10 Steps to Prepare for Retirement—Are You Ready?

Peter, very good to see you. Welcome back, everyone. Peter, we're going to talk through today, 10 Steps to Repair for Retirement.

You have a lot of great resources on your website. We're going to head people that way in a second, but we want to talk through first the retirement red zone, because we hear about it a lot. Generally refers to the five years before or five years after retirement, a critical time when investment decisions and market fluctuations can have a significant impact on your retirement security. So let's zero in, though, on those five years prior to retirement. You have a 10-step plan.

The first step is to define your budget. Why do we start here? Yeah, and the red zone in football, right, is the 20 yards before you score, and you don't want to turn the ball over there, right, because points are available.

Even if you don't score a touchdown, at least you can score a field goal. So preventing turnovers at all costs in the red zone is important, and that's, I think, where the analogy for retirement came, is that those five years before and after that retirement date are essential to avoid mistakes, right? So as we're planning for retirement, number one, defining your budget, and nobody likes the word budget. It's like a six-letter cuss word, right, is that nobody wants to limit themselves and what they're spending and have to tell themselves no, but the point is understanding your expenses is paramount to retirement success, and a lot of my clients, however you want to qualify it, they're lucky, they're hard working, they're blessed enough, they earn a comfortable kind of income, so they don't pay as much attention to their spending and their expenses, but for that same description of person, the change in income is that much more substantial the day after they retire, and generally the lifestyle they're accustomed to is that much more expensive. So we really need to define that so that we have a target to aim for to recreate financial confidence the day, the year, the decade after retirement.

I see. Step number nine, define your sources of guaranteed income. Right, so not everybody has both of them available, but social security, pension, and some people, some households, married couples have two social securities, some are lucky enough to have multiple pensions. Wherever those sources of guaranteed income are that you theoretically do not need to worry about whether or not they're going to be there until at least the day that you are gone, those need to be defined and identified so that you know where those paychecks, where that income is going to come from. And so when you know what you're spending and you know what your income will be, that brings us to number eight, which is define your income gap.

Yeah, now we're starting to do some math, right? So we've defined our expenses, we sort of have a ballpark figure for our average monthly spending, and then we can look at those sources of guaranteed income, the social securities, the pensions, and subtract those out. Now over time, what we will see is that there is likely a growing gap. We want to know, day one, if there is any gap there, do the pensions and the social security, add those together? Do they account for the spending that we have been accustomed to?

Most people, it is not. There is going to be some amount of gap there. That's what your personal assets are going to have to fill for you. But in order to have lasting financial confidence, we need to also make sure that we are inflation adjusting that number, because even when there is a cost of living adjustment on social security or pensions, if that's only 50% of your income need, then only 50% of your spending just got inflation adjusted, and we need to plan for filling that gap through the duration of retirement.

Great. Number seven could be one of the most important decisions we make in retirement, strategize on when you should be claiming social security. Right, now here's where we get into the weeds of, even with a married couple only looking at claiming their own benefit on full year increments, so anywhere from 62 to 70 for each person in a married couple.

Well, that's 81 different potential combinations just right there. And we're not talking about months or who's retiring first or can I claim a spousal benefit. So there are lots of different strategies on social security. And the difference between a well thought through, well timed decision on social security versus one where we don't think it through can be several hundreds of thousands of dollars over the course of retirement. And that's money that either comes from social security or has to come from our personal savings or just isn't there at all.

And of those three, I know which one I would prefer. So it is definitely worth the time invested to make sure that you are making a well thought through informed decision on social security. Maximize those, optimize those sources of income because pensions are the same way.

Yeah, so important. Number six comes back to the income gap. You need to formulate an income plan, right?

Yeah. And this is where now we've gone through the math. We've identified how much we're going to need to generate from our portfolio. Now we go through the process of selecting the appropriate tools to address that gap, that shortfall. And there's a number of different options in the financial world for creating income.

And we need to evaluate all of them. The pros, the cons, the dependability, the durability, the liquidity. Is this going to provide me more income as time goes on? There's dividend producing stocks. There's protect the principal and live off of the interest kind of vehicles in CDs or treasuries. There's structured notes. There's annuities.

There's a number of tools here that could be included in this conversation. And maybe we don't want to put all our eggs in one basket, but whatever that gap is, we need to cover that in as secure and confident a manner as possible for lasting financial confidence. Number five, understand your risk exposure.

What does that mean exactly? Yeah, we think of the market when we think of risks. And of course, the market is a big one from a financial risk standpoint. It can go up, but it also can go down.

And when it goes down, it often goes down pretty dramatically and at the wrong time. And is that going to affect us? But there are other risks, right? There's healthcare risk. There's inflation risk.

There's tax risk. There's longevity risk. Longevity, the thing that we hope for is that we live a good long time in retirement and can enjoy ourselves. But the reality is the longer that we live, the chances of all of those other risks hitting us and maybe hitting us multiple times is multiplied. So longevity is really that risk multiplier that we need to specifically address.

And again, these 10 steps to prepare for retirement, a lot of it is about addressing these risks and trying to reduce or address and eliminate as many of them as possible. Right. Number four covers what will be, could be one of your biggest expenses in retirement. You have to consider those taxes.

Yeah. Again, tax risk. Tax risk is the risk that I might be paying taxes and maybe paying higher taxes than I anticipated. And then to couple this legislative risk is the risk that Congress can change the rules when it comes to taxes.

And over the course of decades of retirement, they likely will. And so taxes, we actually have this whole list of reports. Number three is your three biggest expenses in retirement and how to plan to control them. Taxes are number one, your largest known expense in retirement for most people.

And so we've got to do what we can to strategize on taxes, to control taxes where possible within the tax code, morally, legally, ethically, to take advantage of opportunities, to limit the liability and the cost and expense of taxes. That's more money that you get to keep. I mean, the day after you retire, you've got a finite amount of money.

You've got an unknown amount of time to make it last. And that expense of taxes is standing in the way from what you have versus what you get to keep and spend. It is a significant item that you need to have a specific plan for how to address.

Right. And I think a lot of people don't know that they have some autonomy as long as they start planning now. And you know what, like most people could probably tell me within a very close margin of error what their account balance is for those retirement accounts. But I would say that the majority of people could not even begin to guess or tell me with any kind of accuracy, well, you know your balance, but how much are you going to pay in taxes on that balance over the course of your retirement and over the course of your lifetime? And that's why we have that retirement tax bill calculator online, 919retired.com. It begins to really illuminate what the potential tax bill is going to be and illustrate that for you.

And then we can talk about how to plan to control that. Number three, consolidate like qualified accounts. A lot of people have accounts scattered. They may have had multiple jobs. They've got 401ks out there, three, four, five of them.

They've got a couple IRAs. Those can be consolidated. And this does not hurt diversification. In fact, oftentimes there's overlap between accounts and consolidating accounts helps further diversification across your total financial picture. And it just makes things easier. A little housekeeping is you don't have five different statements to keep up with.

You've consolidated them down to one. It also makes life much, much easier once you get to the stage where you're having to deal with RMDs rather than having to calculate them and potentially take them from all or multiple accounts. You can just focus on here's the one pot of tax deferred money that I need to account for with RMDs or that I know is the base that we could begin to do things like Roth conversions on. And you should have a non-qualified bucket. You should have a tax deferred bucket and you should likely have a Roth tax-free bucket, at least those three for some flexibility in retirement. But having 401ks and IRAs or 403Bs or TSPs and IRAs, that really complicates the RMD picture because with just IRAs, you can take an aggregate RMD. But if you've got 401ks and IRAs, those are completely separate and you've got to account for both of them. So again, it's just a housekeeping kind of thing, but it oftentimes helps to improve diversity, reduce overall fees and costs to the portfolio and just make life a little easier for tracking. Number two, consider inflation.

Yeah. Again, expenses are going to increase over time. If I think back 20 years ago to what I was paying for things, it is not the same as what I am paying for things today and the same is going to hold true in retirement. Those expenses are going to keep increasing. And it's not just the things that I was paying for 20 years ago, it's how many new expenses have been added to my budget over the past 20 years, a lot of them.

So we have to include that. And that is a big oversight I see in a lot of people's plans is unfortunately, some people are assuming that they're going to be spending the same amount of money 10, 15, 20 years from now as they are today. And that is what their retirement projections are based on. Let's make sure to address that and include an inflation factor into your retirement projections.

And then number one, review and update your legal documents. Why is this number one for you, Peter? Because so many people overlook them. I deal with a lot of people who have done very well for themselves from an investment standpoint. They have been savvy and prudent and regular investors on an ongoing basis.

They've done this as just part of their behavior and pattern and routine, their habits. They have built up a good nest egg and they have forgotten to execute those important legal documents that covers the what happens to this money that I've built up. If I'm no longer here, who gets it? Or if I am here but I am not able to make decisions on my own behalf, who gets to make those decisions for me? Who is in charge of life or death decisions? Who is in charge of financial decisions? Who gets to be the one there that executes on things? And then ultimately, if I'm no longer here, who receives the stuff?

And then what level of control do I want to have after I am no longer here? This is the division of a will versus trust, but you need those basic documents, the power of attorney documents, the medical directives, the healthcare release, and at least the will. Every mature, responsible adult over the age of 18 should have those documents in place. Those are vitally important, but especially as you have a family or a mortgage or debts or income or assets that you want to pass on or that somebody else depends on, make sure you've got your legal documents and that your beneficiaries have been properly named and identified on your accounts.

So important and often overlooked. All right, so everybody who is watching, just your friendly reminder that this is a great resource on rashanplanning.com. So this was 10 steps to prepare for retirement. We are a rocket launch away from doing all the other numbers, but Peter, let's talk everybody through how they can get their own downloadable copy. Yeah, go to rashanplanning.com.

It looks like richonplanning.com is how it's spelled, but it's my last name, rashanplanning.com. Go to the resources tab and then the downloads, and there is a resource there, the countdown to retirement. It is 10 reports that are similar in nature, but all different subjects. We're going to be covering podcasts on all of the different reports, but that is where you can go and download your own copy of the countdown to retirement, packed full of information, different topics, different subjects for you to think through before, during, and after retirement. And how else can we get a hold of you, Peter? You can give me a call. I'd love to hear from you. We put together personalized plans with diversified strategies for long-term investments, and we try to give people kind of lasting financial confidence in their plan that it is built to be there and withstand all different kinds of conditions that we will see into the future ups and downs in the market, and they can have that confidence in the plan remaining stable and keeping them on track. That is the optimized retirement plan that we put together. Give me a call.

We'd love to hear from you. No cost for that, by the way, in getting your personalized plan. 919-300-5886. 919-300-5886 is the number to call.

Or again, online, richonplanning.com. All right. Peter, thanks so much for your time today. I appreciate it. Thank you. Hey, folks. Peter Richon here with Richon Planning.

So glad that you are enjoying the podcast, Planning Matters Radio. One of the tools that we've put out there that people really seem to appreciate and really are our finding of value is at 919retired.com. It is your retirement tax bill calculator. If you've got any kind of retirement account, your tax deferred 401k or IRA, this is the website.

This is the resource where you can go. You can plug in your own numbers, your information. You can slide the the tool calculator up and down for your tax rate or your amount of savings and see what your tax bill is likely to be if you default and defer to the IRS's plan versus what you could potentially bring that tax bill down to. A lot of times it is a very significant saving.

So if you have not yet, go to the website 919retired.com. Run your numbers on the retirement tax bill calculator. This has been Planning Matters Radio. The content of this radio show is provided for informational purposes only and is not a solicitation or recommendation of any investment strategy. You are encouraged to seek investment tax or legal advice from an independent professional advisor. Any investments and or investment strategies mentioned involve risk, including the possible loss of principal advisory services offered through Brooks' Own Capital Management, a registered investment advisor.