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If You Want to Retire in 2025, Do These 5 Things First · Retirement Answers

• 0:01
  Jacob: The reason we wanna save taxes by doing these different strategies is so that you have more money to go deploy on the things that you value, things that are important to you, be able to pay for the family vacation, be able to give more to the church or the charity or whatever it might be that you value. That's what we wanna do all this financial planning for. Welcome to Retirement Answers, a podcast built to answer your most pressing retirement questions. If you're someone who's either thinking about retirement or already in retirement, well, you're in the right place. Hey there, my name is Jacob Duke, and each week I'll be walking through different tips and strategies to help you succeed in retirement.
• 0:38
  So let's go ahead and get started with today's show. Hey, friends, and welcome back to another episode of Retirement Answers, the very first episode of 2025. And I'm excited. It's gonna be a great year. I hope you're excited about it as well.
• 0:54
  Lots of great things to come. Obviously, lots to plan for, but I'm excited. I'm excited. It's gonna be a wonderful year. Lots of great content is gonna keep happening here on the podcast as well as over on YouTube.
• 1:04
  So if you're not a subscriber there on YouTube, I share more information or perhaps, I guess, more detailed information that's easier to look at visually there, through video format. If you want, you can go check that out. It's also Retirement Answers there as well. So today I wanted to talk a little bit about what you should do before you retire. So if you're someone who's thinking, hey, I want to retire maybe in 2025 or maybe you're a couple years out, this is still a good episode for you because I want to share some things that you need to do beforehand to make sure that retirement goes as smoothly or successfully as possible for you.
• 1:34
  So I'm going to share with you five things that you should do before you retire, and I'm actually going to give you a bonus tip there at the end that might end up being the most valuable of them all. So let's go ahead and jump in. The first thing that you need to do as you prep for retirement is get an accurate pulse on your spending by doing a spending audit. You've gotta know how much money you spend on a monthly basis. And this is one of the most misunderstood things that I see people that I work with all the time.
• 1:59
  Come in and one of my first questions is going to be, well, how much do you spend every month? And the answer is as well, I'm not really sure, but I think it's about X amount, whether it be 5,000 or 10,000. And the problem is, is as we go through life, we end up, I guess losing track of a budget or not necessarily needing a budget anymore because we've accumulated, you know, some sort of wealth or our income is much more than we might need to spend on a monthly basis. But what happens is is we kind of fall into what we call lifestyle creep, meaning as your income increases, you typically find a way to spend that money rather than save it. And so you don't really have a good pulse on how much you spend monthly.
• 2:32
  Some people I've found think they spend only $5,000 a month, and in fact, they spent double that. So they spend $10,000 a month. And so the big question in their mind is, well, where is all this extra going? I don't really feel like I'm spending that much more, but where is it all going? So you have to kinda go through all the weeds and all through all the numbers and figure out, hey, we're actually spending a lot of extra money in these few areas and there are things that we don't necessarily need.
• 2:53
  We just find a way to spend that somehow. We end up just swiping the card a few extra times in these different things or going on that extra, you know, weekend vacation or trip, and we didn't really plan that out. So the first thing you gotta do is figure out how much actually spending on a monthly basis, not what you think you're spending, because most of the time you're probably gonna be spending more than you otherwise thought. So how do I recommend doing this? Well, what I would say is just go back over the last twelve months, so the last twelve month timeframe.
• 3:17
  Okay. And you could just say, hey, what did I spend every single month for twelve months? And I mean, everything in there, whether it be a mortgage, whether it be a car payment, debt payments, whether it be just, you know, going out with friends or, you know, taking a vacation with a family, all the different one offs, whether be a, you know, an AC repair that had to be done or refrigerator went out or a washer or dryer that you had to replace, all those things that you're like, ah, that's not really a monthly expense. It just kind of happened this time. Leave all of those things in there.
• 3:45
  What I want to do is I wanna get an average monthly spending over the course of that full twelve months, so one year. I want you to know what that amount is, including all the one offs because what I found is that, yes, the dryer going out is kind of a one off, it doesn't happen every month or even every year. But what I found is even though, you know, you have that random one off this month, you've got a different one next month, and then a different one next month. So leave all of the one offs in there because you're always having a one off expense, they're just different things that kind of pop up throughout life. So leave them all in there, and then find the average monthly spending over that twelve month period, and that's how much you spent last year.
• 4:20
  And again, you probably are gonna find that you spent more than you really thought you did. So that's the first thing is audit your spending looking backwards. Now, another thing that you can do in addition to this is really track your spending moving forward over the next twelve months. So if you're more than twelve months away from retirement, maybe you're not retiring in '25, maybe '26 or '27 or within the next five years, start tracking your spending on a monthly basis, see how much you're actually spending on non essential things, and then also how much you're spending on essential things, whether that be a mortgage or utilities or random things that just you have to spend every month. There's a there's a minimum food budget you probably have or a minimum gas budget that you probably have for your car.
• 4:57
  All those things are minimums. Find out what your base spending is over the next twelve months and kinda get that average, but then also figure out how much you are actually spending in total every month. And the difference between your base spending and your total spending is your discretionary spending or your fund money, if you will, and that's how much you kinda have to work with or maybe change a little bit. Maybe you can cut back in some different areas in that particular section of your budget or your overall monthly spending. So the first thing you gotta do in order to have a successful retirement is really know how much you spend because everything comes back to how much you spend on a monthly basis.
• 5:29
  You can't project whether or not your money will outlive you if you don't know how much you spend, and the biggest problem is whenever you underestimate how much you spend, okay, and then you project your retirement forward based on that spending amount, obviously, you might adjust it for inflation, but if you do it based on the wrong number, you could be in for a world of hurt in the future if you spend way more than you actually thought you did. So that's the first thing, you gotta know what you spend. So check back over the last twelve months, see what you've done, and then keep track of it moving forward over the next twelve months, and that's gonna give you a really good average to kinda go on, and then that's gonna be probably your true spending number, and then you need to base your, you know, retirement projections and spending estimates on that number. The second thing you've got to do as you prep for retirement is going to be take inventory of your assets. Now, what do you mean by this?
• 6:16
  Well, I would say take inventory of all of your assets. That means your house, how much your house is worth in current dollars, how much you could sell it for today in the open market, whether you have, you know, other real estate assets, maybe property or land or something that you've got that you own, whether you have a mortgage on it or not. I wanna know how much it's worth. Also wanna know how much your cars are worth. Obviously, you have expensive cars, then you could liquidate that if you wanted to or had to.
• 6:38
  There's some value there, even though they are depreciating assets. They're called an asset. They're not really, valuable, in my opinion. They don't really do much for you other than lose value over time. So anything that that has value, whether you own a business or just own random equipment perhaps, take inventory of your illiquid assets, everything that's not in your, you know, investment accounts.
• 6:59
  And I want you to kinda look at all of your investment accounts, and what I've found here is that most people lose track of all the different accounts they might have. They might have an old 401Ks here, an old 401Ks there, and nothing's been done with those, and they now have a current four zero one ks with their current employer. So you've got three different four zero one ks's and only one of them is active. Well, it might be time to clean that up and kind of get all those consolidated in some fashion to where it makes it easier on you to really know how much you have and where all of your money is. So that's the next thing, take inventory of all your different accounts, you know, whether you have Roth IRAs or traditional IRAs and 401Ks or TSPs or 403Bs, brokerage accounts, whether those are jointly titled brokerage accounts or individually owned brokerage accounts.
• 7:36
  I want you to kind of write down a list of all those things, that way you know where your money is and which custodian they're with, whether it be at Schwab or Fidelity or wherever. You've got different custodians probably as well. Also, take note of all your different bank accounts. Maybe you have just one checking and one savings, or maybe you have three checkings and five savings. I don't know.
• 7:53
  But really take account of all of it. You know, write down your inventory of all your different assets and also do this for your debts as well. Maybe you have mortgages, car payments, just kind of make a quick little balance sheet for yourself. That way, you know where everything is and you can start to break this down and understand how much money you have based on the different tax types of the account or tax statuses of the account. You know, the the tax status of the account is important to know as we start to plan for retirement and kind of project things forward and look at what your your total income tax liability might be in the future based on your distributions.
• 8:24
  But until you have an inventory of all your different assets, you get that written down on a balance sheet, you can't really start, you know, doing a true retirement plan until you got a good understanding or idea around the number of accounts you have and where they all are. One of the big problems most people run into at a later stage in life, as you're in your 50s or older, is gonna be the fact that you have just so many different accounts. There's little simplicity, it's very confusing, there's little continuity, and so what I've found is that just simplicity is the way to go. Keep things really simple, in fact, Da Vinci, I've quoted this before, but Da Vinci, you know, has a famous quote, Simplicity is the ultimate sophistication. I'm a fan of simplicity because until we keep things simple enough to understand and digest in a very short amount of time, it's really hard to take action on it because you're so confused.
• 9:09
  So, you know, eliminate the confusion here, make it really simple for yourself, make it simple for your advisor to kind of check-in and know where things are and how much you have in different accounts outside of what they're managing for you. So this is step number two, take inventory of your assets so that you know where everything is, how much you have in those different buckets, and then the different tax types of those buckets. The third thing that you can focus on is around your investments. Now, maybe you wanna change your investment strategy or your investment allocations as you get closer to retirement. Obviously, I'm not gonna tell you what to do here on this episode because that depends on your situation.
• 9:45
  But one thing I wanna focus on here is maybe the diversification of your investments. And this is important because as you've gone through your wealth accumulation phase, if you perhaps work for a company, maybe you've either been gifted company stock or you've purchased company stock from your employer, and that's wonderful because you've probably, you know, benefited from some of the growth of your company. What you've got now, if you have accumulated a decent amount of company stock or just a few individual stocks, is you've got quite a bit of risk there that's tied to just a few companies. And so, in fact, you'd be betting your entire retirement success on a few companies if you leave it that way. So maybe diversifying out of those few different stock holdings, whether it be company stock or stocks that you've purchased on your own, just know that the risk there might not be worth the reward at this stage of life.
• 10:32
  And so diversifying that out a little bit, making sure you spread out the risk across multiple companies, across multiple sectors of the market, or asset classes in general, that's gonna be something that could be prudent for you because now you're kind of moving into less of a wealth accumulation phase and more into a wealth preservation phase. And that's maybe your top priority at this point. Now, hear me hear me correctly here. Whenever I say wealth preservation, I don't necessarily mean going really conservative. What I mean is is you have to refocus where you want to take risk.
• 11:01
  Do I want to try to grow my portfolio as much as possible or do I want to make sure that I have less volatility in my portfolio, so sequence of returns is not as big of a risk for me throughout my early or first few years of retirement. So you might not be able to afford sticking to just one or two different stocks like you have until this point. You might wanna think about reallocating and diversifying some of that risk away so that you eliminate some of those highs and lows. Now, in terms of overall allocation, hopefully if you're in those last few months before you retire or knocking on the door of retirement in the next couple of years, you've got to have a plan for how you change your investment allocations over time. Again, I've talked about this before where I like to build out a bucketing strategy, and this is all based on, again, how much money you need every month.
• 11:45
  So, going back to number one, you've got to know what your spending number is in order to be able to build out your retirement income buckets appropriately. But those income buckets, those three buckets, which I'll link to the episode in the description below if you wanna go listen to that after this one, those are always going to be based on how much money you need, and those buckets tell us how we should invest your money. Because every investment in your portfolio needs a purpose, like it has to have a mission, so if you're gonna hold a money market fund in your portfolio, you need to have a reason for holding that money market fund. You don't just need to hold it because the markets are kind of scary right now. You need to have a reason for that.
• 12:19
  Just like you don't wanna hold stock for just any particular reason such as, oh, well, I think this one's gonna go up more. You need to have a reason and a purpose for that based on timelines and kinda when you're gonna need your money. So that's number three, diversify your investments, but also begin to think about your allocation as it is informed by how much money you need to spend, which is your retirement income buckets. The fourth thing that you should do before you retire is going to be to build out your retirement income timeline. Now, what is this?
• 12:47
  This can be quite simple. It might just be a piece of paper where you mark a little line where you are today and say, hey, I'm 60 today, I'm gonna retire at 63, right? So 60 today, and then you kind of draw a line moving to the right until you get to the very end, you draw another mark, and let's say that's 90, whenever you think you're gonna pass away. Over that 60 to 90 timeframe, that thirty years, you're going to have different things that come up and different little markers along the way. Number one is going to be what's your retirement date?
• 13:16
  Okay, so you'd mark another date there at 63. Okay, you keep going. Okay, 65. That's whenever Medicare starts, right? And then maybe '67, I'll mark another line, that's whenever I'm gonna turn my social security on.
• 13:28
  And then, you know, 73 or 75, that's whenever my RMDs will begin. So, you kind of have all these different ages in which different things are gonna take place and you need to probably mark them down. And what this is hopefully gonna do is, is it's the beginning framework of you building out where your income is gonna come from and when it's gonna be coming in. So if you retire at 63 and your Social Security is not gonna turn on until 67, which, maybe that's what you chose, that means you've got a four year period there that you've gotta make up that income need from something other than Social Security. Now, once you get to 67, you might still have some income need beyond what Social Security is paying you, but for sure in those first four years, you've got to have income from somewhere.
• 14:10
  So you have to take distributions out of your portfolio. So for those first four years, let's say you need $50,000 a year as your income, then you would say, hey, for the first four years there, I'm gonna take $50,000 out of my portfolio for my income in retirement. Also, once you get to 67, you're gonna have, let's say, thousand dollars is gonna be coming from Social Security, that means only 10,000 now is gonna have to come out of your portfolio. So you still get 50, and obviously you adjust it for inflation, but you still get 50, but you can kind of start stacking the different sources of income on top of each other that make up that 50. Right?
• 14:45
  Maybe you have a pension that would kick in at 65 as well or something along those lines. But the idea here is to kind of build out a timeline of when you're gonna have money coming from different sources and when you need to be pulling certain amount of money from your portfolio. And you can also start to think about, you know, which accounts do I need to pull from and do I take from my Roth ever, or what if I should do Roth conversions? All these different things kind of start to play in once you've built out your base retirement income timeline, that way you can visually see where your money's coming from and when it's coming in. That'll give you a good mental framework to know, hey, this is what retirement's gonna look like from an income standpoint, and then from there we can build to some more advanced strategies.
• 15:25
  And the fifth thing that you should do before you retire, before we get to the bonus tip here at the end, is going to be to build cash. This is one of the most important things I could recommend to you. As you've saved and you've worked and you've done all the things right, you've chunked money into your four zero one ks or your company retirement plan, or maybe you have a big pension that you could do a lump sum out of whenever you get to retirement. All of that money is going to be tax advantaged in some capacity, whether it be on the Roth side or tax deferred. You get to pay tax whenever you distribute that money out in retirement.
• 15:57
  Most really good savers end up cash poor because they're saving so much to their employer plans or their IRAs or their Roth IRAs, they've done all of that work to get there, but they end up neglecting the fact they don't have enough cash on hand. So building up cash is one of the most important things I would say do in these final couple of years, because what you're gonna do is that's gonna give you flexibility of distributions, whether you wanna take money from cash plus a little bit out of your IRA or if you wanna do a Roth conversion, which is a powerful tax planning strategy. If you wanna do that, then you might need to have some cash to pay that tax with, okay? So it gives you flexibility, it gives you options, it helps you maybe sleep at night. It probably gives you a little peace of mind to know, hey, I've got this cash set aside.
• 16:39
  If the market declines immediately after I retire, I've got X amount of dollars sitting in my bank account or in a money market somewhere that I can access that's not gone down in value. So it's kind of a sleep at night factor. It gives you this ability to rest easy knowing that yes, my portfolio over here, it's going up and it's going down as it always has, but because I have this cash reserve, my bucket number one, I have this money ready to go if I ever needed it. That's probably the biggest thing, honestly, is that peace of mind, but in addition to that, it's kind of the flexibility around, you know, paying taxes on conversions or having a tax free source of income to kind of spend rather than having to pull a certain amount out of a tax deferred account. So it gives you a lot of options to have cash.
• 17:22
  Is cash king? You know, maybe, maybe not, I don't know. But the thing I figured out is having that cash available in your bank account is gonna be huge. So how do you do that? Well, does that mean that I stopped paying into my four zero one ks and putting money there?
• 17:34
  Well, maybe. It might mean that you produce your four zero one ks contributions all the way down to your match amount, and then you take home the rest, meaning you're gonna pay income taxes on it, yes, right now today, but is the value of having that cash available to you in the first three to four years of retirement, is that more than whatever tax rate, you know, you're gonna pay by taking that cash home as opposed to putting that into a tax deferred four zero one ks or a tax deferred IRA? So you gotta do kind of some math there, maybe a little bit to evaluate, you know, what should I do? But stopping your four zero one ks contributions in the final years of your working career is not the worst thing ever, okay? It's actually not a bad idea at all to build up cash perhaps, obviously you wanna evaluate that, that's what I like to evaluate with my clients and look at and see, hey, is this worth doing?
• 18:18
  But having that cash could be crucial to your long term success and your immediate success in the first few years of retirement. Now, what's the final tip? What's the sixth thing that I wanted to share with you here? It has to do with maybe some non financial stuff, but it's really the idea of casting your retirement vision. Like, what do you want retirement to be?
• 18:38
  What I found in my years of doing this and people I work with every day is that retirement's not like a magic, you know, potion or magic pill that you just take and everything's great after you retire and stop working. In fact, sometimes it often gets a lot harder because you don't have any structure, you don't have people to go see, your friends to visit, or colleagues at work. Maybe your purpose is missing because you've done this job or career for your whole life, you've had a mission or a goal to accomplish, and now you don't. And so, what I found is retirement can be lonely, it can be burdensome, it can be not what you thought it was if you don't have an idea of what it's going to be, and kind of plan out the non financial side, like what are you gonna do every day? When you have ample time and you can't wait to be done working and now you're done working and what do I do?
• 19:21
  You know, that's the worst case scenario. So I want you to start casting your retirement vision. Think about it. What is a day, just a normal day in the life of being retired, what does that look like? Because if you start going down this track, you're like, man, that doesn't sound very fun.
• 19:34
  I don't want to wake up and not know what I'm doing every day, then a traditional retirement might not be the right thing for you. Maybe a partial work or maybe some sort of consulting work or something different after you retire, but also has some sort of work component to it, but just not what you're currently doing, something maybe more enjoyable, kind of a passion project idea. If you can think about, hey, maybe I need to have some goals, some work goals, maybe just in a lower capacity, less time is input there, or less stress is input there, something that's more fun for you perhaps. But maybe having work to do is valuable, maybe that's important, and it might keep you just in a lack of better way of putting it, might keep you sane, right? It might make you happy and satisfied.
• 20:14
  So think about retirement, what you want to do, is it vacation every other week, is it spend time with family, is it local charity work, is it volunteering somewhere there at your church or charity, whatever it might look like. Think about it for you, like what does retirement look like? Start to write those things down and think through that for yourself, because, again, all the money stuff is good, we wanna plan out things accordingly, lower your taxes as best we can, make sure we don't run out of money, all those things are important, that's what I do, but if we don't do it for a purpose, then there's no real joy in it, if that makes sense. The reason we wanna save taxes by doing these different strategies is so that you have more money to go deploy on the things that you value, things that are important to you, be able to pay for the family vacation, be able to, you know, give more to the church or the charity or whatever it might be that you value. That's what we wanna do all this financial planning for.
• 21:01
  So hope that resonates, I hope that's helpful, but as you kind of prep for retirement, think about these things, come back to this episode, save it, that way you can re listen to it. Think about these things to kind of begin the general framework of your plan, that and way you have a little bit of guidance as you start to evaluate things. So obviously, these tips, you know, they're not everything you need to do to be prepared for retirement, but they should give you a pretty good start. And if there's one major takeaway here, again, I want things to be simple, is this does not have to be complicated. Take these high level things I'm talking about, start to apply them to your situation slowly, begin to just write it down on pieces of paper, and if you get confused along the way or something doesn't make sense, just shoot me an email, happy to have a conversation and see if there's any way I can help.
• 21:39
  Other than that, I hope you have a great week, and we will talk to you again next week. Hey, it's Jacob again, and I wanted to extend a quick offer to you. If you have a question and you would like to have it answered here on the show, please email me at jacobretirementanswers dot net. And I'd love to answer that question for you right here on the show. Also, wanted to remind you that nothing discussed in today's episode is meant to be financial, legal, or tax advice.
• 22:05
  Retirement Answers is for educational purposes only. Thanks for tuning into this week's episode. I look forward to talking with you again next week.