue more than anything. Do you have enough? When we extrapolate that into the financial plan, we can find out whether that’s accurate or not. I have a client who is a super person and very motivated. He’s in a position financially to retire.

These Long-Term Strategies for a Better Retirement Make a Difference

However, when we vetted it through the program, we concluded that if waited one and a half years to retire, that would increase his probability of having all the money he needs by another 5% because all resources that he had. That might not seem like a great deal, but remember our theme here: long-term strategies for a better retirement.

Dean Barber: That’s the key. If you’re not ready to talk with one of our CERTIFIED FINANCIAL PLANNER™ professionals yet, that’s OK. I do encourage you, though, to start educating yourself by looking over our Retirement Plan Checklist. It goes into detail on all the long-term strategies for a better retirement that we’re talking about.

The Retirement Plan Checklist will help you start thinking about the things that you need to be vetting out, looking at, and discussing with a financial planner. That can prepare you for a successful retirement. What’s more, we also have an updated Tax Reduction Strategies Guide and a Social Security Decisions Guide that are wonderful educational resources.

Bud Kasper: If people asked me about some of the critical issues to answer that question of why that you posed, one of those would healthcare. It’s a major expense. When you don’t have the Medicare to use because you’re retired early, that’s an issue for a lot of people.

Dean Barber: Put it in the plan and see if it works.

Bud Kasper: Yes. Social Security is going to be an issue. How important is your Social Security integration to your cashflow needs in retirement?

3. The Creation of a Distribution Strategy

Dean Barber: It’s critical. Put it in the plan, see how it works, and determine what’s the best option. That brings us to number three on our list of the five long-term strategies for a better retirement: the creation of a distribution strategy.

Which buckets of money will you be pulling from at what time and in what amount, in combination with Social Security, possible rental income, royalty income, or whatever. Put that all together. How you take from which account, the order in which you take from which account, and the amount you take from which account will have largely factor into your overall success of how much money can you spend.

Do I Have Enough?

I want to go back to this question of, “Do I have enough?” A lot of people think if they had $2 million or $2.5 million that they’d be rich, but it’s not about a dollar amount.

When you put that retirement plan together, it’s about how much money you need to have coming into your checking account, month after month, year after year, decade after decade, to keep up with inflation. What’s that dollar amount? That becomes the ultimate thing. How much do you need to live the life you want?

Then, we circle back to all the resources to coordinate the Social Security claiming strategy and help with tax diversification. Those were number one and two on our list of five long-term strategies for a better retirement.

After that, we create the distribution strategy. To do that, we need to have that number of what it’s going to take monthly for you to do all that you want to do. Healthcare is a big piece of that, especially if you retire prior to 65 or Medicare age.

Don’t Forget to Factor in Taxes and Inflation

Bud Kasper: Absolutely. The other parts of it are taxes and inflation. Those are the pain points. Just this last week, we had the highest increase since 1990 in the Consumer Price Index, which is telling us what the inflation rate is.

I believe the reason for this bump is because of the supply chain being locked down. When you don’t have a steady supply, the prices are going to elevate because there’s not much of it going out of the marketplace.

Dean Barber: I understand inflation’s here, but let’s put this into perspective. In October 2020, we were right in the middle of the throws of the COVID pandemic. There were still a lot of places that were on lockdown and airlines and cruise ships weren’t moving. There’s a lot of things that were happening.

Now we’re trying to say, “Oh, we got a 4.6% increase in CPI from a year ago.” All right. Well, that’s probably warranted, given where we were at that time. The question really becomes, is Jerome Powell correct in saying that this inflation is going to be transitory or is this with us to stay for a while?

Transitory Simply Means Short Term

Bud Kasper: It’s funny how phrases stay with us. A lot of people don’t understand what transitory means. It simply means short term. Remember when we had conundrum that was brought up by Alan Greenspan. Everybody talked about that. When we look at this, do you really believe that this supply chain is going to be in the mess that it’s in right now for six months, a year, or forever?

No. It’ll re-regulate. When it does, the value will come back to the marketplace. When people ask me what the market is going to do next year, I wish I knew exactly, but I have an idea. I think that there is still favorability to the stock market, even though we have issues in front of us that seem rather ominous.

Dean Barber: I think we’ll be in a growth phase next year and for 2023 from an economic perspective. I mentioned in our October Monthly Economic Update that I think we will be in a slowing growth phase. The rate of growth should begin to slow next year and into 2023. I don’t think it will be in a recessionary type of a timeframe at all, but that could be there.

4. The Creation of a Long-Term Tax Plan

Let’s move on from the economic things that we’re talking about to number four on our five long-term strategies for a better retirement. Number four is critical and it’s something that most people don’t even think of: the creation of a long-term tax plan.

That means that you are going to look at your overall plan that you’ve created from a tax perspective and say, how do I pay the least amount of taxes possible? That’s not in a given year, but over your lifetime.

You do that through the creation of the long-term tax plan. It needs to be fluid and flexible because as you all know, tax laws change seemingly at a rate that is unbelievable. Before the Tax Reform Act of 1986, we probably went 25 years with no changes in the tax code. Since the Tax Reform Act of 1986, we’ve had multiple changes to the tax code. So, that plan needs to be flexible.

Speaking of the importance of creating a long-term tax plan, make sure to tune in for our upcoming educational series event. It’s on Year-End Tax Planning for 2021 with JoAnn Huber. If you register for our educational series, which is every other week, you will get an invitation and get a heads up about the topic before the event. Then, just tune in from the comfort of your home or your office if you happen to work late. We generally schedule these in the evenings.

5. Create the Plan, See If It’s Reality, Then Live It

Last, but certainly not least, let’s go to number five on our list of the five long-term strategies for a better retirement. This one really hits home for me because we run into so many people who this applies to. Number five is creating the plan, seeing if it’s reality, and then living it. We’re talking about people who are making good money and have good money, but still aren’t happy with where they are financially.

In other words, their financial success isn’t translating into living a happy life. Chances are that the reason that is the case is because they lack clarity. It’s the lack in clarity of what they have, how it’s going support them into the future, and how much more they need to save to get to that ultimate financial independence timeframe. There can also be a lack in clarity for how much longer they need to work.

We like to say, “Create the plan that is your ideal plan.” Everything that you can think of that you would want to do in retirement, that’s number five. Create the plan, see if it’s reality, then live it.

Bud Kasper: I think one of the most important things about that process, especially for married couples, is to have both people engaged. In some cases, some of the information is very foreign to one or both parties. Once we have the opportunity of bringing that together, I think it brings up a more cohesive and intelligent way of approaching that last stage of their lives, which we refer to as retirement.

Roth Conversion Time

We were busy this time last year, but we are busier this year than we’ve ever been. Why? Because we’re in Roth conversion time. We have until the end of the year, but let’s face it—the mechanics of getting this done need to happen now and through the first week of December. Otherwise, we’re losing out on time opportunity.

Why is that so critical? Because we don’t know where taxes are going to be. If those taxes continue to go up, that’s going to be another pull on retirement income, especially taxable income coming out of IRAs.

Dean Barber: That’s right. Think about what you’re saying there. The potential for taxes to go up in the future is something that is top of mind for a lot of people that pay any attention to what’s going on in the political scene. I think we could take a poll—it wouldn’t be scientific, unlike what the pollsters do—but probably eight out of 10 people would believe taxes are going to remain the same or go up in the next couple of years. Most people are going to say that taxes are going to go up.

If that happens, consider the following questions.

What impact does that have on your ability to do all the things that you want to do?
How does it going to affect your life pre-retirement?
How will it affect your life in retirement?

Those are the question that need to be answered. You can’t change what Congress does right now because we can’t vote for new people in Congress until November of next year.

Putting It All Together

When you ask those three questions, that’s where the creation of the ideal plan comes in. The creation of the plan is going to do these other four things. You’re creating your tax diversification, coordinating your Social Security claiming strategies, and creating distribution strategies and the long-term tax plan.

Once you have that all created, let’s plug in what we believe taxes will be in the future and see what that does to your ability to live the life you want to live. That’s where you get the happiness to say, “I don’t like paying more taxes, but I can still do the stuff I want to do.” That’s the key.

Bud Kasper: It is the key. You nailed it. You have the capability to look into the future by changing the parameters of how much net income you’re going to have. If taxes do go up and it’s going to take X away from your spendable income because of that, we can show you that.

Dean Barber: It might also change what your prior distribution strategy was.

Bud Kasper: Or it might change an event. We plan for vacations inside our planning program. Let’s say we’re going to take two vacations a year and intend to spend $5,000 on each vacation. What we find is that people generally don’t do that. They put it into the plan because it feels good and gives them a target for happiness.

However, usually isn’t the reality. Maybe it’s every 13 months, 18 months, or whatever the case may be. Either way, we can still look at the impact that it has on the plan.

Making Your Vision of a Vacation into a Reality

Dean Barber: I have an interesting and funny story. I had a client couple where husband retired about five years ago and the wife finally retired two weeks ago. They were going to create their distribution strategy for next year because they will no longer have her income. They were also doing year-end tax planning strategies, etc.

I mentioned that they previously said they were going to start traveling, so I asked them when and where their first trip would be. They said they were going to be leaving the next day. It was cool because her face just lit up with excitement.

There were three ladies in the office with her that retired at the same time she did. All four couples went down to the Florida Keys to hang out, relax, and celebrate all the hard work they did to get to that point.

The point is that their post-retirement trip was in the plan so they knew it could happen.

Bud Kasper: That’s a beautiful story. Those happen when you plan for them like your client did.

Dean Barber: It’s great to see that. Nothing gives me a bigger reward than my clients who get into retirement, go on a trip, and send me selfies and photos. It’s fun to watch.

Bud Kasper: It sure is. Reward is the right word.

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Dean Barber: That’s why I say create that ideal plan for you. That’s number five of the five long-term strategies for a better retirement. Create the ideal plan for you and then live it.

I think most people miss the fact that if you retire at 65, you probably have 10 to 15 years of very good health and feel like doing all the things that you’ve thought about doing in retirement. Once you get past age 75, 80, 85, you’re going to slow down. It’s just a normal thing. We’ve seen that happen. Bud has been doing this for almost 40 years now.

Bud Kasper: Thirty-eight.

Dean Barber: Thirty-eight and I’ve been doing it for 35 years. We’ve got to watch those people do it right by living that life that they set out before themselves. You can see a difference in their attitude about life.

Bud Kasper: No doubt about it. The worry goes away once you understand your plan.

Dean Barber: We’re here to help you. Thanks for joining us here on America’s Wealth Management Show. I am Dean Barber, along with Bud Kasper. We’ll be back with you next week, same time, same place. Everybody stay healthy and stay safe.

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The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.