Questions About Pensions

By Dean Barber

August 19, 2021

Questions About Pensions

Key Points – Questions About Pensions:

  • What You Need to Address if You Have a Pension
  • Questions About Pensions
  • Story Time: Making a Pension Decision
  • Social Security is a Pension
  • 23 minute read | 38 minutes to listen

When it’s time to retire, there’s a lot of decisions that you have to make. Join Dean Barber and Logan DeGraeve as they discuss questions about pensions. It’s not just about pensions, it’s about Social Security, taxes, and everything involved in making the right decisions for your retirement goals.

Complimentary Consultation

Article: 3 Steps to Help Evaluate Your Pension

Video: Retiring with $1 Million

Download: Retirement Plan Checklist

Questions About Pensions

Dean Barber: Thanks so much for joining us here on America’s wealth management show. I’m your host Dean Barber. Bud Kasper is out taking his son to college, and so sitting in for Bud Kasper is CERTIFIED FINANCIAL PLANNER™, Logan DeGraeve. Logan, great to have you here as part of America’s Wealth Management Show.

Logan DeGraeve: Appreciate it, Dean. Thanks for having me.

What You Need to Address if You Have a Pension

Dean Barber: We’re going to talk about something today that is not necessarily commonplace for everybody, but it is something that can complicate a person’s decision-making process as they head into retirement. We’re going to talk about pensions. 

Specifically, seven different questions that need to be addressed when deciding what to do with that pension. And many people don’t have pensions in what we consider the traditional sense, Logan. 

Still, everybody has a pension of some sort, such as Social Security, which is indeed a pension. We’ll talk about why we call it a pension here in a little bit. You can also have your traditional pension coming from a company, a government entity, or something like that. 

What We Look for if You Have a Pension

So Logan, when you’re doing your financial planning for people, let me know, how do you explain to them what they need to be thinking about if they’ve got an option for a pension?

Logan DeGraeve: Dean, there’s a lot to it. And the first thing I always explain is you cannot look at the pension or Social Security in a vacuum. You need to look at it with your overall financial plan, retirement plan, and tax plan. But ultimately, what we need to look at first is, what are the options? Do you want to take a lump sum? Is a lump sum option available to you? Or should you be looking at the single life? How does your spouse feel about that? 

Ultimately we want to ensure the whole family’s protected, not just the one with the pension. So it comes down to getting to know that person because everyone’s financial plan is different. What does your lifestyle cost you? That’s going to depend on how much income you need on a monthly basis.

Evaluating Your Pension Options

Dean Barber: So let’s think about the pension by itself for a little bit, and that’ll maybe help people understand what we’re talking about. So you said, what are the options on the pension? So some pensions don’t even have an option for a lump sum.

Logan DeGraeve: That’s correct.

Pension Survivorship

Dean Barber: But, all pensions will have an option for a survivorship benefit for a surviving spouse. So if you were to take the single life pension, what happens is, your spouse has to sign off in front of a notary that it’s okay for you to take that single life pension. 

That wasn’t always the case until a few lawsuits took place where people would take a pension, and then the spouse got nothing. And they’re like, “I didn’t know that that was an option.” So, the spouse has to sign off if you are going to take a single life pension. That way, they understand that there’s nothing left for the surviving spouse if you pass away.

Logan DeGraeve: Yes, that’s correct. And usually, that conversation’s a little cantankerous if we don’t have it.

Breaking Down Pension Benefits for Spouses

Dean Barber: But there are some times when it makes sense to take a single life, so let’s go through them. You can have a joint and survivor with 25%, a joint and survivor with 50%, and a joint and survivor with 75%. You can have a joint and survivor with a hundred percent. So, let’s say that somebody had a $5,000 a month pension and the joint and survivor option for 50% survivor. It doesn’t necessarily mean that they’re going to get $5,000, and then the spouse would get $2,500, does it?

Logan DeGraeve: No, it doesn’t.

Dean Barber: What happens is you get a reduction in that pension, and then your spouse gets 50% of that reduced amount. 

Logan DeGraeve: That’s correct. And also, you and I spend a lot of time talking about this: that single-life option is the most money you’re going to get. And people look at that, and they say, “Well, you know what? I worked incredibly hard for this money. I want as much money out of this pension as I can take.” What happens if you die in year two?

Dean Barber: If you’ve got plenty of money, I guess it’s okay.

Example: Looking at Pensions as 401(k)s

Think about it though, your employer contributed the money in that pension for you. Imagine if it was your 401(k) for a minute, change the name, and say your employer put all that money into the 401(k). 

For example, let’s say it’s $1 million. You’re going to look at that $1 million and say, “I’ve got to make good decisions on what I do with that $1 million.” You’re not going to look at that $1 million and say, “Well, if I take the income out of that 401(k), I’m a single life. And I can get $60,000 a year where if I take it and my wife’s going to get some, I’m only going to get $55,000 a year.” That’s not the way you’re going to look at that 401(k). You’re going to look at it differently. 

Hyperfocused on the 401(k)

Logan DeGraeve: That’s correct, Dean. And I sit down with people every day where they come in for the first time, and they want to spend all their time on their 401(k). But ultimately the pension decision you make and the Social Security decision you make are irreversible. You cannot change it. Once you elect, you’re not going to be able to go back and say, “You know what? I think I messed this up. I’m going to go back and do it again.”

Dean Barber: So, not like you on the golf course where you take mulligans, right?

Misplaced Focus on the 401(k)

Logan DeGraeve: That’s correct. The foot wedge always helps it from time to time. What blows my mind is why do people spend all their time on their 401(k)? They focus on things like, “How should I invest my 401(k). Am I going to move it? Am I going to roll it over?” But then they come in and say, “Logan, I’m going to take Social Security at 62 because I want to take it at 62.”

Social Security and Pension Assets Are Your Money

Dean Barber: Right. They do that because they don’t think of the Social Security asset as their own money, and they don’t think of the pension asset as their own money. They think of those simply as streams of income. 

You and I know that in the financial planning world, that’s not the case. 

Questions About Pensions

There are far more things that need to be taken into consideration. Let’s buzz through some of these questions real quick: 

  • Is your pension solvent? 
  • What are the survivorship options or the term options? 
  • Do you have a cost of living adjustment to keep up with inflation, better known as COLA? 
  • How is inflation going to impact your decision? 
  • Will your pension affect your tax strategy? 
  • How does the pension decision affect your Social Security claiming decision? 

So all kinds of things roll into the overall financial plan. 

Dean Barber: But as a CERTIFIED FINANCIAL PLANNER™, Logan, you see this day in and day out. People will come in, and they’ll visit with us. And they may be in their fifties, maybe early sixties, and they have a bunch of stuff, but they have no coordinated plan that ties it all together. And to us, that’s scary. Because how do you make a good decision without tying all of those things together? And that’s what our Guided Retirement System™ is designed to do. 

I want to encourage you to read the latest article by Matt Kasper, another CERTIFIED FINANCIAL PLANNER™ here at Modern Wealth Management, on Three Steps to Help Evaluate Your Pension.

Making the Right Pension Decision Takes Analysis

Dean Barber: Logan, we were talking off-mic here about a scenario that you ran into here a few years ago, where you had to go through some in-depth planning to help this couple make the right decision when it came to the pension option. So let’s set this up and tell our listeners what you had to go through, what you discovered, and were there any surprises to the individuals you were doing the planning work for?

Story Time: Making a Pension Decision 

Logan DeGraeve: Yeah, Dean. A few years ago, a client I’d been working with was getting ready to retire. I knew he had a large pension. He was 58, very, very healthy. She was 55, very, very healthy. I know, God willing, they’re going to live for a long time. 

So what we wanted to look at was, “Hey, look, if we were to take this single life versus the 100% joint and survivor, making sure the family and spouse are protected, what was the difference on a yearly basis?” 

To my surprise Dean, it was like $22,000 per year. So what we did was we said, “How much money would it cost for me to go out and buy life insurance and to ultimately figure out how much money would we save on premiums versus taking an extra $22,000 a year?” 

What I found was years one through five because we need more insurance then since he hasn’t lived long enough, but every year you live longer, you need less insurance–

Insurance as an Alternative to the Single-Life Pension Option

Dean Barber: Hang on, let’s talk about that for just a minute because I think people may not understand what you’re saying. 

From an actuarial perspective, a pension says you’re X age, your spouse is X age, and this is how they figure out what the reduced amount is going to be. They know what dollar amount has to be funded inside that pension to guarantee that income for life.  

So when you’re talking about life insurance as an alternative when you’re using the single-life option, you got more money coming in. Let’s take that money and purchase a life insurance policy. That way, if that individual dies, there’s tax-free money then for the surviving spouse. But the longer that person lives, the less time that surviving spouse will need income, so the lower the amount of insurance becomes.

The Solution 

Logan DeGraeve: Dean, that’s correct. We ended up going with four different policies, all different timeframes. And you just said something. Ultimately the reason that led us to this decision, he did not have a lump sum option. He had worked in the company for about 35 years, and what he told me was, “Logan, I would be sick to my stomach if I died in a year or two or three, and I didn’t have an asset for my family.” 

Dean Barber: Otherwise, he would have taken the joint and survivor, and then the bad part with the joint and survivor, let’s say, even though both of these people are very, very healthy, accidents happen. They could have a car accident, both be gone at any time, and all that money in the pension would be gone. But if they take the single-life option, and use the proceeds to buy those insurance policies, if they both died in an accident, the kids get that money tax-free.

Why Not Roll it into an IRA? 

Logan DeGraeve: And that is the benefit. Because if you think about a lump sum. We elect a lump sum. Usually, we take the lump sum and roll it into an IRA. Uncle Sam still hasn’t gotten his piece of that pie yet. With insurance, it’s a tax-free benefit to the state.

What Else Should You Examine in the Pensions Decision-Making Process?

Dean Barber: So that was the thought process behind doing the pension in a single life. But you said something in the last segment that I think is worth repeating: you don’t take the pension and look at it under a microscope by itself. What else did you have to look at in their overall financial plan to determine the best option?

More Questions to Learn About the Best Plan for Your Pension 

Logan DeGraeve: Well, the first step is getting to know your client.

  • How much money do they need every month?
  • What are their goals and dreams?
  • Do they have any big-ticket items they want to purchase down the road?
  • What had they saved outside?
  • How had they saved? 
  • Was it tax-deferred, tax-free, taxable money? 
  • What were their Social Security benefits? 

Sometimes this doesn’t work, Dean, if someone comes in and says, “Hey, I want to front-load my retirement. In my first 10, 15 years, I want to spend substantially more than my last 20 years.” Well, those insurance premiums at that point get pretty expensive, plus their lifestyle. 

Involving the CPA in the Planning Process

So I had had a six, seven-year relationship with these folks, but there was a lot to it. I had to get with JoAnn, who’s our CPA, and look at tax planning. 

Logan DeGraeve: By ultimately not taking the lump sum, and this is not this specific example, what happens is you defer those taxes. So say you retire at 62, you defer those taxes to your required minimum distribution age of 72. What we have is a 10-year window, or maybe we have less income, and we ultimately can do Roth conversions

That’s why we’re saying you cannot look at this in a vacuum. Your pension decision affects how your investments need to be invested, your tax plan. Where’s your income going to come from, your distribution strategy? And that’s important.

Bringing Everything Together

Dean Barber: So let’s back up for just a minute because I want to make sure our listeners don’t get confused. You chose the pension, then you decided to delay Social Security, and then you chose to start doing Roth conversions. 

And what you were able to do using our Guided Retirement System™ is show that that gave your clients the highest probability of success of achieving all the things that were important to them. And you weighed against all the other options.

Logan DeGraeve: Yeah, that’s correct. I believe there were about seven or eight different scenarios where if you changed one lever, it would change the rest of the scenario.

Dean Barber: So you looked at every aspect. You looked at the legacy, taxes, risk management, and then ultimately the pension decision. And only then can you say, “Now that we know all of this, now we can talk about asset allocation and how your money should be invested.” 

Investments are the Last Piece of the Financial Planning Puzzle, Not the First

Because the biggest riddle that everybody has when they head into retirement is: What does my money need to do? And how do I get my money to do what I need it to do with the very least amount of risk possible? 

So I think that’s the beauty of people being able to work with a CERTIFIED FINANCIAL PLANNER™. Especially in a scenario where we have estate planning attorneys, CPAs, and insurance professionals all collaborating under one roof to help that individual make sure they’re making the right decisions.

Logan DeGraeve: Absolutely, Dean. I wouldn’t have been able to do that and make all those decisions without JoAnn and her team’s help. It just wouldn’t have been possible.

Dean Barber: So Logan, now this couple’s been retired for a few years, and they have so much clarity that money’s not what’s on their mind, is it?

Logan DeGraeve: No, not at all. And in our reviews, part of my job, as is yours, Dean, is telling these people, “Hey, if you don’t start spending, start giving more, or you don’t change your lifestyle, you’re going to leave a substantial amount of money behind.” Those are the conversations we have today, and those are the fun conversations.

Story Time: Clarity on What Your Able to Do in Retirement

Dean Barber: Yep. That reminds me of a conversation I had a couple of weeks ago with one of my clients. He came in for a review. 

And by the way, the review part of what we do after the financial plan is done is all about making sure that everything stays on track. It’s like your GPS in your car. It’s constantly rerouting, telling you if there’s danger ahead or if there’s an accident. Our Guided Retirement System™ does that same thing for a person’s financial life and ties it to their personal life. 

But this guy comes in. He’s in his mid-70s and has been retired for several years. He was a CIO for a very large company when he retired. And he came in, sat down, and he said, “Dean, I’ve got to tell you one thing.” He said, “My wife and I are doing things today that we would have never, ever done without your counsel.”

Dean Barber: It is so rewarding. For me, Logan, that’s what I get a kick out of. Because what we do is so complicated, it’s so complex with so many different moving parts. Our industry wants to make everybody think that everything we do is all about the underlying investment. And that’s the last thing we need to look at because the financial planning part, as you and I both know, can add as much as 22.6% more income per year than just a normal investment strategy alone.

What About Taxes? 

Logan DeGraeve: When we sit down with someone, we have three or four planning meetings before making these types of decisions. 

We may have a whole planning meeting just on a pension, but then you got to go down the hall and talk to JoAnn and discuss how to impact our tax plan? 

Because JoAnn may come back and say, “Hey, look, I think the lump sum makes a lot of sense. Defer any tax for seven or eight years, and Hey, that’s a huge Roth conversion opportunity because ultimately we know in 2026 taxes are going to go up.”

Retiring with $1 Million

Dean Barber: Probably before that. And taxes are a big deal, Logan. We did a video, which I’d encourage our listeners to get out and watch. 

The video was all about what it might look like if you retired with $1 million. We have four different couples that all have done a different level of planning, and the investment allocation was the same for all four. 

However, on a $1 million investment, the person who did it right could take almost $500,000 more income over their lifetime than the person who did it wrong. I encourage you to watch that video,  and you’ll get an idea of what some of the financial planning techniques that we use can do for you and your retirement. This one was all about tax allocation and Social Security decisions. 

Social Security is Your Money

The reason Social Security decisions are so important is because Social Security is a pension. You pay into that the day you start working, and your employer is forced to make a dollar-for-dollar match. So think about that. Think about if that was your 401(k) that you started putting into 6.2% they want, and your employer was forced to make a dollar-for-dollar match of 6.2%. How much money would you have in your 401(k) from the time you started working until age 65? I mean, mountains of money.

That’s what you’re doing with your Social Security. People think, “Well, there’s an entitlement benefit.” No, it’s not. It’s your money, man.

Social Security is a Family Decision

Logan DeGraeve: It’s a pension, assuming things stay how they are, for life. Ultimately it’s for life. And once again, that decision isn’t about you necessarily. It’s about your spouse.

Dean Barber: Or your children. Now, if you’re single, obviously it’s about you.

Logan DeGraeve: Right.

Dean Barber: But if you’re married, it’s going to be about the family, and it’s going to be about the longevity. We did a little just kind of back-of-the-envelope math here and said if you were putting in if you started working at 21 and you work till 67, and you average $60,000 a year of income, you and your employer have put in $225,000 into Social Security. 

Then people think, well, that’s an entitlement program. Man, that’s your money. 

Why You Should Look at Social Security Before You Make a Pension Decision

Logan, talk a little bit about the complications of deciding how you claim your Social Security and why it’s so critical that you consider that. I think you have to look at that before you even make your pension decision and asking questions about pensions.

Logan DeGraeve: We know that each year you delay your Social Security, it’s going to grow. And that is important. So what you need to look at is: 

  1. Are you still working? 
  2. Have you reached full retirement age? Are you over full retirement age? 
  3. How’s it going to impact your taxes? 

Social Security is taxed differently than every piece of income that you’ve ever had before. They’re going to look at your provisional income. That’s important because I can’t tell you how many people I see every year, and they say, “Hey, my taxes went from $10,000 to $20,000, and I have no idea why.” 

Well, ultimately it’s because your Social Security wasn’t maybe taxable, and it went to 85% taxable, but why did that happen? Because the required minimum distribution started, or perhaps they had a pension that came on.

Once again, it’s what we’ve been talking about. You change one lever, it may have a domino effect of five more.

You Have to Start Planning Far in Advance

Dean Barber: You have to start making these planning decisions well before you retire.

Logan DeGraeve: I often say people will come in and sit down with me, and maybe they say, “Look, I think this is a little bit premature. We’re still ten years out.” It’s not.

Dean Barber: No, no, no.

Logan DeGraeve: How they save today and tomorrow and how they saved when they were 25 years old will impact their retirement and tax plans. And that’s the most critical piece.

It’s too Important for Guesswork

Dean Barber: Yes. The most difficult decisions or conversations are the ones when somebody comes in, and they go, “I’m planning on retiring here in six months. I need to get my plan together.” Many times it takes us six months to get our head around everything that’s going on in a person’s life and make sure that we’re advising them to make the right decisions across the board.

Logan DeGraeve: Right. The one better than that one is, “Hey, I retired yesterday. I hope everything’s okay.” It’s too important for guesswork. 

Staying in Control of Your Fear

Dean, I want to go back to something. You’re talking about Social Security. You’re talking about ultimately how much money you paid into it. And it’s the same way with a pension. 

What we’ve talked about today so far is, “Hey, making sure that everyone’s going to be okay.” If you have a legacy goal, your spouse, your family, and considering those decisions, don’t make them based on fear. 

You and I have done several financial plans that whether they took the single-life option or the 100% joint survivor, their plan was at 99%, and there could be an early death, and they were still okay. So you think about it, why would I leave an extra maybe $500 a month on the table for a 30-year retirement?

Probability of a Successful Retirement

Dean Barber: Yes. And you make a good point, but I want to talk about it a little bit. You said it at 99%. So I want to help people understand what we talk about when we talk about a probability of success in your overall ability to do what you want to do in retirement. 

We’re saying, “With all the resources that you have, the spending goals that you have in the future, accounting for inflation, what is the probability that you will never have to adjust your lifestyle?”

If we say it’s 99%, then 99% of the time, you’ll never have to adjust your lifestyle. If we say you have a 90% probability of success, then that means that you have a 10% chance that you may have to make short-term adjustments to your spending at some point in your retirement. It doesn’t mean that you fail 10% of the time. It just means that you might have to adjust those spending goals.

Make Adjustments to Your Spending to Meet Your Goals

Logan DeGraeve: Right. We spend a lot of time saying to people, 

“Hey, look, if you don’t change how you’re spending, you’re going to leave a ton of money behind. And by the way, you just told me last meeting you don’t want to leave that much money behind. So we have to change something.”

Dean Barber: Yes. It’s a difficult mindset to change. Without clarity, the day income stops from your paycheck, and you start spending out of the resources you have saved; you may live below your means. You could wind up dying on a mattress stuffed full of money that you could have enjoyed. Don’t let that be you. 

Get the Education You Need

Make sure to watch the retiring with $1 million video and pick up a copy of the Retirement Plan Checklist. It’s all about educating you to make smarter financial decisions. And one of the biggest reasons we want people to get educated, Logan, is because we don’t want them to fall prey to the financial salespeople out there.

You are the CEO of Your Retirement

Dean Barber: Logan, we’re talking about making the right decision as you head into retirement. We talked about how you must start making these decisions by planning well before retirement, and an even more critical decision is deciding who you’re going to hire to assist you in making these decisions. 

I want to invite you to check out The Guided Retirement Show™. It’s a podcast that I do. In Episode 22 of The Guided Retirement Show™, I interview the former CEO of ConAgra. We discussed the concept, Logan, of becoming the CEO of your retirement.

Dean Barber: So think about it, you are in charge, right? You’re the one that says, “Here’s my vision for my retirement. This is what I want to accomplish.” 

Then you hire a team to assist you. You hire the tax professional, investment professional, estate planning professional, risk management professional, and all these other people you have to hire. 

Think about a CEO of any company that says, “I don’t need a Chief Risk Management Officer. Won’t need a Chief Tax person. I don’t need a Chief Information Officer. I can do all of these jobs on my own.” 

That would be the biggest failure of a CEO in history. Yet, so many people selling newsletters and financial products lead you to believe that you can do all of this stuff yourself.

If you are that well-versed in all of those different areas, then you can, but then you’re not going to have a life. You’re not going to enjoy what you do. 

It’s Important to Interview Multiple Professionals Before Making Your Decision

So Logan, let’s talk about why people need to interview more than just one CERTIFIED FINANCIAL PLANNER™ before they make that decision of who they want to hire.

Logan DeGraeve: Yes, Dean, it’s imperative. I say this to people that come through the door that meet with me. I always encourage someone to get a second opinion before they make a decision. 

Story Time: Another Pension Conversation

A perfect example that made me think of this is the pension conversation we had today. Probably about four or five years ago, I was going through the onboarding process with a potential client, and they said, “Logan, we decided to go with Modern Wealth Management because of one reason.” I said, “Okay, what was it? I’d love to know.” 

And they said, “We had a pension decision.” They had about four pension decisions. They were fortunate to have those. And one of the pensions, there was a lump sum option. I told them not to take the lump option because it wasn’t the best thing for their financial plan. I believe, at the time, the hurdle rate on the lump sum, which the hurdle rates say how much can we take out as a distribution, we had to earn about 7%, which is high.

Dean Barber: Right. When we look at the article that Matt Kasper wrote, it’s like, “Hazard, hazard, hazard!” You get that high, and you’re on a plan of hope. You have to hope that that makes that much money.

It’s Important to Understand Your Risk Exposure

Logan DeGraeve: And often, Dean, at that point, you’re opening yourself to unnecessary market risks because to get a 7% return, you have to take some level of market risk.

Dean Barber: Especially in today’s environment, with the 10-year treasury is below 1.3%.

Logan DeGraeve: I know I have someone that doesn’t need to take a lot of risks, is a conservative investor. Why in the world would I make them do that? Just take the annuity benefit.

Dean Barber: So, had they interviewed other financial planners, and the other financial planners had suggested that they take the lump sum?

Logan DeGraeve: That’s correct, Dean, and it was to the point they didn’t even tell them how much money they had to earn on that lump sum to generate that monthly benefit. And, Dean, we see it a lot. Why do people recommend that?

Dean Barber: So they can manage the money and earn a fee.

Logan DeGraeve: Absolutely. It’s not the right thing to do.

Importance of the Fiduciary Standard

Dean Barber: No. That’s where, as a CERTIFIED FINANCIAL PLANNER™, you have a fiduciary responsibility. That fiduciary responsibility says, “100% of the time, you have to put your client’s interests ahead of your own.”

Logan DeGraeve: When I sit down and evaluate a pension, Dean, there are three or four different spreadsheets, and I’m walking through the prospect or client with all those spreadsheets, so they understand. Because ultimately, a good financial planner’s job is to give their clients options so they can make educated decisions.

You can have a CPA, have a financial planner, and have an estate planning attorney, an insurance expert. But if those people aren’t talking and they’re not coordinating with each other, what good are you doing?

Integrated Financial Planning

Dean Barber: Well, what happens in that, and I’ve seen it so many times, which is why we decided to bring all those individuals into one location where we now have five CPAs, two estate planning attorneys, risk management professionals, everything from property casually to life insurance, disability, et cetera. 

Then we have our financial planners act as the quarterback to coordinate all of that together. We’ve created an integrated financial planning department that is a game-changer for people.

Logan DeGraeve: It is, Dean. I go back to that example I just used. They talked to three different financial planners. Two said one thing, and the other said something else. At Modern Wealth Management, we will make sure you have a consistent experience because we have an integrated financial planning department.

Financial Planning Considers Many Factors

We’re going to check the box and make sure, “Hey, what does that property and casualty look like? Because I can tell you your home value has gone up in the last couple of years. Has your coverage?”

Dean Barber: We see it all the time when we do the review of property-casualty because, look, we’re not trying to sell policies. What we’re trying to do is look at it and say, “Do you have the right coverage? Are your risks properly covered?” That’s a big deal. 

Think about this, Logan, as people head into retirement, they’re making these decisions on Social Security, they’re making the decisions on pensions, and decisions on their 401(k) and investment strategy. 

One of the things that we stress test for all the time is the probability of an increased tax rate when the first spouse passes away. And people don’t consider that, but we have to stress test against that. Why? Because we have to know, even though you’re retired, is there still a need for life insurance in those first few years of retirement? Because if one spouse dies and that tax rate increases, it’s going to reduce that standard of living substantially.

Stress Test Your Financial Plan

Logan DeGraeve: Absolutely, Dean. What I would encourage anyone to do is stress test their financial plan. Look at what happens if one of you passes away because I can tell you the brackets get cut in half, and your required minimum distributions don’t get any smaller.

Dean Barber: Right, and all of a sudden, Uncle Sam is your new best friend.

Logan DeGraeve: Right, and you’re maybe in that 22% tax bracket, and now you’re in the 34%.

Retirement Plan Checklist

Dean Barber: There are so many questions, Logan, that people need to address as they begin to head into retirement, and those questions even get more complex after you retire. That’s why we put together the Retirement Plan Checklist

It takes you from 10 years before retirement, all the way to retirement, and then through retirement, with things you need to consider. I encourage you to get a copy of the Retirement Plan Checklist.

Dean Barber: So Logan, we’re down to only like a minute left here, and as people start thinking about making these decisions so that they don’t fall prey to the two strongest emotions that we have, which are fear and greed, your recommendation is what, as a CERTIFIED FINANCIAL PLANNER?

Get Clarity on Your Plan

Logan DeGraeve: Come in and get a plan done. Validate maybe what you think, or learn something.

Dean Barber: Have you ever had people that thought something that wasn’t so?

Logan DeGraeve: Every day.

Dean Barber: Yeah. Why? Because there’s no clarity, all of the different components are complicated, and they all impact each other.

Logan DeGraeve: And sometimes, Dean, and we all fall prey to this, sometimes we’re just too close to our financial picture. And you need someone to pull that picture back and look through a different lens for you.

Dean Barber:

  • Bring it into focus.
  • Get clarity, which gives you confidence.
  • To ultimately put you in control of your overall retirement.

Logan DeGraeve: That’s what we’re trying to do.

Dean Barber: That’s where we want you to be. Thanks for joining us on America’s Wealth Management Show. I’m Dean Barber, along with CERTIFIED FINANCIAL PLANNER Logan DeGraeve. We’ll be back with you next week, same time, same place.

Check out our calendar to schedule a complimentary consultation with one of our CERTIFIED FINANCIAL PLANNER™ Professionals. We can visit with you by phone, in person, or virtual meetings.

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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.