10 Questions to Ask Yourself Before Retirement with Chris Rett, CFP®, AIF®

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10 Questions to Ask Yourself Before Retirement with Chris Rett, CFP®, AIF® Show Notes

It’s our Season 10 finale of The Guided Retirement Show, which means it’s time for Chris Rett, CFP®, AIF® to join Dean Barber as the featured guest. Chris and Dean are going to review 10 questions that everyone should ask themselves before retirement. If you’re planning to retire around three to five years from now, make sure to take some notes and to ask yourself these questions before retirement. Let’s review the questions and then we’ll explain why everyone should think about them before retirement.

10 Questions to Ask Yourself Before Retirement

10. When should I/we start Social Security?

9. What types of insurance do I need in retirement?

8. What healthcare and other unexpected costs can I expect in retirement? And how do I plan for them?

7. How do I plan for inflation and other uncertain economic changes?

6. When was the last time I reviewed my estate plan? Do I need to make changes? Are my beneficiaries up to date?

5. Am I emotionally ready to retire? How will I maintain my health in retirement? Have I considered how the transition from work to retirement will affect my mental health and sense of purpose? Do I have hobbies or interests I want to pursue?

4. How do I account for/plan for taxes in retirement?

3. How will I generate income in retirement and what is my distribution strategy?

2. What will my lifestyle be in retirement and have I saved enough money to retire?

1. What do I want my legacy to be?

10. When Should I/We Start Social Security?

No. 10 on our list of questions to ask yourself before retirement is when to start claiming Social Security. And if married, when should a spouse start claiming Social Security? You’re eligible to begin claiming Social Security benefits at age 62, but the longer you delay claiming it, the larger your benefit will be. Different claiming strategies can result in varying amounts of retirement income.

It’s a huge decision, but it’s not one that can be made in a vacuum because Social Security is taxed differently than any other asset or form of income in retirement. Social Security can also cause other assets that might not have already been taxable to become taxable.

“There’s a tax puzzle to when you claim Social Security as well. It’s not as simple as doing a break-even analysis.” – Dean Barber

The tricky thing about Social Security is that it’s based on something that nobody knows the answer to: when will you pass away? Some people might start claiming their benefits when first eligible if they don’t expect to live much longer after retirement. If you have a long life expectancy, waiting to claim until you’re 70 (or closer to 70) could make more sense.

Your life expectancy is only part of the equation if you’re married. Claiming Social Security for married couples should be a joint decision.

“It’s not a me decision; it’s an US decision. How the spouses claim together is where the magic really happens.” – Dean Barber

What if one spouse is significantly younger or in better health? The argument for delaying could make a lot of sense. The bottom line is that the strategy to claim Social Security won’t be the same for everyone.

9. What Types of Insurance Do I Need in Retirement?

Next up on our list of questions to ask yourself before retirement is, “What types of insurances should they consider in retirement?”

There are a couple of key things to keep in mind when it comes to insurance is retirement. First, nobody ever buys an insurance policy with the mindset of wanting to file a claim as soon as possible. You buy an insurance policy for protection if you do need to file a claim.

Obviously, health insurance is one type of insurance that you need in retirement. Consider getting a Medicare Supplement or Medicare Advantage plan on top of your Medicare. Car insurance and homeowner’s insurance should also be considered.

Should You Carry Life Insurance into Retirement?

Another type of insurance to keep in mind as you’re approaching retirement is life insurance. Should you carry life insurance into retirement? If one spouse suddenly passes away, the surviving spouse is going to be in a higher tax bracket the next year because they’re going to be a single filer. If you’re married, you need to think about whether your spouse will be OK if you pass away and vice versa. Are they going to be able to continue to live the way they want to live?

“I like life insurance because there are so many policies that have a critical care rider on them. If you need long-term care, you can access that death benefit from the life insurance policy while you’re alive and needing the long-term care. That comes out tax-free, so that can also protect the surviving spouse.” – Dean Barber

Here’s another example. Let’s say someone has a permanent life insurance policy with a favorable rating that they bought 20 years ago, but they don’t have long-term care insurance. Chris and Dean have witnessed several instances where people have spent down their assets and replaced them with the death benefit on life insurance.

Building Generational Wealth via Life Insurance

Life insurance can also play a critical role if you have a goal of creating generational wealth. Life insurance in retirement can be used as leverage to enhance what you want to leave to the next generation.

For example, let’s say that someone has a net worth of $3 million and has three children. They want to spend in retirement and still be able to pass down $1 million apiece to their children as an inheritance. If they buy a $3 million life insurance policy, that gives the policyholder permission to spend way more in retirement because it will distribute tax-free to their children.

There are a lot of different ways that insurance could be utilized in retirement. A CFP® Professional that is obligated to act in their clients’ best interests should point out those types of strategies.

“It starts with the plan. Part of that plan is if there are legacy goals or health care concerns. Are you over or under insured in that department?” – Chris Rett, CFP®, AIF®

8. What Healthcare and Other Unexpected Costs Can I Expect in Retirement? And How Do I Plan for Them?

That leads us right into No. 8 on our list of questions to ask yourself before retirement. What healthcare and other unexpected costs should you expect in retirement? And how do you plan for them?

One mistake that people can make when they create a spending plan for retirement is saying that they’re going to spend $X-amount each month. You need to break down a few steps further than that. Ask yourself the following questions.

How often are you going to replace vehicles?
How often are you going to have to do maintenance on your home? Are you ever going to downsize?
Or maybe you decide to live in a place where maintenance is provided but costs more money even if you’re downsizing?
How often are you going to go on vacations?
Do you have children and/or grandchildren that could need some financial support?
Do you want to establish 529 plans for your children and/or grandchildren?

Those are just a few what-if scenarios that you might need to plan for. There are many other examples of unexpected things that need to be planned for depending on your unique situation. Don’t overlook those things due to oversimplifying your spending plan.

“Even if you can’t possibly think of anything that we’ve mentioned, build a buffer of maybe $5,000 or $10,000 a year. That can be your rainy-day expense. If you don’t use it, it just rolls over to the next year.” – Chris Rett, CFP®, AIF®

7. How Do I Plan for Inflation and Other Uncertain Economic Changes?

No. 7 on our list of questions to ask yourself before retirement has become even more prevalent over the past few years. How do you plan for inflation and other uncertain economic changes?

This goes back again to creating a spending plan. When you create your spending plan, you need to itemize what you’re spending on. How much do food, energy, healthcare, vacations, and fun stuff each cost? And how much money do you spend on those different things? All those different things that you’re spending money on are going to inflate at a different rate.

“It’s not as simple as applying a 4.5% or 4% inflation rate on everything because everything isn’t going to go up that much.” – Dean Barber

Let’s run through a few examples to explain Dean’s point. If you go into retirement with a mortgage, that mortgage isn’t going to inflate. It has a finite ending period. You need to plan accordingly for that. Conversely, healthcare expenses are going to inflate much higher than the 4% rate for general expenses. It’s critical to plan accordingly for that as well.

“Let’s say that this inflation is unable to be curbed. (Inflating different expenses at different rates) is something that you want to have that built in. We find it gives clients and prospects a great peace of mind.” – Chris Rett, CFP®, AIF®

Stress Testing Your Financial Plan

With unexpected economic conditions, you can stress test your plan to go back through all types of economic and market cycles. Based on the allocation you have today, how would your plan have fared through the Great Recession, Dot-Com Bubble, or the COVID-19 stock market crash?

Let’s say that you stress test your plan with our financial planning tool, and it shows that you have a 90% probability of success. That doesn’t mean that your plan has a 10% chance of failing through certain economic cycles. It means that there’s a 10% chance that you might need to temporarily change your spending.

6. When Was the Last Time I Reviewed My Estate Plan?

No. 6 on our list of questions to ask yourself before retirement is another one that sometimes gets overlooked. When is the last time you reviewed your estate plan? Are there any changes that you think you might need to make to your estate plan, such as beneficiary designations?

“Most people think an estate plan is for when you die. A real estate plan is for both incapacity and death.” – Dean Barber

If you’re unable to make financial decisions, you need an estate plan that states how you want your financial affairs carried out. It’s the same thing when you pass money to the next generation. Having an estate plan can prevent fighting among children over your estate.

Estate planning isn’t a one-and-you’re-done-with-it type of thing. Estate planning laws change and your circumstances can change. We encourage people to review their beneficiary forms, estate plan, and the titling of all their assets at least every other year so that they’re up to date.

5. Am I Emotionally Ready to Retire?

We’ve reached the halfway point on our list of questions to ask yourself before retirement. No. 5 doesn’t have anything to do with your finances. Ask yourself, “Am I emotionally ready to retire?” There are some important follow-up questions to consider as well.

How Will I Maintain My Health in Retirement?
Have I Considered How the Transition from Work to Retirement Will Affect My Mental Health and Sense of Purpose?
Do I Have Hobbies or Interests I Want to Pursue?

We talk a lot about doing financial planning to get to and through retirement. But retirement planning involves much more than your finances. From a health standpoint, health truly is wealth. Again, time is our most valuable resource, and good health typically equates to longer life expectancy.

What Will Your Identity Be in Retirement?

Think about this. During your career, a large part of your identity is likely tied to your job. So, what will your identity be when you’re no longer working? Maintaining a sense of community could also be a challenge if some of your closest friendships have been with your coworkers.

“You really need to think through who you are going to be and what you are going to do once you no longer have to work?” – Dean Barber

You might be perfectly fine with everyday feeling like a Saturday for a few months. But boredom can quickly take over if you don’t start planning what you want to do in retirement. We don’t want that to be the case, which is why we design goals-based financial plans.

4. How Do I Account for/Plan for Taxes in Retirement?

No. 4 on our list of questions to ask yourself before retirement is how do you account for/plan for taxes in retirement.

As long as you live in the United States and you either have money or make money, taxes are going to be a fact of your life. However, you can control taxes in retirement unlike any other time of your life. How will your different sources of retirement income be taxed, and how do they work together? Many people typically have three tax buckets that they can withdraw money from in retirement.

The Tax Buckets

There’s your taxable bucket, which is money that has already been taxed and typically generates taxable income, dividends, or interest.

There’s your tax-deferred bucket, which consists of your traditional 401(k)/IRAs. Money that comes out of those accounts is taxed as ordinary income.

Then, you have your tax-exempt (tax-free) bucket, which can include Roth accounts. For Roth contributions, you get taxed on the contribution (or the conversion when converting from a traditional IRA to a Roth IRA) and then the earnings and distributions are tax-free if you follow certain IRA distribution rules.

What About Social Security?

If you count Social Security or have a pension, that becomes your fourth bucket. There can also be a lot of confusion about how Social Security is taxed. If people don’t understand how Social Security is taxed, they could pay far more tax on their Social Security than they need to. Did you know that up to 85% of your Social Security benefit can be taxable?

3. How Will I Generate Income in Retirement and What Is My Distribution Strategy?

That feeds right into No. 3 on our list of questions to ask yourself before retirement. It’s a two-part question: how will I generate income in retirement and what is my distribution strategy?

Taxes are a huge component with both those questions. How much should you pull from each of the buckets to keep your tax bill as low as possible? The objective in retirement is not to pay as little tax as possible in a single year; it’s to pay as little tax as possible over your lifetime.

“Once the CFP® Professional builds your financial plan, we bring in one of our CPAs to look at that plan from a tax perspective and create the distribution strategy. They’ll look at it to determine how to pay as little tax as possible over a lifetime.” – Dean Barber

2. What Will My Lifestyle Be in Retirement and Have I Saved Enough Money to Retire?

That brings us to another two-part question on our list of questions to ask yourself before retirement. What will your lifestyle be in retirement and have I saved enough money to retire? This again goes back to creating a spending plan.

What are you going to spend money on? Then, measure all your resources, look at your current asset allocation, and do stress testing to determine your plan’s probability of success. Have you saved enough to have a probability of success that you’re comfortable with?

If the answer is no, see if there was a better asset allocation that could have gotten you to and through retirement in the scenarios you stress tested your plan against. If you can’t find the right asset allocation, then it’s time to consider making tradeoffs, such as working longer or spending less during retirement.

We can’t stress enough that saving is just one piece of the retirement puzzle. So many people get caught up in how much to save for retirement and don’t identify what they want their lifestyle to be like in retirement. You won’t know how much you need to save if you’re not including expenses related to your retirement lifestyle.

More Confidence, Freedom, and Time

Maybe you want to travel more in retirement. If that’s the case, prioritize it within your plan so you can take more vacations. We want to build you a plan that gives you more confidence to make informed decisions with your money, freedom from financial stress, and time to spend doing the things you love.

Dean shared that there have been several instances in which he’s taken people through the initial stages of the retirement planning process and informed them that they could’ve retired a few years ago. That’s why you need to ask yourself these questions that everyone should ask themselves before retirement.

“More often than not, the people that are serious about saving to get to retirement and getting peace of mind that they’ve saved enough, they’ve typically over saved because they’re more conservative.” – Dean Barber

There’s also an emotional mindset when it comes to spending as opposed to saving. The transition from saving to spending can be hard for people to make because they’ve been so used to saving. Think of your financial plan as a permission slip to let you know how much you can spend.

1. What Do I Want My Legacy to Be?

The last question on our list of questions to ask yourself before retirement is what do you want your legacy to be?

“When you talk about legacy, I always ask the question, ‘Is it a living legacy or is it a financial legacy when you’re no longer here?’” – Dean Barber

Let’s run through another example to explain what Dean means by that. In this example, you’re in your 50s or early 60s and your parents passed away in the last few years after living into their 80s or early 90s. You found out that your parents left a substantial inheritance for you, but you have mixed feelings because you wish they would have spent more in retirement.

Rather than leaving that money behind to you after they died, they could have created a living legacy by giving the money to you and/or their grandchildren while they were still living. Maybe you want to go on a vacation(s) with your family and cover the cost of it. By doing that, they could’ve experienced the satisfaction you and your family had from their generosity.

“That’s a living legacy. We call that passing it with warm hands instead of cold hands.” – Chris Rett, CFP®, AIF®

Are You Charitably Inclined?

There are other ways to leave a legacy besides passing your money down to the next generations. If there’s a charitable organization that’s near and dear to your heart, you can leave a living legacy via Qualified Charitable Distributions if you’re 70½ or older. With QCDs, you can donate up to $105,000 a year directly from your IRA to a qualified charity without it showing up on your tax return. If charitable giving is important to you, make that a priority within your financial plan.

Ask Yourself These Questions Before Retirement

This is all about financial planning. It’s easy for people to think financial planning is all about their investments, but as we explained by addressing these questions everyone should ask themselves before retirement, there’s much more to it.

“You need to go through all these things and much more before you ever have a discussion about how money should be invested. The only way a person can identify how their money should be invested is by going through all these different types of things and answering the real riddle, which is, ‘What does my money need to do for me to accomplish all these things?’ Then, you can build the investment strategy.” – Dean Barber

You can still spend responsibly with the proper planning. Remember that these are questions that you should be asking yourself 10-15 years before retirement. These are questions you should discuss with your financial advisor as well.

If you’re looking for a financial advisor and they don’t talk about your goals, taxes, estate planning, and risk management, watch out. They could be a financial advisor in name only, and act as a financial salesperson.

If you have any questions for our team about these questions everyone should ask themselves before retirement, fire away. You can start a conversation with our team below.

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The needs, wants, and wishes of our clients always come first at Modern Wealth Management. Our team of professionals is ready to collaborate on your behalf to build you a plan that gives you more confidence, freedom, and time.

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Investment advisory services offered through Modern Wealth Management, LLC, an SEC Registered Investment Adviser.

The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Adviser. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.