Reviewing Your Retirement Checklist for 2022

By Dean Barber

December 27, 2021

Reviewing Your Retirement Checklist for 2022

Key Points – Reviewing Your Retirement Checklist for 2022

  • Making Your Retirement Checklist, and Checking It Twice
  • Inflation Is a Critical Factor in Retirement Planning
  • How to Get Back on Track in Retirement
  • Tackling the Possibility of Higher Taxes
  • Good Retirement Planning Takes Teamwork
  • 17 minutes to read | 38 minutes to listen

As we begin 2022, we want to review your retirement checklist. While we want to put you in a successful financial position for the new year, we’re focused primarily on helping you live your one best financial life throughout your retirement. Our Retirement Plan Checklist can help you do exactly that.

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Show Resources:

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Making Your Retirement Checklist, and Checking It Twice

Dean Barber: Thanks so much to everyone who joins us on America’s Wealth Management Show. I’m your host, Dean Barber, along with Bud Kasper. Happy New Year, Bud!

Bud Kasper: Happy New Year, Dean!

Dean Barber: After also just coming off Christmas, we’re keeping the theme of making your list and checking it twice. We want to go over some of the most critical items in our Retirement Plan Checklist. It was published several years ago through a series of things we realized most people didn’t even think about. We’re going to review the following retirement checklist items.

Ten Quick Retirement Checklist Items to Review

  • I have taken into consideration inflation and have been conservative in my planning, using a 3% to 4% per year inflation rate.
  • My retirement plan can alert me if I’ve gotten off track so that my advisor can give me suggestions for getting back on track.
  • My retirement plan has been stress-tested to take into consideration the possibility of poor market conditions at any point in my retirement.
  • My retirement plan takes into consideration the possibility of higher taxes.
  • My retirement plan considers taxes in such a way that I will know which account to spend from first to keep taxes as low as possible.
  • I have based my retirement plan on the assumption that taxes will be higher in the future, and I have taken all the steps necessary to help mitigate the effects of higher taxes.
  • I have a proactive retirement planning advisor and CPA who work together to help lower my current taxes and in years looking forward.
  • I understand that Social Security income is tax-free unless I disqualify myself.
  • My retirement plan includes calculations to determine when my spouse should start taking Social Security and if he/she could take the spousal benefit first and defer to 70 to maximize the benefit.
  • My retirement plan takes into account the effects of Social Security early and the long-term impact of not only how much I will receive from Social Security, but how it effects my ability to meet my long-term goals.

When you go into retirement, you don’t want to go back to work. There are no do-overs in retirement. If you make a mistake and something goes wrong, you can’t undo it.

Retirement Is Like Halftime

We need to make sure that people are educated in all the things they need to think about when getting to and through retirement. To me, the date that you retire is halftime. What you do in the second half determines your success or failure.

Most people focus on that first half and accumulation, accumulation, accumulation. They try to save as much as they possibly can and get out of debt. They have this money, but suddenly the rules drastically change from the accumulation phase to the distribution phase. That’s where most people get it wrong.

Bud Kasper: No doubt about it. The saving part is the pre-determinant as to how much success you might have. There’s so much more to do when you’re right at the cusp of going into retirement. Probably about 90% of your success is going to be related to what you did prior to when you entered retirement.

The integration of a comprehensive financial plan is so critical to retirement success. It allows us to increase the odds of perpetuating your retirement in the lifestyle that you had hoped for if you’ve done the prerequisite work to allow us to do what we do best.

Dean Barber: Exactly right. The Retirement Plan Checklist has 30 items which you’ll answer yes or no to, and includes an age-based timeline on what you should be doing at specific ages as you near retirement and get into retirement. We’re going to review some of those retirement checklist items now.

Inflation Is a Critical Factor in Retirement Planning

The first item I want to talk about is something that has been in the news a lot lately. That is inflation. How you put inflation into your calculations for retirement can be one of the most critical factors. If you mess that up, you won’t ever go broke because of it, but you’ll start living like you’re broke.

Bud Kasper: You’ve used that statement before and it’s so accurate. When looking at recent inflation numbers, it was 6.2% in October and 6.8% in November. It’s going in the wrong direction.

Costs of goods and services are increasing. Therefore, it’s going to eat up your savings a little bit more. We want to minimally keep up with inflation in terms of the total return.

Not All Things Inflate Equally

Dean Barber: The first item on the checklist says, “I have taken into consideration inflation and have been conservative in my planning, using a 3% to 4% per year inflation rate.”

Bud and I have talked about this many times, but that 3% to 4% inflation rate isn’t good enough. You must inflate different types of expenses at different rates. We use a much higher inflation rate for our healthcare costs. If you’re going into retirement with a mortgage, the mortgage isn’t going to inflate at all. So, separate that expense out.

You need to go line by line on your spending plan to determine what you are going to spend money on. Then, we can estimate what we think those things will inflate by and put that into the plan.

Controlling What You Can Control

Bud Kasper: We’ve always said control what you can control. Inflation, unfortunately, isn’t something we can personally control. However, there are planning options that can help. The statement that you’re making is absolutely accurate in terms of things inflating at different rates.

If we look at healthcare, which everybody knows has been inflating out of control about a decade, we inflate that at 6.9%. When we look at the overall portfolio, we’re looking at just under 4%. We’re accounting for this insidious factor that really does eat at your ability to spend money.

Dean Barber: It’s the silent killer.

Bud Kasper: Yeah, good phrase.

Dean Barber: It really is. Make sure to pick up a copy of that Retirement Plan Checklist. I also encourage you to sign up for the Modern Wealth Management Educational Series. It’s a biweekly educational series. You’ll get notifications of what the topic is going to be and the time of it. Our Retiring with $1 Million also highlights many of the topics mentioned in the Retirement Plan Checklist, so make sure to check it out.

How to Get Back on Track in Retirement

The next item we want to review on the retirement checklist is No. 19. It reads, “My retirement plan can alert me if I’ve gotten off track so that my advisor can give me suggestions for getting back on track.”

Can your plan do that? A lot of people think their retirement plan is their 401(k) or investments. But that’s just money. That’s not your retirement plan.

Viewing Retirement Like a Long Road Trip

I’m going to give a personal analogy. My wife and I are heading to Florida for a few weeks and will work remotely. When we leave our driveway in Lenexa, I’ll get in my car and plug in the address of the place that we’re going to rent in Florida into the GPS. The GPS will tell me exactly how long it will take for me to get there and the time of arrival.

However, as soon as I back out of the driveway, I know that that GPS is totally wrong. It has no idea what’s the traffic going to be like in different cities. Are there going to be detours? Am I going to need to stop and use the restroom? I know my wife will multiple times, but the GPS doesn’t know that. When are we going to stop and eat? The GPS assumes that we’re going to drive straight through without stopping.

The Importance of Reviewing Your Retirement Checklist

The same goes for retirement planning. Regardless of what company helps put your retirement plan together, the plan will be wrong the next day because something is going to change. Your plan needs to be live and updated on everything that’s happening so that if things do get off course, you and your advisor can talk about the course corrections to take.

Bud Kasper: It’s critical. That’s what we tell our clients. We’ve been blessed so much this past year with how many clients have given referrals by sharing what we do and how we go about doing it with their friends and neighbors.

A comprehensive financial plan is a living, moving thing. I always tell people, especially if they’re new, that we’re probably going to need to get together in the next 90 days or at least 180 days because data changes. We need to stay on top of that to get the most out of the plan that we possibly can.

Dean Barber: That’s right. And it’s OK that the data changes. It’s what you do with that data once it changes that’s important. It’s critical that your plan can do that for you. That’s all part of our Guided Retirement System™.

Stress-Testing for Poor Market Conditions

Let’s move on to item number 10 to review on the retirement checklist. It says, “My retirement plan has been stress-tested to take into consideration the possibility of poor market conditions at any point in my retirement.”

That is critical. Let’s think about where we are today. The first thing we talked about was inflation. Now, we want to discuss this crazy, overvalued market that Bud and I talked about throughout 2021. It’s inevitable that there’s going to be another bear market. We don’t know exactly what’s going to cause it or when it’s going to occur, but that’s the nature of investing in the stock market.

If your plan isn’t stress-tested to take that into consideration that a bear market could occur at any point in your retirement, you’re going to wind up taking on far more risk than what you need to accomplish your overall financial objectives.

Giving Thanks for Technology

Bud Kasper: This is where technology comes in. We can use it as a tool to go back and revisit different scenarios. We can take an existing portfolio and stress-test it back into prior periods of great duress in the market to see how it held up.

Then, you simply come forward with it and ask if the same things that fell apart then going to fall apart this time. In that process, we need to go back and reassure our ourselves that the strategy still has merit. If not, we need to make alterations to get it safer.

Safety First with Your Retirement Plan

Dean Barber: Right. I’m draining here because I think a lot of people think that diversification is the key to controlling downside volatility.

Bud Kasper: It is a help.

Dean Barber: It helps, but here’s the reality. This is my question to Bud. What bear market have you ever seen that when the bear market rears its ugly head, that all stocks and all sectors don’t just fall apart?

Bud Kasper: Yeah.

Dean Barber: They do, right? In a bull market, you might have some that are outperforming others from time to time where you want to overweight or underweight. In a bear market when it goes bad, it’s bad across the board.

One exception to that was the Dot-Com Bubble. In that era, the financials didn’t really get hit that hard until the third year of the bear market.

Technology Is an Example of a Disruptor

Bud Kasper: They did. But remember, you have all this excess. We had five years of double-digit returns out of the S&P 500. The reason they were doing so well is because of technology. From a planning perspective and market perspective, there are what we call disruptors. Technology was an example of a disruptor. It’s happened with old school stuff with IBM and Oracle like that, that are still around today. In fact, Oracle just bought Cerner here in Kansas City, which is incredible.

When we looked at those type of disruptors, the question is will it always look the same when we have another bear market? It’ll be similar, but there will be differences. Our job is to go in and see if there are pockets of opportunity that are born out of that condition.

Dean Barber: When you’re stress-testing your portfolio for the possibility of a poor market condition at any time during your retirement, it’s important to stress-test it based on the portfolio you hold today. Then, take a deep dive to determine if there is a way where you can achieve historically similar returns, but do so with less downside risk.

Bud Kasper: Yeah, but people who are in the know understand that bonds are under a lot of pressure right now. They are fundamental to a well-balanced portfolio. If we have a strong concept that is not going to be an asset that is going to protect us or help us in terms of total return, what are our alternatives?

It’s our job to explore every possible investment that still meets the parameters that our clients are looking for in terms of safety. Things change and that’s why everything is always active.

A Major Shift in Fixed Income

Dean Barber: And look, we made a major shift in our fixed income last year. That major shift happened because we started seeing interest rates go up. With inflation rearing its ugly head, we believe that interest rates will continue to rise slightly. It’s a gradual thing, but it does hamper the returns on the traditional bond aggregate.

The bottom line is all these things need to be stress-tested in your plan. Being educated on this to begin 2022 is so important. Let’s make this the beginning of what could be a financial life full of clarity, confidence, and control. That’s the key.

Tackling the Possibility of Higher Taxes

Next, we’ll transition to my least favorite subject that we’ll cover while reviewing your retirement checklist. Item No. 8 is, “My retirement plan takes into consideration the possibility of higher taxes.”

Our program is already built to assume that the sunset provision for Trump’s tax plan expires. What we don’t know is what the Biden administration is going to do with taxes moving forward. The bottom line is that once that happens, we can run those projections in the plan so that we can see exactly how it affects it. If there are alterations that we need to make, we will make them.

Bud Kasper: We know that sunsetting of the Tax Cuts and Jobs Act is going to be at the end of 2025. We can still use the existing rules up to that point. But there’s always constant change.

Dean Barber: Absolutely. Our objective with reviewing your retirement checklist is to get you on the right track with your financial future. We want you to head into 2022 and then go beyond 2022 with clarity, confidence, and control in your overall financial picture.

Tax Diversification Strategy: A Key Part in Reviewing Your Retirement Checklist

Another item to review on your retirement checklist that relates to taxes is No. 17. It says, “My retirement plan considers taxes in such a way that I will know which account to spend from first to keep taxes as low as possible.

We call this the tax diversification strategy. It’s a dynamic withdrawal strategy. Where you get your income from is a big deal. The reason for that is because when you get into retirement, the rules of taxes change dramatically. Unlike your working years, can control your taxes during your retirement years. That’s where No. 25 comes in. It says, “I have based my retirement plan on the assumption that taxes will be higher in the future, and I have taken all the steps necessary to help mitigate the effects of higher taxes.

It’s the strategy that you construct up to retirement. Then, it’s the implementation of that strategy once you get into retirement that determines how much of your hard-earned money will go to Uncle Sam and how much will stay in your pocket. The goal is to keep as much in your pocket as possible.

Where Are Your Sourcing Your Income From?

Bud Kasper: A fundamental part of a financial plan is to look at where are you sourcing your income from. From that, you’ll have an account that’ll be taxable, meaning it consists of investments that you’ve secured for yourself but bought with after-tax money.

Your tax-deferred is usually a 401(k) that rolls over into the IRA account, but Uncle Sam is in there with you and every dollar that comes out. They’re going to be reaching their hand out and take some money away from you. Even Social Security can become a taxable event when you source your income from different places to get the net amount that you’re seeking in terms of income.

It’s complicated, but it does us give you choices. That’s the one thing that we need to have in retirement so that we can vet through which course is going to be the best way for the individual.

Good Retirement Planning Takes Teamwork

Dean Barber: That’s where item No. 26 really comes in reviewing your retirement checklist. It says, “I have a proactive retirement planning advisor and CPA who work together to help lower my current taxes and in years looking forward.

One of the things that we did several years ago was hire CPAs to join our practice. So now when you sit down with one of our CERTIFIED FINANCIAL PLANNER™ Professionals and decide that you want engage with our firm to prepare a comprehensive financial plan, the CFP® Professional gathers all the data, does probably an hour-and-a-half to two-hour interview to understand what it is important to you with building your overall plan.

Once your plan is built, then one of our CPAs sits down with the CFP® Professional to go through your financial plan from a tax perspective. They review what tax strategies should be used to make sure you get the income you want while pay as little in taxes as possible over time.

What a Difference Tax Planning Can Make

That is proactive, forward-looking tax planning. It can only be done once a CFP® Professional completes the plan and works alongside the CPA and yourself to put it all together.

Bud Kasper: That’s a $1 million question or $1.5 question. In the last two months, we’ve done more Roth conversions than we ever have in my career. The result of that is going to be obvious with a better net spendable income for our clients.

This is where the control comes in during the planning process. That one move can result in around $400,000 to $600,000 in total tax savings during retirement. I’ve seen someone save as much as $900,000, and it’s just by acting now and doing something that will give you rewards later.

Dean Barber: And we’re not talking about people with $20 million, $30 million. We’re talking about the average millionaire next door or someone who has $2 million to $3 million saved for retirement. Maybe they want to spend $10,000 to $15,000 a month in retirement. This is not the ultra-wealthy that you’re talking about with these kinds of numbers.

Bud Kasper: Exactly. I hope I didn’t give that impression.

Dean Barber: I think when you use those big numbers, people might get the impression.

Bud Kasper: Good point.

Dean Barber: I promise that if you’ve saved a decent amount of money—$500,000, $1 million, $2 million—how you get that money into your bank to spend it during retirement and how you marry in Social Security and all the other nuances that are going to happen in your retirement will largely dictate how much or how little tax you pay over your lifetime.

Seeing the Planning Process in Action

Bud Kasper: So much of what we do is visual in the planning process. In my office, I have an 85-inch television that I wish was in my living room. My point with that is we’re trying to add as much clarity to the retirement process as we possibly can. When you visually see with a few adjustments in how we source our income out, it can make a big impact for years into the future.

Dean Barber: It’s amazing. You can quantify what those steps of planning and tax planning are going to do into the future.

Bud Kasper: Not to be morbid, but remember that eventually, one of the spouses is going to pass away. Unfortunately, that’s going to make them a single taxpayer as opposed to a dual taxpayer. In that process, you’re going to be paying more taxes.

Dean Barber: Yeah. On the same amount of income, your taxes will almost double.

Bud Kasper: Yeah. Have you thought about that? Most people haven’t because the reality is it changes. Now Uncle Sam is deeper in your pocket than you ever thought he would be because you never thought it was going to happen when it happened.

Dean Barber: Our Retiring with $1 Million video does a great job of illustrating the effects of tax diversification. Our Retirement Plan Checklist touches on it as well.

Getting the Retirement Planning Conversation Started

The most important thing that you could do is start a conversation with one of our CERTIFIED FINANCIAL PLANNER™ Professionals. Remember, we don’t have financial products to sell. We have a conversation with you. You understand what we can do, how we do it. You decide if it’s a fit. We’ll explain to you exactly what the fee is to hire us.

Bud Kasper: We have situations where people are looking at multiple firms in terms of who they’re going to reach out to. And it should be that way.

Dean Barber: Agreed.

Bud Kasper: In the process of that, we want them to see a full financial plan. We’re willing to commit the time necessary to give you a plan so you can understand what we’re talking about and the benefits that would pass on to you and yours.

Understanding How Social Security Works

Dean Barber: Next, we’re going to review a few items on the retirement checklist surrounding your Social Security. Again, our objective is to give you clarity, confidence, and control for your financial future as we begin the new year.

Item No. 29 is very interesting because I don’t know that a lot of people understand how it works. It says, “I understand that Social Security income is tax-free unless I disqualify myself.”

Social Security on its own is a tax-free source of income. However, it can be taxed if your provisional income is too high. Let’s go through the provisional income calculation.

Bud Kasper: It’s just taking all your taxable income, but now you need to add in your tax-free income and 50% of your Social Security benefit. If it exceeds a certain threshold…

Dean Barber: It’s $44,000 for a married couple. Up to 85% of your Social Security can become taxable, but the tax-free income is not income coming out of a Roth IRA. That’s tax-free, but that doesn’t get countered at all. It’s the tax-free interest from municipal bonds that gets added to that.

The question becomes, “How can you spend a $100,000, $110,000 $120,000 and still keep your modified adjusted gross income?” That’s used to determine how much your Social Security is taxable. How can you keep that below the threshold so that none of your Social Security is taxable?

Creating the Strategy that Works Best for You

I’m not going to give away the answer, but we do it all the time. It’s one of our secrets of getting you more income with less money going off to Uncle Sam. And there’s nothing shady here. There are no tax loopholes. It’s just following the tax code. It’s strategy and you create that strategy as you’re heading into retirement. Then, you execute on that strategy when you get to retirement.

Bud Kasper: Well said.

Dean Barber: How you integrate Social Security into your overall spending plan is going to be a huge determinant in how much tax you’re going to pay. It’s also going to be huge determinant in how much money you can spend over your lifetime. Most people don’t know that the average couple in their early 60s is going to have somewhere north of 600 different iterations on how they can claim their Social Security benefits.

We’ve got a software program that we can enter in your Social Security earnings history. We’ll go through and run all the different iterations of the way that you and your spouse can claim Social Security. You’ll notice that we’ll factor in your life expectancy—say it’s 85, 90, whatever you think it is—and can see which strategy gets you the most income over your lifetime.

Then, we can take that and we plug that into our Guided Retirement System with the financial plan and see if that strategy for Social Security is the right strategy for the overall financial plan? To understand that, we’ll bring in our team of CPAs and they’ll look at it from a tax perspective.

Maximizing Social Security and Minimizing Taxes

A lot of times, we wind up not choosing the best strategy for Social Security, but we’ll do something around it because we must accomplish two things. We need to maximize Social Security and minimize taxes as much as we can.

Bud Kasper: Most people do not have a tax plan to realize this. Perhaps they have a person they’ve hired to help with the returns, but returns is not what talking about. We’re talking about strategies that we could employ right now that would have residual benefit for years into the future.

That sounds somewhat trite with how I phrased it, but the seriousness of it is a compounded benefit that needs to be monitored on a yearly basis. It’s usually every six months to make sure that we’re on track to maximize the result that you can get out of your income plan.

Dean Barber: In our Retiring with $1 Million video, we apply two techniques to four fictitious couples who have the same amount of money, earnings history, etc. One of the techniques that we apply is Social Security maximization strategy. We also show how a Social Security maximization strategy along with a tax diversification strategy can impact your ability to spend more money during retirement.

That all comes into play while reviewing your retirement checklist. You can go through it with your spouse. The bottom line is you’re still going to have a lot of questions, which is understandable because we’re talking about something that is super complex and is an ever-moving target. You can’t simply sit down and do a financial plan and expect that it’s going to be accurate two weeks from now.

Bud Kasper: That’s why they call it planning.

Income that You Don’t Want to Miss Out On

Dean Barber: Here are two more items to review on the retirement checklist that I want to finish with. Item No. 18 says, “My retirement plan includes calculations to determine when my spouse should start taking Social Security and if he/she could take the spousal benefit first and defer to 70 to maximize the benefit.” Then, No. 15 says, “My retirement plan takes into account the effects of Social Security early and the long-term impact of not only how much I will receive from Social Security, but how it effects my ability to meet my long-term goals.

If your plan isn’t doing that right now, you’re missing out on anywhere from $60,000 to $110,000 of additional spendable income during your retirement with the same earnings history. It’s a big deal.

Bud Kasper: It is a big deal. People oftentimes don’t believe that statement until they see it.

Dean Barber: We show it to you black and white. There’s no funny math to it. It what it is.

Bud Kasper: Exactly.

Dean Barber: Well, I hope everybody enjoyed their New Year’s Eve. Have a safe and happy and healthy weekend and a great start to 2022. I’m Dean Barber, along with Bud Kasper. We’ll be back with you next week. Same time, same place.

If you would like to review your retirement checklist with one of our CERTIFIED FINANCIAL PLANNER™ Professionals, you can schedule a complimentary consultation  by reviewing our calendar. We’re available to meet with you in person, by phone, or during a virtual meeting. 

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