4 Essential Tips to a Perfect Retirement

We tend to not go into detail about retirement on the show because retirement is so unique. Wealth-building for the majority of people is more straightforward - we can boil most of it down into the 9 steps of the FOO. But living off of your income is completely different, and is so unique to you. We heard you guys though and wanted to deliver on 4 essential tips to a “perfect retirement.” These tips are not about a “perfect” retirement for everyone, but instead giving you things to consider and plan around so that you can build the perfect retirement for you. Jump start your journey with our FREE financial resources Reach your goals faster with our products Take the relationship to the next level: become a client Subscribe on YouTube for early access and go beyond the podcast Connect with us on social media for more content Bring confidence to your wealth building with simplified strategies from The Money Guy. Learn how to apply financial tactics that go beyond common sense and help you reach your money goals faster. Make your assets do the heavy lifting so you can quit worrying and start living a more fulfilled life. Learn more about your ad choices. Visit megaphone.fm/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Brian Preston?

  Four essential tips to a perfecto retirement.

• 0:10Speaker 01

  Brian, I am so excited about this because one of the things that people get so excited about is retirement. And we talk a lot about how to get there and how to save and how to grow and how to move towards retirement. But that's only half of the equation. There is another part that happens after retirement. Some things you can do to have a successful retirement. That's what we want to lean into today.

• 0:30Brian Preston?

  Yeah, and look, we don't apologize for the fact that we talk about all three stages of building wealth. There's the make wealth phase. There's the maintain wealth phase. And of course, we want you, even when you live in abundance, to multiply your wealth. And I'm not going to ever apologize that we spend so much time on the make wealth because that's part of the abundance cycle. We want to actually give it away to you, help you learn, apply some of these concepts so you can reach your own personal success point. But we are going to focus on a little bit different on this show.

• 1:02Speaker 01

  Yeah, when you think about the making wealth phase, there are some like tried and true things that are pretty broadly applicable to everybody. But when it comes to maintaining, when it comes to multiplying, that's where you have to get specialized because no two retirements are exactly alike. It needs to be a little specific. So what we want to talk about today is how do you have a perfect retirement? And we say perfect, we don't mean perfect in the absolute sense. We mean, how do you have a perfect retirement for you? That's what we're going to dive into today. Because remember, financial independence is doing what you want, when you want, and how you want. But there's even a step beyond that. When we talk about the five levels of wealth and you get into that last stage of abundance, that's about knowing who you are, what you value, and what brings you purpose.

• 1:47Speaker 01

  And these things tend to be a lot more qualitative than quantitative.

• 1:51Brian Preston?

  Yeah, so let's jump right in because I want to help people figure out, number one, how to shift from saver to spender.

• 1:59Speaker 01

  Now, it sounds interesting, but this, I would say, is one of the number one thing that financial mutants struggle with as they enter into retirement. I mean, all you've been taught your entire life is Save, save, save, defer, defer, defer, invest, invest, invest, grow, grow, grow, and then magically, you're supposed to flip a switch and automatically become a consumer of your resources. It's a hard thing to do.

• 2:20Brian Preston?

  Well, if you think about it from a behavioral standpoint, we have been rewarded for building up the muscle of discipline and saving for decades. And, and part of that, the whole reward structure was to minimize how much you're on the spending component. And now you flip the script. I mean, you literally are flipping the switch and you say, okay, now you're supposed to be okay, no longer being disciplined necessarily on the saving, you're supposed to start spending this money. And not only that, when you retire, it hits you differently from a completely emotional stance. Think about this, a lot of you financial mutants, when the market goes down 20%, we hit bear market status, a lot of you right now while you're working, you get excited.

• 3:02Brian Preston?

  You're like, holy cow, look at it, we've got a decoupling of the value versus the price that I can buy things at. So you get super excited. Now, you flip the switch and once you're in the consumption side of it, think about the fact that you're having to sell assets while things are down 20%. It's going to hit you completely different from both emotional, as well as how you handle things from a behavioral standpoint.

• 3:25Speaker 01

  Yeah, we know that behavioral change is difficult, but it is required as you transition from being an accumulator to a decumulator, from a builder to a consumer. So, we want to walk you through some key strategies that you can implement as you get into this phase, that will hopefully help. And the first one, no surprise, as you enter into retirement, you need to have a plan.

• 3:48Brian Preston?

  Yeah, this is one, and this is an important one. I would encourage everybody out there who's watching this, you know, if you don't have a plan, you're really, you're drifting out there in a vast ocean. And, and something we've talked to people, because I think there's a tendency that we want to shift goalposts, all the time. You know, you, you reach some level of success, and you keep adding more and more goals. And Bo, you had a, you had a mentor or somebody who shared with you, what was the thing he shared when he was an executive on how you protect yourself and set boundaries?

• 4:16Speaker 01

  Yeah, a good buddy of mine, Wayne Wolf, he said, hey, here's how you, here's how you Navigate success. I want you today to envision your dream life. What's the dream house, the dream family situation, the dream car, the dream vacations, the dream lifestyle you want to live? Go ahead and mark that down, write it down, have a mental picture of that. Now do everything you can to work towards that goal, but keep that goal in the forefront of your mind. And then, when you get there, recognize that you are there and don't try to go any further. Don't start thinking about the bigger house, or the nicer car, the more extravagant vacation. If you have a dream that truly is your dream life, and you can work towards that, and you can stay grounded in that, it'll prevent you from continuing to move those goalposts farther and farther away.

• 5:00Brian Preston?

  And you can also run the numbers off of that plan. And that's, I think, I love creating those boundaries, because it's just human nature to keep expanding what you consider success. So I love you building the plan and actually making it work from that. So number two, create a cushion.

• 5:16Speaker 01

  This one's a huge one. Obviously, as you come into retirement, there's nothing wrong with having very conservative assumptions, maybe having more cash than you need, or building a little beyond the number that you think is your number. Because what the cushion does is it gives you flexibility, it allows you to account for the unknown unknowns that may enter into your life during this retirement phase.

• 5:38Brian Preston?

  I also like knowing that you can adjust. And here's what this means, is that it's not uncommon when we have clients that retire, we set them up, there's all this emotional stuff that's going on, where they feel like, "Am I going to feel like I have money in retirement?" So we set them up a paycheck, essentially, where every month, they have a direct deposit come out of their investments directly into their checking account. So they feel like that same behavior that worked while they were working is also working in retirement. And it's not uncommon that nine months later, they might say, "You know what? I either need a little bit more, or my money's just building up in my checking account, can we adjust it?" You can make adjustments. Don't feel like what you set in the beginning is what's locked in forever. You can make adjustments very easily.

• 6:20Speaker 01

  And remember, we're talking about key strategies on how you shift from a saver to a spender. Another thing you can do is focus on your why. Understand, what are the Things that truly mattered to you and begin spending money on those things. If travel and creating memories for your family is your why, it's going to make it a lot easier to book that trip, to book that flight, to spend the resources, to shift gears in that direction. If it's something that actually matters to, if you're just spending money for the sake of spending money, there's a really good chance that you're not going to feel good about that. It's going to create apprehension and anxiety as you move through retirement.

• 6:55Brian Preston?

  And then practice a bit now. Here's what I like about this practice a bit now is that we tell you there's a fine line between financial mutant and financial miser. A lot of you guys, you start building up enough resources that your army of dollars is actually working harder than you can with your back, your brain and your hands. But that doesn't mean you have actually let go and understand that. And I've had so many conversations where people just, they're still focusing on the little details, having their spouse keep every receipt so they can put it into their Quicken app or whatever else is going on. Don't do that. Go ahead. Once you get to steps eight and nine, go ahead and start figuring out, hey, you're getting to the phase of now you're in this abundance phase. You can't take it

• 7:36Brian Preston?

  with you. Why not go ahead and start building those blossoming memories? Go ahead and start spending a little bit extra so you can see how this is going to feel when you do flip that switch into being a spender in retirement.

• 7:49Speaker 01

  And then another thing you can do is you can have someone in your corner. For you, likely this is the first time that you've entered into retirement. It's the first time you face these psychological changes that are taking place. If you can have someone in your corner, an advocate for you, they might be the person to say, hey, everything is okay. Hey, the numbers look good. Hey, the plan is sound. And they might even be that motivation to tell you, hey, it's okay to spend a little bit more. Hey, it's okay to take that trip. It's okay to do that thing. Brown, we talk about all the time for our clients, that is one of our very favorite things we get to do is empower them that it's okay to spend money. It's okay to use your resources. It's okay to consume because you've done all the hard work up to this point.

• 8:28Brian Preston?

  Yeah. I mean, look, a lot of you guys will say, I don't need a financial planner. I've been extremely successful. But that doesn't mean that your spouse, you might not want to have a backup plan when you're no longer here. Or it might mean you just want to have a coach, somebody who's done. This hundreds, if not thousands of times where you're going through things for the very first time. And you just don't know where's the measure twice, cut once. That's what we're here for, to be the backstop and help you do this the right way.

• 8:52Speaker 01

  All right, Brian, we're talking about four essential tips to having a perfect retirement for you. We talked about shifting from saver to spender. Let's talk about another thing you can do to design that perfect retirement. And that's understand and account for the different life stages in retirement. Who you are on day one of retirement will likely be very different than who you are in year 20 of retirement.

• 9:14Brian Preston?

  This one, you know, when I think about, when I'm talking to somebody who's in their twenties, thirties, even forties, it's very easy to do some what we call napkin planning rules. We like, we talk about the 4% withdrawal rate and other things because we're just trying to set up some basic goal numbers. So they can start the behaviors of saving and doing the building or making wealth phase. As you get older, you're going to realize that actually in retirement, you're going to go through different phases that you need to plan accordingly for.

• 9:44Speaker 01

  Yeah, those three phases, as we often like to think about them are the go-go phase where you're early on in retirement. Then the slow go phase where things change a little bit, and then the no-go phase. And if you can understand how these three different phases work, it'll help you design a plan that really works well for you. So Brian, let's talk about the first stage as you enter into retirement. Let's talk a little about the go-go phase.

• 10:06Brian Preston?

  Yeah, I mean, think about it.

• 10:07Speaker 01

  This is the fun one.

• 10:08Brian Preston?

  Yeah, it is fun. And this is what I think when we all daydream about what we'll do in retirement. This is that go-go phase. And it's not uncommon, and this is why you have to plan accordingly. This is why the napkin plans don't work is because they just assume you're going to spend the same amount every year, put a little inflation on there, you'll be able to. That's not what we see when we actually do unique retirements for individuals, taking them where they are. Is that you might have when you're healthy and you have all these goals because you want to have purpose. You want to start building those blossoming memories. You might, if you're a golfer, you go play a lot more golf. Not only will you might play a little bit more golf, you might travel to play golf.

• 10:45Speaker 01

  That's right.

• 10:45Brian Preston?

  If you're a travel person, you might say, hey, I've always done trips around the continental. United States, now I want to go international or I want to take family members on cruises and all these things. So it's not uncommon when you're in the go-go, you know, phase of retirement. You might actually spend more than you have in other phases of your financial life.

• 11:05Speaker 01

  So as you're thinking through this, there are some things you should keep in mind, even in terms of how you compartmentalize these stages. You just mentioned this one, Brian. Early on in these go-go years, go ahead and plan for increased spending. It's not uncommon. We'll see clients that say, hey, I want to retire and for the first 10 years of retirement, I want to have a specific travel budget that is this percent. Well, when you put that number in there, your withdrawal rate might not be 4% in the go-go years. It might be 6%, 7%, 8% in those years, depending on your financial plan. So go ahead and know that going into your, into your retirement so that you again, don't have that anxiety and apprehension as you begin spending those dollars.

• 11:44Brian Preston?

  And that leads into, don't feel guilty for spending. One of the greatest things I love doing with clients is we do those, those stress tests or risk analysis every year in retirement. So they can see those years, even though they might've spent more than they thought, they did okay. Because the portfolio was working and doing even better than we projected. And that really takes the load off or the weight off of this guilt that maybe I'm sacrificing something I shouldn't. No, I want you to feel free. That's one of my favorite things about being a financial planner. Everybody thinks that a financial planner is doing that Suzy Orman thing where she's like, no, no, no. It's just the opposite. I'm always like, do more, enjoy more. You can't take it with you.

• 12:26Brian Preston?

  Go and have the freedom to live your best financial life. Lean into that and don't feel guilty about it.

• 12:32Speaker 01

  But it's not no holds barred. It's not an absolute free for all. You do need to have boundaries in place to keep you on track. That's why having a plan is so important. So that you don't lose sight of where the guardrails are. If you're going to have a travel budget and that travel budget's going to be $15,000 a year, that doesn't mean for the first few years, you can magically spend $30,000 if you did not plan for that, did not account for it. Just like early on in your financial journey, you have to budget, figure out where. Where are my dollars going and how am I allocating them well? It might be reasonable to rebudget as you get into retirement so that you can keep yourself in check and not go too wild too soon and get yourself into a precarious situation.

• 13:14Brian Preston?

  So we just covered the go-go years. Those are those early years of retirement where you're just attacking life because you've transitioned to this new thing and it's exciting. Let's talk about now the slow go years. What is that going to look like for a typical retiree?

• 13:27Speaker 01

  Yeah, so we said early on is when you're likely the healthiest in retirement, you likely have the most energy. You have the most vigor to be able to go out and do the things that you want to do. But as we age, that naturally changes. Perhaps our health changes, perhaps our desire to go out and travel and be active changes. So naturally, we're going to begin to slow down. Well, as we slow down, our traveling, our activities, the other things that we may be doing, it's probably going to cause a decrease in our expenses. Now, if it's a health-related reason, then it might cause an increase. You need to have an understanding of how will my expenses change and what will change in terms of the pieces that I'm spending money on in retirement. But in reality,

• 14:08Speaker 01

  as you're into your 70s to 80s, it's probably going to look very different than when you were in your 60s and 70s and you should plan accordingly.

• 14:17Brian Preston?

  So let's talk about this. What to keep in mind, even when you reach the slow to go, is that I want you to keep active.

• 14:23Speaker 01

  That's huge.

• 14:23Brian Preston?

  Health is wealth. You guys know, one of the best pieces of advice I got was from a pastor that I was in a small group with. Years ago, he was like, when you hit that crossroad of your 40s, you get a choice of you either need to stay active or you need to exercise so that you get to still have a healthy, you know, spry body that can do things. I don't think that ever changes. So even when you get into the slow go phases, still keep yourself active. Keep challenging yourself because I think if you will have a purpose and if you keep pushing yourself, you will enjoy a healthier body for longer and health is definitely wealth.

• 14:57Speaker 01

  Another thing to do in this slow go phase is you want to make sure you review your financial plan to ensure that what you're doing still lines up with your goals. Have you looked at your withdrawal rate, your investment allocation? Is your estate planning in place? Make sure that all of those pieces still align with the ultimate direction that you want to be moving. And it's okay, as you review that, to adjust, both up and down. It's not uncommon that we see people who their plan was so conservative and maybe they didn't spend the way they thought or something happened, and they're actually able to increase their spending in the slow-go years. In terms of giving or helping family or providing resources to others, that's okay, so long as it fits into your plan.

• 15:40Speaker 01

  Or the contrary, maybe the go-go years went a little bit more aggressive than you thought, or maybe your health declined more rapidly and you may need to have increased expenditures in the slow-go phase. You don't want to bury your head in the sand and not have an idea of where you are and what direction you're moving into.

• 15:57Brian Preston?

  Yeah, but if you plan accordingly, you focus on your good health. We're counting on more go-go years.

• 16:02Speaker 01

  Amen.

• 16:02Brian Preston?

  But I want to be honest, and as you get into your 80s and 90s, and nobody likes to talk about this, but you do reach no-go years. These are, you know, look, you just don't travel as much. You kind of get to the point where you are still spending time with loved ones and other things, but your goals, maybe you've accomplished a lot of stuff, you've seen a lot of the landmarks of the world, but things do slow down and you need to plan accordingly, even when you reach this phase of life.

• 16:29Speaker 01

  There's even things that happen in the no-go phase. Maybe this is the stage of life where you decide to actually downsize the home. The home that you had been in during your accumulation years, or even your retirement years, is not something you want to keep up with anymore. Maybe you don't want the big yard, maybe you don't want all the upkeep. So you decide to sell and downsize. And again, all of these decisions create an impact on your living expenses. So you want to make sure that even as you think about your plan, when you get into your 50s and 60s, at least part of you is thinking about, what do I really want my 80s and 90s to look like? And how do I even want the no-go phase to look for me?

• 17:04Brian Preston?

  And don't avoid the uncomfortable conversations. I mean, there's nothing wrong, look, declutter your life. Don't leave behind a house full of stuff, that you go, a lot of burdens for people. But also, don't keep secrets on all your financial goings-on. Because what I don't like... I know conversations, we've had a lot of successful people come through our life. We've given advice and I hate it when people just aren't willing to talk about those end of life decisions because let me tell you, if you think it's hard while you're here, think about what's going to happen when your intentions are not expressed and you're just leaving people with this essential life of chaos when you could put add order to this by just,

• 17:46Brian Preston?

  you know, giving a plan, having a good discussion so that nobody has secrets, nobody has doubts, and you get to live your best life while you're here, but also even beyond, and your loved ones will have a warm memory of, man, it sure was nice that mom and dad put the extra effort in to make sure that this was easy for me. And I'm telling you, that is part of that legacy that will pay itself forward.

• 18:09Speaker 01

  All right, Bratz, we've talked about the life stages that you go through in retirement. Let's also talk about now, there's some understanding of the tactical stages of retirement that matter. Because again, just like you go through the go-go and then the slow-go and the no-go, even from a financial impact, from a tactical financial planning standpoint, there are a lot of milestones and a lot of things that you need to be aware of as you move through your retirement.

• 18:33Brian Preston?

  Yeah, this was when we were doing the content meeting on preparing for the show. This is one of my favorite things that we also show clients, is that a lot of key dates, you just need to know, when you reach certain ages, the government through laws and all these institutions that they've set up, they allow opportunities to kind of just show up. Or it's not just opportunities, it's also things, oh, be careful, danger, danger, this could be a trap you could fall into. So we created this timeline slide to show you. The first one to kind of pay attention to here, now, we didn't put it on here because we're assuming you're beyond this. I'm in this phase. Once you hit 50, you get catch-up contributions. That's kind of exciting. But on here, we showed on the timeline, the first

• 19:15Brian Preston?

  one is Rule of 55. If you wanted to be in a retirement and have access to your 401K early, before 59 and 1/2, we have Rule of 55 at age 55. Beyond that, 59 and 1/2, that's when IRAs- IRAs, all those, you know, like retirement accounts that if you want to avoid the early withdrawal penalty, you actually just need to reach 59 and a half. It's nice that you can avoid it. And then age 62, and I feel like this is a little, we'll cover this a little deeper, but I'll just cover it on the timeline. Social Security becomes available, meaning it's an option, but it's an option with a discount essentially. So be careful. 65, this is when you can get off of your traditional health insurance and let the

• 19:58Brian Preston?

  government pick up some of those things you've been paying into with the Medicare, open enrollment and dealing with all that. And then 67 is full retirement age on Social Security. And then this has been changing forever. For me, it was 70 and a half. We talked about required minimum distributions. Now depending upon your date of birth is between 73 and 75 years of age. This is when the government essentially sets up a tax bomb where they said, hey, all those great benefits we gave you for decades of avoiding taxation and having tax deferred growth. Now that bill has come due, get ready to start making mandatory distributions from those tax favored accounts.

• 20:38Speaker 01

  Now, these aren't all the important dates that happen in retirement, but these are some of the pretty common ones. And they actually tend to happen in phases and stages. So let's talk about maybe the first phase, entering into retirement. This is from pre-retirement all the way up until age 59 and a half. If you are in that stage, you're approaching that stage, what are the things you need to be thinking about? Well, the first one is, have you organized your financial life and have you solidified your numbers? Do you know what your number is? Do you have an idea of what your withdrawal rate will be? Do you know where your resources have, are going to come from? If you've not done this work yet, before you get into retirement, before you actually put in that notice, before

• 21:19Speaker 01

  you have the retirement party, you want to make sure that those numbers are solid and you feel comfortable with how they look for the next 30 or maybe even 40 years.

• 21:29Brian Preston?

  Well, I love it because remember, we spend so much time on the show talking about the make wealth phase and we've even created a ton of resources out there. And this is one, even though we're now getting into the maintain and even the multiply. Wealth, it's still, there's some great resources that work in all of these phases. I would encourage you to go to moneyguy.com/resources. And if you've got an old 401k, make sure you go out there and check out what to do. We get actually giving you a decision matrix slide so you can, and resource so you can figure out how you actually make the most out of those old 401ks and know what your options are.

• 22:03Speaker 01

  Yeah, because one of the things that may make sense as you're solidifying your numbers is just to consolidate your accounts rather than having five, six, seven, eight different accounts all over the place, you have a small number of accounts that are easier to manage, easier to keep an eye on, easier to track. Another thing that you can do as you're entering into sort of this pre-retirement, early retirement phase, is you want to make sure you reassess your cash position. While you're accumulating, while you're building up towards financial independence, we want you to have three to six months of living expenses in liquid cash. As you get into retirement, that changes. Instead of only having three to six months of living expenses, we want you to have somewhere between 12, 18, maybe even 24 months of living expenses in liquid cash so that no matter what the financial world throws at you,

• 22:46Speaker 01

  you know you have cash covered to help you weather that storm.

• 22:51Brian Preston?

  Yeah, and that could be selling off assets. It could be funneling in new cash flow options from your portfolio. But we just don't wait until the last minute to figure out your plan for how you're going to build up those cash reserves. Because it's just as we told you, saving is going to feel different when the market crashes in retirement. If we can build any type of margin or cushion in there to help you weather that, you're going to be better for it. And that leads right into, how do you have a bridge account? So those first few years, maybe you retire before you get access to 59 and a half.

• 23:23Speaker 01

  Sure.

• 23:23Brian Preston?

  Or maybe you get to a point where you just aren't going to have access to all the accounts that you thought you would because there's some deadline or something. What is going to be the bridge account that allows you to fund your monthly cash flow?

• 23:36Speaker 01

  And this could look a number of different ways. It might be a regular taxable brokerage account. Your bridge account might be a 457 or it could be a 401k or 403B if you are qualifying for the rule of 55 and even some. Some folks have pensions that are available to you. Again, you want to understand not only how much money do I have for retirement, but where are the dollars in retirement going to come from? And in what order do I want to begin accessing those? So that's kind of like the early retirement, pre-retirement phase. Now, let's talk about as we get into retirement. Let's talk about ages 59 and a half, really to age 64, some of the things that you ought to be thinking about. And one of the big ones, and this is one of the questions that we see most retirees

• 24:20Speaker 01

  having, that's the biggest seemingly unknown and the seemingly worris, what are they going to do for health insurance?

• 24:25Brian Preston?

  Yeah. You need to pay attention to, we call it, bridge health insurance. We all know 65 is a key date for retirement purposes because that's when you qualify for Medicare. And that answers a lot of people's questions. And look, the Affordable Care Act was trying to bridge that, but it still created some unique things. You better do your homework on figuring out where you're going to get that bridge health insurance to cover those years before you qualify for Medicare.

• 24:51Speaker 01

  So for a lot of folks, what you may do is when you leave your employment, you may opt to go on Cobra coverage where you can keep the coverage that you had with your employer for up to 18 months. But if that 18-month window doesn't likely get you to age 65, then you are going to have to find another solution, likely on the healthcare marketplace. So you want to understand, how do I do that? Well, a great thing you can do right now, if you are in or nearing this stage, is go out to the healthcare marketplace website and start checking, okay, if I have this coverage right now through work, if I want the same benefits, so I can see the same doctors and have the same type of coverage, how much would that cost on the marketplace? And have I accounted for that inside of my retirement spending budget?

• 25:31Brian Preston?

  And then here's another tip. Now, I don't know, but I guarantee you, there'll be somebody who watches this show and they're going to turn over a stone and they're going, "Holy cow, if I wouldn't have watched that content, I wouldn't have gotten it." If you worked for a company for a number of years, so much so that you even qualified for a pension, it might even be a small pension, go and do a little additional research to see if there's any retirement health benefits that are also attached to that pension, because you might find out that you actually have more coverage than you realize that could Help answer this question that is so hard for so many retirees out there.

• 26:04Speaker 01

  This is also another time, not only do you have to answer questions like, what am I going to do for insurance, but you also have some pretty exciting opportunities to do things like optimize your tax planning. We've already mentioned, Brian, that when you get to age 73, or maybe 75, depending on your birthday, the government's going to make you start pulling out required minimum distributions from your IRAs and from your 401Ks. Well, with that, you begin to lose control of your tax situation. One of the things you can do from age 59 and a half, out to age 64, is really think about how am I optimizing what I'm doing on my tax return each year? And how am I making decisions today that might have a tax impact

• 26:45Speaker 01

  today for a large tax benefit somewhere down the line in the future?

• 26:50Brian Preston?

  I think a thing I see all the time out there in the public, when you're like in your early 60s, and you're all retired, and you have plenty of money in these retirement accounts, and you're paying for it, I'll just let life happen to me. Because life is good, I have these big 401Ks, I have these big IRAs that have built up from this hard-working career that I had. You're like, I'm just going to let it keep working. What could be bad about letting this build upon itself? And here's the problem. People don't realize, when you get on Medicare, that is impacted by how much your taxable income is. And what do you think is going to happen when you reach 73 to 75, which is the required minimum distribution? The government starts dumping large sums of income, pushing you, running

• 27:32Brian Preston?

  you up through the tax rates into the highest marginal rates. You're going to have a tax bomb. So we're saying, instead of waiting for this bomb to go off, why not do a little planning right now? Look at where you are in this tax rate situation. You might be, because here's the unique thing. I like playing the tax arbitrage game. A lot of you guys were in high tax rate situations when you were in the workforce, but as soon as your earned income falls off, and now you're living off your assets, all of a sudden, you're in these low tax rates. But you're saying, you're just bathing in it, thinking this is the greatest thing ever, not realizing, yes, it's great, but there's a step Further that you ought to do by looking at the tax rates, seeing if you should maximize

• 28:15Brian Preston?

  those low tax rates to turn some of those pre-tax dollars into after-tax or even Roth dollars. So you can really take advantage of some tax planning opportunities for the future. Don't let that tax bomb go off.

• 28:27Speaker 01

  But you also want to make sure you understand the implications of those decisions. We alluded to one of them. If you are someone who is going to be within two years of claiming Medicare, how much income you show at age 63 will affect your Medicare premiums at age 65. And then, once you're on Medicare, your income will affect your premiums every year thereafter. So you want to make sure you are aware of the IRMA, or the Income Related Monthly Adjustment Amount, thresholds, which is a surcharge on your Medicare premiums. If you are doing Roth conversions, or if you are trying to accelerate income with those lower tax brackets, you want to make sure you pay attention to these thresholds because it can have an impact. If you're someone on marketplace coverage, you want to make sure you look at your tax

• 29:11Speaker 01

  return to determine, am I losing subsidies if I accelerate income? Again, this is where it gets a little bit more nuanced, a little bit more customized, and frankly, a little more complicated. So you want to make sure you measure twice, cut once, before you start making some of these decisions.

• 29:25Brian Preston?

  That's a perfect segue into middle retirement. This is those ages between 65 to 72, because this is when the big decision on Social Security kicks in. A lot of people, you've got Medicare, you've got Social Security. I mean, Bo, you were talking about IRMA, you know, talking about the taxability of or what your premiums are going to be for Medicare. There's also taxability of Social Security. There's so many things that kind of roll into this. So you've got to figure out when, what plans are you going to roll in on Medicare? You've got to think about, when are you going to claim Social Security? There's just a lot going on in this phase of life.

• 30:00Speaker 01

  Yeah, so you already alluded to this. When it comes to Social Security, most folks can claim as early as 62 or as late as 70, with most of us having a normal retirement age, a full retirement age of age 67. Well, the way that Social Security benefits work is that if you claim at 67, you get 100% of your prescribed. benefit from the Social Security Administration. But if you decide to draw early at age 62, you actually get penalized. It's not really penalized, but they reduce your benefit amount because you're drawing it for a longer period of time. So if you begin drawing at age 62, rather than pulling 100% of what you were going to get at 67, you only get to pull about 70%. And that percentage increases every year from age 62 all the way to 67.

• 30:45Speaker 01

  Or maybe you're someone who's done a great job saving and you would like to have some longevity insurance and you don't want to begin drawing Social Security at 67 and you decide to wait until age 70. Well, if you wait until age 70, you actually get an 8% simple rate of return every year that you wait out till age 70. So that if you wait all the way till 70, you can have 124% of your full retirement age benefit. As you can imagine, the difference, just using these standard numbers we have on the screen, between $1,200 a month and $2,200 a month for the rest of your life can have a huge impact on your retirement. So you want to make sure you make this decision incredibly wisely.

• 31:24Brian Preston?

  Well, we didn't even cover, this is how this crazy caveat that you can put on social security planning, is that a lot of people, when you reach 62 and you get the option for social security, but if you're still in the workforce, it's a trap.

• 31:37Speaker 01

  It's a trap.

• 31:37Brian Preston?

  Because the government has very low income thresholds, earned income thresholds of what you can make between early social security, all the way up to full retirement social security. Be very careful, all kinds of things. And that's why we're like, once again, this is another opportunity where if we can love our audience and help people know how to navigate this, go to moneyguy.com/resources. We have a brand new deliverable that we're launching to share with everybody. Social Security, When Should I Claim? Go out there and educate yourself so you don't screw this up.

• 32:08Speaker 01

  All right, Brian, now let's talk about the last phase. We're just going to call this Late Retirement. This is age 73 and beyond. This is once required minimum distribution start. As a reminder, required minimum distributions are just a specific amount of money that you must withdraw from tax-deferred accounts. That's 401Ks, 403Bs, traditional

• 32:30Speaker 01

  IRAs, IRA rollovers, every single year, beginning for many people at 73, for some folks it'll be age 75, and you don't have control. It's basically whatever the account value was at the end of last year, times a certain mortality factor, and that's what you have to begin withdrawing, and you don't get to choose whether you do it or not.

• 32:50Brian Preston?

  Well, now, look, this, like I said, for decades, for as long as I've been, I'm in my, what, 30 plus, I mean, I'm getting in my third decade of doing this. 70 and a half was the number forever. And then now, with recent tax legislation that's happened over the last, you know, 10 years or so, you can see now RMD ages, required minimum distributions, keep shifting. Now it's based upon your birth year. You can see from 1951 through 1959, 73 years of age is your RMD age. 1960 or later, 75 years of age. So you can see there is some planning opportunities, and don't sleep on this. This is a big one. I keep calling it a tax bomb on purpose, is because we've got to figure out, how do you mitigate RMDs?

• 33:34Brian Preston?

  Because what they do is they take away your control. So many other things. I want you to be an active participant in your financial life to try to maximize every dollar in your army of dollar bills. You don't want to just sleep on this, and then wake up one day and realize, holy cow, all that great work I did on building up these tax-deferred accounts is now a trap for me, just because I slept on it, I didn't take it, you know, these guys kept telling me, I need to plan, I need to plan, but I didn't want to hire a financial planner. Why would I hire a financial planner when I have all these assets? You're going to see, you are choosing to increase your tax bill in a material fashion by sleeping on this. So we want to help you. How do you mitigate these risks?

• 34:16Speaker 01

  Yeah, so obviously, you have to take your RMDs, but there are things you can do to try to reduce them. Here's one that's pretty simple. You can prioritize pre-tax withdrawals early on. There's nothing that says you have to wait all the way until age 75 to begin drawing on your pre-tax accounts. It may make sense, in your early years of retirement, to pull enough out of your... 401Ks, IRAs, pre-tax accounts, just to max out the lower tax brackets. Maybe you want to max out the 12% or maybe the 22% tax bracket from those accounts. And the rest of your living expenses can come from your after-tax account or Roth IRAs by accelerating yourself in those lower tax brackets to prevent yourselves from being bumped up into higher tax brackets later on.

• 34:57Brian Preston?

  And also, don't forget, we just talked about the federal marginal rates, the 12%, the 22%. There's a lot of states that give you huge benefits on your retirement distributions. Don't sleep on that either because a lot of this could really get ugly if you just wait until you reach required minimum distribution. And then, don't forget, Roth dollars. There's a lot of times, if you don't need this money, maybe it went, and we talked about it could turn into after-tax dollars. You take it and just put it into after-tax, but maybe you could do Roth conversions. You're like, "Well, why would I want to do Roth conversion?" Remember, tax-free growth. Tax-free growth, even when you pass away, your beneficiaries will have 10 years to distribute these assets. Imagine, from a legacy standpoint or estate planning, if you give your beneficiaries

• 35:41Brian Preston?

  something that would have been taxable when it's pre-tax to now it's tax-free, and not only tax-free, but it's compounding for 10 years after your death, this is an incredible opportunity for the future.

• 35:52Speaker 01

  And then, for those of you that are charitably minded, one of the beautiful things you can do with required distributions is you can actually do what are called qualified charitable distributions, where if you have an RMD, let's say it was $10,000 of an RMD that you had to receive, rather than you receiving that directly, you could choose to have $10,000 of it, or $5,000 of it, or $1,000 of it go to a qualified charity, and that income never actually hits your tax return. You get to give it away completely tax-free without recognizing the income. So this will help you stay below IRMA thresholds, maybe prevent your social security from being taxed at higher levels. So if you are donating to charity or charitably minded, QCDs are a great tool to use in the late retirement phase.

• 36:35Brian Preston?

  Yeah, a lot of people, I think they look at this and go, "Why would I do this? I don't actually get a deduction on my tax return when I do it." Here's, what's great is, now that the standard deductions are so high, most of you in retirement are not going to be itemizing anyway. You have a paid for house, even if you're charitably minded, you're not going to reach the threshold. But what's great about these is even though you're not getting a deduction on the tax return, because you didn't have to recognize the income, it's going to help you. Those IRMA, Medicaid, Medicare premiums, they're going to potentially be lower because of this. Taxability or social security potentially going to be lower because of this. This really helps out even in a kind of phantom or understated way that a lot of people don't realize.

• 37:15Speaker 01

  And then let's talk about, Brian, this is the fourth tip to having a perfect retirement for you. How do you begin to create identity and purpose? How do you begin to understand what are the things that are going to make retirement fulfilling? Now, there's been tons of research done on this, tons of books written on this. And what we have found, what we have surmised from our analysis, there are sort of four key areas that if you can focus on these areas in this phase of life, you're going to have a higher likelihood of having a fulfilling and successful retirement. The first, Brian, is relationships.

• 37:51Brian Preston?

  Yeah, I want you to, there's a lot of research out there and I loved how this, this data, it's right around, you need to have four close friends. And you know, and that's why I would love for you to be intentional about how you're going to, to transition into retirement, because instead of getting away from something, I want you going to something that you're looking forward to, so that way it's more purposeful. And that leads to, and I don't think this is by coincidence, we say four relationships is important. How about how many hobbies and what are you doing to create even more purpose in your life? A lot of the research also shows that should be right around four things that you're really waking up in the morning excited to do. Focus on knowing what those hobbies to give you purpose are in retirement.

• 38:33Speaker 01

  Yeah, you're going to have a lot more time in your day and you want to make sure you fill it with meaningful stuff that gives you the motivation to actually move towards a common goal, whether it's volunteering, spending time with family, pursuing a new hobby, or just having new experiences. If you can wake up with something every morning that gets you out of bed again, you're much more likely to have a successful and happy retirement. The other thing, Brian, that, I'm sorry, the third key area that, that the research found that happy retirees say they have is a sense of identity.

• 39:07Brian Preston?

  Yeah, I mean, I think it's not uncommon while we're building our, our assets on that make wealth phase, even into the maintaining. You know, so many of us love sharing what we do for a living. You build an identity into it. We've even had early retirees that come up with essentially fibs, white lies.

• 39:25Speaker 01

  They're embarrassed.

• 39:26Brian Preston?

  Because they're embarrassed to tell people, no, I'm retired in my 50s, or you know, why am I in Target on a Tuesday afternoon? So they come up with like an alter ego or alter story that they're telling people. You need to kind of know what you are in retirement, because I do think this is something, when you're figuring out how you have happiness in retirement, make sure that you're just not so tied up into your career that you lose purpose, you lose identity. You need to plan accordingly, so you don't fall into that trap.

• 39:54Speaker 01

  And then the happiest retirees tend to be the healthiest retirees. A lot of retirees found that if they could do low-cost exercise, like walking, swimming, biking, hiking, volunteering, remaining active, it not only allowed their bodies to stay healthy, but it also helped with the other three areas. It helped them build relationships and spend time with people that mattered. It helped them do purposeful work, that they got motivated around it. It helped define their identity. So if you can prioritize your health, not just once you get sick, but before your health starts to wane, there's a really good chance you'll have a more fulfilling retirement.

• 40:31Brian Preston?

  Well, I feel like society does something really bad. They think as you get older, you should just accept that you're gonna wake up with more aches and pains, and that this is just the way the course of life is. I don't want to minimize that, yes, you're going to have injuries, you're going to have struggles, but if you can take an active role and actually have that fork in the mode, that fork in the road moment, or incremental decision moment, where you choose to be more active, to focus on health is wealth. You know, there is a reason so many of these books out there right now are helping people to be proactive. Just don't accept your fate. Don't accept that you, your parents might have died young, or you have all these health issues with your family history. Be proactive. Watch how you eat, learn, educate yourself. Watch how you exercise.

• 41:16Brian Preston?

  You can, just like your discipline is rewarded financially, your discipline can also be rewarded for you on the health side of things. Don't Skip Leg Day.

• 41:26Speaker 01

  You have worked so hard to build towards financial independence to get to retirement. We want you to be able to enjoy the fruits of that labor. We want you to be able to enjoy all of your hard work up to this point. The common thread across all of these four tips was having a plan in place. Do I have a plan for how I'm going to spend my time? Do I have a plan for how my money's going to work? Do I have a plan for how I'm going to define myself and find my identity? If I can plan those things out before I get to retirement, there's a really good chance I'm going to be able to navigate retirement and live a more abundant life.

• 41:59Brian Preston?

  You said thread, and I was in there, as you said thread, I was like, this is the abundance cycle. We really do want you to come, absorb this, learn, apply, grow it. But you are going to get to a point, that complexity is just going to come, club you over the head. We covered a lot of it today, and not everybody. We're all, we all have different fingerprints. We have, you know, snowflakes are all unique. Your retirement is going to be completely unique. That is the personal and personal finance. Don't do this alone. Don't just be stuck in that I want to save a few bucks, I don't want to hire a financial planner and miss out on some tremendous planning opportunities. If I could help you do this for free, we would. That's what we've done with the abundance cycle. But there does come a point where you need to personalize the finance, and that's where

• 42:40Brian Preston?

  we're hoping you remember who planted the seeds, who helped you, who got you there. The abundance cycle is fulfilled. You can take the relationship to the next level. I'm your host, Brian Preston, Mr. Bo Hanson, Money Guy team, out.

• 42:55Speaker 02

  The Money Guy Show is hosted by Brian Preston. Abound Wealth Management is a registered investment advisory firm regulated by the Securities and Exchange Commission in accordance and compliance with the securities laws and regulations. Abound Wealth Management does not render or offer to render personalized investment or tax advice through the Money Guy Show. The information provided is for informational purposes only and does not constitute financial, tax, investment, or legal advice.