Retirement

Things Retirees Should Stop Doing

By Chris Duderstadt

March 31, 2023

Things Retirees Should Stop Doing

Key Points – Things Retirees Should Stop Doing

  • There’s A Lot More to Retirement Than the Value of Your Portfolio
  • What Is Financial Independence?
  • How Do You Know How Much You Need to Retire?
  • Don’t Wait to Create Your Financial Plan
  • 9 Minutes to Read | 23 Minutes to Listen

What Things Should Retirees Stop Doing?

We try to share as much education with you as possible on things you should do to prepare for and do in retirement so that you can live your one best financial life. But there are things that you need to avoid doing in retirement as well. Dean Barber and Bud Kasper review a few things that retirees should stop doing on the latest episode of America’s Wealth Management Show.

Finding Financial Independence

Whenever Dean thinks about retirement, he likes to think of it as achieving financial independence. That’s the day you know that you can get up in the morning and do the things that you want to do because they’re important to you and it’s no longer about getting a paycheck.

“One of the things that stops people from retiring or understanding that they’re financially independent is that they don’t have a solid financial plan. So, when we say things that retirees should stop doing, maybe it’s things that pre-retirees should stop doing as well.” – Dean Barber

There’s Much More to a Successful Retirement Than Your Portfolio

One of the biggest things that pre-retirees should stop doing is focusing on the value of your portfolio and thinking that it’s the measurement of your success. The value of your portfolio doesn’t determine if you’re financially independent. Dean has seen people go into retirement with $750,000 and have a great retirement. They’ve done everything that they want to do. For other people, it might take $3 million, $4 million, or $5 million-plus to achieve their retirement goals. It all depends on what you want to do.

If you’re wanting to gauge your retirement readiness, download a copy of our Retirement Plan Checklist. It includes 30 yes-or-no questions to get a feel of your ability to retire successfully and age-and date-based timelines of things to consider when planning for retirement.

Download: Retirement Plan Checklist

Your Retirement Is Unique to You

Here’s another thing that retirees and pre-retirees should stop doing. Don’t worry about how much your neighbors, coworkers, friends, and family members need to retire. They’re all going to have different goals and won’t have saved in the same manner that you have for retirement. Your financial plan needs to be unique to you.

“The real goal is to live the rest of your life happy and care-free in the least taxing way possible.” – Bud Kasper

The last part that Bud said there is critical. Along with health care, taxes are the biggest wealth-eroding factor in retirement. But you can control your taxes in retirement better than at any other point of your retirement. You can do that through forward-looking tax planning. Check out what tax planning strategies could best for you and how to go about paying as little tax as possible over your lifetime rather than one year in our Tax Reduction Strategies guide.

Download: Tax Reduction Strategies

Retiring with $1 Million

When someone tells us that they have saved X-amount for retirement, they need to realize that they don’t have that amount. Uncle Sam hasn’t got his portion of it. The tax planning strategies can help with making sure that Uncle Sam only gets a sliver of the pie.

To help illustrate how you need to create a financial plan that’s unique to you, watch our video, Retiring with $1 Million. It reviews what retirement with $1 million would look like for four different couples. It gives a thorough explanation of why how much and where you to save matters, when to consider claiming Social Security, taxes before and after retirement, and so much more.

How Much Do You Need to Retire?

One question we hear from people all the time when first meeting them is, “How much do I need to retire?” We’ve explained that one of the things that retirees should stop doing is thinking that that number is the value of their portfolio. And we’ve highlighted that how much you need to retire needs to account for taxes, among other things. But how do you go about determining how much you need to retire? There are more questions that need to be asked and answered first. Letting the following questions go unasked or unanswered is another thing that retirees should stop doing.

What are your current resources? How much is in your IRA, Roth IRA, 401(k), or Roth 401(k)? How much Social Security will you and your spouse receive? Do you have a pension or future inheritance? Do you have some sort of rental income that might be coming in? Once we know that net amount of what a person wants to spend, then we come back and look at all the resources that they have to drive that.

Accounting for Inflation

The next thing we need to do is look at inflation. One of the things retirees should stop doing is thinking that you go into retirement and be on a fixed income.

“If you do that, you’ll start to see your lifestyle dwindle because things are going to get more expensive. Inflation has been so insidious with causing people not doing things that they want to do.” – Dean Barber

Here’s one thing that retirees should stop doing that’s more specific to inflation. Don’t just apply a 1% or 2% inflation rate to your plan and assume that you’ll be OK. The high inflationary environment we’ve been in has proven why that’s one of the biggest things retirees should stop doing.

If someone retirees in their early 60s, they probably have 15 years on average of good health where they can do whatever they want to do in retirement. You’re going to reach a point where that spending is going to change because even if you are hopefully still healthy, you’ll likely be tired and not feel like traveling and being extremely active. Having a spending plan in retirement with a fixed income is among the things retirees should stop doing.

A Bucketing Approach

We’ve talked about this a lot with thinking of retirement from a bucketing approach. Maybe you need X-amount of dollars over the next few years. We’ll put that portion at no risk or a very low risk. Then, you have another bucket that’s riskier and one that’s even riskier. It can be constructed in whatever way that makes you the most comfortable.

“If you’re in a difficult situation and you’ve already got that money set aside that will cover expenses, that makes you a little calmer. You don’t need to worry about selling something to get your next month’s income. We plan for the difficult situations in the markets like we’ve been going through.” – Bud Kasper

A Dynamic Withdrawal Strategy

This bucketing approach is what we like to call a dynamic withdrawal strategy. It really became important in 2020 with the onset of COVID-19. There was a flash crash that occurred early in 2020. Then, the broad markets rebounded in 2021 and 2022. If you’re in a scenario where your withdrawal from your account on top of Social Security and other sources of income needs to be 4%, suddenly you had a year where the equity portion of your portfolio maybe gave you three, four, or five years of income.

“People get greedy, though. They say, ‘Look at what this did. I’m going to keep doing exactly what I’ve been doing.’ Instead, they should say, ‘You know what? Let’s take some of those winnings and set them aside in a very safe place so I have this next three to five years of income taken care of.’ Just letting it ride like you do during your working timeframe and in your accumulation phase is something that retirees should stop doing. They need to pay attention and utilize that dynamic withdrawal strategy.” – Dean Barber

Harvesting Gains

We refer to that as harvesting. It’s nice to build on top of the gains when you have them. But from a retiree’s perspective, it really is about securing those next few years of income. As an example, let’s say that you’re starting Social Security and money that you’re taking out is causing more of your Social Security to be taxable at 50% of what the distribution is. Could you have avoided that if you had taken a little bit less?

A Big Misconception About Social Security

Another thing that retirees should stop doing is thinking that the date that they claim Social Security is synonymous with the date that they retire. Don’t do that. It could be that that’s the case, but let’s do a broader analysis of it.

“Let’s understand that Social Security is taxed differently than any other source of income. You need to understand what all the different resources are so that you’re maximizing that benefit. Social Security is your money. You paid into Social Security your entire working life and your employer was forced to make a dollar-for-dollar match for everything you put in. If that money was available in a lump sum, do you think that you’d take more time to pay attention to what it was? People just think it’s an entitlement plan, but it’s your money.” – Dean Barber

Do You Need to Wait Until 65 to Retire?

We briefly touched on it earlier, but health care costs are another huge factor with planning for retirement. Another thing that retirees should stop doing is thinking that they need to wait until age 65 to retiree because that’s when they can get on Medicare. Well, that might not be the case. You need to look at health insurance options for retirees under 65 and see what your probability of success would be in retirement if you retired before 65.

Things Retirees Should Stop Doing 101

That really ties into one of the main things retirees should stop doing. The pain we’ve experienced in the markets will automatically cause a lot of retirees and pre-retirees not to spend how they want to. Just like we talked about with greed earlier, you can’t let fear take over. Stop thinking that you don’t have enough to buy a new car, take a vacation, purchase a second home, etc.

“You need to quantify what is OK to spend. Because if that’s true, you can be validated upon that by working with a good CFP® Professional who is working alongside a good CPA. We all know that it’s not what you make, it’s what you keep. If it’s just in your head, they’ll tell you that you can go do that.” – Dean Barber

Defining Your Probability of Success

You’re not going to be comfortable with what you’re spending by guessing. The validation from the CFP® Professional who is working alongside a CPA takes the guesswork out of it. They want to give you your highest probability of success.

We do want to dive a little deeper into what your probability of success means. Let’s say that you have a 96% probability of success. That doesn’t mean that you have a 4% chance of failure in retirement.

“It means that 4% of the time, you might need to make adjustments to your spending. Ninety-six percent of the time, you won’t need to make any adjustments to the spending that’s forecasted in your plan.” – Dean Barber

Don’t Wait to Create a Financial Plan

This brings us to our last thing that pre-retirees should stop doing. If you don’t have a financial plan, you should stop waiting to create one, especially if you’re looking to retire in the next 10-15 years.

“You’re going to turn 60 one time. You’re going to turn 61 one time. You only have a finite period to do the things you want to do. Your grandchildren are only going to be 10 years old one time. There are all these things that are only going to happen once in your life. The question you need to ask yourself is what position you want to be in when those things occur.” – Dean Barber

OK, we actually have one more thing retirees should stop doing, but it’s related to the last thing we just said. Don’t wing it when planning for retirement. There are a lot of people talented enough to invest on their own, but as we said, there’s much more to financial planning than investments. You need to work with a CFP® Professional and CPA together to create that comprehensive financial plan.

So, Let’s Get Started on Creating Your Plan

There were a lot of things that we just went over that retirees should stop doing. Do you have questions about any of them? Let us know! You can ask us those questions by scheduling a meeting with one of our CFP® Professionals. We can meet with you in person, by phone, or virtually for a 20-minute “ask anything” session or complimentary consultation.

And if you don’t feel like you’re quite ready to meet with a CFP® Professional, we have another way for you to get started on your financial plan. We’re letting you use our industry-leading financial planning tool from the comfort of your own home. It allows you to truly build a plan that’s unique to you at no cost or obligation. Just click the “Start Planning” button below to begin building your plan today.

START PLANNING

Then, if you do have questions after you start building your plan, you’re still more than welcome to reach out to us. We look forward to hearing from you and preventing you from doing the things that retirees should stop doing.

Things Retirees Should Stop Doing | Watch Guide

Introduction: 00:00
True Financial Independence: 01:40
Understanding Retirement Income: 06:24
Expenses in Retirement: 08:09
Dynamic Withdrawal Strategy: 10:03
Stop Thinking that You Don’t Have Enough: 15:15
Stop Thinking You Have to Be Medicare Eligible to Retire!: 20:03
Conclusion: 21:27

Resources Mentioned in this Episode

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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, LLC, an SEC Registered Investment Adviser. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management, LLC 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.