Retirement

8 Questions Retirees Are Asking with Chris Rett

June 15, 2023

8 Questions Retirees Are Asking with Chris Rett

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8 Questions Retirees Are Asking with Chris Rett Show Notes

We’ve reached the end of Season 8 of The Guided Retirement Show, which means Modern Wealth Management Lead Advisor Chris Rett is joining Dean Barber again for another season finale. This is the fourth time that Chris has joined Dean to address various questions about retirement. If you missed those episodes or want to tune into them again, you can do so via the links below.

In this episode, Chris and Dean will be addressing eight questions that retirees are asking. These questions that retirees are asking have been frequently asked by our clients and prospective clients. If you’re retired or are planning for retirement, you need to know the answers to these questions as well, so make sure to follow along.

In this podcast interview, you’ll learn:

  • How to Go About Finding Out If You Have Enough to Retire … and If You Can Stay Retired
  • Why CDs, Bonds, and Treasuries Are Attractive Right Now
  • How to Fight Off Inflation
  • Why Roth Conversions Are So Appealing Right Now

How Are You Feeling About Retirement?

Retirement can be very exciting to think about, but it can also be a scary proposition in several different aspects. If you’re reaching the end of your career and are thinking about retirement, what are you going to do in retirement? Who are you going to spend time with? People like to identify with their job since that’s what they’ve done for some 30-40 years.

Even if people don’t like their job, there is a degree of certainty that comes with it that can be a source of comfort. When you’re working, you know how much you’re getting paid, how much of it goes you’re your 401(k), and what’s taken out of your check for insurance. You know how much goes into your checking account, how much you can spend, and that taxes are already taken care of.

But things suddenly change when you retire. You go for working for your money all your life to needing your money to work for you. That naturally leads into the number one question that retirees are asking, which is…

1. Am I Going to Be OK?

Are you going to be OK? That’s because the number one fear in retirement is running out of money. It’s a legitimate question, but it’s not an easy one to answer. The financial services industry has tried to simplify it by saying that if you apply the 4% rule, you’re going to be fine. That may work in a vacuum, but as we know, life and investing don’t work in a vacuum. So, do you have enough to retire? Or if you’ve already retired, do you have enough to stay retired?

“Our Guided Retirement System that we utilize to build plans for people is designed to tell people if they’re on track. It’s like a GPS. Chris has a little bit of a commute to get to the office. Imagine every morning if he backed out of his driveway and put in our office’s address. The GPS would tell him the exact time he’s going to get there. But it’s never right. The reason that it’s never right is because things happen along the way. As things happen along the way, Chris’s GPS will update and give him a new time of arrival. That gives him a sense of maybe getting there five minutes later because of traffic or if he can get there five minutes early.” – Dean Barber

Stress Testing Your Financial Plan

Our Guided Retirement System answers the question, “Am I OK?” We update our plans on a regular basis and the past year and a half has shown us why. We can go back to January 2022 and some people’s plans showed that they had a 90% probability of success. Of course, after a great year in 2021, 2022 was a horrific year for stocks and bonds. And cash at that time wasn’t making anything.

We could look back through a plan that had a 90% probability of success in January 2022 and it might have an 88% or 89% probability of success now. You might be asking, “How could that be with how poorly the markets performed in 2022?” Well, it’s because when our CFP® Professionals are building your plan, they’re stress testing for the worst possible market conditions to see if your plan could survive.

“That’s where the 4% rule kind of runs into problems. You can’t assume that you’ll have a straight shot into retirement because it won’t be. You should have already accounted for the possibility of poor market conditions in retirement. We need to look at times of high inflation, volatility, and times where money can be made with low-risk investments.” – Chris Rett

2. Do I Need to Adjust My Spending?

So, the first question that retirees usually ask is “Am I OK?” The next question that oftentimes follows that is “Do I need to adjust my spending?” That’s a question that a lot of retirees are asking because 2022 was such a tough year. Again, that’s where the plan comes in.

Inflation Won’t Cause You to Go Broke, But It Can Make You Live Like You’re Broke

There are a lot of times, too, where people just don’t ask that question because they assume they can’t afford a vacation, new car, second home, something for their grandchildren, etc. since the values of their accounts went down. But like we said with covering the first question that retirees are asking, when we’re building a plan, we build it for someone to spend money. The considerations of inflation and poor market conditions have already been factored in. We answer the question of “Do I need to adjust my spending?” by rerunning the plan.

“In every conversation that I’ve had with clients in 2023, I lead off by saying inflation is real. If you go to the grocery store, you see it, right? It’s big time. Inflation is here. So, if you’re not asking me for a raise, if you’re not asking me to increase your withdrawal so that you can continue the same standard of living, what are you cutting back on and why? Because you don’t need to. The plan still shows that you can have that raise. One of the saddest things I see is people in retirement living like they’re broke when they don’t have to. I always say inflation is something that won’t cause people to go broke, but it causes people to live like they’re broke.” – Dean Barber

Whether to Adjust Your Spending Is a Legitimate Question

They could otherwise live the retirement that they always dreamed of when they were working. Remember that you’ve saved for so long and built that wealth so that you can enjoy it. But wondering if you should adjust your spending is a legitimate question.

And there are some cases in which people do need to adjust their spending, especially for those who have plans that are marginal but badly wanted to retire. Those are the people that have the highest probability that they may have to adjust their spending.

“I think there are degrees of cutting back. Dean and I run it very similarly as we draw the pie in the sky retirement. If you could have everything you ever dreamed for retirement, what would that look like? Then, we scale that back down along the way. Maybe three vacations this year isn’t doable, but two is.” – Chris Rett

If you’re considering if you need to cut back your spending, you need to have a conversation with your advisor to at least bring them up to speed on what you’re thinking. Whether it’s been during good markets or down markets, we’ve seen people silently cut back on spending. Your advisor is there to advise you, more often in bad times than in good times.

And Where Should You Be Spending From?

When it comes to needing to adjust your spending, there’s also a question of where you should be spending from? This is where we get our CPAs involved because which tax bucket you spend from dictates how much money you’re going to send off to the government.

“If we can keep the government out of your pocket to any degree possible, it takes pressure off the portfolio. That’s where the CPA comes in. They sit down with the CFP® Professional and explain the best spending strategy in terms of what money you need to take from which account. And they’ll explain how it will impact your tax bill.” – Dean Barber

To our clients’ credit, most of them are asking where they should be spending from to better understand if they need to adjust their spending. Our advisors spend a lot of time with our clients to walk them through that.

Working with a CFP® Professional and CPA Together

If you’re not talking about taxes and which bucket to spend from—or you only have one tax bucket—you need to have a conversation with a CFP® Professional and CPA together. And don’t wait until after you’re retired. It’s important to start that conversation before you retire.

“You can’t just have an advisor who talks about taxes. I learned that many years ago. That’s why we built an actual tax team to work side by side with our CFP® Professionals. That’s when the real magic starts to happen. The CPA typically can’t do that forward-looking tax planning without the CFP® Professional who built the plan in the first place.” – Dean Barber

Ninety-five percent of CPAs are very good their job. Their job is backward-looking with reporting on the previous year and making sure that the IRS doesn’t come after you for whatever you any reason. But you need a proactive, forward-looking CPA to work with your CFP® Professional to prepare for and plan for the future.

3. Are CDs, Bonds, and Treasuries a Good Investment Right Now?

With all the uncertainty that hit us in 2022 and with the fact that we’ve still been seeing rising interest rates, there are a lot of questions retirees are asking that pertain to whether CDs, bonds, and treasuries are good investments right now.

“I would say they are. At one point in May, the one-month treasury was almost 6%. It was only for a day, but the one-month treasury has been around 5%, the four-month treasury has been around 5.5%, and six-month CDs have been around 5%. We haven’t seen that in 20 years. For pretty much half of my career, we couldn’t have that conversation about CDs because they were paying nothing.” – Dean Barber

A Brief History of Interest Rates

Interest rates were already low following the Dot-Com Bubble. And then when the Great Recession kicked in, interest rates were pretty much on the floor for forever.

Again, CDs, bonds, and treasuries are attractive right now, but they should be looked at as a as an asset class that you can pivot from. Don’t tie money up for long periods of time. So, in other words, if you can get four treasuries and put whatever you want to put in those—maybe 25% for each one—you’d have a treasury that’s maturing every month. When the opportunity presents itself to get better than that, you’re liquid and can do it. So, don’t go out and start buying two-and three-and four-year CDs.

“People need to understand that there’s another arsenal of tools in your tool belt that is suddenly there. We’ve always had the conversation with people about protection, but it has usually involved cash. The downside of cash is that doesn’t it doesn’t do anything. We can wait out any potential volatility while earning money and combating inflation at the same time.” – Chris Rett

4. Is It Time to Get Back into the Equity Markets?

When you start talking about whether CDs, bonds and treasuries, good investments right now, there are a few follow-up questions that some retirees are asking. First, people understandably want to know if what’s happening in the first six months of this year is it indicative of what the rest of the year could look like. But these following questions that retirees are asking are all kind of intertwined.

Another Tech Bubble?

The broad market is measured by the S&P 500, which has gained more than 20% from its October 2022 low. But there are seven stocks out of the S&P 500 that make up 120% of that return. Those are Apple, Netflix, Amazon, Mirror, Microsoft, Tesla, and Nvidia. The rest of the market is still in negative territory this year.

“A lot of technology stocks have really popped off this year due to all the hype around AI. But price-to-earnings ratios on a lot of those technology stocks are through the roof. They’re way too high right now.” – Dean Barber

The Yield Curve Remains Steeply Inverted

We also have a very steeply inverted yield curve. We referenced that earlier when talking about the one-month, two-month, and three-month treasuries being in the 5-5.5% range. But the 10-year treasury is at 3.8. It should be just the opposite. The 10-year treasury should be higher than the short-term treasuries.

“Any time you see that get inverted, that means that there’s likely trouble on the horizon from an economic perspective. So, is there a recession coming? Probably. Over the course of the next 9 to 12 months, there’s more of a likelihood that we have a recession versus not having a recession.” – Dean Barber

A Tailwind for Bonds and a Headwind for Stocks

If we have a recession, what does the Fed need to do with interest rates? Well, they need to stimulate economic activity, so they’re going to lower rates. When they lower rates, it increases the value of bonds.

Over the next 12 to 18 months, it looks like bonds will have a bit of a tailwind. But because of the inverted yield curve, it appears that stocks will have a bit of a headwind. If you have a traditional 60-40 portfolio, you might want to flip that over and make it a 40-60 portfolio—40% equity, 60% fixed income.

“That argument gets louder and louder. You can earn real rates of return with these safe investments, which has not been the case for almost 20 years.” – Chris Rett

5. How Do I Fight Inflation?

That brings us to number five on our list of questions that retirees are asking, which is how do I fight inflation? The only way to fight inflation is to earn more than what you spend. If you’re making 5% and you’re spending 4% out of your portfolio, you’re never going to keep up with inflation. You’ll invade your principal.

The counterargument that we hear a lot is that cash feels safe because you can see it. You can open your bank account and it’s there. But here’s the problem with that approach.

“It’s the safest way to go broke or the safest way to live like you’re broke. In the long term, you can’t keep up with inflation using fixed assets. You need to have assets that can appreciate in value over time, i.e. stocks, real estate, and land. Obviously, we know that real estate prices and stock prices don’t go up every year. But over time, those two asset classes have proven that when in the right mix, they’ll keep you up with inflation.” – Dean Barber

How Do You Measure Risk?

Chris believes that risky is an evolutionary term. When you think of risk 100 years ago, you would think that the stock would go to zero and you could go to zero. We measure risk today as a level of uncertainty.

“When we say ‘at risk,’ we don’t mean of losing principal entirely. But year over year, month over month, or quarter over quarter, there could be volatility. It’s mixing the safer investments—CDs, treasuries, and bonds—with at-risk investments.” – Chris Rett

Having a little bit less equity exposure right now would be Dean’s preference.

6. Should I Convert My Traditional IRA to a Roth IRA?

One of the popular questions that retirees have been asking lately is whether they should convert their traditional IRA to a Roth IRA. Dean and Bud Kasper recently reviewed pros and cons of converting to a Roth IRA on America’s Wealth Management Show. Should you convert to a Roth IRA and why?

“Before I can tell you whether you should convert to a Roth IRA, I need to complete your financial plan and then understand the tax impacts now and in the future of what that Roth conversion did. It’s not always a yes answer.” – Dean Barber

Do It Make Sense for You to Do Roth Conversions?

And it depends on your goals. Dean and Chris are big advocates of Roth conversions when they make sense, but they don’t always make sense. Or it might not always be a client’s goal to have tax-free assets. That’s okay, too. But like Dean said, it always starts with the plan.

If Dean could have 100% of his money in Roth IRAs, he would have because he knows that there’s no better tax rate than zero. That’s what Roth IRAs provide you. But let’s let Dean explain why he can’t do that.

“To get money into the Roth IRA, you need to pay some tax. So, should you convert? I don’t know. I would say that as we do our analysis, 90%- 95% of the time you should.” – Dean Barber

Why Roth Conversions Are So Appealing Right Now

Here are two big reasons why this is a question that so many retirees and near retirees are asking. One of the reasons is the environment we’re in is inviting to Roth conversions. We’re in a low tax rate environment compared to where we’re going to be in starting in 2026. On January 1, 2026, the Tax Cuts and Jobs Act sunsets and we’ll revert to the higher tax rates from 2017 if nothing changes between now and then. So, that would be a compelling reason to convert.

“Let’s say that you’re in the 22% bracket and you have another $30,000 left in the 22% bracket. Take that $30,000 and convert from your traditional to the Roth and pay the tax at 22% because we know in 2026 that’s going to be 25%. And the 24% bracket is going to be 28%. It’s going to cost you more to get it out of traditional, whether you’re spending it or putting it into Roth in just two years and six months. If it makes sense, now’s a good time to do it.” – Dean Barber

Market timing also plays a factor. Pretty much everybody experienced volatility in 2022. The market is going to come back at some point. Right when it comes back, would you rather have that come back in a tax-deferred account or a tax-free account? You want it in the tax-free account.

“That’s why this is a major question. We appreciate that retirees are asking whether they should still convert in a bear market. It’s even more advantageous to convert it. And if you’re not asking your advisor that or your advisor isn’t talking about Roth converting in bear markets, they should be.” – Chris Rett

7. What Happens When I’m Not Here Anymore?

That kind of ties into our seventh question that retirees are asking. And it gets kind of complicated one because it’s about end-of-life planning. It’s what happens when I’m not here anymore? Is my spouse going to be OK? What’s the tax impact going to be to my spouse when I’m no longer here anymore? What about other retirement income? And what about Social Security?

“Those are all things that we take into consideration when we do the plan. If you’re fortunate enough to go into retirement with the one you love and you both live a long, happy, healthy retirement, everybody’s getting their Social Security, you’re getting through doing married filing jointly, maybe you’ve got pensions or whatever, and you die within a year or two of each other. If that’s all true for you, you don’t have to worry about that stuff. Unfortunately, we see happen all too often where one spouse passes away early. If the plan hasn’t been stress tested to take in the consideration what happens if one spouse dies early, then there can be a lot of pain for the surviving spouse.” – Dean Barber

That unfortunately isn’t something that is talked about enough in the financial services industry. It’s never a very comfortable conversation to have, but it is one that that does need to be had because it happens.

What Will Life Look Like for a Surviving Spouse?

One very important thing to understand here is that it doesn’t cost that much less for the surviving spouse to live than it did when both were alive. The mortgage doesn’t get split in half. Most of the expenses stay about the same. The grocery bill will get a little bit lower, but the smaller Social Security check disappears.

The surviving spouse will also become a single taxpayer. They’ll hit those higher marginal rates at about half the income of married filing jointly. They get the single taxpayer tax penalty. That’s something that you really need to take into consideration when you’re asking those first questions that retirees are asking. Am I going to be OK? Can I retire now? Do I have to adjust my spending?

“Think of all the possible things that could happen. One thing that could happen is a spouse passing away. If that plan doesn’t work after one spouse passes away, you need to have a long conversation about whether you need to work a little more and/or spend a little less.” – Dean Barber

And Roth conversions can play a big role here. If the surviving spouse mainly has Roth IRAs, they’ll have tax-free income. Also, if you or your spouse wouldn’t be OK if one of you pass away, should you carry life insurance into retirement? And the answer in some cases is yes.

A Big Reason Why It’s Critical to Work with a Team of Professionals

Another situation that Dean and Chris sometimes encounter are meetings with surviving spouses of someone who had done retirement planning on their own. Dean and Bud just talked about things that do-it-yourselfers can overlook on America’s Wealth Management Show, so that can easily tie into these questions that retirees are asking. That’s because many of the surviving spouses of DIYers won’t have an idea of all the components of a complete financial plan and what the plan looked like.

“Even if you’re a DIYer, think you know what you’re doing, and don’t think you need to pay a financial advisor, we still recommend reaching out and establishing a relationship so your loved one knows that they’ll be taking care of.” – Chris Rett

Unfortunately, as we age, our mental capacity naturally declines. You may pass away before your spouse. If you’re the one doing everything, your spouse is going to need somebody to take care of that for them. A good CFP® Professional can work with you on a consulting basis and have a meeting or two with you each year just to make sure. Then, bring your spouse to that meeting so they understand everything that’s going on.

“I have too many stories to tell about people that come to us after it’s too late.” – Dean Barber

Do You Have a Trust?

That feeds into the question of if you have a trust. A trust has two purposes. One is to carry out your wishes while you’re alive if you become incapable of making financial decisions. The second is to make sure that when you’re no longer here that your wishes are still carried out to your loved ones. The money is distributed in a way that you want it to be and it avoids probate and avoids being public.

“Anybody that’s in retirement and has a reasonable amount of money—even as little as $500,000—most likely needs to trust. One of the biggest mistakes that we see when people get a trust done is they don’t fund the trust. That means that everything needs to be titled in the trust. The beneficiaries of all your retirement accounts need to be thought through. Does that go into the trust after you pass away or does that go directly to your loved ones? Do you name them directly as beneficiaries? All those things must be taken into consideration.” – Dean Barber

For those that aren’t aware, funding the trust means that they went through the process that Dean described and hired an attorney. It’s critical to get everything in order and to list the trust as the beneficiary on all your accounts.

8. Should We Be Looking for More of a Comprehensive Solution to Retirement?

Number eight on our list of questions that retirees are asking boils down to what retirees could be missing. Should you be looking for more of a comprehensive solution to retirement? As Dean always likes to say, “You don’t know what you don’t know.”

“What are you not asking that you should be asking? That’s a really big thing.” – Dean Barber

Well, we have a resource in our Retirement Plan Checklist that has 30 of those questions that near retirees and retirees need to be asking themselves. You need to know the answers to them as well, but again, if you don’t know what to ask, you won’t have those answers. So, download a copy of our Retirement Plan Checklist below so that you’ll have a much better idea of the answer to the first question that retirees are asking, “Am I going to be OK?”

Questions Retirees Are Asking

Retirement Plan Checklist

“It educates people to a point where people didn’t even think to ask that. People had never even thought about it. These are the main questions that we’re getting from our prospective clients and clients and people that are watching or listening to The Guided Retirement Show and America’s Wealth Management Show. These questions that retirees are asking are all out there for you to be asking yourself. Educate yourself and don’t be afraid to seek out professional help.” – Dean Barber

Seeking Professional Help with Retirement Planning

If you’re not asking these questions to your advisor, these are questions that you should be asking if you don’t know to ask them. So, if you’re not, reach out to an advisor and ask them these questions. And if you’re a do-it-yourselfer, we encourage you to go through these questions that retirees are asking as well. They might open your eyes a little bit.

“When we’re saying DIYer, a lot of people think of that as doing their own investing. A lot of people can do that. But can you do your own taxes? Can you do your own tax planning? Can you do your own estate plan? And can you do your own risk management?” – Dean Barber

Building a Forward-Looking Financial Plan

Whether these questions that retirees are asking have been on your mind or not, we have a few ways that you can address them in addition to reviewing our Retirement Plan Checklist. If there’s one takeaway here, it’s that it all starts with a financial plan. If you don’t have a financial plan or feel like your plan isn’t complete, you can start building your own plan that considers what Dean and Chris have discussed and more by using our industry-leading financial planning tool.

This is the same tool that our CFP® Professionals use with our clients, and use can use it at no cost or obligation. Start building a plan that gives you more confidence, freedom, and time in retirement by clicking the “Start Planning” button below.

Questions Retirees Are Asking

START PLANNING

And whether you have questions you want to ask a CFP® Professional now or if it’s after you’ve started to build your plan, please don’t hesitate to reach out to us. We have a few ways that you can meet with one of our CFP® Professionals. You have the option of scheduling a 20-minute “ask anything” session or a complimentary consultation. We can meet with you in person, virtually, or by phone—it’s whatever works best for you.

Resources Mentioned in This Episode

Investment advisory services offered through Modern Wealth Management, LLC, an SEC Registered Investment Adviser.

The views expressed represent the opinion of Modern Wealth Management, LLC, an SEC Registered Investment Adviser. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management, LLC, 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.