Retirement Planning 101: Back to the Basics with Chris Rett, CFP®, AIF®

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Retirement Planning 101: Back to the Basics with Chris Rett, CFP®, AIF® Show Notes

As we brainstormed for what to cover in Episode 101 of The Guided Retirement Show, we thought it would be fitting to go back to the basics with some Retirement Planning 101. Just as he’s done for the past several season finales, Chris Rett, CFP®, AIF® will join Dean Barber again to explore the fundamentals of retirement planning.

Chris and Dean will bring you a comprehensive breakdown of the BRITE acronym—Bookkeeping, Risk Management, Investments, Taxes, and Estate Planning. Join us on this Retirement Planning 101 journey to uncover the brilliance behind each element. We’re committed to offering you valuable insights for your path to a secure retirement.

In this podcast interview, you’ll learn:

The Retirement Planning 101 Basics Are All Connected
It’s Critical to Work with a Team of Professionals Throughout the Retirement Planning Process
What to Consider with Setting Up a Spending Plan for Retirement
The Power of Forward-Looking Tax Planning

Breaking Down BRITE

You never want to lose sight of the Retirement Planning 101 basics because that’s what more than likely what has got you to where you’re at. The Retirement Planning 101 basics are important to review whether you’re doing it for the first time or the 101st time. Let’s cover these Retirement Planning 101 basics by explaining what it’s like to have a BRITE retirement. BRITE stands for Bookkeeping, Risk Management, Investing, Taxes, and Estate Planning.

“If you cover all those, you have the basics covered for a retirement plan.” – Chris Rett, CFP®, AIF

B: Bookkeeping Brilliance

At Modern Wealth Management, we understand the importance of clarity in your financial journey. Bookkeeping, the “B” in BRITE, is the foundational step toward a secure retirement. It’s not just about numbers; it’s about understanding your spending plan.

Setting up a Spending Plan for Retirement

Overlooking budgeting in your peak earning years is a common pitfall. We emphasize the necessity of knowing and planning for your monthly expenses. Start your retirement planning journey with a brilliant focus on bookkeeping.

“A very basic thing for a retirement plan to be solid is a budget. If you don’t want to call it a budget, maybe you call it a spending plan.” – Dean Barber

How much do you want to spend in retirement and what do you want to spend on? You need to know your monthly expenses. Some of those can be unexpected expenses as well. At some point, your car is going to break down, the roof is going to leak, etc. Those are things that you need to plan for.

How Do You Know If You Have Enough to Retire?

Dean recalls meeting with a couple several years ago who was planning to retire in six months (from that point). So, Dean wanted to make sure that they had everything in order to make sure they had enough to get to and through retirement.

Dean asked them how much they were spending on a monthly basis, and they said $5,000. They had about $1 million saved—all of it in traditional 401(k)s. Both of them were going to be eligible to claim Social Security, and with a reasonable withdrawal rate, it looked like it should all work out.

Then, Dean looked at their last two years of tax returns. He could tell from the tax returns that they were netting $10,000 a month after taxes. So, Dean asked them if they had money saved anywhere besides their 401(k). But they didn’t. That was it.

Dean then asked where the other $5,000 a month was going that they said they weren’t spending. There was silence at that point. They looked at each other and realized they had been spending $10,000 a month without knowing it. If they were going to retire in six months, they needed to significantly cut their expenses. It wasn’t the news they wanted to hear, but Dean didn’t want to sugarcoat it and have them come to that realization after they had already retired.

“You want to make sure that you’re going into retirement with your eyes wide open.” – Dean Barber

Planning for Inflation

This is why the first Retirement Planning 101 basic is bookkeeping. What’s your spending plan? What are you going to spend money on in retirement? How much is it going to cost? Those are crucial questions that you need to know the answers to.

You also can’t forget about the silent wealth-eroding factor as you’re covering that Retirement Planning 101 basics. That’s inflation. It’s built on your expenses. Inflation is going to have a much bigger impact the larger your budget is in retirement.

What Income Sources Do You Have?

The other part of the bookkeeping portion of the Retirement Planning 101 basics is determining what income sources you have. When will you be claiming Social Security? Do you have pensions? Do you have rental income, farm income, etc.? Those are your resources that you need to keep in mind as you create your spending plan.

But before you measure against your resources, you need to cover risk management, AKA insurance. That’s the R in the BRITE acronym.

R: Risk Management Excellence

Risk is an inevitable part of any financial journey, but with proper management, you can navigate it successfully. In the realm of retirement planning, risk management takes center stage.

At Modern Wealth Management, we advocate for comprehensive risk management, covering health insurance, disability insurance, long-term care insurance, life insurance, and property casualty insurance. Learn how strategic insurance planning can shield you from catastrophic financial losses and elevate your financial security.

“Part of the basic foundation of financial planning is having proper risk management. You need to have the right insurance for all things that could potentially go wrong to prevent catastrophic loss.” – Dean Barber

Nobody Likes to Talk About Insurance

A lot of people think that insurance is just another four-letter word. Nobody ever buys insurance and says that they can’t wait to file a claim. You get insurance to manage the risk. You’re transferring that risk to the insurance company.

“You don’t want to have some of these catastrophic events without insurance. It’s hard enough when you have it insured. It gets monumentally harder went when you don’t have that insurance.” – Chris Rett, CFP®, AIF®

Should You Carry Life Insurance into Retirement?

The primary insurances we focus on as part of Retirement Planning 101 are health insurance, long-term care insurance, and sometimes life insurance. A lot of times, people carry life insurance all the way up to retirement because they’re providing for their family. If something happens to them, they want to make sure their wife and kids will be OK.

But when you retire, maybe your house is paid off and your kids are out of the house and are self-sufficient. There is still a place for life insurance in retirement, but it needs to be much more intentional than it was throughout your career.

There are different ways to think about life insurance as you head into retirement. For example, let’s say that someone has saved $1 million and wants to leave that $1 million to their two children. But they also want to live a lifestyle where they can do the things that they want to do.

If they can purchase a $1 million life insurance policy that paid tax-free to the two children at the death of the second spouse, that allows the policy holder to spend that entire $1 million.

“You can utilize insurance in such a way in retirement where you can actually spend more than what you thought was possible.” – Dean Barber

You can also utilize life insurance to cover the tax bill if your spouse passes away prematurely. Or you can use life insurance to do a big Roth conversion or to buoy up the estate if you or your spouse requires a long-term care stay. There are several different ways to utilize life insurance in retirement.

Thinking About Health Insurance Prior to Medicare

We also want to touch on health insurance with it being a critical part of Retirement Planning 101. If you’re retiring before 65, when you become eligible for Medicare, how are you getting your health insurance during those gap years?

“The cost of insurance when you’re not working for an employer can be eye popping for a lot of people with how much that potentially could cost. That’s why it makes sense to work with someone to help you put a plan in place to determine a much more affordable option for you.” – Chris Rett, CFP®, AIF®

That’s critical because health care costs inflate at a much faster rate than core inflation. When we build a financial plan for someone heading into retirement, we always accelerate the cost of health care far greater than what we accelerate the cost of normal goods and services.

Health Care and Taxes Are Intertwined

If you retire before Medicare age and have done good job on taxes, the T part of BRITE, by creating good tax diversification, you can qualify for ACA credits by keeping your taxable income below a certain level. That way insurance pre-Medicare will be more affordable.

Taxes and health care are so intertwined. We see this all the time with Roth conversions. Sometimes when people Roth convert on their own and then get hit with the IRMAA surtax.

Estate planning is oftentimes intertwined as well. They all kind of commingle together, which is why Retirement Planning 101 is important. While it’s always good to go back to the basics, it’s also important to work with the proper subject matter experts that expertise in the components of BRITE.

“It should be a team of professionals that are working on behalf of the individual to build out your plan.” – Dean Barber

I: Investment Intelligence

We started to get ahead of ourselves a little bit with covering the “T” and “E” parts of the BRITE Retirement Planning 101 acronym. We’ll cover those more in depth in a moment, but let’s circle back to the “I,” which is investments.

Modern Wealth Management recognizes the power of strategic investments in shaping your retirement. And it’s more than just building a portfolio. It’s about understanding how investments contribute to your retirement income. Diversification is key.

When a lot of people here the term “financial advisor,” there can be a perception that they’re some sort of stock jockey or investments guru.

The reality is that our financial advisors can’t even begin to design a portfolio until they’ve built out the entire plan and discover what someone’s money needs to do for them. Then, the portfolio can be built.

“What are your resources and what do those resources need to do?” – Dean Barber

Risk Comfortability vs. Risk Capacity

It’s risk comfortability vs. risk capacity. Some people might be not very comfortable with taking a ton of risk, but their portfolio needs to have a certain amount of market returns over the longevity of their plan to be successful.

“This doesn’t mean making them uncomfortable. It means having an honest conversation to explain that their risk comfort level doesn’t match what the portfolio needs. And vice versa.” – Chris Rett, CFP®, AIF®

Chris said vice versa because he’s talked with people who have caught themselves being way too aggressive. It can be easy to do that during a thriving bull market, but you need to keep sequence of returns risk in mind, especially in retirement.

Is the 4% Rule Safe Again?

Dean and Bud Kasper recently discussed the 4% rule on America’s Wealth Management Show. They reviewed a 2023 Morningstar study on safe withdrawal rates that looked at the history of the 4% rule.

With interest rates being higher and bond values back at a more normal level, Morningstar is saying that 4% is a safe withdrawal rate again. But Dean thought the most interesting thing in Morningstar’s study was that they showed the mix of stocks and bonds to get to that optimum 4% withdrawal. It was only a 40% equity exposure and a 60% fixed income exposure that allowed for the 4% withdrawal. The more equity exposure you got into that portfolio in retirement, the lower the safe withdrawal percentage became.

Some people may be confused and think that if they can put more in stocks and get better long-term returns that they can withdraw more. But the problem is the sequence of returns isn’t consistent enough and you run the risk of having a bear market that destroys your ability to do what you want to do. That’s why you need to be a little bit more conservative in retirement.

Sequence of Returns Risk

We’ve seen that time and time again. That same 4% rule in the 1990s was fantastic for a lot of people. Some of those people might have doubled their money by 2000 if they’d been retired for 10 years or so. But if someone followed the 4% rule and retired in 2000, they might have needed to go back to work by 2010. There was basically a lost decade in the market. We want to create an investment strategy that takes the least amount of risk necessary to achieve your goals.

“The sequence of returns works for you when the market is up, but it works equally against you when the market is down.” – Chris Rett, CFP®, AIF®

This is why we stress test financial plans through all market cycles so that you have the confidence to get to and through retirement. That can go a long way with alleviating financial stress.

T: Tactical Tax Planning

Next up in the BRITE acronym of the Retirement Planning 101 basics is the T, taxes. It’s critical to realize that you can control taxes more so in retirement than at any other point of your lifetime. Proactive tax planning, facilitated by having a CPA on your financial planning team, can lead to substantial long-term savings.

It’s more about tax diversification than asset allocation. You need to start building that tax diversification before you retire. If you haven’t built it before you’re retire, it’s not too late. It’s just more difficult and not quite as effective. It still makes a difference, though.

Don’t Paint Yourself into a Tax Corner That You Can’t Get Out of

When it comes to government subsidized health care, if all you have is IRA money and your budget is a certain amount and you need to take that out to pay your bills and you’re waiting on Social Security, you don’t have a lot of options.

“You painted yourself into an ugly tax corner. You really can’t get out of it.” – Dean Barber

Creating Tax Diversification

This is very important for younger people who are saving for retirement as well. They need to be creating tax diversification early on. Don’t wait until you’re five years out from retirement to start building that tax diversification. You need to start that early on. We’re having that conversation more and more with our clients.

“They’re looking at their grandkids and they’re like, ‘Man, I wish I would have known this when I was their age.’ It is a family affair. We want to help the younger generation.” – Chris Rett, CFP®, AIF®

One of the hardest parts that people have with tax diversification is delayed gratification. If someone puts money into the pre-tax, traditional side of their 401(k) or a traditional IRA, they’re making an immediate tax savings. But what they’re missing are the rules when they need to take the money out.

The Roth’s Role in Tax Planning

If you can put money into the Roth at a young age, you can be way better off in the long run because it accumulates tax-deferred and then distributes tax-free forever. If Congress does nothing and tax rates go up like they’re scheduled to in 2026, you’re going to wish you had more in the Roth.

“There’s pain of paying the taxes today, but we’re creating tax savings over the longevity of your plan.” – Chris Rett, CFP®, AIF®

As long as you live in the United States and have money or make money, taxes are going to be a factor your life. You should never be asking the question, “How do I pay as little in taxes as possible this year?” You should always be asking the question, “How do I pay as little in taxes as possible over my lifetime?”

Think of it as another hedge play. At the end of the day, what’s the reason you get insurance? To hedge against a catastrophic event. You invest in stocks to hedge against inflation. You Roth convert or donate to charity as a hedge against future tax rate increases. Or even just to grow into a tax-free area.

So many people ask us about how to pay less in taxes. It’s become a goal for a lot of people to have their Required Minimum Distributions be zero by the time they hit RMD age. Doing so requires a plan and executing it.

E: Estate Planning Wisdom

That brings us to the last of the Retirement Planning 101 basics and E in BRITE, estate planning. In the world of retirement planning, estate planning is the final piece of the puzzle. Estate planning emphasizes the need for clear documentation, successor trustees, and considerations for health care and financial powers of attorney. Our experts share anecdotes that underscore the importance of meticulous estate planning for the benefit of surviving family members.

When you talk about estate planning, the very basics of estate planning is making sure that you have a document in place that will dictate how you want your affairs run if you become incapable of making decisions and how you want your estate to pass to the next generation. What rules do you want in place? Them you start appointing successor trustees, guardians, etc.

“The estate planning is a critical piece for your surviving family members. It’s not for you.” – Dean Barber

What an Estate Plan Brings to the Table

It’s kind of like life insurance with paying the premium. You don’t get any of the benefit. Dean has witnessed people who thought they had it all together but didn’t. The estate settlement portion process ends up being a disaster for the surviving spouse or the children that were getting the inheritance.

Dean has also witnessed people who have been diligent in taking the time and talking about their own mortality by creating an estate plan. That way their loved ones didn’t have to worry about the money part of it when they should just be grieving.

“How many times does money kind of interrupt a loving family because there wasn’t a plan in place and kids are kind of left to interpret what’s left over?” – Chris Rett, CFP®, AIF®

It happens all the time. There’s also your living will that states your wishes in the event that it doesn’t look like you’re going to make it. Do you want to be on life support or not? What measures need to be used? Health care powers of attorney, financial powers of attorney? That’s all part of the estate planning process.

Chris’s wife is a nurse. She sees a lot of situations where families are distressed with making judgment calls on what their loved one’s wishes would have been. It’s nice to have that done ahead of time.

Retirement Planning 101 Still Isn’t Simple

The basics are the basics, but Retirement Planning 101 is still complex. Since everything is so intertwined, a decision in one area can affect another area. That’s where having the financial plan put together and working with a team of professionals can empower you to be the CEO of your own retirement. You’re the boss.

“It’s your money. It’s your vision of what you want your life to look like. But I’ve never met a successful CEO who also tried to be the chief legal counsel, the chief tax counsel, and the chief risk counsel. They can’t do it all.” – Dean Barber

The smartest people are the people that understand that they don’t know everything exactly. They’re willing to hire people to help them. That’s what a good CEO does.

Your Comprehensive Retirement Blueprint

Modern Wealth Management encourages you to approach retirement planning with the brilliance of these Retirement Planning 101 BRITE insights. The interconnected nature of bookkeeping, risk management, investments, taxes, and estate planning forms the foundation of a secure and fulfilling retirement. If you have any questions about these Retirement Planning 101 basics, start a conversation with us below.

Schedule a Meeting

Don’t just plan for retirement—plan for a brilliant retirement with Modern Wealth Management by your side. Revisit these BRITE basics regularly, stay informed, and embark on your journey to financial prosperity with confidence.

Watch Guide | Retirement Planning 101: Back to the Basics with Chris Rett, CFP®, AIF®

00:00 – Introduction
02:09 – A BRITE Retirement
02:59 – Bookkeeping
07:41 – Risk Management
15:40 – Investments
22:07 – Taxes
27:22 – Estate Planning
30:11 – What We Learned Today

Resources Mentioned in This Article

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.