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Getting to the point where you finally decide to retire is one thing, but trying to ride off into the sunset can be an exceptionally tall task. Hear Tyler Emrick, CFA®, CFP®, talk through his five must-do items to help you feel confident about cutting the paycheck cord.
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The Hosts:
Kevin Kroskey, CFP®, MBA – About – Contact
Tyler Emrick, CFA®, CFP® – About – Contact
Intro:
Hey, it’s another edition of Retire Smarter. Walter Storholt here with Tyler Emrick, wealth advisor, CERTIFIED FINANCIAL PLANNER™ at True Wealth Design, serving you in northeast Ohio, southwest Florida, and the greater Pittsburgh area. Find us online at truewealthdesign.com. Today we’re going to talk about the top five to-dos before you retire. Before we get to all of that, though, Tyler, it’s great to be with you. How are you?
Tyler Emrick:
Yeah, happy to be here, Walt. Hanging in there. How about yourself?
Walter Storholt:
Yeah, doing well. You getting into anything exciting as we start to turn that page toward the spring?
Tyler Emrick:
No, not at all. I mean, I looked out the window this morning, and the sun was shining. We’ve got a few days where we’ve gotten up into the 50s, so hopefully, that’s a good sign that winter is behind us. Here being in northeast Ohio, winters can drag well into March, and we can get those surprising snow storms. So hopefully, none of those come.
Walter Storholt:
Get your swim trunks ready; it sounds like.
Tyler Emrick:
That’s right. Oh, we’d love that. And now, maybe it’s too early for that, Walt, but we’re moving in the right direction.
Walter Storholt:
We can be optimistic here on the show occasionally, Tyler; it’s okay. Awesome. Well, good stuff. Looking forward to today’s show. Hey, we’re going to take some things, taking a step back on the show today. I love it when we have the chance to do this occasionally, Tyler. We talk about some really nice in-depth things here on the show, we sometimes get into real specifics about particular plans, products, strategies, and I love hearing you and Kevin break it down. But we felt like it was time for a nice list, something easy to follow, easy to understand. And let’s take it back to basics a little bit. So, what inspired today’s conversation of the top five to-dos before you pull that retirement lever?
Tyler Emrick:
That’s right. I mean, Walt, I look back through my career. I’ve met with a number of individuals over the years, and far and away, hands down, the number one thing that I get are concerns or the top priority, shall we say, is retirement for a lot of those individuals and maybe more specifically, “Hey, when can I retire? When can I turn the page, close the book on working and start to go into the next chapter of my life?” And you think about retirees face a ton of challenges nowadays and decisions that they’re going to have to make, and we want to make sure that we do those with our eyes wide open and we get the best information possible in our hands to make those decisions. And well, I don’t know about you all, but hopefully, if I retire, I only want to do it once, or at least I do it once, and then I go back to work under my own terms. So we want to make sure that we get these.
Walter Storholt:
Right. So you’re saying a Tom Brady situation, we don’t want to retire, unretire, reretire, still have speculation about unretiring, all that kind of stuff.
Tyler Emrick:
Well, you call me the greatest football player of all time; hey, I’ll do whatever. But yes.
Walter Storholt:
Guess, technically; he also went back on his own terms.
Tyler Emrick:
That’s true.
Walter Storholt:
We can debate the consequences of him having done that, but that’s another style of podcast, I’m sure.
Tyler Emrick:
Right. And probably a couple podcasts under there to unpack. But yes, you’re right. So we thought it would be a good time to just go through, like you mentioned, it’s going to be list format today, and just kind of knocking out those top five to-do’s before you retire.
As we were doing a little bit of the prep work for the podcast, the first thing that I wrote down as my key point number one actually has nothing to do with the dollars and cents of retirement. It’s actually having non-financial retirement plan. That’s have a non-financial retirement plan. So you’re probably thinking, what the heck does that mean? And as I look back, I was actually sitting down with a family a few weeks ago, and the husband looked over to his wife and said, “Hey, they say retirement is half the money and twice the husband.” And we got a nice chuckle out of it. It was really good. I mean, of course, he’s alluding to the fact of, “Hey, I’m not going to be working, pay is going to be cut, and I’m going to be home with you a lot more.” And I think that gets at the crux of what I mean by have that non-financial retirement plan. How are you going to spend your time?
Build off that a little bit. I had an individual who I’ve known for a number of years, and through our conversations, he would always tell me, he was like, “Hey, as soon as I get my full pension, I am out of here.” He was actually a state employee for any of the state employees that are listening. They know they have a lot of times pretty good pension plans. He was like, “Hey, once I get my full pension, I am out the door.” And lo and behold, got his full pension. He was out, right? Retired and was doing his own thing. And literally, within two months, he was back to work, believe it or not.
Walter Storholt:
Oh wow. That’s not much time.
Tyler Emrick:
Not much time at all. And it had nothing to do with the financial aspect of being able to retire. For him, it was much more of the social aspect. I think he made a comment to me, he’s like, “When I go to the local restaurant and sit and have my coffee in the mornings,” he’s used to doing that on a Saturday morning where all his friends were there. They would chat about the week, get caught up on something of the town gossip, and then go about their day. Well, I mean, all those guys were still working, and looking back-
Walter Storholt:
This could be a particular challenge for those who have a tight work social circle, and you’re kind of the first one to pull the rip cord.
Tyler Emrick:
Oh, absolutely. I mean, for him, two months. Two months. And he was back to work. And again, it has everything to do with those social interactions that he gained from working. I mean, a lot of his buddies were at the job that he was working at, and then the buddies that weren’t, again, they were still working because he had trying to retire early, so it didn’t necessarily work out in his case. And Kevin, I think, has done a number of podcasts on Maslow’s hierarchy of needs, and I think that does a wonderful job to illustrate the difference between work and retirement. Going back to your high school classes, talking about Maslow. For those of you that don’t know, they’re just five basic human needs that Maslow came up with that says, “Hey, you can,” they’re traditionally described in a triangle. So at the base of that triangle are like psychological needs, safety needs, things like having food, water, shelter, personal security, employment, things like that.
And then, as you move up that pyramid, we get into things like friendships and self-actualization and esteem, which are more desire to become the most that one can be self-respect, things like that. So I think it’s extremely important to take a step back before you pull the plug on retirement and start thinking about and saying, Hey, what is my current job or career giving me in the form of … Well, of course, it’s giving me a paycheck, it’s given me some personal security, but then also to what am I getting from the standpoint of my friendships and my social interactions and how are those going to be replaced as you retire and you’re no longer going back into work for eight, 10 hours a day?
Walter Storholt:
I’d recommend to folks to go back and check that episode out, by the way, about your hierarchy of retirement needs. It was episode 76, Tyler. It was a little ways back. It looks like that was in 2021 in the summer, but I imagine there’s probably some COVID talk or some other things in that particular episode. Who knows, being back in 2021 in the summer, but certainly, there will be some good conversation about the hierarchy of needs that is probably pretty evergreen and applicable even to today.
Tyler Emrick:
Oh, absolutely. And it doesn’t have to necessarily just be that personal security, paycheck, and friendships. I mean, it’s also where are you getting that drive from and where are you getting that respect and self-esteem from? I mean, I had a nurse that I met with a number of years ago as well. She ran a large nursing department, did very well, retired, and kind of found herself wanting that responsibility that she lost because she was not working any longer. So she had to really think about other avenues. She started working, and she took over president of her condo association and did some other things to where she got that social interaction, and she also got that challenge that she was looking for that she got while she was working, kind of filled that need once she retired.
Walter Storholt:
Fantastic. So that’s the first one. We don’t even hit the financial stuff yet, but number one on the list, have that sort of non-financial plan.
Tyler Emrick:
Don’t worry. Two gets there.
Walter Storholt:
I’m sure, I’m sure. All right. Let’s go. Let’s do it.
Tyler Emrick:
Number two, I wrote down visualize and project, and this is really getting down into the nitty gritty as you’re starting to think about retirement. What I mean by nitty gritty is you’re really starting to aggregate together all those financial assets. I can’t tell you how many times I’ve met with individuals where they have multiple retirement accounts from prior positions where they have an account at this custodian or account there. And it’s really just taking that first step to wrap your arms around what financial assets are you going to have as you start to head into retirement. And then two, what sources of income might you have down the road that you need to make decisions on? These are things like social security, pension plans. Are you planning to do some consulting work into retirement, and it’s going to supply you with a little bit of extra income, but it’s really just trying to outline those assets or those accounts and those sources of income.
And then two, not only saying, Hey, I have these, but what decisions are you going to have to make around them at some point? Maybe they don’t have to be made now, but at some point down the road. For example, are you going to leave your 401K in with the 401k provider, or are you going to roll it to an IRA? What withdrawal options does your 401k provide? You start thinking about social security. When are you going to kick social security in? If you’re married, when is your spouse going to kick them in? So these are all decisions that are going to come up at some point down the road, and having an understanding of some of those pros and cons or at least, hey, when are some of these decisions going to need to be made can be very, very helpful.
And then two, in this step, we’d normally like to do a little bit of light planning as far as starting to evaluate, well, what type of spending will those assets support? A lot of times, this is done through some basic analysis. A lot of tools are available to individuals through their employer where they can get online, put in some of their retirement assets information, and kind of extrapolate out the next 15, 20, 30 years and do a very light projection. Now, this isn’t something that I would retire on by any means, but it’s more so to give you a frame of mind to start your plan to say, “Hey, based off what I’ve got saved,” what’s a rough estimate on what that’s going to be able to support and the lifestyle that that’s going to afford you?
Walter Storholt:
This is excellent, and that’s a really good one to have. I think lined up as number two sort of helps with that transition from the non-financial elements into the financial world of that visualization. And that was it projection, was that the second word that you –
Tyler Emrick:
Visualize and project were the numbers that I put on that one.
Walter Storholt:
Yep. Okay.
Tyler Emrick:
So, we’ve taken a look, and we’ve said, hey, have a non-financial retirement plan. Two, we did the visualize and project, now we need to start measuring, which is item number three. And when I mean measure, what we’re going to try to do is we’re going to take a look and measure your current lifestyle. So what are you actually spending? And try to get a gauge for that. Now, there’s a whole host of ways that you can take a look into this, and there’s been a number of studies to try to help you quantify and dig into your spending. Budget is a term that gets thrown off a lot. I know a lot of people, when I say the term budget, might cringe a little bit, but it’s important to understand where your money’s going and how that spending might change throughout retirement.
So as you think about, there’s been a ton of studies done on retiree spending. The one that I kind of refer to the most is the what’s called The Retirement Smile, if you’ve ever heard of that. You can just Google The Retirement Smile, and it basically pulls out and does a study that shows how retiree spending normally stays pretty high at the beginning of retirement and then has this steady decline down. And then once you get down into, say, your mid-80s, it kind of bottoms out, and then it starts to increase again like a smile.
Walter Storholt:
Oh, okay, I get it.
Tyler Emrick:
Yes. And there’s a number of reasons for that, but if you start thinking about your own personal situation and the spending that you have, well, let’s take a look at that. For example, let’s say you’re getting ready to head into retirement, but yet you still have a mortgage. Is that mortgage going to be paid off in retirement? Well, okay, well then, that’s money that you might need now, but it’s not going to be money you’re going to need throughout the entirety of your retirement. So assuming that you’re going to need to cover that mortgage payment throughout your entire retirement just isn’t realistic. So we want to appropriately account for that when we’re adjusting and thinking through that spending. Same thing with cars, right? Maybe you have a car loan that you’re paying on now, and then as you progress through retirement, that car loan gets paid off, or maybe you’re buying less cars as you get into your 80s and early 90s and driving.
Another big one would be travel. All right, hey, maybe you’re going to be traveling quite a bit early in retirement. How do those travel spending needs going to change as you progress into retirement? Kevin’s mentioned multiple times on the podcast how he refers to it as we break down that retirement into decades. So you got that first decade where he calls it the go-go years. You’ve got the second decade, where you got the slow-go years, and then the third decade, the no-go years. So your spending normally patterns that, and we want to make sure that we’re accounting for that as we’re starting to think about, “Well, hey, can I retire? Do I have enough to look at that?” We call that age-related spending.
And if we feel that if you don’t really account for it that way, well, what’s going to happen is you’re going to assume that you need more money than you actually do to retire, which might cause you to work maybe a year or two, maybe three years longer than what you actually have to because you have this big spending number that you’re trying to hit and that you think you’re going to need to hit throughout your entire retirement. But in actuality, that spending we find typically decreases with the vast majority of the families that we work with.
Walter Storholt:
Okay, very interesting.
Tyler Emrick:
So you’re really diving into those spending, right? You’re taking a look at it and then two, once you feel like you have a good handle on it, well hey, now we can take a look and say, “All right, how does those numbers compare to that sustainable spending number that we talked about in step two?” Is it higher? Is it lower? Does it seem to fit in pretty well? And then you can kind of gauge to say, “Hey, confidently, I feel like I’m in a place to where I can cover all the spending that I want to in the lifestyle that I want to live in retirement and do it confidently.”
Walter Storholt:
You would think when planning for retirement and talking to a financial planner or a wealth advisor or someone in your field, Tyler, that you’d be getting into the conversation about investments and return and all of those things so quickly, but yet so much emphasis already, you’ve talked about these five to-dos is on one, the non-financial part of retirement, and then two, it’s just really getting into the spending details, and I don’t want to use the bad word of the bad B word here, but about at least a general budgeting focus to just get a good handle on that. I guess that’s just how important it is to the process.
Tyler Emrick:
Oh, absolutely. And there are a whole host of ways and analysis that we can run to help you with that budget. I mean, I’ve had families use mint.com. We have a process where we can sort of back into your spending based off your prior year tax returns and kind of breaking it down. So there are a whole host of ways that we can help as financial advisors help you navigate that spend, especially if you cringe a little bit when you’re like, “Hey, I’m going to go to line item by line item for the last six months on where my money went and where I was spending.” So there’s a lot of tips and tricks that you can go to kind of navigate and get you to a point. Well, I guess that’s the most important thing, right? Getting you to a point to where you feel comfortable with the numbers so that way you can actually pull that trigger and go in retirement.
And to go back to your point, Walt, about the investment side of things, you’re 100% correct. I think that having the plan in place and doing some of that front-end spending work and that work on, “Well, hey, how are you going to spend your time in retirement?” What that allows us to do is when we create the plan, and we’re projecting out over, say, the next 30 years and taking an inventory of saying, “Hey, how does this look? Are you going to be able to do it?” One of the key things that we’re looking at is, well, what rate of return do you need to get on your money to make that work? And that rate of return that you have to get is really going to drive down and help us as we’re starting to build the portfolio and make recommendations on how we feel like you should have your money invested.
That’s an important number to know because if you’re in a situation to where you could essentially earn nothing on your money but still accomplish all your goals, well, that’s going to be a much different conversation around investments than someone that says, “Hey, I need to get a 5 or 6% return on my money to make this plan work and make spending a reality that we want to fit in a lifestyle that we want in retirement.”
Walter Storholt:
Perfect.
Tyler Emrick:
So we call that required rate of return. Now, too, as we think about investments, there’s the other aspect that’s just one piece of the puzzle. Yes, we need to know what rate of return you need to earn on your money to make everything work, but we also need to take a look at the emotional side of things as well and make sure that we start talking about, well, what volatility expectations, what would happen or how would you feel if your account lost this or that? And kind of use that again to kind of really fit into that perfect or not necessarily that perfect, but fit into the right investment mix and allocation for you and your family.
Walter Storholt:
Okay. A lot of moving parts now entering the equation. What else is on our five to-dos before retirement list?
Tyler Emrick:
Sure. So as we kind of move on to point number four on the to-do list, I wrote down create your distribution plan. So normally, by this step, we’ve done a lot of that preliminary work, and you probably have a pretty good idea of, “Hey, I’m at least on track to retire, or I can retire.” Now we’re getting down into that actually getting down and making it happen. And our office, we always say that we don’t create a retirement paycheck because, well, that’s what annuity salespeople say. Rather we create a sustainable, tax-smart, spend-down strategy. Hopefully that sounds a little bit better, Walt, than just, hey, recreating the paycheck.
Walter Storholt:
It sounds more Kevin and Tyler, that’s for sure. Yeah, absolutely.
Tyler Emrick:
Well, good, good. And what we mean by that is really taking a step back and saying, “Hey, how are we going to approach each year of retirement?” more specifically, that first year, that next year. A lot of times, as we look at retirees, there are many different competing objectives as they look at their retirement plan, and we got to kind of weigh the pros and cons of those competing objectives so that way we can zero in onto the plan that really fits what you’re trying to accomplish.
So what are those competing objectives? So the first of which is really focusing in on the tax side of things. How high do we want to take your income each year? What does your long-term tax rate look like, and how can we use that information to develop a good spend-down strategy for you here? How do you have your accounts broken down now? Are they all in retirement accounts where when we pull them out, you have to pay taxes on them, or do you have assets outside of retirement accounts where we can maybe do some harvesting at 0% tax rate and realize some gains, or maybe we can do some Roth conversions to fill up different tax brackets. So that tax side of things, I think, is an integral part of this step.
But then we’ve also got, well, what about healthcare? For anyone who’s retired pre-65, they know the importance of managing income to maximize healthcare tax credits if you have to go onto the individual healthcare network. There’s also individuals that are over 65 who are on Medicare where they got to worry about Irma and taking their income too high so they don’t have to get hit with those extra premium charges for their Medicare. For individuals that are looking to retire much, much earlier, or maybe they had children late, and they still have children in college. Well, hey, they’re maybe trying to navigate some tax credits like the American Opportunity Tax Credit or the lifetime learning tax credit where you have certain income thresholds to where if you go above them, you lose some of these tax benefits.
And I’ll throw on another one here as I’m kind of just rattling off some of these levers that individuals can pull at different times and as they’re trying to navigate that distribution plan. But the other we’re getting quite a bit is paying off mortgage versus tax bracket management. So hey, we want to take income up to a certain level. We want to pay this taxes because we feel like it’s appropriate in your situation versus your long-term tax rate. Well, what do we do with that money? Does it go into Roth? Does it maybe go to pay down debt specifically? I get a lot, “Hey, I want to pay off my mortgage.” I mean, a lot of families go into retirement, say, “Hey, I don’t want to have a mortgage.” And that’s great, but I mean, we just look at the landscape over the last few years and how low rates were some individuals that got their mortgage down in the mid-twos. I’m not lucky enough to have that Walt. I don’t know if you are, but-
Walter Storholt:
I had a 2.75 before we moved. I miss it.
Tyler Emrick:
I was going to say, right. We did our move last year as well, and I’m like, I’m missing mine. Mine was right around the mid-twos as well when I did my-
Walter Storholt:
We’ve got a higher mortgage rate and some higher taxes, man, it’s-
Tyler Emrick:
Double whammy. Who’s your financial advisor, right? Come on. Jiminy Christmas.
Walter Storholt:
Who advised this move? It’s so terrible.
Tyler Emrick:
But I think that’s what I love about financial planning, and just working with the families that I do is everyone’s different, and those priorities might be different depending on who I’m working with and what they’re trying to accomplish in their situation. Going all the way back to that number one and having that non-financial retirement plan, how are you going to spend your time? What does your spending look like? That type of stuff. All that is integrated to help us make the best decisions that we can as you’re starting to decide, well, hey, what do I want to do? How do I want to do it? And how should I leverage some of these things that are afforded to me?
Walter Storholt:
One thing that really resonates with me as you go through this list, I know we’ve got one more to hit here, Tyler, but it’s just this, it’s a big mindset shift, both just non-financial, like point number one was that’s a big piece of the puzzle. We’ve got to shift our mindset and our priorities and the things we’re thinking about when we hit retirement. But then the same is true on the financial aspect too. You’ve spent your whole life accumulating, and now it’s like the different buzzword then is the distribution. And that’s why that’s its own piece of the puzzle here of, okay, you’ve had this regular paycheck coming in for a really long time, we’ve got a different way of thinking about things and viewing things for the next 20, 30, 40 years of your life depending on when you pull that retirement trigger. So interesting to just see that there’s this overall mind shift both in the non-financial and the financial space.
Tyler Emrick:
You got it. Which, I think, leads us to key point number five, where it’s, hey, find an expert to help if you feel like that you need it, right? Someone that’s competent, trustworthy to help guide you through the process. This is an irrevocable decision that, hopefully, that you’ll only make once; like we mentioned before, hey, if you go back to work, you want to do it on your own terms. But the old adage, and I think it’s something I mentioned almost every podcast that I’m on, but you don’t know what you don’t know. I mean, it is so good of a comment because you really don’t. I mean, I listed off just a handful of items there when we were talking about creating your distribution plan of things that might impact you; it might not. And then trying to understand how do you quantify and use math to help you make those decisions.
Sure, we don’t want to forget about the emotional side of things and doing what’s right for you and your family, but if we can use math and really boil it down to say, Hey, this is the clear-cut winner in this decision and this is why, and articulate that in a way that resonates with the individuals that we work with and they understand the why behind it, we’re going to put them in, all our families are going to be put in a situation where they can make the best decision for them. And I think as a financial advisor, I mean that’s really where we fit in and where we’re trying to help and what we’re trying to do as you’re starting to try to navigate and tackle the big retirement.
Walter Storholt:
People can do this stuff on their own. You can take this top five list, this five to-do list, and start ticking through it on your own, but there’s just so many unforeseen consequences. Like you said, Tyler, it’s the things that you don’t know; it’s the questions you don’t even know that you need to be asking. All of those kinds of things where that can make a dramatic difference in your financial plan and in your retirement life and how that number one pans out. You want 2, 3, 4, and 5 on this list to help, number one, become a reality that non-financial part of the retirement plan. You’re listening at your goals, your fun stuff, the things you want to do, what your plan is as you make that shift, but you need the finances to help you accomplish all of that stuff. And sometimes, it’s just too many moving parts for one person to be able to do it all effectively and efficiently without a great expert and a great team behind them. So I mean, that’s where you guys enter the equation, Tyler, to help people accomplish all of those goals, make sure everything works smoothly together.
Tyler Emrick:
Yeah, I always joke and make the comment like, “Hey, they like to keep me employed.” So sometimes they try to make it as complicated as possible. It seems like. So that way as financial advisors still have a place, but there’s still, there’s some truth to that. I say it jokingly most of the time, but there are. I mean, there’s tax law changes that happen and come up all the time. And then two, it can be difficult to stay up on some of those and understanding that, hey, does this really affect me? How is it going to affect me, and what do I need to do? And as you think about a financial advisor, that’s our job is to go through those things, identify them and present them to you and say, “Hey, did you think about it this way?” Whether you take the advice or not, that’s one thing, but hey, presenting these alternatives and presenting these options and saying, Hey, have you considered this, I think is an integral part of what we do on a day in and day out basis.
Walter Storholt:
Yeah, complexities aren’t fun for everyone else, but whatever your industry is, you appreciate the complexities because that’s what makes you the expert. And we call that job security. I love that. That’s fantastic.
Well, hey, if you’ve listened to today’s episode and you haven’t done some of these to-dos, and you’re getting ready to retire, work with the team at True Wealth Design to stay on the right path or get on the right path if you’re not there yet to retire successfully and with confidence. And if you want to do that, you can easily have a conversation with a member of the True Wealth Team. All you need to do is go to truewealthdesign.com, look for the Are We Right For You button, and you can schedule a 15-minute call with an experienced advisor on the team. It’s that easy to begin; you just go to truewealthdesign.com, click on the Are We Right for You button. You can find that link in the description of today’s show as well in the show notes section. Or you can also call 855 TWD Plan. That’s 855-893-7526.
Well, Tyler, I appreciate you being on the show today and filling us in with lots of great information and this top-five list, and I know we’ll be chatting again soon.
Tyler Emrick:
Yeah, no, it’s been great. I think Kevin’s back on the next one, so.
Walter Storholt:
The return of Mr. Kroskey.
Tyler Emrick:
He is.
Walter Storholt:
We’ll look forward to that and talk to you again down the line. Tyler, thanks so much.
Tyler Emrick:
Sounds good. All right.
Walter Storholt:
Take care. For Tyler, I’m Walter. We’ll see everybody next time on Retire Smarter. Until then, take care.
Disclaimer:
Information provided is for informational purposes only and does not constitute investment tax or legal advice. Information is obtained from sources that are deemed to be reliable, but their accurateness and completeness cannot be guaranteed. All performance references are historical and not an indication of future results. Benchmark indices are hypothetical and do not include any investment fees.
