Retirement Readiness: Are You Ready to Kick Off Your Retirement?
Key Points – Retirement Readiness: Are You Ready to Kick Off Your Retirement?
- The Many Issues with Retirement Planning Calculators
- Highlighting Our Retirement Plan Checklist and Financial Planning Tool
- Building a Retirement Plan That’s Unique to Your Needs, Wants, and Wishes
- What Does Your Retirement Timeline Looks Like?
- 8 Minutes to Read | 24 Minutes to Watch
Are You Ready for Some Football … and, More Importantly, Retirement?!?
A lot of avid football fans probably have heard Hank Williams Jr.’s song, Are You Ready for Some Football? that went to the tune of his hit, All My Rowdy Friends Are Coming Over Tonight. Several of our team members are ready for some football, especially in our Kansas City-and Detroit-area offices since the Chiefs and Lions are kicking off the NFL season. But while we’re excited for football, we have a more important question for you. Are you ready for retirement? We’re going to discuss some key factors concerning retirement readiness to that you’ll be ready to retire.
Retirement Readiness Can’t Be Calculated with Retirement Planning Calculators
We’re an easy-going group at Modern Wealth, but we have one pet peeve that we want to address. We don’t like it when people use retirement planning calculators to try to get a quick answer of how much they need to retire. There are so many things that go into determining your retirement readiness that go beyond the scope of those calculators. Here are just a few things that retirement calculators don’t account for:
- Current Tax Rates Sunset in 2026
- Debt Modules and Calculators
- Medical Expenses
- Social Security
- Required Minimum Distributions
- Your Asset Allocation and Potential Returns
- Your Personal Goals for Retirement
“Our industry has done a huge disservice to people heading into retirement because they try to make it seem simple. They try to make it seem like an online calculator will tell you where you are. Some people think that they can do it with an Excel spreadsheet, but you miss so many things that those online calculators don’t take into consideration and an Excel spreadsheet doesn’t take into consideration yet.” – Dean Barber
Key Retirement Readiness Resources
We’re very passionate about retirement readiness, so we have a few resources that we want to share with you. These can be helpful whether you’re just starting the retirement planning process or if you’ve already retired. It’s important to understand that retirement readiness isn’t just about getting to retirement; it’s about getting through retirement.
The first resource is our Retirement Plan Checklist. It consists of 30 yes-or-no questions that gauge your retirement readiness and an age-based timeline of critical things to consider as you’re approaching and going through retirement. We encourage you to take some time to review this with your spouse. So many people have told us that they learn something new about their spouse when reviewing the Retirement Plan Checklist with them. It’s so important to be on the same page as your spouse throughout the retirement planning process, so make sure to download your copy below.
We also can’t stress enough how crucial it is to have a comprehensive financial plan. One of the other retirement readiness resources we have allows you to start building your plan from the comfort of your own home. It’s our industry-leading financial planning tool. It considers all those things we listed earlier that retirement plan calculators miss. You can begin building your plan at no cost or obligation by clicking the “Start Planning” button below.
Defining Your Retirement Lifestyle
As you’re gauging your retirement readiness, make a special note of the last bullet point in the list of things that retirement calculators miss. Your retirement plan is going to look different than your friends’, neighbors’, or co-workers’ plans. Why? Because your retirement goals aren’t going to be the same as theirs. What’s important to you and your spouse?
When we meet with people for the first time, we don’t thoroughly discuss how much they’ve saved or their investments. To build a plan that’s going to give you a high probability of success, we need to know what’s important to you and your spouse.
That’s exactly what our CFP® Professionals do with couples during a prioritization exercise. We’ll discuss what’s important to one spouse, then what’s important to the other spouse, and then compare. Once both spouses have shared what’s important to them, we’ll make a list of combined goals that are unique to the couple and build the plan from there. Defining your retirement lifestyle plays a critical role in enhancing your retirement readiness.
Thinking About Your Retirement Readiness Well Before You Retire
Far too many people don’t begin thinking about retirement and their ideal retirement lifestyle until right before they’re ready to retire. If you review our Retirement Plan Checklist, you’ll see that the age-based timeline starts 10-15 years before retirement.
However, you’ll notice that the retirement timeline on our Retirement Plan Checklist begins even earlier. Ideally, people will start the retirement planning process 10-15 years before retirement. Retirement probably isn’t on your mind much when you’re just starting your career, even though you’re saving for retirement by contributing to your 401(k). Once you’re 10-15 years out from retirement, though, you really need to understand how you’re saving and where you’re saving to. Ask yourself these two questions.
- How much are you spending each month?
- How much of your paycheck is going into your 401(k) or other savings plans?
Creating a Spending Plan for Retirement
Those are important questions to ask yourself throughout your career. But think about this. Once you retire, that paycheck goes away. And so do your employee-sponsored insurance coverages. If you’re wanting to spend the same amount each month or more in retirement as you did while you were working, it’s critical to understand that where you’re spending from completely changes in retirement. That’s why creating a spending a plan for retirement goes hand in hand with retirement readiness. These are some of the major steps that go into building a spending plan for retirement.
- Understanding Your Expenses and Establishing a Budget
- Planning for Out-of-the-Ordinary Expenses
- Build and Stress Test Your Plan
- Determine What Accounts to Spend from and When
- Monitor Your Spending Plan and Make Adjustments
- Accounting for the Two Largest Expenses in Retirement: Health Care and Taxes
Don’t think of a spending plan as a budget. Think of it as what you want to do. How much is it going to cost? You’ve got your necessary expenses and then you’ve got your things that are going to be enjoyable and fun. When you create that spending plan, the spending plan for the first five to 10 years is going to be different than the spending plan in Year 15 and 20 of retirement.
“The older we get, the less active we are. So do it while you can.” – Bud Kasper
What Are Your Current and Future Tax Rates?
Speaking of taxes, a big component of retirement readiness is being aware of your current and future tax rates and planning accordingly. The current tax rates went into effect when the Tax Cuts and Jobs Act became law on January 1, 2018. Unless Congress does something, those tax rates are scheduled to sunset on December 31, 2025. That means in 2026 that tax rates would revert to the higher rates that we had in 2017. Hence why we said to plan accordingly.
We did more Roth conversions than ever before for our clients last year because of what could be coming in 2026. Those clients decided to pay the tax now at today’s lower rates and then take advantage of the tax-free Roth income when they need it. By deciding to keep the money in traditional until after 2025, they would be paying the tax at a higher rate.
“When you think about taxation during retirement, you control only what you can control. But you can prepare for it before you retire and in retirement by doing this conversion process. How much you convert is going to be based upon what tax bracket you’re in. By utilizing the skills of the CPA along with the CFP® Professional, we coordinate that to an agreeable plan for our clients to allow that to go through.” – Bud Kasper
That’s a clear pro to doing Roth conversions but understand that there can be unintended consequences with them, such as being thrown into a higher Medicare bracket. Make sure to consult a tax professional to see if doing a Roth conversion makes sense for you. Remember that the goal here is to pay the least amount of taxes over your lifetime, not just in one year.
Social Security Claiming Strategies
When it comes to your retirement readiness, it’s not just about you with your retirement. We shared earlier that retirement planning needs to involve your spouse if you’re married. Along with incorporating your spouse’s goals, you need to make sure they’ll be OK if something should happen to you. For example, when you’re claiming your Social Security, did you know that the surviving spouse only gets to keep the highest benefit between the couple’s two benefits after one spouse passes away?
By delaying when you claim Social Security, you’ll be getting a bigger benefit when you claim it. So, unless you and your spouse are in dire need of income, claiming Social Security when first eligible at 62 isn’t advisable. There are 600-plus iterations of how you and your spouse can claim Social Security. The goal is to find which iteration that gives you the most income over time for you and your spouse.
Do You Have an Estate Plan?
That leads right into our next point with retirement readiness—do you have an estate plan? There are actually more people to consider with your retirement planning than your spouse. While we hope you and your spouse live long, happy, and healthy lives, you’re both going to pass on at some point. Is leaving a legacy important to both of you? For most people, the answer is a resounding yes.
One thing we urge people to do as they’re kicking off retirement is reviewing their beneficiaries. That’s something that should be done annually and after any big life event. It’s important that your beneficiaries are aware for what they’ll be inheriting so that there are no big surprises if they’ll be inheriting any of your assets. We want to make sure that you and your loves ones understand how your assets are taxed and the complex rules for inherited IRA distributions.
“Estate planning is not just about wills and trusts. Estate planning is also very much about beneficiary designations and family meetings. You are not going to live forever. None of us are. At some point in time what we have accumulated will pass to the next generation. How that passes is critical, and that’s what a good estate plan is designed to do.” – Dean Barber
Remember that wealth transfer doesn’t need to be something that is put on hold until you pass on. We’ve seen people get a lot of joy out of giving with warm hands later on in life and getting to watch their loved ones benefit from their hard-earned money.
To make sure that you and your loved ones are all on the same page with estate planning, consider having annual family meetings. Dean and his family like to have their family meetings as a part of family vacations. If that doesn’t work for your family, don’t forget that virtual family meetings are always possible as well.
So, How Do You Assess Your Retirement Readiness?
As you can see, there’s a lot to consider with retirement planning. That’s why we encourage people to start the retirement planning process at least 10-15 years out from retirement. We hope that this article and our retirement readiness resources—such as our financial planning tool and Retirement Plan Checklist—can help you prepare for retirement.
If you have any questions regarding your retirement readiness, please don’t hesitate to reach out. You can schedule a 20-minute “ask anything” session or complimentary consultation with one of our CFP® Professionals by clicking here. We can meet with you in person, virtually, or by phone depending on what works best for you. We’re ready to help you kick off your retirement the right way.
Retirement Readiness: Are You Ready to Kick Off Your Retirement? | Watch Guide
00:00 – Kick Off!
01:55 – Focused on Financial Education
04:49 – Retirement Readiness & Resources
08:57 – Defining What You Want Retirement to Be
11:26 – Welcome to the Team Brian & Jeremiah Johnson!
11:56 – Spending Plan 12:39 – Planning for Inflation
14:05 – Healthcare Expenses
15:03 – Tax Planning and Rothaholics!
18:20 – TRIVIA
20:56 – Social Security and Estate Planning
23:04 – Join the Club and Reach Out If You Need Help
- How Much Do I Need to Retire?
- Tax Rates Sunset in 2026 and Why That Matters
- ABCs of Medicare
- Maximizing Social Security Benefits
- Considering RMDs Before and After Retirement
- The Guided Retirement System
- Starting the Retirement Planning Process
- Components of a Complete Financial Plan with Logan DeGraeve
- Retirement Savings by Age
- Tax-Efficient Investing with Stephen Tuckwood
- What Is a Monte Carlo Simulation?
- Optimizing Your 401(k) for Retirement with Drew Jones
- Tax Planning for Individuals: 5 Tips to Save
- Setting Up a Spending Plan for Retirement
- 2023 Tax Brackets: IRS Makes Inflation Adjustments
- Claiming Your Social Security
- Social Security Benefits for a Surviving Spouse
- Family Financial Planning with Matt Kasper
- Will I Pay Taxes on My Inheritance?
- How to Be the CEO of Your Retirement
- Planning a Large Family Vacation
- What Is Probate and Why Should I Avoid It?
- Creating a Game Plan for Retirement
- 9 Items Retirement Calculators Miss (That Our Tool Doesn’t)
- Life Insurance in Retirement: Do I Still Need It?
- Retiring with Debt: What’s OK?
- 10 Ways to Fight Inflation in Retirement
- Asset Allocation Versus Tax Allocation
- Unexpected Expenses and How to Plan for Them
- Stress Testing Your Financial Plan
- Converting to a Roth IRA: What Are the Pros and Cons?
- Couples Retirement Planning: What You Need to Know
- Rules for Inherited IRA Distributions: What Are the Latest Changes?
Schedule a Complimentary Consultation
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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.