20 Retirement Questions You Should Be Asking with Chris Rett
20 Retirement Questions You Should Be Asking Show Notes
For the Season 7 finale of The Guided Retirement Show, Chris Rett joined me to answer questions in a mailbag format. We’re sticking with the same idea of answering important retirement questions for our loyal listeners but are switching things up a little bit for the Season 7 finale. This time, Chris and I have compiled a list of 20 retirement questions that people should be asking their financial advisor.
Whether you’ve only been thinking about a couple of these retirement questions or all 20, I encourage you to listen closely to my conversation with Chris. Chris and I educate ourselves every day by asking questions. You can do the same by asking yourself questions like the 20 retirement questions that we’re about to review.
In this podcast interview, you’ll learn:
- It’s critical for your financial plan to be goals-based when you’re planning for retirement.
- A financial plan and an investment strategy aren’t one in the same.
- How tax planning, Social Security planning, estate planning, and risk management serve as financial planning pillars
- Each of your retirement questions should all lead back to your financial plan.
- “Oftentimes, once you retire, your health is your wealth at that point. It’s doing the things you’ve always wanted to do while you can do them.” – Chris Rett
- “Instead of thinking about it in terms of just retirement and no longer having to work, you need something to retire to. To prepare for retirement, you need to think about what you want your life to look like after retirement.” – Dean Barber
- Retirement Plan Checklist
- Modern Wealth Management Educational Series
- America’s Wealth Management Show
- Our Financial Planning Tool
Interview Transcript – 20 Retirement Questions You Should Be Asking with Chris Rett
Chris Rett Joins Us Again for the Finale of Season 7 of The Guided Retirement Show
[00:00:31] Dean Barber: Hello, everybody. I’m Dean Barber. Welcome to The Guided Retirement Show. I’m so glad you’re taking some time to tune in. Last season, we asked for people to submit questions to us for Chris Rett and I to answer for you.
[00:00:50] Dean Barber: This season for our season finale, we’re going to share retirement questions that you should be asking your financial advisor. We’re also going to share questions that your financial advisor should be prompting you to ask and information that they should be delivering to you so that you can have clarity and confidence and control as you head into retirement. That’s just as important. Please enjoy my conversation with Chris Rett, as we tackle 20 retirement questions that you should be asking your financial advisor.
[00:01:20] Dean Barber: Before we hop into today’s episode, I want to remind everyone that they can access the same financial planning tool we use for our own clients . You can access it on your own time and all from the comfort of your own home. All you need to do is click the “Start Planning” button below. From there, you can start building your retirement plan at no cost or obligation.
Check Out Our Retirement Plan Checklist
[00:01:38] Dean Barber: All right, Chris. Welcome back to The Guided Retirement Show.
[00:01:44] Chris Rett: Thank you for having me, Dean.
[00:01:45] Dean Barber: It’s good to have you here. One of the things that I think messes people up when it comes to planning for retirement is not knowing what retirement questions they should be asking. Several years ago, we published the Retirement Plan Checklist. It features several retirement questions that you should ask yourself and answer. And of course, those retirement questions evolve over time. And depending upon the stage of a person’s life, those retirement questions can differ. You can download the Retirement Plan Checklist below.
What Financial Planning Questions Should You Be Asking?
[00:02:10] Dean Barber: Chris and I figured that it would be good to do a little back and forth between us and talk about the retirement questions that you should be asking your financial advisor if you’re thinking about retirement in the next five to 10 years. The same goes for your spouse or significant offer. You need to make sure that you’re thinking of everything before you head into retirement. So, let’s rock and roll here. We have 20 retirement questions that we want to get answers to.
1. What Should Someone Be Doing to Prepare for Retirement and What Are Our Goals?
[00:02:36] Chris Rett: Sounds great, Dean. I agree. The first question that we thought of is what should an individual or couple be doing to prepare for retirement?
And a sub-question to that which often gets overlooked is what types of goals should we be setting for clients and what sort of goals should they have as they’re preparing for and entering retirement?
[00:02:58] Dean Barber: This is probably one of the most challenging things that a person must do when heading into retirement. If you think about it, our identity is tied to our career purpose. Thinking about what life is going to look like after your career can sometimes be very scary for people. What’s my value? What’s my worth going to be?
[00:03:24] Chris Rett: And what’s my purpose?
Defining Your Retirement Lifestyle
[00:03:25] Dean Barber: Instead of thinking about it in terms of just retirement and no longer having to work, you need something to retire to. To prepare for retirement, you need to think about what you want your life to look like after retirement. We have an amazing exercise that we walk through with people. It’s the prioritization exercise within our Guided Retirement System.
During the prioritization exercise, you meet with a CFP® Professional—somebody who has the expertise to understand what life really does look like after retirement. The CFP® Professional goes through the prioritization exercise and explores what’s important in your life. We start off with a list of 20 different things that you can choose from. Then, after a conversation that might last 45 minutes or an hour or two, we narrow it down to five things that are the most important between the couple. We can then start to visualize what their retirement is going to look like.
[00:04:31] Chris Rett: Exactly. How many times do we sit down with clients and say they’ve got the green light to retire in the next year? But when we ask what that looks like for them, we get blank stares. It involves some soul searching. It’s scary because it’s so purpose driven. And it’s also not a one-size-fits-all situation. There’s a unique aspect to it and it does require some soul searching.
There’s Much More to Retirement Than How Much You Need to Retire
[00:04:56] Dean Barber: Outside of financial things that people need to do to prepare for retirement, they really need to prepare their psyche for that next phase of life. The only way to do it is have an honest conversation with your spouse and really get to know what is the most important to each of you. It might take two or three meetings with a good CFP® Professional that has coached people through this for several years. Getting ready for retirement is so much more than just about a number. It’s so much more than how much money you have or how much money you want to spend.
[00:05:29] Dean Barber: It’s about discovering what’s going to be important for the rest of your life. You’re only going to be 60 one time. You’re only going to get to see things like your grandchild’s first birthday one time. What are the things that are most important to you? Is it just a pile of money that’s the most important thing to you? If that’s the case, it’s probably going to be a shallow retirement.
Your Health Is Your Wealth
[00:05:52] Chris Rett It would be. Like Dean said, you’re only 60 once. Oftentimes, once you retire, your health is your wealth at that point. It’s doing the things you’ve always wanted to do while you can do them.
[00:06:05] Dean Barber: That’s critical. Health is key.
2. What Does a Financial Plan Look Like and Should It Show Me a Probability of Success?
[00:06:07] Chris Rett: It is. We could spend all day on that. But in talking about that, we talk about the financials. What does a real financial plan look like? Should a plan show probabilities of success?
Your Assets and Your Ability to Save
[00:06:24] Dean Barber: A real financial plan is not investment driven. Someone shouldn’t begin to discuss an investment strategy with a CFP® Professional until they have their complete financial plan built. Like we said earlier, you need to step into the future. What do you want your future to look like? That’s why we need to do that prioritization exercise, that honest conversation prior to building that plan. Once you understand what you want your future to look like, what are all the components that you possess today and what’s your ability to save in the future?
[00:07:10] Dean Barber: You’re going to look at dollars that you have now and dollars that you need to save between now and retirement. Oftentimes, we’ll see people that are over-saving. They could start doing some of the things that are important in their life now and still be OK financially for retirement.
[00:07:28] Chris Rett: We see that a lot.
Tax Implications on Your Savings
[00:07:29] Dean Barber: Your financial plan should include a very thorough, forward-looking tax analysis. What are the tax implications when you stop working for retrieving funds that you’ve set aside over the years? It should also include a thorough Social Security analysis and a very comprehensive plan for when and how you claim your Social Security. It should also include a thorough look at all your risk management issues such as a premature death of a spouse or a potential long-term care stay.
Passing Your Assets to the Next Generation
[00:08:09] Dean Barber: Maybe it’s even caring for an adult child that may financially struggle or something along those lines. Ultimately, it’s also going to need to include a good estate plan. What happens to the assets that you’ve accumulated at the end of your life as it passes to the next generation?
[00:08:30] Chris Rett: Absolutely. We use this reference a lot, but it’s no different than the oversimplification of a navigational plan when you’re getting in your car and going somewhere for the first time. What potential obstacles do we have? What potential hazards lie in front of us with our goal of reaching our destination?
Think of Your Retirement Plan as a GPS
[00:08:47] Dean Barber: It’s a little bit easier now with a GPS. because You plug it in and see where there’s traffic, accidents, or construction.
[00:08:56] Dean Barber: Unfortunately, our lives don’t follow a pattern. There are always things that are going to come up that are unexpected. Your financial plan should be living and fluid with the ability to change. Things happened in the economy, the markets, and in life. Your goals and priorities can change. Within minutes, you should be able to see how those things have adjusted your probability of getting to the destination that you want to get to and the way that you want to get there.
[00:09:28] Chris Rett: And if you’re not, you probably don’t have a comprehensive financial plan.
[00:09:33] Dean Barber: I’ve been doing this for 35 years. There are so many people that our CFP® Professionals and I have met with for the first time and they think they have a plan. But when we look at it, it’s just a shell of a plan or an investment strategy—something like that. Very rarely does someone have a comprehensive financial plan when we first meet with them. I’ve seen it maybe a handful of times.
[00:10:00] Chris Rett: Same.
A Financial Plan Is a Magical Thing
[00:10:01] Dean Barber: And it’s just not something that people take the time to do. It requires dedication from the people that are heading into retirement. It takes time and some energy. But once it’s in place, it’s a magical thing.
[00:10:16] Chris Rett: That’s what makes our discussion of these retirement questions so important. Most of these financial planning questions haven’t been asked by people leading up to their retirement. And if the retirement questions aren’t even being asked, how can they know the answers?
Dean and I have studied retirement planning and constantly review these questions with people, and we’re always learning new things. Most people won’t know what retirement questions to ask or what rules apply. So, no doubt, it is a lot. Dean touched on something earlier that I think doesn’t get talked about enough. That’s a premature death in a plan.
3. What Happens If You or Your Spouse Passes Away Unexpectedly?
[00:10:45] Dean Barber: What happens if you or your spouse passes away prematurely? We never know when the metaphorical sand runs out of the hourglass. What concerns do we have? What implications arise?
[00:11:02] Dean Barber: There are multiple things that happen, and a good financial plan will address all these things. Number one, the surviving spouse will be a single taxpayer. With the same amount of income, they will go into a higher tax bracket and likely pay more taxes than what they paid as a married couple.
The second thing that’s going to happen is the smaller Social Security check is going to go away. And if there happens to be a pension on the spouse that passed away, was there a survivor benefit on it? Can the surviving spouse continue to live the same lifestyle without those other sources of income? When you’re looking at that, there may be a need to carry some sort of life insurance into retirement.
Stress Testing Your Plan
[00:11:43] Chris Rett: We’ve seen it a lot of times where we even stress test for something like that and uncover a problem that we might not have already known to look at. Thankfully, it doesn’t happen too often, but we do see it enough that it is worth having a conversation on.
[00:11:58] Dean Barber: That’s one of your stress tests. Look and see what happens if somebody passes away.
4. When Should My Spouse and I Claim Our Social Security?
[00:12:01] Chris Rett: A piggyback question off that because it is important is, when is a good time to take Social Security or a spousal Social Security?
[00:12:10] Dean Barber: Social Security planning is an integral part of the overall financial plan. There are many software packages where you can plug in your Social Security earnings history. They’ll tell you the optimum time for you to take it. You can do the same thing for your spouse.
But what you need to do is enter it in both spouses and find optimum way to claim Social Security. The difference between the best and worst claiming strategy for a married couple age 62 can often be a $100,000 or more of additional lifetime income. But you can’t stop there because Social Security is taxed different than any other asset.
[00:12:49] Dean Barber: Take all those iterations of how you claim your Social Security and plug those into the plan to find out not just which one is the best for how to get the most out of Social Security, but which one’s the best from a tax perspective. It’s the combination of those two things that’s going to tell us when to take Social Security. I wish there was an easy answer to that, but there really isn’t. It’s critical that people get that right.
[00:13:10] Chris Rett: It is. And it’s a unique scenario. What are our assets saved? What do we need spending? How old are we? What is our health like? Again, we don’t know when the sand runs out of the hourglass. That’s an important factor when deciding when to take Social Security, but it is important to have it right.
5. Where Should We Be Saving for Retirement?
Next on our list of retirement questions that you should be asking your financial advisor is, where should you be saving for retirement as you approach retirement? That’s a retirement question that’s also relevant for someone who is 20 or 30 years old and is just starting their retirement savings.
Tax Diversification Is Critical
[00:13:38] Dean Barber: My favorite asset, or I’ll call it tax bucket is the Roth IRA. The Roth IRA allows money to accumulate tax-free and then it also allows it to come in during retirement tax-free. Your qualified retirement plans are a great place to save, but you need tax diversification. When you think about saving money, don’t just think about the underlying investment, whether it be your favorite stock, bond, fund, ETF, or whatever. Think about it from a tax bucket. Does it need to be tax deferred? Should it be taxable? Should it be tax free?
What we’ve seen over the years is that a person who builds good tax diversification can really control their taxes in retirement far more than somebody who just crams everything into the tax-deferred portion of their 401(k).
[00:14:26] Chris Rett: Sure. Speaking of 401(k)s, are there Roth 401(k)s and can you take your employer match by contributing to a Roth 401(k)?
Traditional vs. Roth 401(k)
[00:14:34] Dean Barber: Absolutely. Every company doesn’t offer a Roth 401(k), but most big companies offer a Roth option. However, at this point in time, all the company match will go into the traditional side of the 401(k). There’s legislation that’s being talked about right now that would allow that employer to make the match into the Roth portion of the 401(k), but that’s not live at this point.
Roth 401(k) is a great way to save, especially for younger people. They’re probably going to be in the lowest tax bracket that they’re ever going to be in. And they get that money in there and it can grow tax-free.
If somebody is in their peak earning years and they know that they’re going to be in a lower bracket in retirement, we might suggest that they use the traditional 401(k), get the bigger tax deduction now, and then do conversions after retirement where we can convert back to a Roth at a lower rate than what we’re currently in our peak earning years.
6. What Tax Rate Will We Be at When We Retire?
[00:15:28] Chris Rett: That sounds great. And so that leads us into our next retirement question to ask your financial advisor.
6. What Tax Rate Will We Be at When We Retire?
For decades, it’s been told you’ll be in a lower tax bracket in retirement. Is that always the case or what do we typically see people’s tax rate at when they enter retirement?
[00:15:43] Dean Barber: You can be in a lower tax bracket in retirement, but it takes pre-planning. It takes tax diversification so that you can control the taxes in retirement. About 90% of the people that we meet with for the first time have painted themselves into a tax corner. They’ve saved the majority of what they have saved in the tax-deferred portion of their 401(k). Every dollar that comes out of that in retirement is going to be taxable as ordinary income both at the federal and the state level.
[00:16:19] Dean Barber: And all the distributions coming out of a traditional IRA will negatively impact your Social Security and how that is taxed. If you want the same lifestyle in retirement that you had pre-retirement and all you have is tax-deferred money, chances are you won’t be in a lower tax bracket in retirement. It takes planning, but you can be in a lower tax bracket of retirement with the proper tax diversification.
7. Are Roth Conversions Right for Us?
[00:16:43] Chris Rett: Sure. That makes complete sense. That begs the question then, are Roth conversions right for us? Can everybody benefit? Who can benefit? What’s a good time to Roth convert? What’s a good reason to Roth convert?
[00:17:00] Dean Barber: Let’s think about this from a perspective of our tax rates today. Looking at tax rates today and knowing that they’re going to sunset to higher tax brackets in 2026, we’re living in some of the lowest tax brackets that we’re ever going to see.
[00:17:20] Dean Barber: We have over $30 trillion of national debt. The only way that our government can pay that off is by raising taxes. If you can get money into a Roth IRA now at a reasonable rate, whether it be a conversion or a contribution to a Roth, absolutely the Roth makes sense for most people. Now, I have seen cases where Roth conversions don’t make sense.
[00:17:42] Dean Barber: It depends on the overarching financial plan. You need to know everything before you can give that answer.
8. Do We Need a Budget or Spending Plan?
[00:17:46] Chris Rett: That makes sense. Looking at that, how many times have you said, “What is the spending plan? What is the budget? How much do you spend each month?” And you get blank stares. People will just say that they spend whatever they need and they never really look at that. How important is a budget in retirement?
[00:18:08] Dean Barber: It’s critical. It’s not critical that it’s a budget per se as amount of dollars that you can spend, but it’s critical for us as financial planners to understand where you’re spending your money. The reason that that’s important is inflation. There are certain things that we spend money on that will inflate faster than other things.
As an example, if somebody goes into retirement with a mortgage, that mortgage is not going to inflate. We can’t just apply a blank rate or a fixed rate of inflation to every dollar that you spend and your mortgage has a finite period. It’s going to end at some point. That needs to be taken into consideration.
[00:18:51] Dean Barber: When you look at it that way, it’s critical that you know where money is being spent so that the financial planner can then do the research and apply the right inflation rates to those areas—travel, food, entertainment, meals, etc. It’s not saying that you only can spend X dollars. It’s where are you spending those dollars so that we know as we’re projecting it forward that you can live the life you want to live.
9. Where Should We Spend from in Retirement?
[00:19:16] Chris Rett: With that in mind, what does a spending plan look like? Where should we spend from in retirement?
[00:19:28] Dean Barber: A spending plan is going to be a combination of a couple of different things. It’s going to be not only where you want to spend the money, but where are you going to get it from? Where you’re going to get it from is going to be which asset class are you going to take it from first, second, third, and so on. And then, which tax bucket or combination of tax buckets are you going to take it from? A spending plan is ultimately designed to provide two things. One, a smooth ride. Two, tax efficiency throughout retirement.
[00:19:55] Chris Rett: So, is how the tax buckets and how they’re invested, is that a determining factor in which buckets they should spend from?
[00:20:04] Dean Barber: One hundred percent. You need to make sure that you’ve got the right asset class in the right tax bucket. It all depends on what your spending plan is. Things change in people’s lives. Sometimes, you might swap an asset class in one bucket for an asset class in another bucket. You keep the same allocation, but just change where they’re located. That’s called asset location.
10. Do We Need an Estate Plan or Does Ours Need to Be Updated If We Have One?
[00:20:23] Chris Rett: Dean referenced the SECURE Act earlier. How much has the SECURE Act changed estate planning? Do we need an estate plan or does our need to be updated if we have one?
IRA Beneficiary Rules within the SECURE Act
[00:20:54] Dean Barber: The SECURE Act drastically changed the rules for your beneficiaries inheriting that. We don’t have time to go into all those different rules, but there are multiple ways that your beneficiaries will be getting money out of those accounts. It depends on the age and the relationship of the beneficiary and IRA owner.
For the IRA owner, the person that’s going into retirement, it’s not going to affect how they spend or what they do. But if they care about keeping Uncle Sam out of the coffers of that IRA as much as possible when it passes to the next generation, the answer is absolutely. It changes estate planning drastically. Trusts need to be revisited. Beneficiary forms on IRAs need to be revisited. That’s something that should really be done every other year at least anyway.
11. Are Our Beneficiaries Current?
[00:21:46] Chris Rett: And that’s going to be another retirement question that breeds into what we were just going to ask. How often should we be revisiting beneficiaries and how do we check if our beneficiaries are current? And how often should an advisor be talking about estate plans and beneficiaries?
[00:22:03] Dean Barber: The one key is that a beneficiary form with the IRA custodian will trump any legal document. You may have a trust set up that says you’re going to split money among your four kids and they’re going to get half of it and then your grandkids are going to get the other half. But if the beneficiary form with your IRA doesn’t reflect that, that’s not the way it’s going to go. A lot of people get a trust done and they think that that trust is now going to take care of all the issues.
[00:22:42] Dean Barber: But it doesn’t, especially not with IRAs. IRAs have their own beneficiary form that needs to be done properly and it must reflect your wishes. It needs to be revisited at least every other year.
12. Are My CPA and Financial Advisor Working Together on My Behalf?
[00:22:56] Chris Rett: At least, yes. Absolutely. With that in mind is that you talked about the transfer of wealth and setting up tax efficiencies. Should a financial advisor be working with who the client has designated to be their CPA? And conversely to that is what happens if a financial advisor is recommending one thing—and we don’t see it too often, but we do see it—but a CPA that a client is working with is recommending something exactly the opposite? Who can a client trust?
[00:23:23] Dean Barber: It gets confusing because most of the time, the CPA and the financial advisor are not talking.
[00:23:32] Chris Rett: And they should be.
Don’t Get Lost in Translation Between a Financial Advisor and CPA
[00:23:34] Dean Barber: They should be. When they’re not, it’s easy for something to be lost in translation between the financial advisor and CPA. In most cases, the CPA does not know the overall financial plan. They don’t know the overarching objectives of what the plan is designed to do for the individual.
A lot of times when the CPA says saying something that conflicts with what the CFP® professional says, it’s because they don’t understand the big picture. That’s why we have our own CPAs in house. As we’re drafting the plan, the CPA gets to review that plan from a tax perspective. That gives the synergy to the client to not only look at this from a financial standpoint, but from a tax standpoint. That’s the goal of your CPA and my financial planner working together with you in the same room so it makes sense to you.
13. What Is Our Plan for Medicare?
[00:24:21] Chris Rett: Agreed. Next up in our retirement questions that you should be asking your financial advisor is asking about our plan for Medicare?
[00:24:24] Dean Barber: Health care is probably going to be one of the largest expenses that people will incur during retirement. A medical expert will probably say health care is the biggest cost. And a tax expert will probably say taxes are going to be the biggest cost. Medicare is critical because it’s the platform for health care during retirement.
It gets convoluted because of the alphabet soup of Medicare planning and all the different Medicare supplements. What should you have and what should your spouse have? There’s a whole litany of things that go into Medicare planning. But that’s obviously important because if you don’t plan for it properly, it can be as big a wealth eroding factor as taxes during retirement.
14. Are We Over-or Under-Insured?
[00:25:07] Chris Rett: So, how can someone determine whether they’re over-or under-insured? and what different types of insurance are there that clients should be looking at as they’re preparing and entering and even in retirement?
[00:25:25] Dean Barber: Let’s face the facts. Insurance is something that you never want to use. Nobody ever buys an insurance policy and says, “I can’t wait until the day I get to file my claim.” Insurance should be looked at strictly as a risk management tool. It removes the risk of financial ruin from the individual who is purchasing the insurance. Insurance should be looked at strictly as a risk management thing. Once we understand someone’s overall objectives, the resources they have, the potential risks—whether it be long-term care, premature death, property casualty, Medicare supplements, health insurance, whatever—we can look at the plan and determine the proper amounts. It’s the CFP® professional’s job to review the insurances that people have to determine whether they’re adequately covered. Are they under-insured or over-insured”?
[00:26:17] Dean Barber: Ultimately, what you want is the Goldilocks of the insurance. You want what’s just right. You don’t want to spend any more than what you need to. Make sure that you have the right coverage across the board for all risk.
15. How Likely Is It That My Spouse or Myself Will End Up Having a Long-Term Care Stay?
[00:26:26] Chris Rett: That makes sense. So, how important is long-term care coverage? What are the odds that somebody might even find themselves in a long-term care facility in retirement?
[00:26:36] Dean Barber: The odds are pretty good that one of the spouses will spend some time in a long-term care facility. There’s usually around a 70-80% that one of the spouses will spend some time in a long-term care facility. What’s the financial impact on the surviving spouse of that long-term care expense? And do you have enough wealth to self-insure or do you need to seek out insurance that can cover long-term care?
In most cases when we see that a person needs some sort of extra coverage, we’ll recommend a life insurance policy that’s got a critical care writer on it that will allow a person to access a portion of that death benefit while they’re alive to pay for long-term care. It’s tax-free. If they don’t use it, the death benefit goes to the surviving spouse or the beneficiaries tax-free as well. It’s the only type of insurance that you’re ever going to have that’s going to be guaranteed to pay out more to you or your beneficiaries than you’ll ever pay in premiums.
[00:27:43] Chris Rett: How many times have clients come to us with long-term care policies that never end up using them? All those premiums just go to those that end up using it.
[00:27:54] Dean Barber: Not only that, but the premiums are increasing at double digital rates. The life insurance with the critical care writer on is the best avenue for tackling that long-term care.
[00:28:09] Chris Rett: If it’s needed in the first place.
[00:28:12] Dean Barber: And if you can qualify for it. You need to be healthy.
16. What Inflation Rate(s) Are We Assuming in Our Plan?
[00:28:14] Chris Rett: I want to shift gears to inflation since it seems to be a hot topic right now. We haven’t seen inflation at these levels since the early 1980s. How should clients be planning for inflation in their plan? What types of things should advisors be bringing to the table to clients to compensate for inflation?
[00:28:39] Dean Barber: One of the most critical things that people should be doing when they’re building their financial plan is putting as much stress on the plan as possible. You should apply a larger inflation rate than the historical average just in case there’s more inflation in the future. Now, if there’s not more inflation in the future, then it’s going to give you the ability to spend more money in the future.
Applying Different Inflation Rates to Different Parts of Your Spending Plan
But going back to the spending plan, knowing what you’re spending money on, and applying the right inflation rate to the right spending pattern is critical. For example, health insurances and health care costs are increasing at an average rate of about 6.8% per year. You want to build that into your health care expenses. If you’re traveling, maybe that’s going up at 2% to 3% a year. You need to look at what those are, but it’s very important that inflation is built in properly. Inflation isn’t something that will ever cause a person that reaches retirement successfully to go broke.
[00:29:32] Dean Barber: But if you haven’t properly planned for inflation, it will cause you to live like you’re broke because you didn’t factor it in. Now, you can’t afford to do the things you want to do and you’ll never spend more than what you can because you’re fearful of running out of money. You end up being more fearful of running out of money than you are of not being able to do all the things that you want to do.
17. How Important Are Our Investments and Our Risk Exposure to Our Plan?
[00:29:49] Chris Rett: We talked about this a little bit earlier, but this is a retirement question that you need to ask your financial advisor. How important are your investments and your risk exposure to your plan? I know that investments are important, but how important are asset allocation, diversification, and level of risk that clients take? Traditionally, when the stock market is up, the bond market tends to be flat or maybe even down a little bit. Conversely, when the stock market is down, you typically see that the bond market is up.
This year is a little bit unique in a sense that both are down significantly. How important is investment planning and planning for such an event? And where do people go if both stocks and bonds find themselves more correlated than ever and bolt down at the same time?
Thinking of Your Investments as an Engine to a Car
[00:30:36] Dean Barber: Your investment strategy in your financial plan is like the engine in your car. It’s how you get to where you’re going to go. The investments are very important. But one of the things that people lose sight of is that when you transition into retirement, you’re now in the decumulation phase. In other words, you’re asking your money to produce income for you so that you can continue to live the life that you want to live. The real trick on the investments is to not to compare yourself or your portfolio to any major index. Don’t compare your investments in retirement to what the S&P 500 are doing.
Your Personal Retirement Index
[00:31:19] Dean Barber: Don’t compare your investments in retirement to what the bond aggregate is doing. If you’ve done the right job in financial planning, you can create something called a Personal Retirement Index. Your PRI is equal to the return that your money needs to achieve on average for you to do all the things you want to do in retirement.
If you can identify that, then by working with a good CFP® professional and portfolio developer, you can design a portfolio that historically achieves that rate of return with the least amount of risk possible. You need to remove emotion from it and take a very scientific approach.
[00:32:00] Chris Rett: And understand that throughout the time, there are going to be years where you outperform that. That’s gravy. But you’re also going to come under that and perhaps leave some money on the table.
[00:32:12] Dean Barber: It needs to be flexible. You need to be able to adjust at a moment’s notice because you never know what’s going to happen.
18. What Should I Do If We’re Retiring or Already Retired During a Recession?
[00:32:18] Chris Rett: That breeds this next retirement question. By every statistical category and indicator, it appears we’re either in the middle of a recession or trending to a recession. What should you do if you’re retiring or already retired during a recession?
[00:32:50] Dean Barber: It’s a great question. That takes us all the way back to the first question that Chris asked. If you’ve built the financial plan properly and it’s done everything that it’s supposed to do, your financial plan should consider that poor market or economic conditions can occur at any point during your plan. It should be constructed with the confidence that you can go through those times because you’ve already thought through all those different things.
[00:33:23] Dean Barber: Where the recession will hurt people is when they don’t have a plan. They don’t have a strategy, so they don’t have any clarity on how their things are going to react. Then, the emotions of fear and greed take over. In a recession, it’s the fear that causes people to make bad decisions.
You need to go back to the plan again. That’s the cornerstone. If you’ve done that, stress tested through recessionary times, and your plan works, then keep living your life and do what you want to do.
19. How Do We Take Advantage When Interest Rates Are High?
[00:33:57] Chris Rett: Sure. This year more so than a lot of years, we’ve been paying much closer attention to interest rates and what the Fed is doing. We’ve seen probably the most interest rate hikes that we’ve seen in a year and the greatest transition of interest rate hikes that we’ve ever seen. How can we take advantage of some of these interest rate hikes? Is it time to start having that conversation of individual bonds? Are CDs becoming more of a conversation?
[00:34:34] Dean Barber: The answer to both of those is yes. CDs are becoming more of a conversation because you can make something on them today. However, I believe where the opportunity exists is in United States treasury bills. We can buy a three-month treasury bill that’s yielding higher than a 10-year treasury bill. It’s not by a lot, just 4.2% versus 4.1%. We can get a six-month treasury bill at 4.6%. In this type of an environment, if somebody wants something that’s fixed, secure, and safe, you can ladder some treasuries. You can buy some in a three-month, some in a six-month, and some in a one-year.
[00:35:21] Dean Barber: As soon as the three-month one matures, do a six-month one. That way, every three months, you have liquidity. With that treasury, you’re getting a decent rate because at some point you’re either going to want to lock in a longer-term rate if fixed income is where you want to be or you’re going to identify that this recession is coming to an end and there is some bargain basement prices out there on some of your favorite ETFs, stocks, or mutual funds. You can hop back in and get a nice ride up.
20. Do We Have the Right Financial Planner and Are They Doing a Good Job for Us?
[00:35:53] Chris Rett: OK. We’ve finally reached our last retirement question that people should ask their financial advisor. It’s one of the most important retirement questions, too. Do we have the right financial planner and are they doing a good job for us?
I know the market is down in a lot of different indexes and asset classes, so that might not always be the best judge. But how does a someone truly evaluate if their advisor is doing a good job or if it’s time to look at different advisors?
Reviewing the 20 Retirement Questions That You Should Ask
[00:36:25] Dean Barber: Here’s what you do. Go back through the list of 20 retirement questions that people should ask their financial advisor that we just laid out. First, do you have a financial plan? Did your financial plan include tax planning and Social Security planning? Did your financial plan include stress testing for all the possible risks that are out there in the future? And did your financial plan include estate planning objectives?
Does your financial plan allow your portfolio to be built with the least amount of risk possible? And has that been quantified to you? Can your financial plan show how these changes in economic and market conditions are affecting your probability of success? Does your financial advisor communicate with you on a regular basis? Are they available when you call them? Can they explain things in a way where it makes sense to you instead of talking over your head? Do you have a good relationship with that person?
Your CFP® Professional Should Help Provide Clarity, Confidence, and Control to Your Financial Life
[00:37:16] Dean Barber: Your CFP® professional should be somebody that you can turn to with any kind of financial question and any kind of life management question. Their job is to help provide clarity, confidence, and control in your financial future. That’s going to define whether you have the right advisor. If there’s any doubt in a person’s mind, they should seek other options.
There’s So Much More to Financial Planning Than Your Investments
If you’ve been with somebody for a long period and you’re not feeling comfortable, go interview some other people. But let me tell you this. If you go talk to somebody and they start telling you how great their investment strategies are, you need to walk out. It should never begin with that conversation.
[00:38:00] Chris Rett: Because that could change in any time.
[00:38:02] Dean Barber: Absolutely.
We’re Happy to Help Further Answer These Retirement Questions for You
[00:38:03] Chris Rett: This has been fun, Dean. I’ve had a really great time and hopefully people learned a thing or two. I hope people will ask these retirement questions to their financial advisors. I look forward to answering those questions for people.
[00:38:13] Dean Barber: If you’re not already a client of ours, we would love to talk to you about these retirement questions. We don’t have products to sell. All our CFP® professionals are salaried people. We’re here to do what is in the best interest of the individual. We don’t receive commissions or anything like that. If people decide to hire us, we clearly lay out how we get paid, what you’re going to pay us to do, and our value proposition.
[00:38:37] Chris Rett: And a good financial advisor should be bringing these questions to you even if you’re not asking them. Not everybody knows the answers, and we know that. That’s why we bring the questions to them. These 20 retirement questions are a great place to start. A good financial planner and good financial planning firm should bring these retirement questions and similar questions to their clients.
[00:39:04] Dean Barber: Absolutely. Chris, thanks for taking time to be part of your time show.
[00:39:08] Chris Rett: I appreciate it, Dean. Thank you.
That Concludes Season 7 of The Guided Retirement Show!
[00:39:09] Dean Barber: Again, If you still have questions for us after we review these 20 financial planning questions, we encourage you to reach out and schedule a meeting with us at no cost or obligation. The goal is to build a financial plan for you that helps you achieve your retirement goals while taking on the least amount of possible risk. By clicking the “Start Planning” button below, you can use the same financial planning tool that our CFP® professionals use—also at no cost or obligation—to begin building your plan today.
Thanks again for joining me here on The Guided Retirement Show. We hope you enjoyed our Q&A session. We’re so excited that you’re part of our audience and I want to let you know that this is the season finale. We will be back with a new season starting in January 2023.
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Investment advisory services offered through Modern Wealth Management, Inc., an SEC Registered Investment Adviser.
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.