The Smart Take:
Suppose you have to have surgery. Does exploratory surgery sound like something you would volunteer to undergo? Or, does a pre-determined surgical plan sound better? If you’re like me, having a plan and a repeatable process sounds less risky and what I would prefer.
The same goes for retirement. Retirement spending. Health Insurance. Social Security. Investing. Taxes. These are all key and complex areas where you need to make smart decisions for retirement. So how do you thoughtfully consider and carefully integrate them into a well-crafted retirement plan?
Listen to Kevin describe True Wealth’s Retire Smarter Solution™ that aligns your money to your goals, overlaid with tax-smart strategies, so you can retire with confidence.
If you are a DYI’er that no longer wants to perform exploratory surgery or are unsure if your current advisor is doing the same, reach out to the True Wealth Team at 855-TWD-PLAN or https://www.truewealthdesign.com/ for a free 15-minute call with an experienced CFP® professional to learn how the Retire Smarter Solution™ can help you.
1:22 – Exploratory Surgery Is Not The Solution
4:10 – What’s The Big Picture?
5:27 – What Are You Actually Spending?
8:57 – Where Is Your Income Coming From?
9:52 – Factoring In Various Risks
11:44 – Having A Concrete Plan Alleviates Fear
15:41 – Making Sure Investments Match The Plan
16:01 – Using A Tax-Smart Distribution Strategy
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Kevin Kroskey: But factoring in those age-related changes is incredibly important. In short, if you don’t do that, you’re probably going to end up working about three years longer than you have to or spending less money. That’s real, real evidence there. That’s what people do or don’t do when you do or don’t do it right.
Walter Storholt: Welcome to Retire Smarter with Kevin Kroskey. Find answers to your toughest questions and get educated about the financial world. It’s time to Retire Smarter. Welcome once again to the Retire Smarter podcast. We’ve got a great show for you today, Walter Storeholt here alongside Kevin Kroskey of True Wealth Design, and suppose you’re having surgery.
Walter Storholt: Does exploratory surgery sound like something you would volunteer to undergo, or does a predetermined surgical plan sound a little bit better if you’re like me. Having a plan in a repeatable process sounds less risky, and it’s what I would prefer. And the same goes for retirement. You’ve got retirement spending, health insurance, social security, investing, taxes. These are all key and complex areas where you need to make sure you’re making smart decisions for retirement. How do you thoughtfully consider and carefully integrate them into a well-crafted retirement plan? On today’s show, we’re going to talk about the true wealth Retire Smarter solution that takes steps to align your money to your goals overlaid with tax-smart strategies you can retire with confidence. And here to walk us through the Retire Smarter solution is, of course, Kevin Kroskey and Kevin, tell us what it’s like to walk through this process. All the elements that are involved.
Kevin Kroskey: Yes. Exploratory surgery doesn’t sound good to you, Walter? Whenever people come into our office, they have all these, this financial stuff taxes, healthcare concerns, investments, savings, spending, pension, social security, all this stuff. But ultimately, most importantly, they have a vision, at least most people do about what they want their life to be like, what they want their retirement to be like. And just going ahead and sorting through everything and prioritizing and integrating. It’s a big job. There’s a lot of different areas with a lot of complexity involved and what we’ve done over the years is just develop our own unique process to go ahead and be able to walk somebody through this path of, Hey, how do we actually get things in order, get the clarity, get the confidence we need, make sure that we’re making smart decisions, making sure that our money’s going to last and Retire Smarter.
Kevin Kroskey: And that’s what really what we’re going to share today. I’m just going to walk through the process that we’ve been doing really for a decade now. We just package it I think a little bit differently in the last year or two to make it more accessible. And people can understand what they are getting when they go through a process and are working with us. But I think the doctor analogy that started with is a good one. There’s, if you’re working with somebody or if you’re trying to do this yourself and you maybe have some knowledge, but you really don’t know how to put this all together well you can quickly go down a rabbit hole, miss something critically important, you name it. And I just had a conversation just the other day with a gentleman, very smart, very thoughtful, very detail-oriented.
Kevin Kroskey: He was a, he’s a police officer, he’s the chief of police, and you can tell he’s really well-read and he’s really concerned and he’s identified some issues, and at the same time I shared with him, I said, your situation. He thinks it’s simple. I said, well, maybe it is, maybe it isn’t. And I haven’t met with him and dug into all the details yet, but I could already tell from some of the things that he was sharing that he definitely had some blind spots. And he was in this exploratory surgery phase where he was figuring things out. He was getting some education, he was investing some time, he was getting some confidence, but he didn’t know what he didn’t know. And it became quickly apparent to me. I shared that with him, with kid gloves, I guess I would say, and just suggested about some things he was missing.
Kevin Kroskey: The process is ultimately designed to make sure that we don’t have those things that are being missed. Somebody comes in, what is the process? The six-step process starts with the big picture. What’s retirement going to be like, how much can you really afford to spend? And just getting that framework, if you just say, well, Hey, what are your goals as well? Walter, I don’t know about you, but my goal is to spend a million dollars a month. How’s that sound? Yeah. I don’t know if I could do that. It’s kinda like the old Brewster’s millions movie back in the eighties. You have to have some framework. You have to have some reasonableness, and most people have become accustomed to whatever their lifestyle is.
Kevin Kroskey: Maybe they would like to go ahead and splurge and do a little bit more. Frankly, maybe they can do a lot more, but they’ve never really increased their spending over time and just became set in their ways. There’s nothing wrong with that. Live below your means, work hard, save hard to become financially independent—all good things. But you have to take what you have. You have to take your assets, you have to go ahead and start projecting your social security. And if you have pension benefits or some sort of income stream that’s going to continue to retirement, start formulating that. And then you then start evaluating what is sustainable from a spending standpoint. Very simple. Anybody can really go and do this online. It’s just the base starting point. What is likely going to be able to be spent over time?
Kevin Kroskey: And then quite importantly, well, Hey, how much am I actually spending? In step two, we have the lifestyle analyzer. We’re taking a look at, well, what are you currently spending? We’re going to go ahead and look at some of those goals and say, well, Hey, is this really going to be there in retirement, or is this something that’s going to terminate? Or maybe it was one time, you did some in home improvement project on the house and you did a new patio or something. Well, you’re not going to be doing that every year or whatever it may be, but you get the idea there. And some goals are going to have a higher priority than others. The categories that we frame this into or you have some needs-based goals, heating the house, food in the belly, pay the insurance, pay the property taxes, and then you start going down the totem pole into more discretionary items in terms of, travel, going out to eat.
Kevin Kroskey: If you have a second home, whatever it may be for your own situation. But you have some things that are primary and then some things that are more discretionary, and it’s important to go ahead and rank those. And then, thirdly, when you’re analyzing your lifestyle, and this is critically important, you really need to factor in age-related spending over time. We’ve talked about this in some past episodes. We’ll provide a link to the 80% spending role in our retirement rules gone awry series. But in short, spending tends to decline in real terms as you age. Most of the simple calculators may be that you used in step one when you went online or your financial planner is using or your 401k website when you log in. And does is just taking some simple, straightforward projection and looking at that over time.
Kevin Kroskey: Same spending, the same rate of return. It’s just a linear assumption. Well, when you start getting into how people actually spend, what you see is it does tend to decline over time. The first year after you retire, your spending is going to be pretty darn similar to what you spent the prior year. While you’re still working, sure some things are gonna fall off, but it’s going to be pretty similar by and large. But as you get older, go, go slow, go, no go. The slower we go or the no that we go or don’t go, our spending declines. And as that happens, is this important to factor in those changes? The one thing that I will mention is that even though spending does decline over time when you look at that for our retirees today and maybe their spending hasn’t declined, well what’s different or why are they not really falling within what the spending data, the spending research shows is true.
Kevin Kroskey: And the thing that I would say to that is basically clients that we serve and studies have shown the same thing is that the character of their spending changes. When they get up into their, maybe they’re later seventies or eighties, and they really see that, okay, Hey, my retirement plan is really played out pretty well. I’m definitely going to have more money than I need. I want to go ahead and I’m going to keep spending, but my character in the spending is changing. Maybe now I’m giving more to my kids, to my grandkids, to the charities that I’m supporting. But factoring in those age-related changes is incredibly important. In short, if you don’t do that, you’re probably going to end up working about three years longer than you have to or spending less money.
Kevin Kroskey: That’s real, real evidence there. That’s what people do or don’t do when you do or don’t do it right. We got the first two steps under wraps. Now we got the big picture, the ballpark framed up. We looked at our spending factored in some age-related spending changes, ranked our goals between needs, more discretionary items. Now we get into income. Social security expander, most everybody has social security. You paid into it for all these years. Let’s make sure that you get the most out of it. And if you have a pension, some clients we have, I think one client, husband, and wife have four different pension plans. You have all kinds of different options. How are you going to take it on your life only are you going to take a survivor benefit? What about a lump sum option?
Kevin Kroskey: All those things, you started looking in a vacuum and looking at it on its own, but then you absolutely have to go ahead and formulate that and fit it into your retirement plan. Nothing is done in a vacuum. It just helps to go ahead and understand some key traits and variables about it before you fit it into your overall retirement plan. And then anything that isn’t going to be met by your income sources for social security, for pensions, if you have some rental income and retirement or defer compensation obviously has to come from your savings and your investments you have some risk there. The risk is really, Hey, if my savings and investments don’t do well, what lifestyle risk or cut back risk, might I have? And again, this is one of the important reasons why in step two, when we analyze your lifestyle, we really need to go ahead and not only create those spending goals but rank them, from the needs down to the more discretionary wants or wishes.
Kevin Kroskey: The other risk that every retiree faces is just health insurance costs. Particularly if you’re retiring before 65 your costs are going to be quite high at least for a few years until you get onto Medicare and 65 and then, Oh, by the way, most people are at least somewhat concerned about, Hey, what if I have to go into an assisted living facility or a nursing home? What risk does that pose to my planning? Can I afford that? Can I afford to self-insure that or should I actually consider some sort of insurance policy to go ahead and mitigate that risk? We need to look at health insurance costs. We need to go ahead and look at the longterm health care risk and any shock that may provide to your plan. And whether you can sustain it. And then we really need to go ahead and stress test the plan and the investments to assess what lifestyle risks you have.
Kevin Kroskey: And again, if we go through that and we see that, Hey, your needs are met to a very high degree, some of your more discretionary items are met. But Hey, maybe you do have to go ahead and cut back in some of the most discretionary goals. And you’re okay with that. Well, that’s the whole point of planning and bringing it together and making a very clear about what sort of trade-offs you may have to make in the future. Not saying that you will have to cut back, but Hey, if we’re dealt a bad hand of cards, ultimately we may have to play the hand that we’re dealt. At least we have a predetermined plan about how we’re going to change your spending behaviors to make sure that longterm, we’re not going to go ahead and go off course and put our primary goals in our needs at risk.
Kevin Kroskey: And in my experience in working with people having this concrete plan, when you have a fear of the unknown, Hey, if the market goes down or Hey, this is really tenuous, what’s that going to do to the market? We can go and we can show people, say, look, if your worst fear happens, if another 2008 2009 happens, here’s exactly what’s going to happen. We know what your spending goals are. We’ve measured them. Not only would we measure them, but we’ve factored in those age-related changes, and we’ve gone ahead, and you prioritize them about what’s most important to you. And this most discretionary goal, remember that one that you, that we went through. If things get really bad, you might have to cut this back rather than doing it through say into your eighties maybe you’re only going to be able to do it for the first 10 years of retirement.
Kevin Kroskey: If things get that bad. A worst-case situation historically, is that okay for you? Inevitably, we wouldn’t go down the plan in the first place unless that was okay with somebody. But when you start framing it that way and you start connecting the dots and making it concrete, inevitably you see this, this calmness comes over them. They see It’s not like, Hey, I’m going to be destitute and broke. Like, okay, Hey, if I can’t travel to Florida for 20 or 25 years, I only get to do for 10. I’m not going to maybe be happy about it, but it’s not the worst thing in the world. I think I’ll be okay. And that’s the whole idea of this again. Make it clear, make it concrete, show how all the pieces and parts fit together.
Kevin Kroskey: That was step four. The risk mitigator looking at all those different risks, healthcare, longterm care, as well as the lifestyle risk. If we’re dealt about the hand of cards, particularly at the outset of retirement, after we have that big picture plan in place, we’ve done, we framed our ballpark, how much can we go ahead and likely afford to spend over time? We see our current lifestyle spending. How does that match up factoring those age-related changes, we got the different hierarchy for the needs, the wants, and the wishes for their spending goals. We’ve made smart decisions on social security and our pension. We looked at some of the key risks that pretty much every retiree faces for health insurance, longterm health care, as well as any sort of lifestyle risk and their plan if they are dealt that bad hand.
Kevin Kroskey: Now we get into some of the details in the steps five and six in making sure that we’re looking at and making smart decisions on our investments, making sure that that is matched, customized, tailored back to our plan that we put in place. And then we’re going to overlay all of it in step six with a tax-smart distribution strategy. Those are the six steps. Again, we call that the retirement visualizer. We’re starting out—the big picture, framing that ballpark of really what is possible with what we’ve accumulated over time. Step two, digging into our lifestyle, really measuring what does it cost to do the things that we’ve become accustomed to doing? Are there additional things maybe we want to add in retirement now that we have more time or maybe we have more flexibility and more ability to go ahead and increase our lifestyle in retirement.
Kevin Kroskey: Then in step three, again, we’re making sure that we’re making the smartest decisions possible with our income sources, with social security, with pensions, looking at a first in isolation we can really hone in on the core variables and then we’re making sure that we’re going to fit it into the retirement plan because all of these things really work together. Step four, we’re going to look at all the different key risks that every retiree faces, health insurance costs, making sure that we’re making smart decisions there before Medicare on Medicare. Looking at that longterm health care risk and seeing, Hey, can our plan make sure that we can shoulder any sort of longterm healthcare shock that we may have to live through? Then we’re going to go ahead and assess our lifestyle risk by really stress-testing our investments in saying, Hey, anything that’s not being met by our income sources for social security and pension has to be met by our savings and investments.
Kevin Kroskey: And if we do have a bad hand dealt to us, are we going to be okay or where are we going to have to cut back through the different goals that we’ve already defined and prioritized? We’re going to dive into the investments, we’re going to go ahead and estimate the return that you need. We’re going to analyze your investment allocation, make sure you’re not paying too much in fees or taxes, and then very importantly we’re going to go ahead and match your investments back to your plan. The whole goal is that it has the custom fit, like a glove back to your plan to provide the income that you need. And then lastly, and quite importantly, and I’d never met anybody that really liked to leave a tip when it came tax time, but we’re going to go ahead and overlay a tax-smart distribution strategy now that we have your plan in place.
Kevin Kroskey: Now that we’ve defined your investments and how they need to be customized to your plan. Now we’re going to take a keen eye towards making sure that we have a smart spend-down strategy for you. Taxes are somewhat on sale from now until 2025 under this tax reform act that was passed in 2017 that creates a lot of opportunity for a lot of our clients. And then if we do that, studies show that basically, Hey, we can probably make your money last a few years longer than what it otherwise would if we did not have that tax-smart distribution strategy. This is our Retire Smarter solution. Whether you’re doing this on your own, whether you’re a client of ours, or whether you have another advisor, you certainly should have a process, and you should see how the pieces and parts fit together to make sure that you are making smart decisions. Make sure that you have the clarity and the confidence that you need to Retire Smarter.
Walter Storholt: It’s important to make sure that you have that process in place, and if you don’t, that’s a red flag. That means you’re not ready for retirement, you’re not ready to attack your financial future with confidence. And if you want to get that plan in place and you’re interested in speaking with a Certified Financial Planner and a member of the True Wealth Design team, all you have to do is go to TrueWealthDesign.com and click on the are we right for you button to schedule your 15-minute call with an experienced advisor on the team. Go to TrueWealthDesign.com and click on the, are we right for you button to schedule that call or you can dial in directly to (855) TWD-PLAN that’s (855) 893-7526 Kevin, thanks for walking us through this Retire Smarter solution, informative and helpful and we’ll look forward to another great show with you next time.
Kevin Kroskey: Thank you, Walter.
Walter Storholt: For Kevin Kroskey, I’m Walter Storholt. We’ll talk to you next time on the Retire Smarter podcast.
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 reference is historical and not an indication of future results. Benchmark indices are hypothetical and do not include any investment fees.