Retirement Essentials: 4 Things Most Retirees Aren’t Doing (But Should Be Doing)

Key Points – Retirement Essentials: 4 Things Most Retirees Aren’t Doing (But Should Be Doing)

Every Day Is a Saturday in Retirement … If You Plan for It
Determining Your Needs, Wants, and Wishes
When Should You Start Planning for Retirement?
Having a Financial Planning Team That Works for You
7 Minutes to Read | 24 Minutes to Watch

Reviewing Some Retirement Essentials

One of our executive advisors, Logan DeGraeve, CFP®, AIF®, always likes to say that every day is a Saturday in retirement. Dean Barber and Bud Kasper, CFP®, AIF® couldn’t agree more with Logan as long as you properly plan for retirement. Bud and Dean are going to review four retirement planning essentials that most retirees don’t do but should be doing. Here’s a quick rundown of our list of retirement planning essentials.

Budgeting
Planning YEARS in Advance
Working with a Team of Professionals
Tuning Out the Noise

Schedule a Meeting Get the Retirement Plan Checklist

Our Top Four Retirement Planning Essentials

1. Budgeting

Budget technically has six letters in it but might make people say some four-letter words. This is especially the case for people going into retirement who have saved their whole working lives so every day can be a Saturday in retirement. Why do you need a budget in retirement?

First, it might help to not think of it as a budget. Think of it as a spending plan for retirement that accommodates your needs, wants, and wishes.

“What do you want your life to look like and what is it going to cost? That’s the beginning point of gaining clarity in your retirement plan.” – Dean Barber

That spending plan starts with figuring out your daily expenses—food, gas, clothes, etc. Those are your needs. While food and clothes are lifelong needs, there are things like health care costs that will become a part of your spending plan in retirement. If you want to retire before becoming eligible for Medicare at 65, where are you going to for health insurance coverage?

Budgeting for the Unexpected

Obviously, there’s a greater chance that health care costs will need to become a bigger part of your spending plan when you get older. While we hope that you and your spouse have great health for many years to come, that isn’t a given.

Along with taxes, health care costs are one of the biggest wealth-eroding factors in retirement. Health care costs can end up being a massive unexpected expense. Will your spouse be OK financially if you pass away unexpectedly? Or what if you or your spouse suddenly goes into a long-term care facility? That’s a huge reason why creating a spending plan for retirement is No. 1 on our list of retirement essentials. It’s critical for you and your spouse to have a good understanding of your retirement cashflow.

Don’t Forget About Your Wants and Wishes

Remember that everyone’s health (and overall) circumstances are different, so everyone’s spending plan will look different. The same goes for your goals for retirement. Your specific retirement goals aren’t going to be the same as your best friend even if you have very similar interests. Before you even start to create a budget for retirement, think about what you and your spouse want your retirement lifestyle to look like.

For some people, having $7,500 to spend each month might be more than enough in retirement. For others, it might not be near enough. This goes back to creating a spending plan that’s designed around your personal needs, wants, and wishes. Without a financial plan, it’s impossible to get a definitive answer to how much you need to retire.

“Is what you want a reality? Are you selling yourself short? Are you going too far and risking running out of money? Where are you on that journey to every night being a Friday night and every day being a Saturday?” – Dean Barber

So, do you want to travel more, play more golf, or give to charity and/or leave a legacy for your loved ones? What do you want your retirement to look like? There’s a lot that needs to be considered when determining your needs, wants, and wishes for retirement. Once you’ve thought about your retirement lifestyle and outlined your anticipated retirement expenses, it’s time to create a spending plan. It’s number one on our list of retirement essentials, and unfortunately most retirees aren’t doing it.

“You need to have a budget in retirement because you have X-amount of resources to fund your retirement. You need to know if you’re straining that money over various scenarios of market activity, taxes, etc. There are so many things that people don’t understand about retirement that they think they do. This is a detailed process that looks at the rest of your life. We want to make sure you get it right.” – Bud Kasper, CFP®, AIF®

2. Planning YEARS in Advance

By creating a spending plan for retirement, you’re already beginning to check off No. 2 on our list of retirement essentials, which is planning for retirement YEARS in advance.

“Planning years in advance includes things like planning for the possible replacement of a roof or HVAC system, moving into a continuing care community, purchasing a second home. Don’t get caught up with what’s going on today and continue to think about what you want your life to look like.” – Dean Barber

There’s a big misconception that you can just save diligently and be all set for retirement. Don’t get us wrong—saving diligently is crucial to a successful retirement. But you also need to understand where you’re saving to even as you’re beginning your career and as you move into your 30s and 40s. Let’s dive even deeper to explain why planning YEARS in advance is one of the most important retirement planning essentials.

We’ve seen countless people save strictly to a traditional 401(k) and have little to no other retirement savings. The thing about traditional 401(k)s/IRAs is that the money in those accounts is tax-deferred. That means that you won’t pay any tax on it until you take it out. Just remember that if you have $1 million (just as an example) saved in a traditional 401(k), you don’t actually have $1 million because it hasn’t been taxed yet.

On the flip side, if you save to the Roth side of your 401(k) or have a Roth IRA, that money will be taxed once it goes into the account, but it grows tax-free and will be tax-free once you access it. There are pros and cons to saving to Roth and traditional and whether to do Roth conversions.

Knowing Your Current and Future Tax Rates

Like we said earlier, taxes are one of the biggest wealth-eroding factors in retirement. Along with knowing your current tax rate, you need to be aware of future tax rates. Did you know that if Congress does nothing to address it that tax rates will be going up on January 1, 2026? That’s because the Tax Cuts and Jobs Act is scheduled to sunset on December 31, 2025.

So, let’s say that you’re planning to retire in 2026, are in the 22% tax bracket, and have most of your retirement savings in a traditional 401(k). In 2026, you’ll be moving up to the 25% tax bracket. This is one of many reasons why Roth conversions have become increasingly popular. If you do a Roth conversion now, you’d be paying the tax on it at the lower 22% rate and then get the tax-free growth on it in retirement.

“It’s critical to look into the future. Should you pay the tax now at whatever tax bracket you’re in now and does it benefit you over five years, 10 years, etc.? We can do that calculation because we don’t want you to pay tax that you don’t need to.” – Bud Kasper, CFP®, AIF®

Roth conversions could be extremely appealing in 2023, 2024, and 2025, but they can have unintended consequences. For example, you could get thrown into a higher Medicare bracket. This leads us right into the next point on our list of retirement essentials—working with a team of professionals.

3. Working with a Team of Professionals

The tax code is incredibly complex. Trying to figure out nuances of the tax code is one of the main issues with DIY financial planning. Even our CFP® Professionals don’t even pretend to know as much about taxes as our CPAs do. That’s why we have CPAs in-house at Modern Wealth Management. We like to think of it as working with the three C’s—CFP® Professional, CPA, and CFA. At Modern Wealth, we also have estate planning and insurance specialists on staff. Working with a team of professionals is number three on our list of retirement essentials for several reasons.

“If you think about proper financial planning, it’s investments, taxes, insurance, and estate planning. Why would you rely on one individual to take care of all those needs? You need to have a team of financial professionals that are collaborating together on your behalf.” – Dean Barber

The CFP® Professional and CPA Relationship

Let’s focus strictly on what it’s like to work together with a CFP® Professional and CPA for a minute. The CFP® Professional will work with you and your spouse to help you build that spending plan and your overall financial plan. Your financial plan isn’t complete, though, without a forward-looking tax plan. It’s crucial to have a CPA working alongside your CFP® Professional to review your plan from a tax perspective.

“With taxes, we only want to pay what is due. The coordination of taxation helps to elongate the success of your overarching plan.” – Bud Kasper, CFP®, AIF®

Could Roth conversions be a useful tax planning strategy for you? If you’re charitably inclined, you might want to keep some money in traditional. That’s because if you’re 70½ or older, you can give up to $100,000 per year directly to a qualified charity from a traditional IRA via a Qualified Charitable Distribution (QCD).

From Roth conversions to QCDs to donor advised funds, we highlight the importance of tax planning and various tax planning strategies in our Tax Reduction Strategies guide. Remember that the goal of tax planning isn’t to pay the least amount in taxes in one year; it’s to pay as little as possible in taxes over your lifetime. Download your copy of the Tax Reduction Strategies guide below.

Tax Reduction Strategies

4. Tuning Out the Noise

What do we mean by “tuning out the noise?” That “noise” we’re referring to is all the sensationalized news that you see and hear about with the markets and economy. While we wish we had a crystal ball to predict inflation, interest rates, the markets, and changes to the tax code, we don’t have one. No one does. Those are all retirement risks that are out of your control. But you can “tune out the noise” by planning for all those things. That’s the last item on our list of retirement essentials, but it certainly doesn’t mean it’s the least important.

We’ve all felt the impact of inflation over the past couple of years. Technically, we’ve been in a disinflationary environment for much of 2023, but prices remain high even though the rate of inflation has slowed. As Federal Reserve Chairman Jerome Powell attempts to get inflation back to the Fed’s 2% target rate, he’s said to expect interest rates to remain higher for longer. So, we need to plan accordingly.

Even before inflation started to soar, we were still applying around a 4% inflation factor to everyday expenses when building out people’s plans. And as we stated earlier, health care costs continue to get even more expensive. Therefore, we apply around a 6.5% inflation factor to health care costs. Using a 1% or 2% inflation factor across your whole plan can be a recipe for disaster.

“Are your current expenses the same as they were two years ago? For most people, they aren’t. They’re higher. With that being the case, we need to adjust your spending and continue to put in the on-average 4% inflation. What adjustments to your spending were needed? Did it affect your probability of success?” – Dean Barber

We need to control what we can control in retirement and plan for what we can’t. That’s an essential mindset to have during retirement and leading up to it.

Covering the Retirement Planning Essentials with Our Retirement Plan Checklist

We’ve covered quite a bit of ground just with these four retirement essentials. And we’re just scratching the surface of financial planning with those! To learn more about all the essentials to planning for retirement, download our Retirement Plan Checklist. Between the 30-question checklist and age-based timeline of critical retirement considerations, the Retirement Plan Checklist can help guide you to and through retirement. Download your copy below!

Retirement Plan Checklist

We understand that each of these retirement essentials can also lead to a lot of questions. The more detailed your financial plan is, the more clarity and confidence you’ll likely have in retirement. Whether you have questions about these retirement planning essentials, want to start building a financial plan, or have questions about your plan, we want to help you. Please click the button below to start a conversation with us.

See Our Schedule

We hope that what we’ve shared can help you to understand how to go about planning for retirement. It’s our hope that every day will feel like a Saturday in retirement. You just need to make sure that you properly plan for it first.

Watch Guide | Retirement Essentials: 4 Things Most Retirees Aren’t Doing (But Should Be Doing)

00:00 – Introduction
01:04 – 1) Budgeting
07:45 – 2) Planning YEARS in Advance
11:25 – 3) Working with a Team of Professionals
16:09 – 4) Tuning Out the Noise and Focusing on What You Can Control
22:58 – Check Your Plan with the Checklist

Articles

Past Shows

Downloads

Schedule a Complimentary Consultation

Click below to get started. We can meet in-person, by virtual meeting, or by phone. Then it’s just two simple steps to schedule a time for your Complimentary Consultation.

Schedule a Meeting

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

The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Adviser. 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.