2023 Edition: 10 Point Checklist For Retirement Preparedness

Plan With The Tax Man

Another year is upon us and it’s a great time to ask yourself 10 questions to assess how ready you are for retirement to kick off 2023. If you’re retiring this year, it’s essential to have some concrete answers to these questions. If you’re still a few years from the milestone, tune in so you can start thinking about these critical conversations.

Important Links

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Transcript Of Today's Show:

Speaker 1: Hey everybody, welcome into another edition of the podcast, it's Plan With the Tax Man time with Tony Morrow and myself here to talk about a 10 point checklist for retirement preparedness, a 2023 edition, if you will, so going to get started. Another year is upon us, so it's a great time to ask ourselves these questions and assess how ready we are as we are rolling into the new year. We're about halfway through the month already, which is crazy fast, and so we're going to bring Tony in and get this thing started. Tony, what's going on buddy? How are you?

Tony Mauro: I'm doing fantastic. Just off the holidays as everybody is and trying to get back into the swing of things and it's going to be tax season before we know it as we record this.

Speaker 1: Right, yeah, exactly. I know we're already halfway through the month as I said, it's like, what in the world?

Tony Mauro: Yeah, it goes quick.

Speaker 1: You and I were just chatting that the holiday break did not seem like it was that long of a break. It was just quick, so lots of things going on and I guess it's just our fast paced world, I guess.

Tony Mauro: Yeah, it really is.

Speaker 1: Next thing you know, something new is going on, but we got 10 on here, Tony, so let's go ahead and start diving in, check to see if we can get these checked off, so we don't go too long with this podcast and talk about some of these. Most of these are pretty major indicators that you need to have on your strategy or plan, and I think that's going to be the overarching theme is, having a plan's going to help you get prepared for these things that are coming fast and furious. Number one, do you know exactly how much income you need every month in retirement? And I think there's two ways of looking at this for things, Tony. When they're coming to see a financial professional like yourself, if they're really anxious to get to retirement sooner than later, they maybe low ball this number because they want to make the math work, so that you'll say good things, "Yeah. You guys can retire." And when you do that, you really hurt yourself in case you're not being accurate or you truly just look at the big ticket items, mortgage, cars, utilities, and you don't truly realize how much... This is a nickel and dime world. We all spend money a lot more than we realize. Do you know how much income you're going to have? Probably not. You're probably wrong. What do you think?

Tony Mauro: Yeah, in general it is, and the whole reason that I even wanted to talk about this topic, this month is, starting a new year. I'm getting a lot of course, and I always do, especially tax clients, whether they're close to retirement or not, start asking some of these questions. Then, when you get in your fifties, you really start asking this.

Speaker 1: For sure. Yeah.

Tony Mauro: I think that most tend to focus on the nest egg and not how much that nest egg may or may not throw off every month and then they have no idea what their bills really are every month. And that's lack of really just trying to, paying attention as to, like you said, all the little nickel and dime stuff we all spend money on throughout the month. If you don't really have a good idea and they're tracking that, you probably should start because I generally like to start with people as to this question, how much are you going to need a month? Rather than, well, you have 500,000 or 700,000, to make this work. We got to start at the end and then work backwards to see if the numbers support that. And I think most planners are going to do this-

Speaker 1: I think that's a good point. I was just having this chat the other day with somebody. It's an interesting point, back in let's say the '50s or even the early '60s when most people had a pension, they weren't focused on a total asset number, it was about the income because you had a pension, you had Social Security, and so if you had a modest savings and somewhere along the way, probably the '80s, we started shifting gears from how much income it is, to how much is our nest egg worth.

Tony Mauro: Yeah, and I think a lot of that's because a lot of these pensions have gone by the wayside-

Speaker 1: Yeah, for sure.

Tony Mauro: ... because they're just too expensive-

Speaker 1: And the greed I think. Well, everybody wants to say, "Now, well, I'm a millionaire," because it sounds awesome and I agree and it doesn't take as much as we thought it used to, to be a millionaire. As a matter of fact, we're going to have fun on our next podcast about which dates a million dollars will go the farthest in, so check out that one as we come out. But I think that's what happens and we singularly focus on something, this big ticket number versus what do we need to just make this thing work, so we can be happy in retirement?

Tony Mauro: Yeah and I think sometimes when you sit people down and we say, "Okay, your nest egg is X, let's sit down and go through this," and they're just floored about, "Well, wow, that money, if I want to plan to leave some or all of it to somebody else or if I'm even spending the principle, then it's a crapshoot of when I'm going to die and hopefully I have enough left." So a lot of variables in that.

Speaker 1: Yep.

Tony Mauro: You got to ask the question right off the bat.

Speaker 1: Yeah, you got to focus that income down and you got to get the number by going through that process because again, most of us tend to low ball that figure and then that can bite us in the tush later on in retirement. All right, number two. You've got the collection of stuff, you've got the accounts. Which one do you pull from first and how much? So, that's number two on the checklist.

Tony Mauro: Yeah. And this makes a big difference tax wise because most of us have taxable accounts and then most of us have, if you've got 401ks and then you've even got Roth's and things like that, is the tax man is there with their handout saying, give me some tax. And you've got to decide and plan what's the most efficient way to take this out without increasing the tax bill. Because again, that cuts into the money that's available for you to go out and have fun with. And I think a lot of people don't give this much thought. They just say, "Well, I'll take out of my taxable one first and save the other for later." And then here come the RMDs when you get a little older and all kinds of things that could hit you if you're not at least talking about deciding which is the best and the least tax invasive I should say.

Speaker 1: Yeah, for sure. And so it is important to figure out which accounts to pull from and when and where because it's going to affect. And these first three really do play all in together, really, they all play together. But number three is Social Security. When do you take it? Well, that's going to maybe depend on how much income you need and which accounts you have and where you're pulling from. It all plays together because maybe it makes sense to delay Social Security and tap into your own buckets or maybe it makes more sense to take Social Security and delay your buckets, everybody's different.

Tony Mauro: Everybody's different. And you know what? I got to say too, people who listen to the podcast probably say, "He never really gives me any straight answers. He always just gives me a lot of options," but it's hard to give a straight answer because this like the other ones, is the same thing. I do a whole webinar on this, taking Social Security and it's about an hour long that I tend to get people on to really go in depth with this because there is some technical things to this, but in the big picture, if you've got money coming in from other sources are still working, it may behoove you to delay taking it, because the monthly benefit does go up. And if you calculate that out as a return, it's not a bad return. But a lot of it depends on longevity in your family, other income sources, just a lot of variables like you said. It's worth, again, spending time there as well. All of these is worth spending time on, but these first three especially.

Speaker 1: Well, and number four is the great multiplier to everything else that's on the list as well. And that's longevity, because unfortunately, it is what it is. Look at inflation right now, we've been dealing with this for the last half year or more, and the longer you live, the more everything gets compounded. And I realize we don't know exactly how long we're going to live, so that's why you've got to stress test your strategy and your plan to go, "Okay, well what if I'm 75? What if I'm 85?" So on and so forth.

Tony Mauro: Yeah. And fortunately now, most planning software has the modeling in it that can do a lot of these calculations extremely quickly to do worst case based on where you're at now and how much you're taking out to give you percentages of, "Well, if I do it this way, I've got an 80% or 90% chance of never outliving my money." And to you, that might make a lot of sense. Well, that covers a lot of scenarios, but if you run some scenarios and it only says 60 or 70% chance of never running out of money, well now it's a little more, well, I may need to adjust some things, but longevity is an important factor. I know with my own father whose now 81, he's concerned about, he's got plenty of money, but I always have to reassure him that his sustainable withdrawal rate, which he's taking, he's never going to run out of money and he could live to be 100 and he'll be totally fine, but a lot of people aren't thinking about this again in the plan. And you sure certainly hate to run out of money and only depend on Social Security for the last part of your life, at least in my opinion.

Speaker 1: Right. Ideally, that's not the situation we want to end up with, so you need to strategize so that you know how to handle that. And longevity, if we all came with an expiration date, it'd be super easy, but we don't.

Tony Mauro: Yeah, it would be super easy. Yeah, absolutely.

Speaker 1: Number five, market volatility. Look, are you prepared for it? Many people found out last year or got reminded, whoops, this happens, it goes both ways.

Tony Mauro: It does go both ways. And I was just on a call today with a wealth client, she's 76 and she's invested pretty conservatively with dividend paying things. But the son was on there with telling me, "Well, maybe we should look at something a little more growth oriented because the market is down." And I said, "Your mom's 76, she needs this money for retirement. The volatility, she may not be prepared for that." And of course she's immediately spoke up, "No, I don't want to do any of that." But I think that people tend to, especially of course the sons and younger people, "Well, let's go ahead and invest a little bit more aggressively," but we're talking more retiree end here, which you do have to pay attention to that, because even dividend paying stocks took a hit last year.

Speaker 1: Right. And of course, bonds didn't do well. Volatility, and as a retiree, you can't just throw volatility to the wind, right, Tony? I mean, you can't go, well, now that I'm 70, I never want to experience volatility again. Unfortunately, that's just not realistic either.

Tony Mauro: I don't think that's realistic in today's market because the next one I know we're talking about here is inflation, because that creeps into this because if inflation, and of course it's high now, we might as well just get into it is, inflation eats away at your purchasing power and you never really think about it as a younger person. But as you get older, you start seeing about, I remember the day when this cost only this, and you can see it. And if you're sitting there-

Speaker 1: We all love to do that little, "Oh God, I remember when a Snickers bar was this," or whatever, as we age. But at the same time, regular inflation, we also typically ignore it, even as we do age. This crazy inflation we've had for the last six, nine months, has certainly reminded everybody as well. It's like, "Oh..."

Tony Mauro: Yeah.

Speaker 1: This isn't cool.

Tony Mauro: No, if you don't have enough to outpace inflation on your earnings, that is, you're going backwards and over the course of 20, 25 years, and I always tell tax clients when they complain about taxes and we're in a historically low tax rate, but nothing generally goes down, that I see. If you're going to be in around in retirement for 20, 25 years, you got to think that things are going to cost more, especially health insurance and stuff like that. I think inflation needs to be a big part of the plan.

Speaker 1: It's got to be, and it's going to continue to be there as well, even in normal numbers. You've got to have some exposure to the market or some sort of a growth vehicle, if it's not the market, it's got to be something, that maybe is linked to the market, tied to the market, whatever the case is. You've got to have some growth in your accounts and you've got to have some safety, some liquidity, all these different pieces we need, that make up the retirement puzzle. And number seven is tax increases. Tony, as a tax professional, that's a big part of what you do as well. It doesn't matter what rules they put in place, yes, that affects everything. But you're still going to have to deal with taxes. And there's a good shot that we're going to go up. Even if they do nothing else, they are going to go up. In '26, they return back to the old prior administration.

Tony Mauro: Prior administration, yeah. And I've been preaching for a good 25 years that we're in a historically low tax rate compared to the '60s.

Speaker 1: So take advantage while you can.

Tony Mauro: Yeah. And of course I've been wrong, because I keep saying, "They got to go up," and I have been wrong. But what they do, the politicians are crafty, they engineer, and that's probably not the right thing to say, but they engineer tax increases, so the public doesn't figure them out because it's suicidal to come out and say, "Well, I'm just raising taxes." They'll cut this itemized deduction or put limits on this. And in effect, that's a tax hike. It affects certain people, people don't really realize it because it's buried in their tax return and they're out of sight out of mind. But tax increases, we see it every day, they can hardly fund the government, not even getting into where they spend it all, but it's going to be something that's always there and they tend to creep up over time, whether it's the federal level or the state level. And so I think that's got to be a part of the plan too.

Speaker 1: Yeah, and like I said, in '26, they're going back up to the Obama administration tax code, if they do nothing else. And I agree with you, sometimes you say, "They got to go up," and they do something, but I think we can all pretty much agree that in some form or fashion, which is why the Secure Act, passing, Secure Act 2.0 that just passed at the very, very end of '22, there's some things in there, there's a lot of helpfulness I think for getting prepared for retirement, which is great, but I think the message in that, Tony, and we'll probably do a podcast here probably very soon in the next couple of weeks on the Secure Act 2.0 and some of the changes, but I think the message in that was resoundingly, here's some more tools to get prepared for retirement. You better do it. You know what I mean? Because we're telling you ahead of time, this is going to get tougher, start strategizing and start doing some things. Here's some more tools to help you save for your own retirement because we're not going to be be able to help as much or something. It just seems like the focus is there to tell the American people, start taking this on, your responsibility for yourself because that's where it's going.

Tony Mauro: That's right on. And that was my take from it too, because we all know that I think in the year 2035 that the Social Security fund, it's not going to be totally broke, but they're going to be paying out well more, than they're taking in. They're going to have to try to fix it. I think this is Congress's message saying, "Guys, you're America, you need to start saving more. We're going to help you by trying to change some limits and whatnot because-"

Speaker 1: As we creep up to that number, yeah, to 2034. '25, '35.

Tony Mauro: I agree with that totally, that that's a hidden message.

Speaker 1: And some of the stuff in the Secure Act 2.0, Tony, I think also could pave the way for changes to Social Security. Somebody has to be the, I don't know, the bearer of the bad news or that stands up and says, "Okay, here's what we're going to do. It's political suicide. They're going to kick that can as much as they can.

Tony Mauro: Yeah, absolutely.

Speaker 1: But at some point, they will have to make some changes to Social Security. This could just be another stage of that and again, we'll do an episode coming up pretty soon on some of the breakdowns and some of the different things and how they might affect you. But for now, let's keep going. Number seven was, again, tax increases, future tax increases. You got to be able to retire in whatever economy, whether taxes are high or low or the market's high or low, so that's what a strategy is there to help you do. You also need to address healthcare costs on this 10 point checklist, this is number eight. Again, it's crazy expensive as well, but you got to do something, the longer you put it off, the more expensive it gets.

Tony Mauro: You do. And it's eight in the list, but it's as important as any of them because this is the one that goes up probably the most in your retirement days is this. And I don't see any end in sight for these things going down. And so you definitely, it's going to be part of how much you need every month. This is going to be a big part of it, and I don't think this should be ignored. And you certainly can't afford to go without, so you got to have something and Medicare provides a lot, but you are paying for it out of Social Security, they would withdraw that benefit or that premium, I should say, out of your Social Security. But there's gaps and you're going to need other things, that's not a catchall.

Speaker 1: Yeah, no, that's true. And you've got to look at different ways to fund it. Look at different concepts, not just any one particular thing. There's multiple ways to deal with it, but you've got to deal with it, that's the biggest thing is, you can't just keep avoiding it. Number nine, legacy plan. Have you got it nailed down? Do you have one? Do you want one? If you don't, the state will probably do it for you, and that may not be the best one for your heirs. And I get this, some people want to leave virtually nothing, and that's fine. Some people want to leave a ton and some want to leave something in the middle. But either way, address it, get a plan put, it's pretty easy to do.

Tony Mauro: It is easy to do. It just takes some time. And a little bit of advice from, well, the planner, possibly an attorney, just to make sure that even if you are willing or want to spend down everything or close to, you've got a plan at least, hopefully if you've got relatives to handle things when you're gone and make it a little easier for them. But if you are planning to leave some things depending on the size of your estate and whatnot, you want to make sure that that is nailed down. You don't want the state deciding that for you. And it could be as simple as just, I've got a good will and I've went over it and I keep it updated. And two more elaborate things like I want to trust for my son until a certain age or whatever the case may be. But I think this should not be overlooked, for sure. Should definitely be discussed with your planner.

Speaker 1: I agree. Number 10, we have multiple things we could go with. I think I'm going to go in the direction of this one, with this podcast, Tony, it's what do you want to do with your time in retirement? Everything else we did was about the X's and the O's. Number 10 on this retirement checklist for the new year could be, if retirement's coming up within the next year or so, have you sat down and really thought about how you want to spend it? If nothing else, many people, you can attest to this because obviously you do this for day in and day out. A lot of folks really struggle with, "Wow, I don't know what to do with myself. I can't party every day." Whether that retirement party is travel or taking the grandkids someplace fun or whatever the case is, you can't do it every day. You can't golf every single... You might for the first year or two.

Tony Mauro: Yeah. I agree. And when we sit people down and just say, "All right, let's just spend 15 minutes deciding what's going to fill up your day, each day and every day?" And I use myself an example, I like to golf. I said, "Even if I golf every day, okay, that's done by 10, 11 o'clock. Take yourself through a day. Now what? Okay, I go maybe do a little exercising. I'm done by one. Now what?" and all the way through. And then you're not going to do all that every day.

Speaker 1: No, exactly not.

Tony Mauro: I do think it makes some sense to try to figure out maybe what kind of purpose you might want to have, maybe it's getting a little part-time job, maybe it's volunteering, spending time with family. I do think you need to come up with a plan, that's something totally unrelated to money for the most part. But it's something to think about that you want to have some structure and some purpose still in life.

Speaker 1: And it adds some fun back into this checklist because some people may look at the checklist and go, "Ah, I don't want to figure out taxes. I don't want..."

Tony Mauro: That's a lot of work.

Speaker 1: Right and it's like, "But this is the point of it. This is the reason the other nine exists, is to help you enjoy number 10."

Tony Mauro: That's right, because by the end, this is the whole reason for all of this work, is to find something fun to do that maybe you've put off or just spend the last days of your life doing. To me, that's what this whole planning is for, because otherwise, you don't really need any of this, assuming you can pay your bills.

Speaker 1: Yeah, exactly. That's our 10 point checklist there. Anything on there that you need some help with or strike your fancy or hits a cord, whatever the case might be, definitely reach out and talk with your financial professional. If you don't have one, of course, Tony is here to help you. You may already be working with him or you may not be, but either way, you can reach out to him for a conversation at yourplanningpros.com. That is yourplanningpros.com. Tony is a COA, a CFP, and an EA with 27 years of experience in the industry, so a great resource for you to tap into. They are Des Moines Professional Alternative at Tax, Dr. Inc. And again, you can find them online at yourplanningpros.com. Don't forget to subscribe to us on Apple, Google, Spotify, all that good stuff. And thanks for hanging out with us here on Plan With the Tax Man. Tony, have yourself a great week. I'll talk to you soon.

Tony Mauro: All right, take care.

Speaker 1: We appreciate your time as always on the podcast, don't forget to hit that subscribe button on Apple, Google, Spotify or whatever platform you like to use, and we'll catch you next time here on Plan With the Tax Man.

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