Latest / TaylorMade Retirement with Taylor Demars, CFP® / How to Fix Your Retirement Plan (Before It's Too Late)

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How to Fix Your Retirement Plan (Before It's Too Late) · TaylorMade Retirement with Taylor Demars, CFP®

• 0:00
  SPEAKER_01: Today's content is pulled from Taylor's YouTube channel.
• 0:04
  SPEAKER_01: If you want to watch the video version or catch more great content, subscribe by clicking the link in today's show description.
• 0:13
  SPEAKER_01: Welcome to Taylor Made Retirement, where we explore what it takes to build a retirement that works for your money and your life.
• 0:20
  SPEAKER_01: With third generation certified financial planner Taylor DeMars.
• 0:28
  SPEAKER_00: Most retirement plans don't fail because someone made a catastrophically bad decision.
• 0:32
  SPEAKER_00: More often, they fail slowly, quietly, and in the places no one thought to check.
• 0:37
  SPEAKER_00: By the time the damage shows up on a statement or a tax return, the window to fix it has already been closed.
• 0:43
  SPEAKER_00: If you've saved over$2 million for retirement, you likely have some version of a plan.
• 0:47
  SPEAKER_00: Maybe it's a Monte Carlo simulation through Bolden or your advisor.
• 0:51
  SPEAKER_00: Or perhaps it's just a general sense that the numbers worked based on everything you've read and calculated and your YouTube university degree.
• 0:58
  SPEAKER_00: But after helping hundreds of people at this level transition into retirement, I can tell you that the vast majority of plans I review have at least two or three cracks in them that no person had an idea were there.
• 1:09
  SPEAKER_00: They were paying attention, but these problems don't announce themselves until the cost is already locked in.
• 1:14
  SPEAKER_00: My name is Taylor DeMars.
• 1:16
  SPEAKER_00: I'm a third generation financial planner and CFP, and today I'm going to walk you through the five diagnostic tests you can run on your own retirement plan tonight in the order that matter most.
• 1:25
  SPEAKER_00: The first one is the test I see most often, and it's almost invisible until it's too late to fix.
• 1:33
  SPEAKER_00: Because if I could check just one thing about your retirement plan, this is what I'd look at first.
• 1:38
  SPEAKER_00: Most people would expect me to say the investment portfolio, it's actually your tax forecast.
• 1:43
  SPEAKER_00: I'm talking a year-by-year map of your taxable income from the day you retire all the way through about your mid-80s.
• 1:49
  SPEAKER_00: I want to know which bracket you'll sit at at age 63, 68, 75, when required minimum distributions start for most people who are retiring today.
• 1:58
  SPEAKER_00: And at age 80, I'll get a snapshot of how those distributions have been varying after compounding for the prior five years.
• 2:04
  SPEAKER_00: Most plans people bring to me don't have this yet, even the ones built by other advisors.
• 2:09
  SPEAKER_00: Yes, they'll have a portfolio projection and hopefully a Monte Carlo score, which is useful, but projections will tell you what you have, a tax map will tell you what you keep.
• 2:18
  SPEAKER_00: Without it, you're likely flying blind through what is often the single most expensive part of your entire retirement.
• 2:24
  SPEAKER_00: I worked with a couple I'll call Mark and Karen.
• 2:27
  SPEAKER_00: They're a blend of real client situations we see all the time with the details changed.
• 2:32
  SPEAKER_00: He was 57, she was 55, and both were working at the same big tech company with retiree health coverage that carries them to 65.
• 2:40
  SPEAKER_00: They'd saved over$2.5 million for retirement, with most of it sitting in pre-tax 401ks.
• 2:45
  SPEAKER_00: And their prior advisor plans looked great on paper, with a healthy balance strong into their age 90, with a probability of success into the 90% as well.
• 2:54
  SPEAKER_00: So I asked one question: Has anyone ever mapped what your taxes will look like year by year after you retire?
• 3:00
  SPEAKER_00: Mark paused and was thinking, and then Karen blurted out what was on his mind, which was nobody's ever explained the full tax side.
• 3:08
  SPEAKER_00: So that's what we did.
• 3:09
  SPEAKER_00: For the first six years after they retire, their taxable income actually drops into the 12% marginal bracket, the lowest they've been in since their late 20s when they were flipping burgers.
• 3:18
  SPEAKER_00: Their paychecks had stopped, Social Security hadn't started yet, and RMDs were more than a decade away at 75, which leaves this quiet stretch of time where hardly any income could potentially show up on their return at all.
• 3:31
  SPEAKER_00: That's the sacred window.
• 3:33
  SPEAKER_00: And within this time frame, every dollar that gets picked up from the pre-tax 401k and dropped into the tax-free Roth IRA gets taxed at 12% at the federal level instead of at the 22 or even 24% that it will cost them later.
• 3:47
  SPEAKER_00: Plus state income taxes, especially when you consider Social Security and RMDs stacking up later on.
• 3:52
  SPEAKER_00: The way I like to explain it to clients is trying to pay tax on the seed instead of the harvest.
• 3:57
  SPEAKER_00: A small tax on the seed is good now so that the orchard and then the harvest can grow tax-free.
• 4:03
  SPEAKER_00: So each year of this window, we're going to fill up the rest of that bracket and chipping away at the ticking tax time bomb sitting inside of that 401k.
• 4:11
  SPEAKER_00: Now, whether converting makes sense for you and how much and in what years depends on a variety of things, such as your income, your accounts, your state, social security amount, and whether you're even under 65, whether it'll affect your health insurance subsidies.
• 4:25
  SPEAKER_00: Take this as education, not as a green light, because that needs to be done after someone runs your numbers.
• 4:30
  SPEAKER_00: But for Mark and Karen's situation, after modeling converting through the window versus letting everything ride until 75, the difference was projected to be well into the six figures of a difference in lifetime taxes they would pay.
• 4:42
  SPEAKER_00: Now they hadn't done anything wrong, just no one had mapped out the year-by-year tax plan for them yet, as all.
• 4:48
  SPEAKER_00: But the clock is real.
• 4:49
  SPEAKER_00: Often I see a window of six to eight years of an opportunity to capture this, where every year you don't capture it, it goes unused, never to get back again, where dollars that could have been captured at 12% will inevitably be taxed at 22% or higher later.
• 5:04
  SPEAKER_00: So pull up your own plan, whatever version that you have in front of you, and look for a year-by-year projection of your taxable income from the day you retire until about your early 80s.
• 5:14
  SPEAKER_00: If you can tell which bracket you're forecasted to be in in each year, and when your lowest tax years open and close, you pass.
• 5:21
  SPEAKER_00: If all your plan shows is account balances and maybe a probability score, that's your first fracture in the plan.
• 5:27
  SPEAKER_00: It's usually an expensive one because there's a way to hold a perfect tax map and still lose the money it was drawn to save, which is test number two.
• 5:35
  SPEAKER_00: Quick thing first.
• 5:36
  SPEAKER_00: If your plan has failed that first test, I don't want you rebuilding anything from scratch tonight.
• 5:41
  SPEAKER_00: So I put something together better to help you.
• 5:43
  SPEAKER_00: It's our full sample plan that we are revealing for the first time.
• 5:47
  SPEAKER_00: It's our seven-step process that we run with clients from front to back, shown through one couple from the first question we ask through the final stress test.
• 5:55
  SPEAKER_00: This is our definition of a complete retirement plan.
• 5:58
  SPEAKER_00: I want you to have it for free.
• 6:00
  SPEAKER_00: You can access it using the link in the description.
• 6:02
  SPEAKER_00: You can download it, set it out next to whatever you've built so far, and audit your plan against it.
• 6:07
  SPEAKER_00: The gaps you find between the two would be the start of your to-do list.
• 6:10
  SPEAKER_00: All right, test number two.
• 6:13
  SPEAKER_00: The map from test one only works if your withdrawals will follow it.
• 6:17
  SPEAKER_00: So the second test asks one question.
• 6:20
  SPEAKER_00: Which account is your withdrawals coming from and in what order?
• 6:24
  SPEAKER_00: Most people heading into retirement have up to three tax buckets.
• 6:27
  SPEAKER_00: Tax deferred, like your 401k and IRA, where every dollar you pull lands on your tax return as income.
• 6:33
  SPEAKER_00: It's the most expensive.
• 6:34
  SPEAKER_00: The second bucket is tax-free, the golden goose, where your Roth accounts don't get taxed on withdrawals.
• 6:39
  SPEAKER_00: And the third is the taxable or brokerage account, where the gains only get taxed when you sell them.
• 6:45
  SPEAKER_00: The same dollars can appear in each bucket, but completely different tax treatment on the way out.
• 6:50
  SPEAKER_00: Over and over, I see people default to the same strategy, which is defaulting from the tax-deferred bucket first.
• 6:56
  SPEAKER_00: In part, it's because it's their largest one, but also because it feels like the most dangerous one.
• 7:02
  SPEAKER_00: They've been familiar with the ticking tax time bomb of the RMDs.
• 7:06
  SPEAKER_00: And so their instinct says, hey, why don't I whittle this down while I can at all costs?
• 7:11
  SPEAKER_00: I'm not saying the instinct is wrong because yeah, the balance does need to come down to prevent that.
• 7:16
  SPEAKER_00: The execution is where this all goes sideways.
• 7:19
  SPEAKER_00: So I'll give you an example through the eyes of a client I'll call Paul.
• 7:22
  SPEAKER_00: He retired at 63 with about 3.1 million, most of it in his IRA.
• 7:27
  SPEAKER_00: And he had spent a long career as an engineer at a manufacturing company.
• 7:31
  SPEAKER_00: He was a careful, detailed guy who did his homework and took diligent notes in our very first meeting.
• 7:37
  SPEAKER_00: When I asked why he set up his withdrawals the way he had so far, he told it to me straight, which was, I just don't want to get killed later on taxes.
• 7:44
  SPEAKER_00: So he was taking his full lifestyle, around$11,500 a month, all out of the IRA, about$138,000 a year.
• 7:52
  SPEAKER_00: And that one decision set off four consequences he never saw coming.
• 7:56
  SPEAKER_00: First, nearly all of it landed on his tax return, of course, even after the standard deduction.
• 8:00
  SPEAKER_00: So he was in the 22% income tax bracket.
• 8:03
  SPEAKER_00: Now, some people will pay 22% on purpose, like for a planned Roth conversion.
• 8:08
  SPEAKER_00: You want to pay that toll once and then letting those dollars then grow tax-free for the rest of your life.
• 8:12
  SPEAKER_00: But in Paul's case, he was paying the toll and getting nothing back.
• 8:16
  SPEAKER_00: Not Roth conversion dollars, but just gas and grocery dollars.
• 8:19
  SPEAKER_00: Second, his wife Linda had already started her Social Security.
• 8:23
  SPEAKER_00: And once your income climbs high enough, the tax code drags all the amount that it can onto the tax return.
• 8:29
  SPEAKER_00: 85% of Linda's checks were now taxable.
• 8:33
  SPEAKER_00: Third was health insurance.
• 8:34
  SPEAKER_00: Paul and Linda were both under 65 buying coverage through the government marketplace until they reached Medicare.
• 8:40
  SPEAKER_00: As of this year, the subsidy cliff is back.
• 8:43
  SPEAKER_00: If you're just one dollar of income over the line, every dollar of premium help disappears.
• 8:48
  SPEAKER_00: They weren't near the line, they were miles past it.
• 8:51
  SPEAKER_00: Full price ran at around$18,000 a year for each of them.
• 8:55
  SPEAKER_00: Call$36,000 for the two of them, right around the national average, in fact, and that's before paying a single copay or deductible.
• 9:02
  SPEAKER_00: And the fourth implication of what he was doing was that being under age 65, Roth Conversions and that premium subsidy help fight over the same space.
• 9:11
  SPEAKER_00: Every converted dollar will count as income, and enough of those shoves you straight over the same ACA subsidy cliff.
• 9:18
  SPEAKER_00: You have to pick one at one point, one year at a time.
• 9:22
  SPEAKER_00: If you remember Mark and Karen's retiree coverage, that's why their window sat wide open for Roth Conversions.
• 9:27
  SPEAKER_00: But Paul and Linda didn't have that luxury.
• 9:30
  SPEAKER_00: And Paul didn't didn't even get a pick.
• 9:32
  SPEAKER_00: His gas and grocery money had made the choice for him.
• 9:35
  SPEAKER_00: And the window from test one was slamming shut while he stood inside of it.
• 9:39
  SPEAKER_00: So zooming out, I like to think of retirement planning as handling a Rubik's Cube.
• 9:43
  SPEAKER_00: When you Paul turned one face where his paycheck came from, it moved three other faces at the same time, being his tax bracket, Linda Social Security taxation, and the health insurance cost.
• 9:55
  SPEAKER_00: Now, let's look at his situation running it a different way.
• 9:58
  SPEAKER_00: If he still wants the same$11,500 a month, but can pull a substantial part of it from his brokerage account instead, only the gains will potentially count as income and as tax return.
• 10:09
  SPEAKER_00: Because at their level, a chunk of those gains will land them in the 0% capital gains tax bracket.
• 10:14
  SPEAKER_00: Yes, 0% taxable income means they can stay low and qualify for ACA subsidies.
• 10:19
  SPEAKER_00: Most of Linda's Social Security benefits stay off the return, and their ACA premium help will survive.
• 10:26
  SPEAKER_00: All the while, we can still get the IRA whittled down on purpose with conversions right sized to what's specific for their plan instead of just doing it by panic.
• 10:34
  SPEAKER_00: The same dollars can land in your checking account every month, but these two different versions of Paul's 20 years barely resemble each other.
• 10:41
  SPEAKER_00: Then at 65, the cliff for healthcare subsidies stops mattering, and then the floodgates can lift.
• 10:47
  SPEAKER_00: That's the window from test one can get used with both hands for a full 10 years, potentially until RMD start at 75.
• 10:55
  SPEAKER_00: You still watch one line after 65, though, because Medicare premiums will be looking back at your income from two years ago to see if you have to pay any additional surcharges because you made too much money.
• 11:06
  SPEAKER_00: So even then, you got to keep an eye on conversions to stand under those surcharger lines.
• 11:11
  SPEAKER_00: The right order of this is when all these factors translate together, when you redraw the tax map every year to see where the best sequence lands.
• 11:20
  SPEAKER_00: So here's the second test.
• 11:21
  SPEAKER_00: Again, open up your retirement plan and find where it names which accounts are funding year one of retirement, then year two, and so on, and see how the order might shift as implications such as tax brackets change, Social Security starts, and healthcare thresholds come and go.
• 11:37
  SPEAKER_00: If your plan can spell out that sequence year by year, fantastic.
• 11:40
  SPEAKER_00: If it just says, hey, withdraw a fixed 4% from the portfolio, that's crack number two.
• 11:45
  SPEAKER_00: And frankly, at your level, that's rarely a small thing.
• 11:47
  SPEAKER_00: Even a perfect withdrawal rate, though, can be all undone by a bad market in your first year of retirement.
• 11:53
  SPEAKER_00: And that's test three.
• 11:55
  SPEAKER_00: This one lives in the part of your plan that you probably feel best about, which is your investments.
• 12:00
  SPEAKER_00: Most people I work with at this level have been investing for 30, maybe even 40 years.
• 12:04
  SPEAKER_00: They run a diversified portfolio, they've survived multiple downturns without panicking, and they feel real confidence because they've earned it.
• 12:12
  SPEAKER_00: But confidence in a portfolio and a process for turning it into a paycheck are two different things.
• 12:18
  SPEAKER_00: So picture the first business day of the month after your last paycheck.
• 12:22
  SPEAKER_00: Money needs to land in your checking account the same way it has done for decades.
• 12:26
  SPEAKER_00: Where exactly did it come from?
• 12:28
  SPEAKER_00: When I ask that in my office, the room often goes quiet.
• 12:32
  SPEAKER_00: Because for 40 years, the paycheck answer is simple.
• 12:35
  SPEAKER_00: It just comes from my employer.
• 12:37
  SPEAKER_00: And now your accounts have to become the paycheck.
• 12:39
  SPEAKER_00: And you probably already jumped to the next part of this question, which is okay, what happens if the market drops by 30% coincidentally in the year that I retire?
• 12:48
  SPEAKER_00: Because it can.
• 12:49
  SPEAKER_00: And if your income plan says, well, just sell the investments when we need more money, a bad first year will do permanent damage.
• 12:56
  SPEAKER_00: If stocks are down 20, 30%, you're not just selling low, you're selling more shares to raise the same amount of dollars.
• 13:03
  SPEAKER_00: And when those shares are sold, they're gone forever.
• 13:06
  SPEAKER_00: When the recovery eventually comes, it shows up for a smaller portfolio and can never climb back to where it was.
• 13:12
  SPEAKER_00: I had one client that said it better than I will, and his words was, I trust the markets will recover, but my expenses don't care when the market is up or down.
• 13:21
  SPEAKER_00: So your needs, wants, and wishes don't really care what's happening in the market.
• 13:24
  SPEAKER_00: So the plan has to.
• 13:26
  SPEAKER_00: So let's zoom out and think about how a farm works.
• 13:29
  SPEAKER_00: A farmer doesn't go out and harvest his field whenever he needs to pay for that day's groceries.
• 13:33
  SPEAKER_00: There's some grain in the house, there's a silo holding up that last season's harvest.
• 13:38
  SPEAKER_00: And sure, he's got fields growing for the years ahead.
• 13:41
  SPEAKER_00: That's how we like to think of retirement income.
• 13:43
  SPEAKER_00: It's a similar methodology for our practice when we employ a buckets income approach, where the first layer we call the pantry, and then the next layer is a bond bunker, and then third, we call the growth engine.
• 13:53
  SPEAKER_00: That pantry is what most people relate to as a rainy day fund, emergency account, often at least six months of expenses and money market funds that are ready for whatever life might throw at you.
• 14:03
  SPEAKER_00: The second layer is the silo, and it's the keystone of this whole sequence.
• 14:07
  SPEAKER_00: We like to reverse engineer it for covering at least five years of our clients' withdrawal needs.
• 14:13
  SPEAKER_00: It's meant to be boring because boring is what paid the bills through 2008.
• 14:17
  SPEAKER_00: If we hit another stretch like the Great Recession from 2008 through 2013, the bunker is meant to cover your needs and wants while the stocks are taking their time recovering.
• 14:27
  SPEAKER_00: And then third is the growth engine for everything else, which is meant to have a long runway.
• 14:31
  SPEAKER_00: Its job is crucial, which is to outpace the silent tax of inflation.
• 14:36
  SPEAKER_00: It's allowed to be more aggressive because it has years for the market cycles up and down, and years beat volatility.
• 14:42
  SPEAKER_00: The bunker is engineered to carry your bad years, and the engine can refill it during the good ones.
• 14:48
  SPEAKER_00: So when the market falls 30% in your second year of retirement, and at some point it will drop to a scary degree, here's what should change about your monthly income.
• 14:58
  SPEAKER_00: Nothing.
• 14:59
  SPEAKER_00: Ideally, you watch it from a distance with years of harvest already in the silo.
• 15:03
  SPEAKER_00: It's the sort of approach that reminds me of Joseph of Egypt in the Bible, where they had seven years of plenty so they could save up for the seven years of famine.
• 15:10
  SPEAKER_00: The engine in your portfolio can take the hit, and the engine can then have the time it needs to heal.
• 15:16
  SPEAKER_00: Without this structure, the same crash forces you to sell growth at the bottom to buy groceries, and you don't get those shares back.
• 15:22
  SPEAKER_00: Not to mention having to cancel the travel plans you've been earmarking for years for retirement.
• 15:27
  SPEAKER_00: Test number three, then, is to look at your plan and find where in writing it answers if the markets drop by 30% in the early years of retirement, how are you going to make sure that your portfolio doesn't suffer a permanent damage for the rest of your retirement?
• 15:42
  SPEAKER_00: If it can name money set aside to carry you through a multi-year storm, separate your growth from the bond bunker, then you pass.
• 15:49
  SPEAKER_00: If your answer is we'll just make portfolio withdrawals or stick to the 4% withdrawal rate, that's crack number three.
• 15:56
  SPEAKER_00: And again, a bad market can make this problem permanent.
• 15:59
  SPEAKER_00: And a quick pause because I need a level with you.
• 16:02
  SPEAKER_00: If your plan has failed more than one of these tests so far, your problem has changed.
• 16:06
  SPEAKER_00: The question stops being whether something's missing, it's just about which crack will cost you the most and which one has a deadline you can still attend to.
• 16:14
  SPEAKER_00: And that order is different for every household.
• 16:17
  SPEAKER_00: I've seen people spend a year perfecting a$10,000 problem while ignoring a six-figure one that sits there compounding.
• 16:23
  SPEAKER_00: So if you're looking for a second set of eyes on your situation, the link in the description will book a call with me where I can walk through your plan, put a number on each crack, and get the fixes in the right order.
• 16:34
  SPEAKER_00: Now, for the test set, nobody wants to run because these first three can live in your spreadsheet, but the fourth one is likely about the person sitting next to you.
• 16:44
  SPEAKER_00: I understand why people skip it, but I've sat with too many families on the other side of this problem to leave it off the list.
• 16:50
  SPEAKER_00: Almost every married couple's retirement plan is built under the assumption that they'll both be alive for the whole time.
• 16:56
  SPEAKER_00: Two Social Security checks coming in, one set of bills split between two people, and a joint tax return where the bigger deduction and the wider brackets help a lot.
• 17:05
  SPEAKER_00: As long as you're both here, the plan can look flawless.
• 17:08
  SPEAKER_00: But plans aren't meant to survive the best case scenario, but the worst one.
• 17:13
  SPEAKER_00: Because when one spouse passes, there will be three financial hits landing all at the same time.
• 17:17
  SPEAKER_00: You may have heard of this being called the widow's penalty.
• 17:20
  SPEAKER_00: In our office, we call it the widow's triple gut punch.
• 17:23
  SPEAKER_00: First, a social security check disappears.
• 17:26
  SPEAKER_00: The surviving spouse will keep the larger of the two, but they lose the other one entirely.
• 17:30
  SPEAKER_00: Say you were getting$3,200 a month and your spouse was getting$2,400 a month.
• 17:34
  SPEAKER_00: You're gonna keep the$3,200, but that's close to$29,000 a year gone.
• 17:40
  SPEAKER_00: The second gut punch is the tax return changes.
• 17:42
  SPEAKER_00: In the year that a spouse passes, the surviving spouse will file jointly one last time.
• 17:47
  SPEAKER_00: And then for the rest of their life, they're gonna file single, where the standard deduction gets cut nearly in half and the tax brackets compress hard.
• 17:55
  SPEAKER_00: So not only does less money come in, but what's left over gets taxed even harder.
• 18:00
  SPEAKER_00: And both of those are coming at once.
• 18:02
  SPEAKER_00: Third, the expenses don't even move that much.
• 18:05
  SPEAKER_00: Sure, there will be some costs that drop with one person.
• 18:08
  SPEAKER_00: They don't need multiple cars, they're gonna have just one set of premiums on health insurance, but nowhere near$29,000 worth of a difference.
• 18:16
  SPEAKER_00: The mortgage company isn't gonna care, and the county still wants its property taxes.
• 18:20
  SPEAKER_00: A client couple I worked with recently called Jim and Deborah found this out when we were working together as he was 64 years old, had just retired from running operations with the county, and a pension with about$3.4 million saved.
• 18:33
  SPEAKER_00: And his wife was 58, and she planned to work a couple more years just because she liked it.
• 18:38
  SPEAKER_00: Jim said something that I hear all the time, almost word for word, something to the tune of, I would just want to make sure she's covered because I've got some bad health history and I'm gonna kick it before she does.
• 18:47
  SPEAKER_00: So to be on the safe side, we modeled things out more aggressively in their situation to find out what happened if he passed much sooner than later.
• 18:55
  SPEAKER_00: Specifically, only five years into retirement.
• 18:58
  SPEAKER_00: And in their situation, Deborah's income dropped by about 38 grand a year.
• 19:01
  SPEAKER_00: Her tax rate spiked as well by about 6%, and all in around 47 grand a year in after tax income was gone.
• 19:08
  SPEAKER_00: Their original plan had never shown her that.
• 19:10
  SPEAKER_00: It just showed a beautiful projection of them living until 95 each, but nothing about what happens to her in her early 70s alone.
• 19:18
  SPEAKER_00: We ran it the other way too, with Deborah passing first, because with an age gap at different benefits, the damage is not symmetric.
• 19:25
  SPEAKER_00: You have to run the analysis on both spouses.
• 19:28
  SPEAKER_00: The reason this can't wait is that almost every move protecting the survivor has to be made while you're both alive and healthy.
• 19:33
  SPEAKER_00: The survivor's check is set by the higher earnings claiming decision.
• 19:37
  SPEAKER_00: And because once you claim that, it's locked in.
• 19:40
  SPEAKER_00: Similarly for pension survivor elections, they're permanent, locked in at retirement.
• 19:44
  SPEAKER_00: And the Roth conversion strategy needs to happen on the front end of retirement so that it can shrink the surviving spouse's single file or tax bill when it does inevitably happen.
• 19:54
  SPEAKER_00: I've seen too many times where people wait until there's a loss in the family and most of these doors are already closed.
• 20:00
  SPEAKER_00: If you're the one watching this, you're likely the one who handles the money in your house.
• 20:04
  SPEAKER_00: And this is your responsibility to bear because it'll be the first time in your life that you can't just handle it for your loved one because you'll be gone.
• 20:13
  SPEAKER_00: So here's the fourth test.
• 20:14
  SPEAKER_00: Find out in your plan where it models out where one of you is gone in the first five to 10 years of retirement.
• 20:20
  SPEAKER_00: Look at what the portfolio balance is supposed to be, the survivor's income, their tax rates, their benefits, and what their actual monthly lifestyle will look like.
• 20:28
  SPEAKER_00: If your plan can spell that out, fantastic.
• 20:31
  SPEAKER_00: But if it only assumes that you'll pass away holding hands in your sleep and 95 years old, that's the fourth crack.
• 20:37
  SPEAKER_00: And that's the one that matters to the person that may be sitting next to you.
• 20:40
  SPEAKER_00: Which leaves me with one last test.
• 20:42
  SPEAKER_00: It's the simplest one, but it decides whether you ever enjoy any of this.
• 20:48
  SPEAKER_00: It comes down to one question.
• 20:50
  SPEAKER_00: Does your plan assume you'll spend the same amount at age 85 that you do at 65?
• 20:55
  SPEAKER_00: Because almost every online calculator assumes that.
• 20:58
  SPEAKER_00: It takes your current spending, inflates it around 2% to 3% a year, and draws one straight line out to 95%, which means the plan believes that the 88-year-old version of you is going to live the same lifestyle as the 66-year-old version.
• 21:10
  SPEAKER_00: Across our family's three-generation practice, I haven't seen that actually play out once.
• 21:15
  SPEAKER_00: What I usually see is the arc you've likely heard of as the go-go slogo no-go years.
• 21:20
  SPEAKER_00: Go-go years, roughly your mid-50s to your mid-60s, are when spending often peaks.
• 21:26
  SPEAKER_00: The clients enjoying that window are the ones that are racing cross-country in an RV, hitting up all the national parks, or they may be living a more slow travel lifestyle, spending five weeks in Thailand, or even two months living in Costa Rica, living in a place instead of actually just passing through it when their knees and their energy still thirst for adventure.
• 21:45
  SPEAKER_00: Then come the slow-go years, often starting in the mid-70s, where international travel becomes domestic, and father time takes its toll one year at a time.
• 21:55
  SPEAKER_00: And often by clients' 80s are the no-go years.
• 21:59
  SPEAKER_00: The world gets physically smaller and day-to-day spending falls with it.
• 22:02
  SPEAKER_00: Now, of course, no two retirements run the same calendar.
• 22:05
  SPEAKER_00: I've got some clients who are technically go-go years into their 80s, and I sincerely hope that you experience the same.
• 22:11
  SPEAKER_00: We also have to think about how healthcare costs blend in.
• 22:14
  SPEAKER_00: Often these costs spike and surge in your late 70s and 80s, and the plan that carries it needs to have it as its own line item.
• 22:22
  SPEAKER_00: The straight line is wrong in both directions at the same time.
• 22:26
  SPEAKER_00: Because if it thinks that 88-year-old is going to spend like 66-year-old you, it needs to tell you more than that.
• 22:32
  SPEAKER_00: So if you're in your 60s with the Thailand trip half planned, there's a voice in the back of your head doing the math at the kitchen table that may be saying, hey, be careful.
• 22:41
  SPEAKER_00: Wait a couple of years.
• 22:43
  SPEAKER_00: But I've seen too many people who continue to kick that can down the road until they eventually give up on the dream.
• 22:48
  SPEAKER_00: Meanwhile, that same flat line assumption of spending underflags the late 70s healthcare spikes that deserve that same caution.
• 22:55
  SPEAKER_00: That caution may squeeze you through the years that you should be living, but it undercounts the years that really get expensive.
• 23:01
  SPEAKER_00: A client said something to me once that I think about uh fair about, a fair amount, actually.
• 23:05
  SPEAKER_00: And he said, I don't want to pass away with a million dollars in the bank.
• 23:09
  SPEAKER_00: After nine years of helping people transition to retirement, I keep thinking about that same phrase.
• 23:15
  SPEAKER_00: Because my clients, financial accounts may compound, but their energy does not.
• 23:20
  SPEAKER_00: So this final test is find the spending assumption in your long-term plan.
• 23:25
  SPEAKER_00: If it models the phases you intend, likely spending more in the early years, easing through the middle, accounting for higher healthcare costs and so on in the end, then fantastic.
• 23:34
  SPEAKER_00: If it takes one year and inflates it forever, kind of like the 4% withdrawal rate, that's the fifth crack in your plan.
• 23:40
  SPEAKER_00: And if your plan has been making you feel like you can't afford the life you built it for, this assumption is probably why.
• 23:46
  SPEAKER_00: So that's the one that you need to fix before it's too late.
• 23:49
  SPEAKER_00: But even with every crack in your plan fixed, none of it matters if there's something deeper holding you back from using what you've been building up all along.
• 23:56
  SPEAKER_00: So that's why I get into this video right here, where I broke down the five questions you need to answer to know if you're truly ready to pull the trigger and retire the first time.
• 24:06
  SPEAKER_00: Because the cracks we cover today are largely mechanical, but the questions I cover in this video are more personal.
• 24:12
  SPEAKER_00: And for a lot of people, they unpack what's been unsaid in your plan all along.
• 24:16
  SPEAKER_00: Thanks for watching, and I'll see you in the next video.