Creating a Game Plan for Retirement
Key Points – Creating a Game Plan for Retirement
- What Are the Things That Are Most Important to You?
- Looking at Examples of Trade-Offs in Retirement
- How Do You Think and Feel About Money?
- Creating a Retirement Game Plan that Involves Team-First Players
- 19 Minutes to Read | 28 Minutes to Watch
Using a Football Analogy to Explain the Importance of Financial Planning
A lot of us at Modern Wealth Management are excited about football season finally being underway. Football and sports can be used as parallels to teach many life lessons. One of those parallels that football can be used for is with retirement planning. As football season kicks off, Logan DeGraeve joins Dean Barber to discuss creating a retirement game plan.
Thinking About YOUR Personal Retirement Game Plan
When a football coach and their team prepares for an opponent, there might be some plays from other teams that they decide to implement into their game plan that they think could be effective. But when all is said and done, that is their unique game plan. You won’t find another game plan that is exactly like it.
The same can be said about creating a retirement game plan. There might be something that you find interesting about your friend or neighbor’s retirement game plan that you think would be cool to use as well. However, when you put all the components together, YOUR retirement game plan is going to be unique to YOUR retirement.
“We need to define what winning is for everyone. It’s your personal financial plan,” Logan said. “What you want to do and what someone else wants to do is going to be two different things in retirement. But we want to figure out what is your definition of winning or success.”
The Things That Are Important to You Define Your Retirement Game Plan
When Dean and Logan first meet with someone to discuss their retirement game plan, one of the first topics that people like to bring up is their investments. While your investments are an important part of your retirement game plan, investments alone won’t win you the game.
The first thing that Logan and Dean want to know what about your retirement game plan are your personal goals for retirement. To do that, they take people through a prioritization exercise in the first step of our Guided Retirement System.
“As a CERTIFIED FINANCIAL PLANNER™ Professional, you need to fully understand what is important to your client,” Dean said. “During the prioritization exercise, you and another advisor will sit down with a couple and find out what is important to them. Let’s talk about what they want the rest of their life to look like and what is important to them. Is it spending time with the people you care about? Maybe it’s traveling? Is it giving to charities or leaving a legacy? Is it making sure that you’re never a burden on your loved one?”
Not Everything About Your Retirement Game Plan Is Monetary
All those things that Dean listed are things that people might have thought about for their retirement, but the prioritization exercise really helps to shape what their retirement game plan will look like. You’ll also notice that a few of those things don’t have a cost associated with them.
“Spending time with the people you care about doesn’t need to be monetary. That’s usually one of the most important things,” Logan said. “How do you define winning there? Is it time? Is it travel and doing family trips, things like that? At the end of the day, what you want to do is what drives the rest of the retirement game plan. Dean and I say all the time that we want to marry the financial plan with the investment decision. You don’t just win the game because you have $3 million dollars for retirement.”
Money Usually Isn’t the Most Important Thing to People
Building off the point that not everything about your retirement game plan is monetary, Logan and Dean usually find during the prioritization exercise that money isn’t the most important thing to them. In fact, it’s usually aways down on the list.
“The amount of money becomes the engine that allows you to do the things that you want to do. But we need to define the things that you want to do first and put a monetary value on those different things, if applicable.”
The Most Important Things in Your Retirement Game Plan Could Overlap
As you’re going through the prioritization exercise, you’ll also likely notice that some of the things that are important to you could coincide with each other. For example, let’s say that spending time with your family and traveling are high on your list. Well, maybe you need to install some family trips into your retirement game plan.
“Maybe you plan a family vacation every year or every other year and it’s a destination vacation. If your kids and grandkids live out of state, maybe you can help them get there so that you have that one special event every year,” Dean said. “If they knew that that was going on, do you think that they would take time off work to come on that trip? Absolutely. We’re going to build that into the retirement game plan.”
Don’t Wait to Start Living Out Your Dreams
There are some very compelling reasons for why Dean, Logan, and the rest of our team stress the importance of building a financial plan at least five to 10 years before you retire. We want to live out your dreams in those first 10-15 years or so of retirement because we unfortunately can’t stay young forever. So, don’t wait to start making your retirement game plan so you can do all those things that are important to you in retirement.
Logan has another football reference to further drive home this crucial aspect of retirement planning.
“The Chiefs play the Cardinals in their season opener,” Logan said. “Do you think Andy Reid is going to start game planning a week before that or do you think Andy Reid started game planning for that as soon as the schedule came out?”
If you answered, “as soon as the schedule came out,” you’re correct. Whether it’s film from last season or this preseason, Andy Reid and the Chiefs have likely been reviewing as much film of the Cardinals as possible so they’re ready for the season opener. The Chiefs want to win the season opener in Arizona and the last game of the season in Arizona, considering that’s where the Super Bowl will be played in February.
The Trade-Offs within Your Retirement Game Plan
By defining what winning is to you well before you retire, you can improve your chances of creating a winning retirement game plan. While the goal is to create that perfect game plan for your retirement, it’s important to understand that you may need to suffer some small losses in order to feel victorious over the long haul.
Think about it from the perspective of a head coach or general manager. If they could build their ideal team, they would. But they can’t because there is a salary cap. You’re the GM of your retirement. Sometimes, you may need to have some trade-offs.
“You need to make hard decisions in retirement. For instance, the Chiefs had to part ways with Tyreek Hill,” Logan said. “That was a hard decision. But you need to think long term too. That’s what we want to focus on.”
Seeing the Big Picture of Retirement
Here’s another way of conveying Logan’s point. There are game plans within an overall game plan. You need to have a retirement game plan to accomplish your goals in retirement, but how are you going to get there?
Well, one piece is the investments. As we mentioned earlier, that’s where a lot of people want to spend their time. Your tax planning strategy and tax distribution needs to be a big part of your overall retirement game plan. Estate planning and insurance are two more big pieces of the retirement puzzle.
“It works the same way in football where you have an offensive game plan, defensive game plan, and a special teams game plan,” Logan said. “They’re all working in unison to win the game. In our case, it’s working together to help you have a successful retirement.”
Dean added, “If you think about investing, taxes, estate planning, and risk management, they all interact with each other. They all have a unique component that affects the rest of them. Think about it this way. You’ve got the general manager who hires the head coach. The head coach is then going to pick the offensive coordinator, defensive coordinator, special teams coach, and other assistant coaches. As the person heading into retirement, you’re really like the owner or the general manager of your own team. You need to construct that team and everybody needs to be on the same page.”
Creating a Game Plan for Retirement on America’s Wealth Management Show
Football season is here. Do you have a playbook for the retirement red zone? Bud Kasper and Logan DeGraeve discuss creating your game plan for retirement and what you need to know to score.
Our Team Is Working Together Under One Roof
Everyone being on the same page is of the utmost importance for the retirees and pre-retirees that we work with. That’s why Dean has made sure to have so many of those professionals working in-house.
“CPAs speak a different language than an investment advisor,” Dean said. “An investment advisor speaks a different language than an estate planning attorney. And the risk management person and insurance person speak a different language than all of them. And if you don’t have all those people in the same room coordinating your financial plan, then you’re left in the middle to try to decipher what each person’s doing. I mean, imagine that if the offensive coordinator and the defensive coordinator never talk to the head coach.”
Forward-Looking Tax Planning
Dean and Logan have seen way too many instances where they talk to someone for the first time and their CPA and CERTIFIED FINANCIAL PLANNER™ Professional hadn’t been in communication with each other. You’re missing something if that’s the case.
At least once a year, we make sure that your CERTIFIED FINANCIAL PLANNER™ Professional and a CPA sit down with you in the same room. Rather than looking at your taxes for tax compliance in that meeting, they’ll review what you can do this year to put you in a better situation for five, 10, 15 years from now.
“Again, how is that any different than a football team? If you owned a football team, don’t you think that you’d want the head coach and the offensive coordinators, so we’ll say CPA, and the defensive coordinator, we’ll say estate planning attorney, and a special teams coordinator, say insurance coordinating together? You can have the best offense in the world—or in the case of retirement, the best investment plan in the world. But your retirement game plan isn’t complete if you don’t have any defense and you’re not tax efficient in that case. It’s not what we make. It’s what we keep.”
Back-to-Back Super Bowls Would Have Been Nice for the Chiefs, But …
Let’s go back to the Chiefs to help explain how all the pieces of the game plan need to be pulling their own weight to reach the team’s goal of a Super Bowl title. The Chiefs had a lot of confidence going into the Super Bowl against the Buccaneers two seasons ago, but the Chiefs defense couldn’t slow down Tom Brady and the Bucs offense and the Chiefs offensive line couldn’t protect Patrick Mahomes.
“The Bucs had a better game plan,” Dean said. “When you’re designing your retirement game plan, it’s critical that you hire the right professionals.”
What If You’re Wanting to Create a Retirement Game Plan on Your Own?
Dean and Logan enjoy the opportunity of helping people create their retirement game plan, but they know that there are a lot of people who prefer creating it on their own. But think about all the components that have been mentioned. Are you well-versed enough in taxes, investments, estate planning, and insurance to do all of it on your own? If there’s even one small part of your retirement game plan that starts to fall apart, the rest can start to follow.
“Some people might be able to their investments on their own. If you think you can do it, then do it,” Dean said. “But that’s not the whole game plan. That’s simply money management. Again, it’s coordinating everybody together for the benefit of the client and their spouse.”
Ultimately, it then goes to the next generation and the third generation. Dean, Logan, and the rest of our team are thankfully to work with so many families that are second, third, and even fourth generation from the people that we first started working with.
Expecting the Unexpected
In a perfect world, we could create a retirement game plan and never need to change it. But no matter how good your game plan is, you’re going to need to make in-game adjustments. We can’t stress enough that your plan needs to be flexible, especially with all the uncertainty we’ve been facing.
“With what’s going on right now with the market, inflation, political and geopolitical uncertainty, if you can’t quantify how that’s impacted your specific game plan and your retirement plan, it’s all just noise,” Logan said. “It’s no different than the people that all want to retire in the fourth quarter of this year. They’re nervous because of inflation and the market being down. But how did that impact your game plan? It’s no different in football. Coaches make a lot of money to make second half adjustments.”
Your Goals Are Going to Change Throughout Retirement
Things change in retirement as well. The goals you have for retirement when you retire aren’t going to be the same goals you have when you’re in your 70s and 80s. Your goals change. Your goals could change because you have grandchildren later in retirement. Or they could change if, God forbid, you and/or your spouse becomes ill. Along with personal things changing that require you to adjust your retirement game plan, there are other factors that will change as well.
“Your economic environment can change. And the tax laws can change. Estate planning laws can change,” Dean said. “So, your plan needs to be nimble and flexible so that you can make those adjustments. You need to be able to look forward and say, “How did what’s happening in the markets right now impact my ability to spend the way that I want to spend?” Has it impacted? Do you need to cut back somewhere? Is there a trade-off? Is there a sacrifice you’re going to need to make or is everything OK?”
Stress Testing Your Retirement Game Plan
As all those different factors change, we want to stress test your plan through different economic conditions to see what your probability of success would be if we have similar conditions to those in the future.
“Financial planning is like a perfect stained-glass window,” Logan said. “It’s my job to throw rocks at it and figure out what’s going to break your retirement game plan. If you’re not stress testing those things, like a long-term care stay or an early death scenario, your retirement game plan is going to be impacted significantly. It impacts your Social Security decision. It impacts your tax planning. If a spouse passes early, the other becomes a single tax filer. And guess what? Those Required Minimum Distributions don’t get any smaller.”
Should something happen like your spouse passing away early, you could wind up in a much higher tax bracket. Suddenly, you’re paying far more in taxes on the same amount of income that they had when both spouses were alive.
Again, you can’t go into retirement thinking that everything is going to go perfect. You may have some years where your account is up 20%. Everything is healthy and great in that situation, but then there are years like this that aren’t healthy and great at all. It’s not always sunshine and rainbows.
Dreams vs. Reality
Here’s the way Dean likes to think of it. You’ll create your ideal retirement game plan, but create it with knowing that there will need to be changes made along the way. Let’s first map out what that ideal retirement game plan could start to look like.
“We want to create the ideal plan that says you can do everything that you wanted to do,” Dean said. “You and your spouse are going to live long, happy, healthy lives. You’re going to pass away within a very short period of each other. We’re never going to have any market disruptions. We’re not going to have anything happen out of whack with inflation. The geopolitical environment is going to stay calm. That’s some of what we build into that ideal plan.”
Now, that’s get to stress testing to really get a better idea of your retirement plan. Here are a few things that Dean wants you to consider while stress testing.
“What happens if Social Security gets cut?” Dean said. “What happens if tax rates go up? Maybe somebody dies early or has a long-term care stay? What happens if you have an adult child that loses their job and you need to give them financial support? There are all kinds of things that are going to come up in the future that people don’t even know to think about or consider. That’s part of the financial plan … or retirement game plan as we’re calling it with football season underway.”
The Inflation Rate(s) Across Your Plan
When Dean, Logan, or our other advisors meet with people for the first time, there are occasions where some people have already started creating their retirement game plan. Some of the plans are obviously more built out than others, but one of the red flags that we often see has to do with inflation.
All too often, people will only have an inflation rate or 1% or 2% factored in across their plan. Years like this have proven why that is a recipe for disaster.
“We use the historical inflation rate, which was about 4% before this year,” Logan said. “People think that that’s too high, but it’s not. And while the basket of goods at the grocery store is inflating a lot right now, it’s not even inflating half of what college or health care costs are. Health care and taxes are likely your largest expense in retirement even though you don’t want to spend money on either of them. That’s the sad reality of it.”
Taxes and Health Care Costs
Obviously, taxes are going to be taxes. We have no idea what whim Congress is going to have to change the tax code or do something different. But we know that health care costs are going up far faster than the core rate of inflation, so we always inflate them at 6.5%.
Let’s think about inflation as it relates to Social Security as well. It’s not as simple as going into retirement and claiming your Social Security as soon as you possibly can, making sure that you’re never withdrawing more than 4%, and getting a base inflation rate of 3% or 4%. That doesn’t work. That can be a high-level type of a plan, but people spend money on different things. Again, this is YOUR personal retirement game plan.
Setting Up a Spending Plan for Retirement
Before we wrap up with talking about creating a retirement game plan, one of the things that Dean and Logan want to touch on is setting up a spending plan for retirement. As opposed to thinking of it as a budget, ask yourself what you’re spending money on now and what you’re going to spend money on.
“It’s important for people to start tracking their spending prior to retirement. When we build that retirement game plan, we make sure you have money earmarked for travel, meals, and entertainment, etc,” Dean said. “And then you have money earmarked for health care and other things down the line. Well, each one of those things is going to inflate at a different rate. If you just inflate everything at the same rate, it’s going to make it not as accurate and it’s not as flexible.”
Again, How Do You Think and Feel About Money?
You need to be realistic with yourself when you’re putting your retirement game plan together. Some people think that they’re only going to spend about 60% of what they spend in their working years during retirement. Well, that’s not likely to be the case at all considering that every day is a Saturday when you’re retired. That makes the creation of a spending plan that much more important. Before you create you spending plan, you need to have a conversation with your advisor about how you think and feel about money.
“With the markets down like they are right not, a lot of people have had a harder time spending. But there is a story that Dean has shared on America’s Wealth Management Show and The Guided Retirement Show that I think is important for people to hear,” Logan said. “One of his clients wasn’t sure if she’d be able to go on a family trip because of the market being down. Dean showed her that the probability of success of her financial plan wouldn’t change by taking the trip, and said it was OK to move forward with the trip.”
Avoiding Emotional Decisions with Your Money
A good financial plan gives you clarity and confidence and takes the emotion out of making emotional financial decisions. Dean has said time and time again that fear and greed can be two of the biggest emotions when it comes to your finances, and they can cause a lot of problems. All the uncertainty we’ve been facing makes it easy to be fearful, which makes creating a retirement game plan all that much more important to alleviate that fear.
Here’s another example from Dean. He worked with a couple that retired about five years ago and had helped them plan multiple vacations within their plan. They had a bucket list of places that they wanted to go, so he researched prices of the trips with them, factored in inflation, and had a big piece of their retirement game plan accounted for so they could travel.
Reviewing What’s Most Important to You
Well, about three years into their retirement, COVID hit. So, all the trips they had planned for 2020 and some of 2021 had to be put on the backburner. During that time that they were unable to travel, they reflected more on what was important to them. So, Dean helped them adjust their retirement game plan to see if they could accomplish their new goals and maybe fulfill some of their old ones as well.
They had some family in the Northeast and wanted to see what it would take for them to buy a second home in the Northeast. And then once they factored that into their plan, they were hoping it would be possible to go on some of their trips that were postponed due to COVID. Dean wanted to know how much they were wanting to spend on the second home and started adjusting their retirement game plan.
“We went through all the scenarios of either paying cash, doing 20% down, 30% down, 40% down. Once they decided on the best way to purchase the home, they were still able to work all those trips back into their plan as well,” Dean said. “Could they have done that without having the game plan in place already? It would’ve taken a lot of time and there would’ve been a lot of guesswork. But this was a definitive thing that we can decide within hours.”
Creating a Retirement Game Plan Is a Team Effort
Many people don’t understand when they’re retired or near retirement age and pulling money out of IRAs to make a big purchase that you’re spending a lot more than maybe the down payment because of taxes. How does that impact your Medicare part B premium? On the surface, it might look like their financial advisor adjusted the retirement game plan to help make the big purchase happen. But there’s much more to it with the time and effort spent with CPAs and everyone else making sure that nothing was messed up.
Without the retirement game plan in place, you won’t know what to do when life suddenly throws an all-out blitz at out. Think about Patrick Mahomes again. He hasn’t simply been able to make it to four straight AFC Championship Games and win a Super Bowl by doing what he did in his first full season. He’s had to make adjustments as defenses have adjusted to him. Mahomes is going to need to adjust what he does now in the coming years as well.
What Are Your Odds of Achieving All Your Retirement Goals without Professional Guidance?
Let’s go back to a point Logan made earlier. Without a player like Tyreek Hill, there’s no doubt that Mahomes is going to need to make some adjustments with all his new receivers as well. Because even if Mahomes is an MVP caliber player, he’ll need to count on his teammates to win another Super Bowl.
The same goes for any near retiree or retiree who is creating a retirement game plan. If you try to be a one-person team when making that game plan and don’t seek professional guidance, you could miss something that could diminish your probability of success.
“If you’re not getting a second opinion or seeking out professional help, you could potentially rob yourself and your family of our most precious commodity. That’s time,” Logan said. “Maybe you’ve done a great job of saving, but you just want to live on $70,000 net a year. But what happens if you could live on $100,000? And maybe you’re not spending. Maybe you’re giving to your kids, grandkids, or charities. So why would you work for so many years and not do everything that you could potentially do when creating a retirement game plan?”
Think of Your Financial Plan as a Permission Slip
While we’re looking into the future when planning retirement, let’s look back on part of our early education to put this in perspective. When we went on field trips, we would need a permission slip from our parents to go on the trip.
Your financial plan is like a permission slip for your retirement. By doing the proper stress testing, you’ll know whether you can achieve your retirement goals. And if you don’t get the results you want after stress testing, what adjustment are you going to make to get a better probability of success?
“When we build that retirement game plan, we assume that you’re going to increase your spending every year for the rest of your life. But that’s not reality,” Dean said. “Reality is that you’ll increase that spending for probably the first 15-20 years of retirement. But then as you get a little older, your health starts to deteriorate. Maybe mentally you start to deteriorate and just don’t do as many things. You’re not spending as much money. So, the curve is steep, then it declines again, and then you have a steep spike at the end that’s for your health care phase.”
The Go-Go, Slow-Go, and No-Go Years
Logan has a unique way of breaking down those phases of retirement that Dean just mentioned. He refers to them as the go-go, slow-go, and no-go years. The important thing to understand is that you can create a retirement game plan so that you know you’ll be OK in each phase.
“If you want to go to Europe or those types of things, you should that in your first few years of retirement,” Logan said. “You don’t want to wait to do that 10 to 15 years into retirement. If you’re still doing that, that’s great. But we don’t have that luxury sometimes.”
Logan and Dean always enjoy seeing pictures of their clients going on special trips or achieving other retirement goals. However, they’ve also seen some sad stories of dreams going unfulfilled because of sudden health issues.
“Along with increasing chances of health issues, people’s personalities can change throughout retirement. Maybe they don’t want to leave the grandkids or don’t want to maybe travel internationally anymore. But do that stuff while you can, maybe even before you retire,” Logan said. “We have who aren’t retired yet that make big purchases like second homes or paying for their grandkids to go to college. But oftentimes, they wouldn’t have done it if they didn’t come talk to us because they would’ve thought was going to hinder their retirement.”
It’s Never Too Early or Too Late to Create a Retirement Game Plan
This is where the prioritization exercise comes in and why you should start creating that retirement game plan years before you retire. It’s never too late to create your retirement game plan, but it’s also never too early.
“Think about someone in their 30s and the way they’re saving today. Are they doing tax deferred, 401(k) Roth, a taxable account?” Logan said. “That’s going to dictate how they spend when they retire. It matters from the day you start saving.”
Tax Diversification Matters
That’s what we call tax diversification. You can’t just automatically change your tax diversification like you can your investment allocation. Most people don’t know that your taxes in retirement could be higher than what they were when you were working.
“Depending how you’ve saved and if you have pensions in Social Security, taxes going to be higher than what they were when you were working. There have been so many times when we’ve told that to people and they’ll just say, “No way.” There have been many times where we’ve told people that as well, and then five years later they’ll tell us we were right. Those are the type of things that you want to get a game plan around.”
Reviewing Your Retirement Game Plan Is Critical
And remember, you need to review your retirement game plan on a consistent basis. You need to review your tax strategy, investment plan, risk management, and estate plan. All that should be being done every year. Sometimes those meetings are very quick, but it’s not just about checking the box. It’s ensuring that we’ve done everything that we can do to make sure nothing impacts your retirement game plan.
“You need to make sure that you’re looking at all of it and do it on an ongoing basis,” Dean said. “If you’re working with a professional or preferably a team of professionals, it takes the guesswork out of it for you and isn’t a laborsome type of a deal. You come in and it’s an hour to an hour-and-a-half long conversation that’s all about clarity for your retirement. That’s what I think the retirement game plan does. It gives people clarity on what they need to be doing now and what they can be doing in the future.”
Logan added, “And it relieves anxiety. I guarantee you that Patrick Mahomes feels a lot better knowing what the game plan is on Monday or Tuesday than if Andy Reid would give it to him on Friday.”
Start Creating Your Retirement Game Plan Today
So, take a page out of Andy Reid’s playbook and start creating your retirement game plan today rather than wait and potentially miss out on big opportunities. You can start creating your retirement game plan from the comfort of your own home with the same financial planning tool CERTIFIED FINANCIAL PLANNER™ Professionals use. Just click the “Start Planning” button below to begin building your playbook for retirement.
Just like with some of the plays that the Chiefs draw up around the goal line, retirement planning can be complex in nature. It’s important to remember that our financial planning tool was designed to be used by financial professionals. Therefore, if you have questions as you’re creating your retirement game plan, that’s perfectly understandable. In fact, that’s a good thing. Rather than letting those questions go unanswered, we encourage you to schedule a 20-minute “ask anything” session or a complimentary consultation with one of our CERTIFIED FINANCIAL PLANNER™ Professionals. They will take the time to screen share with you and answer your questions as you’re creating your retirement game plan with our financial planning tool.
So, as football season gets underway, remember that having a game plan for retirement is critical. It’s all about having the right team of professional around to create the right game plan for you so that you’ll be winning throughout retirement.
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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.