The 6 Questions You Should ask Your Advisor Before You Retire

Peter, good to see you.

Welcome back, everyone. Today, we're going to talk through the six questions you should ask your advisor before you retire. Now, of course, you don't necessarily need a long-term advisor. You don't need to have an established relationship with one, but you probably should have a conversation with one before you decide to hang up your hat. So, the first question to ask a fiduciary advisor, am I financially ready to retire? The operative word being financially.

Yeah, yeah. You don't know what you don't know, so that's why I have this conversation. Even if you are not working in a dedicated long-term relationship with an advisor, they may be able to spot or identify things that you've overlooked or missed. I've got a report. It's 12 questions. The title of the report is Are You Ready? I always emphasize financially ready. Everyone's ready to retire. At some point in time, we're sick of our job.

We don't want to show up to work anymore. Oh, gosh, I'm so ready to retire. But are you financially prepared to face the rest of your life without an income, without a paycheck, without showing up to work?

That is a completely different question. So, are you financially prepared to retire? And it absolutely is something that you should speak with, consult a financial and specifically retirement planning professional. Not all brokers or advisors are specifically retirement-minded or oriented in their advice. So, find one that that has been and is their niche and that they focus on helping people make that transition. They're the ones that are going to help you optimize social security, optimize income, minimize taxes, control risk, all of the kind of things that you need to be thinking about pre-retirement and as you make that transition. Right. In fact, if your advisor can't answer these six questions that we're going to go through, you might want to shop around for another advisor.

Next question. What income sources will I rely on in retirement and how sustainable are they? Yeah, and have I taken the time to educate myself on them to maximize and optimize them, right? Social security is there for all of us and we worry about how sustainable even social security is.

So, how about all of the rest of the sources? Do you have a pension or is this going to be mostly personal assets driven? How reliable is the income that you can derive from any of those sources and how does it project out to keep up with all of the costs and expenses? Not only day one or year one, but year 10, 15, 20, and 30 into retirement into the future. You know, if social security adjusts for the cost of living but it's only half your income, then only half of your income gets adjusted for those growing expenses.

Right. And so, we need to figure out how to account for all of that into our planning and, of course, some unexpected things that might come up and some expected things like taxes. So, we've got a lot to plan for there when we're looking at retirement.

Right, and that comes to our next question. How can I minimize taxes on my retirement income? Yeah, and we've done whole episodes on some of these topics, right? Specifically getting into how to control taxes in retirement. A big one is pre-planning. Understanding that taxes are going to be due in retirement.

It's not that they go away. We pay taxes, pay bills, spend, and save. Those are the four things that we do with our money. And paying taxes and paying bills do not go away in retirement. Spending hopefully doesn't, but that's the only one that's sort of discretionary and only what you save recreates your ability to do those first three things. And how you save that money is going to have a lot to do with how much you pay in taxes once you retire, right? We have been taught to defer and delay over the previous generation. That was the major way that most people saved for retirement. Well, now that bill is coming due.

And so, we're sort of rethinking that now. Is it time to make a paradigm shift and say, well, let's go ahead and prepay our taxes as much as possible or do some Roth conversions or even just save in non-tax-deferred, non-tax advantaged kind of accounts? You know, your non-qualified, non-retirement accounts have some different tax implications and advantages themselves. So, it's all about how you set yourself up and then you can execute on strategies to control and minimize that tax once you retire.

Next question. What, if any, adjustments should I make to my investment portfolio? Well, I mean, consider de-risking. And I think that a lot of people overlook this important step is that we've been taught to take risk with our money. And the way that a lot of people got to where they can reasonably consider themselves as financially successful enough that I can retire with confidence is through the market and through risk and through investment. But your income, your paycheck is what supported your ability to pay your bills during your entire working career. And that's not going to be there anymore. Your paycheck, your income is what supported your ability to be an investor and took advantage of dollar cost averaging during your entire career.

Again, that's not going to be there anymore. And the direction of your money matters as much, if not more, than the direction of the market in many cases. And we are doing a complete 180 here. Instead of being contributors, instead of dollar cost averaging, we are net sellers of assets.

We are taking income and distributions. And so the risk that got you to that point now has an opposite impact and effect on your portfolio value. If we see downturns during our working career, hey, it's an advantage.

We're putting money in, we're buying on sale. If we leave our money and our assets too exposed to risk, and then we have a significant downturn in retirement, that can potentially change the entire trajectory of our retirement financial security and confidence and well-being. So really, five to 10 years out from retirement, we should really, really start sort of taking account for how much risk do we still need and not risking too much when we've got enough or we're on track to have enough. And then once we retire, again, separating out, you specifically ask about your investment money, separating out what is the income base that is necessary, and then identifying what is left over that we can continue having an investment kind of approach and mentality to those dollars. And if we're generating income from them, we should not place a whole, whole lot of risk on those dollars.

And then this next question I feel is often missed by the DIYers. Do I have enough saved to account for inflation and other unexpected expenses? I have seen plans that project out for 30 years that somebody is going to be spending the same amount of money. Like day one of retirement, here are my expenses that I need to cover.

And I can make that last for 30 years. And inflation is nowhere factored into that equation. That is a huge, huge, huge oversight. Like we've got our three largest expenses, your largest known one is taxes, your largest potential one is healthcare. And then the silent thief of inflation is a constant. The rate isn't constant, but it's not going to go away. And yeah, there's a great graphic on the screen here where over time, the groceries that you can afford keep disappearing with the same amount of money. That is the constrictive power of inflation, especially if you don't plan and prepare for it. And then unexpected expenses, you know, sometimes cars blow up, sometimes roofs need replaced, or you got a water leak in your house or something that you didn't plan for at all hits you out of the blue. You've got to have a little baby slush fund over there of discretionary dollars that you're not tapping into your income base to get access to when and if, not if, actually when, those unexpected expenses come up because sooner or later, we're all going to experience that. And the last question would be, do I have a plan for long-term care? And this is something that we cannot overlook, Peter.

We've talked about it many times before. Seven out of 10 people will need long-term care at some point. It's not covered by Medicare. And if we take a look at the average cost, this is projected out 20 years in your area, anywhere from $149,000 up to $214,000 annually. That's a huge, that can wipe out all your retirement savings.

It so can. And actually, I think, unfortunately, that is an underestimate because I know that there are some nicer assisted living and memory care facilities around here right now that run those kind of numbers that in this projection calculator, they're not showing for 20 years. That's where some places cost right now.

And I know that these are average numbers, so it takes some highs and some lows, but I still think that that particular calculator is underestimating the potential costs. The good news is that there are some very reasonable solutions to this. And a lot of people, like, overlook this question, kind of bury their head in the sand, like the ostrich.

The problem is, when we bury our head in the sand, our backside is still exposed. So we need to make sure that we are addressing this issue head on. And everyone should have a plan for long-term care, the what ifs, because your children, your family, they don't want to have you become dependent on them, and you don't want to become dependent on them. The government is there as the last line of resort, but you don't want them setting your standard of care. I mean, people who could reasonably qualify themselves as self-insured, fantastic. But if I've got my house over here, I don't stick the value of the house in the bank in cash and say, I don't need homeowners insurance, I'm self-insured.

It just is not the most effective way to do that. So we take a look at ways to provide leverage against what is otherwise a potentially catastrophic and family life-altering expense. Not just your life-altering, that would be altered with the necessity for care alone. But your family's life gets altered financially forever if you have not prepared for this. And again, there are some good solutions. There are places where you can make a lump sum deposit and have coverage.

There are places where a husband and a wife can both be covered under one policy with lifetime continuation of benefits, meaning both of them could theoretically be collecting long-term care payments when those are required simultaneously and for life. There are ones that are guaranteed issue no matter what your medical situation is. There are some that have simplified underwriting, which means they're like four basic knockout questions that you have to answer.

And as long as you answer no to all of them, then you can be approved. And there's varying levels and degrees of protection. There's some that provide a whole lot of leverage. There are some that provide a little less, but also today's forms of protection against what most people look at for long-term care are linked benefits, meaning that it's tied to some other utilization of money. For instance, an annuity providing guaranteed lifetime income for when you're here and healthy, but allows you to have an increase in that income if you have a long-term care event. But one way or another, you get use of your money. It's not use it or lose it or similarly with life insurance that you purchase life insurance and it's always life insurance. But if you have a long-term care event, you can advance yourself that bucket of money to pay for your cost of care.

And if you are one of the lucky ones, three in 10, as you said, Aaron, the stats are scary. Seven in 10 of us will require some kind of long-term care. But if you don't use up all that money or don't need it at all for long-term care, it's still there. You still get a benefit from it in the form of tax-free death benefit for your beneficiaries, for your loved ones, your family. So it's not use it or lose it.

The prices can't go up into the future. So this is one that's kind of a real emphasis item for me in planning is that I think everyone should have taken the time to talk about the scary, scary costs of long-term care and then protect themselves and their family against it. Right, which again circles back to if your financial advisor is just talking about your investments, you need a new financial advisor. These questions are so important to make sure that you have the retirement that you deserved. So Peter, if somebody wants to ask you these questions to see if they are ready to retire, what's the best way to reach you? Give me a call, 919-300-5886, 919-300-5886. And Aaron, there is a time and a place for that kind of broker, right, who's given people access to the market and talks about the rate of return.

And that's basically the extent of what they're shooting for. Like in your 20s and 30s and 40s, that may be the bulk of the conversation that is necessary. Make sure you're saving enough and that you're getting a good rate of return. But as you move into your 50s and 60s and think seriously about that transition into retirement, there is way, way more that goes into true comprehensive planning and you need to have those conversations. So give me a call, 919-300-5886. We do put together that optimized retirement plan for listeners to the program and viewers of the podcast. Great. Peter, thank you. Always a pleasure, Aaron. Thank you.

Hey folks, Peter Rachan here with Rachan Planning. So glad that you are enjoying the podcast Planning Matters Radio. You know, 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 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 savings.

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. Piduciary 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.