2021 EP0123 Planning Matters Radio - 10 STEPS W Kim King

Content is intended to provide accurate information, however is not intended as financial, tax, or legal advice.

Please consult a financial, legal, or tax professional for specific information regarding your individual situation. Opinions expressed and provided are for general informational purposes only and should not be considered a solicitation for the purchase or sale of any security. If you fail to plan, plan to fail. We want you to plan for success.

Welcome to Planning Matters Radio. Knowing the information that will be discussed on today's show will help you plan and achieve success. We will discuss the topics, strategies, and secrets that you can use to improve your progress and get the results you want from life.

How do you want your future to look? It's not always easy to get to your goals. Planning is empowerment.

Let's learn what it takes from the best. We'll give you the power to make it easier to plan the work and work the plan to achieve your success. This is Planning Matters Radio. Welcome to the show. Today we're here with Peter Vachon, the founder of Vachon Planning. He is a master registered financial consultant and fiduciary advisor and we're here today speaking with him about the 10 steps to prepare for retirement. Welcome, Peter. Hey, good to see you again, Kim.

Same here, good to see you. And so, you know, everybody eventually, hopefully will retire and there's things you need to do before you get there and prepare for yourself. Yes, we've, you've hopefully saved money all these years you've been working and now you're looking towards the end and want to go golf or whatever.

So what are some of the steps? Well, have you, have you, have you ever played hide and seek? No.

Well, yeah, I've played hide and seek. Yeah. You know, you know what you say when, when you get ready to go find them, you say ready or not, here I come.

That's retirement, right? Ready or not, here, here it comes. Hopefully you've prepared and now you need to, well, you've saved. So now, like I said, you have to prepare and obviously there's some steps to do that. And that's what we'll be talking about today.

Yep. So, you know, what's, what's the first step? Well, so we, we have this handy report. If you want to know what the steps are, you know, clear, concise, consolidated checklist of what do I need to do in order to be ready to retire. And it doesn't matter if it's next week that you're planning on this or 20 years into the future. I think that this list will help kind of get your bearings of where you are in, in the process. Okay. So we got the 10 steps to prepare for retirement checklist. And if you'd like a copy of that, just get in touch with us at Rashan planning, 9 1 9 3 0 0 5 8 8 6. But number one is define your budget.

Okay. And you know, what I see Kim is that people who have been lucky enough or worked hard enough to earn a substantial amount of income and do a significant amount of savings, they tend to pay less attention to their budget. They, they, they don't have to pinch every penny. They don't have to stretch every dollar. And so the budget sort of slips by the wayside without a whole lot of thought and attention because they have enough to meet all of their expenses. Plus do the savings.

They feel like they're in good shape. Guess what the day after you retire for those same individuals, it's an even more significant change in the amount of income that they have coming in. So understanding your expenses is pretty important. That is step one, whether you are 25, just starting out or 65 wanting to retire, understanding your budget really is paramount. Knowing where your money's going, where it's coming. And a lot of people, yes, you, you make more during your working years than you do when you're going to be retired.

You might have to bring it down depending on how much you have saved that needs to last several, you know, many years, decades of years for some people. Yeah. Yeah.

The retirement can easily be 35 years these days. Right. Right. That's longer than a lot of people had in their career.

Yeah. So my mom was a single parent teacher household. She didn't make a whole lot of money during her career, but when she retired, she had a pension and social security and it made up almost what she was used to making during her career. So, you know, when she understood what her spending limits were, when she was earning a paycheck and was able to replace that income in retirement, life didn't really change a whole lot for her as far as what the lifestyle costs. But for some folks, they're going to go from making $200,000 a year to now the only guaranteed source of income you have is social security. Maybe that's replacing 35,000 and you really got to understand how much life is costing you change.

Yeah, absolutely. And so once they define their budget or some people call it a spending plan, what's the next step? So then you want to define your guaranteed sources of income. And when I'm talking about this, there's some language out there where people are talking about, oh, you guarantee your own income. I'm talking about social security and pensions, okay?

I'm talking about the sources of income that you don't have to generate from your personal assets. So define what those are and strategize around them. How can you maximize your social security?

How can you maximize your pension? And you make well thought through and informed decisions with those two things. Because typically, Kim, those are lifelong decisions, right? And we've probably all had decisions that we made where the implications, the impact stuck with us for life.

Asking my wife out for a first date, that was a good decision, right? Some good ones and not so good ones. Then there are some bad ones. You don't want social security or your pension to be a bad one. Right.

Right? You want to think that one through because the decision that you make at 62 or 65, ultimately, that's going to have its impact at 85 or 92 or even beyond your own lifetime on your spouse. And you don't want to leave them in a bad situation, right?

But you leave behind or if you want to be able to leave anything behind to your legacy. Yep. And so then once you define what your guaranteed income is, then you've got to say, okay. Well, now it's math. Now it's math. Now it's math.

Okay. So here's the math process of figuring out, am I ready to retire? So we've defined our expenses. What is our budget? What does life cost us? And then we subtract from that our guaranteed sources of income. So if life costs me on average $5,000 a month and I've got $2,000 a month of social security and $1,000 a month from a pension. Now I know that my personal assets need to generate the other $2,000 a month. That's called your income gap.

Okay. And with the income gap, knowing what that is, we can really answer a lot of questions about how should I invest? How much do I need to have in order to retire confidently? Like what is my retirement number that used to be a commercial where these big green numbers floated over people's heads? They never told you how they solved for that question.

Well, this is the math process to figure out what that number is. And also, I know you hear in the news that some people, you can retire and collect social security at a certain age. How do you decide when to start bringing it in? Because you don't have to take it right away. You can delay it and get more money later in life if you're able to delay it.

Yeah. How do you make that decision? So first off, the folks down at the Social Security Administration Office do not give proactive advice on this. I want to make that clear that they are not advisors.

Their job is to file the paperwork on the day that you show up, not tell you if that's the best day to be there. Okay. It is on you. It's on your shoulders to get educated on optimizing your social security. And this can mean the difference in several hundreds of thousands of dollars over your lifetime. A poor choice versus optimizing it. So at Rashan Planning, we've got some advanced software and we can run all the numbers and we can arrive at some pretty good conclusions about when is best to take your social security to claim and collect and what strategy between a married couple, there's over 81 different potential combinations for how to claim and collect social security without getting into any of the advanced strategies. And that's just claiming whole year intervals.

Really? So there's a lot that goes into that decision. And again, several hundreds of thousands of dollars is kind of average over the course of a couple's lifetime. That's the difference that this can make here. That's money that you either have to have saved personally for yourself or that's going to come from social security.

You need to make a good decision with that. But we strategize on social security and that ultimately helps that income gap that we talked about in the last step, right? Right. And then we formulate the income plan. So now we know what the income gap is. We've maximized social security. Now we formulate a specific plan, step five, for when to tap into what account and what asset first. Do you go to your 401k first? Do you go to your Roth IRA first?

Do you go to your savings account and cash first? We map out that income plan to be as efficient as possible over the lifetime of retirement. And as everybody's hearing, there's a lot that goes into planning for your retirement. And if you need some help, that's where Peter comes in.

We can reach him at 919-300-5886 or online at www.rashawnplanning.com. That's spelled rich on planning. And like we said, there's a lot that goes into strategizing and formulating your income plan. And it's hard to do on your own. So talking to somebody like Peter may be the way to go here.

What else? We went over the first five steps. That's kind of math, right?

The first five is really math. And after that, after you've solved for the math problem, now we get into some of the more complex aspects of planning. Understanding your risk exposure.

Okay, so I've set the baseline for my income and made sure that I'm meeting living expenses. But now what risks are there to my lifestyle and to my assets? Or my mental health that I don't want to be too risky or not have any risk at all.

Yeah, no, that's a big one. And that's different for every person. Between two spouses in a household, usually the acceptance of risk, the mental aspect, the emotional, psychological, what risks am I taking? That's going to weigh on individuals differently. I often find that, you know, there's one spouse that is very comfortable going for home runs, and they're comfortable managing the risk of the market.

And that's what we usually think of. When we say risk, a lot of times we think of the market, but there's so much more to it. Because the other person might be scared to death of losing a few dollars in the market. So we really got to understand your risk exposure. And this is inflation risk. This is tax risk. This is political risk. This is longevity. That's the risk multiplier. Living a long life, something we all hope for, but it also increases the likelihood that all of those other risks end up affecting us. Not maybe one market cycle, but we see several market downturns. We see inflation really have an impact. So, yeah, you got to understand your risk exposure. And that's where we help people quantify that.

We really put it in writing. Here's the risks that you are exposed to and what you need to address so that they're not blindsided. I feel like Murphy, right? Murphy's law. The bad things happen at the wrong time. Expect that. I make the bad things happen during the planning process.

These are the conversations so that people are prepared for them if they happen in real life. And everybody's risk tolerance is different. And that's why somebody like Peter can help you decide where your risk tolerance is and come up with your own individual plan, because not everybody's plan is going to be the same. So after you've figured out your risk, whether it's high or low, what's next?

What's the next step? Looking at taxes, okay? It's not what you make.

It's what you keep. Well, taxes is the thing that stands in the middle, at least the first thing that stands in the middle. And so we've got to understand where does our income fall in our current tax bracket and what are our expectations for taxes into the future?

Are there ways to keep more of our money? And right now is an opportunity. I mean, taxes are on sale today. Ed Slot is America's leading IRA expert. He's got a show on PBS, The Roadmap to Retirement. And he says that taxes are on sale today.

We've got a limited window of opportunity here. For folks that have been taught to save in your 401k and defer your taxes for later, you did a good job in saving, you built up a good account value, but that account value, whatever you think it is, part of it, you include a debt to the IRS because you have not yet paid off that tax bill. So you got a million dollars in your 401k. No, you don't.

You've got 650 to 750,000. We've got to calculate out what that is. We've got to figure out what that is and strategize, do we pay it now? Do we pay it later?

Do we pay it as we go? What's the best way to keep as much of that as possible? And when that feels overwhelming that you come in and run some numbers for... This is what we do. That's what you do.

So that'd be a great chance to really figure that out. Again, it's more math. And so if you don't like math, you might need some help with figuring this all out. I am a big fan of spreadsheets. I like when people come in and they bring me their spreadsheets and we talk through, okay, well, what did you do here?

What is this showing? I love that, but I know that not everybody likes spreadsheets. There are some people who don't like them at all, don't want to see a spreadsheet. We can break it down and show you in your language, right?

If you want to talk it through and look at it in your language, and look at big picture, 30,000 foot. If you'd like to see illustrations in a graph form or in written language, or just have a conversation about how to do these things, or if you'd like it broken down in a spreadsheet, we're happy to do it however makes sense to you. And I've got lots of different software that can show these things in a number of different ways. But at the end of the day, if you've got that plan, if you've got something you can refer to and understand, like this simple, easy 10 step checklist, then you're better off in knowing what the next step is. And Peter Rashawn here with Rashawn Planning, and he does, he offers the exclusive Rich on Planning optimized retirement plan. Reach out, give them a call at 919-300-5886, or look them up online at rashawnplanning.com, and that is spelled rich on planning. Okay, so we've understood, we know our risk exposure, we've calculated our taxes, now what?

What do we do next? Consolidate like type accounts. So this is more of a house cleaning thing. There's nothing that says that you have to do this, but life seems easier for a lot of folks that I have seen moving through retirement when they have taken the time just to do a little house cleaning and consolidate like qualified accounts. And what I mean by like qualified, there's essentially three different buckets that you can put money into. There is the I've already paid tax once bucket, but I'm not earmarking it for retirement exclusively. There is the tax deferred bucket.

I earned the money and put it away before paying taxes. That's your 401k, that's your IRA, the four plan. So the 457, the 403b, the 401k, the TSP, anything where you have not paid tax on it yet, that can all be consolidated at the end of the day into an IRA. And then there is the tax free bucket. I've already paid tax on it once and I'm done with taxes forever. The Roth, and that can be Roth 401k or Roth IRA.

And that's my favorite. We consolidate the types of money into those three buckets. You might have five different types of accounts in one. There's no reason to have five different types of accounts in one. Doesn't help with diversity. In fact, a lot of times it works against diversity. So we consolidate them and then we begin a process of trying to move money from one to the next to the next and eventually get it in that tax free forever bucket.

Oh, that sounds like a great plan. And does that also affect your required minimum distributions? Or people have probably heard the RMDs at a certain age, you're required to take so much money out of these accounts. It can help. It can help.

It can help. A lot of people, they know, well, I'll say a lot of people don't know that the government eventually requires you to begin taking money out of your retirement accounts. They do. They're in control. They have the managing ownership stake in your account.

They set the rules. You're in business with the IRS. And at a certain age, they want their share of that business equity. And they tell you take money out of this so that I can get my share.

Well, consolidating accounts helps with that process because you can more easily calculate how much you owe them, how much you have to take out and better control it. Recently, the secure act passed. It was at the end of 2019, January 1st, 2020, it went into effect. It actually pushed back the age for that required minimum distribution. It was 70 and a half.

Now it's 72. They gave us an extra year and a half. But at the same time, where the government gives you something on the one hand, they take something away on the other, they did away with generational tax deferral. You used to be able to do the stretch IRA.

You can no longer do that. So they took away a whole lot more than they gave us. But consolidating like titled accounts will help us better plan and strategize and hopefully achieve the goals that people once had with that stretch IRA.

And like you said, a lot of people don't know these laws and rule changes. And yeah, the IRS is going to get their money some way, somehow. So it's good having somebody on your side, a partner to help you plan for all these situations that could happen and decide when to start taking distributions and from which accounts first. I think the plan, something to refer to, something tangible in your hand that you can understand, it's good to have that. And it's good to have a professional perspective to say, well, this plan, yeah, it was good a year ago, but is it still good, right? Because everything changes and different situations happen in life and in retirement, too.

So yeah, it's good to have somebody you could call and ask, this happened to me, what do I do now? And they can look at it, like Peter could do for you, anytime. So we've consolidated our accounts now. What else do we have to consider?

Yeah, we're in the homestretch here, right? However, things get more expensive over time. And I see a lot of people who say, yeah, I've got a retirement plan. And I say, okay, well, how much is it generating for you for income? And they say, however much, $5,000 a month, whatever the case is. Okay, well, in 10 years, how much is it generating for you?

$5,000 a month. Well, you know, things get more expensive, right? If you haven't been shopping this year, just this one year, things have gotten that much more expensive. Yeah, a gallon of milk used to cost maybe 50 cents several years ago, many years ago. Well, I've got a buddy and he's got an old Sears catalog. And it's like from the early 80s, a set of four tires in that Sears catalog is about what you pay for one tire today. Oh, geez.

Wow. And, you know, I have seen a lot of things get much more expensive over time. One being health care. That's one that affects retirees more than almost any other demographic group. So you've got to consider inflation. And even at historical average inflation, even at historical average inflation of around 3%, the need for income, what that means is that expenses double every 24 years. Again, we talked about retirement can be 35 years long these days. Inflation is going to be a factor. You've got to plan for that. Not just on the day that you retire.

How do you afford life 25, 30 years down the road? And then to round home here on our list, on our 10 steps to prepare for retirement, a lot of people move into retirement and they have no legal documents in place. And we hear about that a lot in the entertainment world.

There's been several celebrities that have passed away recently. And I mean, I know they have a lot more money than I do that. I can't believe that they didn't have their legal documents and their wills. This is just another plan, what to do with your money when you pass away, that they didn't have this in place. So what do you, this is your 10th step.

Now you're ready to retire. Let's get these documents done and taken care of so we know. And actually it'll help your loved ones. Yeah. Oh, absolutely.

I mean, if, if you want to see an example of like circle the wagons and fire inward, pass away with no estate documents and your family, your loved ones will be fighting with each other. I just, I've seen it way too many times. But, but yeah, having those legal documents in place, especially as you're making the transition to retirement, right? Because at a younger age you've got, you've got kids, right? You, you were single.

You didn't really feel like you needed this thing. And then you got married and you felt like, okay, well we need to do some things. And then you bought a house and you, okay, well we need to change some things. And then you had kids, we've got to change it again. And then the kids hit 18.

Okay, well, we got to change things again. At retirement, at retirement, pretty much, you know, the kids are up, they're of the age majority, they're, they're out. You can probably do it at retirement. And that might be the longest period of time where these legal documents don't really need to be redone again as frequently. So at least as you're making that transition, this deserves some time to dust off those old documents, make sure they are still appropriate, update them where they're not.

Look at all of your accounts, the beneficiary designations that you got on them. Take stock, take inventory and make sure that, okay, we've, the first nine steps here, that's about providing for your lifetime. Something happens with the wealth after you're done with it, right? Right.

I don't believe you. A lot of stress can happen after someone passes away. And also just like you said, Peter, the beneficiaries, people will change their wills and not change their beneficiaries. And there's things that have happened through your life that may have changed who you really want that money to go to. Oh, absolutely.

And so you need to not, you know, not just look at your will, but look at every account you have and make sure that those beneficiaries are up to date. Yep. My dad said he was going to bounce his last check, right? And I said, fantastic plan.

Just make sure it's the last check you need to write. Exactly. And that's a real hard thing to time. Exactly. That would be hard. Yeah.

It's, it's pretty difficult. So whether your concern is I've got so much money that I need to pass it on efficiently, these first nine steps still will help you be more efficient with your money while you're here. And then we can talk about how to leverage what you're leaving behind, or you're on the other side of this.

I need to make sure I've got enough money to last my lifetime. And that's all I'm concerned about. Fine. These first nine steps will help you with that. And by the way, because you've done that, it's more than likely that you'll probably also leave something behind.

But, but a legacy is left regardless, positive or negative, money or no money, there is always a legacy that's left behind and planning will help leave that positive legacy behind. And that's what you would hope to do for your loved ones. So yes, we're here today with Peter Bichon with the 10 Steps to Prepare for Retirement. Went through all 10 of them.

All 10 of them. That was pretty good. But these are great steps to and just take them one by one. And maybe that's your New Year's resolution or your goal for 2021 is to get these done so that you're you're ready for retirement. If you like what you hear and need somebody in your corner to help you plan for retirement and figure it out, help you figure it out, because there's lots of numbers that you do have to work with, reach out to Peter, Peter Bichon. And he's also written a book called Understanding Your Investment Options. So you can always get a free book from him as well when you reach out for a free consultation. And you can meet him at 919-300-5886 or look him up online. Rishonplanning.com. That is richonplanning.com. Thank you. Yeah, thank you.

Appreciate it, Kim. 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 Brookstone Capital Management, a registered investment advisor, fiduciary duty extends solely to investment advisory advice and does not extend to other activities such as insurance or broker dealer services. Advisory clients are charged a quarterly fee for assets under management, while insurance products pay a commission, which may result in a conflict of interest regarding compensation.