Spring Clean Your Retirement Plan: Part II

We explore strategies for optimizing your retirement plan with timely adjustments that can significantly impact your financial future. Spring cleaning your retirement plan involves reviewing multiple interconnected elements that work together to help secure your financial well-being.

• Roth conversion strategies while taxes are potentially at historic lows
• Evaluating tax brackets and timing conversions for maximum effectiveness
• Creating a comprehensive withdrawal strategy beyond Social Security
• Planning for healthcare costs averaging $300,000 per retired couple
• Understanding the 6% inflation rate on healthcare expenses
• Reviewing estate planning documents for state-specific compliance
• Checking beneficiary designations that override will provisions
• Reconsidering retirement timing based on current financial position
• Exploring phased retirement options for financial and emotional benefits
• Preparing psychologically for the transition to retirement
• Working with a holistic retirement planner to coordinate all aspects

Visit masterplanretire.com to schedule a complimentary consultation or call 770-980-9262 to start creating your comprehensive retirement roadmap.

Have a topic or question you'd like Mark and Evan to address in a future episode? Email us at info@masterplanretire.com or call 770-980-9262.

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Catch all episodes of our podcast at https://www.masterplanyourretirement.com/resources/episodes

Listen to Mark Fricks on Saturdays at 12:00 p.m. on XTRA 106.3 FM WFOM.
Sign up for one of our upcoming events at https://www.masterplanyourretirement.com/events

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Advisory services offered through MasterPlan Retirement Consultants, Inc., a Registered Investment Advisor in the state of Georgia. Insurance, tax and commodities services offered through Fricks and Associates, Inc. dba MasterPlan Retirement Consultants. The aforementioned are affiliated companies.

Transcript

Roth Conversion Strategies

Speaker 1 0:06

Does your retirement plan need spring cleaning? Hey folks, welcome back to Retirement Roadmap with Master Plan Retirement Consultants and this is episode part two does your retirement plan need spring cleaning? We went through a lot of different topics last time, mark, we left off just barely getting into IRA Roth conversions, and I think that's a great place to pick up and maybe recap a little bit. Especially right now, with taxes due on April 15th, it's a great time to evaluate Do we have any room for conversions this year?

Speaker 2 0:38

Yeah, because you can actually count the conversion for 2024. Right, Because it's before April 15th, right? Yep, so I was trying to think is April 15th this year? Yes, it is so, but yeah, so you take a good look, you know, and by the time this airs you probably have about 10 days to two weeks to take a look at that.

Speaker 2 0:57

But see where you're at from a standpoint of how much you've taken out of IRAs or you know, if you're not retired, what you've done from an employment standpoint. Did you work a lot of overtime? What bracket is that going to put you in? So it's a really not only end of year but definitely the first quarter of the new year to really know where you stand. We have software that helps us, but more importantly, we just have the experience to be able to look at that and kind of get a feel for that. And, and as Evan said, it looks like we think four more years of taxes are being on sale. It's not a done deal yet, but hopefully that'll get through, but definitely for tax year 2024, they're still as low as they've been since the beginning of the tax system.

Speaker 1 1:37

Why worry about Roth conversions? Why do we want to pay extra in taxes this year?

Speaker 2 1:41

Well, because the future is unknown from a tax standpoint. As we said before, tax law is written in pencil. I'd like to think that there'll be lower 10 years from now, but I have mostly doubts. We have a lot of debt. We have a lot of programs in trouble. I know that President Trump is trying to do certain things to raise tariffs and lower taxes, but every economist I've listened to says it takes two major things to bring that debt down. Number one is spend less, tax more, and so again, we're going to have new people in Washington, new people in the Senate and the House and the ideas and it's always going to swing back and forth, as we know, and so take advantage. While the known is here, the known is here. The known is in 2025. Hopefully, it will be also on sale for the next four years after that. But take advantage this year and when I say this year, I mean 2024 and 2025 while we can.

Speaker 1 2:37

When you say the odds are taxes will increase in the future. It doesn't always feel like it, but we are at a historically low point in taxes right now.

Speaker 2 2:46

Yeah, we have a graph that shows it and it's just amazing Really. Ever since Ronald Reagan began his crusade to lower taxes and that's a whole other story on itself they are definitely lower. I mean, when taxes first started off the federal tax system in 1913, the top rate was like seven to nine percent. Within three or four years it had skyrocketed in the 30% and 40% range and after that it hit 80% and 90%, slowly again began coming down and then finally Reagan got a hold of it, brought it down about 20% and ever since then, between Obama, trump first time and Bush and all the others, they've kept it under the highest rate and Bush and all the others, they've kept it under the highest rate, under 39.5%. So that is powerful, but again, I really see taxes being higher.

Speaker 2 3:31

So, just to bring this full circle, why a Roth? A Roth comes out tax-free, so pay the taxes on it now, while we think they're lower and have a strategy. You don't want to do it all in one year. That's why we're talking about maybe taking advantage of this first quarter of 2025. But have a strategy. Our clients do. We's also another aspect of retirement that is really, really helpful and goes so far when you can plan ahead and start earlier.

Speaker 1 4:12

If you wait until you're in retirement, the squeeze is a little more painful on those conversions, especially at age 65. It's going to affect Irma things like that with Medicare. But the earlier you can start the better.

Speaker 2 4:29

Well, the best thing is to start putting new money into Roths. Not worry about conversions, just take advantage. If you have a 401k at work or whatever account you might have, I would bet they have a Roth selection Go there. Don't worry about the instant gratification of this year, saving a little bit of money on your taxes. Save money on your taxes the rest of your life, because we have no idea what it's going to be in retirement. But I know that you're going to be less about growth and more about income. So the less your taxes are, the more income is, and so I think it's critical. I really do, absolutely.

Speaker 1 5:00

Well, we can do an entire episode. In fact, we have.

Speaker 2 5:02

I think we have.

Speaker 1 5:05

But without spending too much more time on that. Check your retirement withdrawal strategy and this also has to do with Roth conversions on where you're pulling that income. A lot of times, people just assume that their withdrawal plan is Social Security and pulling from my 401k when I need it. But that's not a plan.

Creating Your Retirement Withdrawal Plan

Speaker 2 5:23

That's really dangerous. First thing we do with our clients, the first stage of planning is a growth and income plan, and so you know it's less emphasis on growth, much more emphasis on income, but still you have to have both. But so important to have a written income plan, and I very seldom have had somebody come in and saying, yeah, here's my plan. I've got it in writing. And even if they did the three or four people literally they've forgotten certain things like possible tax increases. They've forgotten things like inflation.

Speaker 2 5:58

That's real, and I know the government touts this 3.25% historical average. That's false Real inflation. If you count everything is just under 4%, and that means prices are going to double every 18 years, and so in 18 years of retirement if I retire at 60, by 78, double. I need to double the income, and so you've got to take that into account. How do you plug income gaps? Social Security is not covering everything. In most cases it's not just taking money out of an IRA in the stock market because you can accelerate your losses. Imagine taking money out in 2008 to make ends meet and you're taking out $1,000 a month and the market dropped 52% over 18 months. You'll be going back to work, okay, so have an income plan.

Speaker 1 6:44

This is really interesting too. There's a spider web, as you know, of retirement planning.

Speaker 2 6:49

I'm not going to put that way, but that's really good.

Speaker 1 6:52

Every thread attaches to another. If you affect one, it's going to affect the other side of the web, or whatever, however you want to put that.

Speaker 2 6:58

And all of the spider web. A little spider is waiting to leave, Just waiting.

Speaker 1 7:01

Yeah, and where was I going?

Speaker 2 7:04

with that.

Speaker 1 7:04

So the Roth conversion we were discussing- earlier you know if you are set up with your income and you haven't really considered the conversions early on. The vast majority of Americans these days who are at retirement age, their largest asset is in a tax deferred vehicle 401k IRAs, things like that. We know that. But when we're creating our income plan, if we're not considering where our income's coming from, where those withdrawals are coming, you are starting to spend down your 401k IRAs. Later in life, later in retirement, that's going to be your highest tax bracket. The majority of your money is going to be taxed at your full bracket. That's not an efficient strategy.

Speaker 2 7:42

Yeah, especially when you involve required minimum distributions. You're having to take money out of your account once you reach between 73 and 75, and that's going to add to your income. It may give you too much income if your IRA has gotten too large. And so, like you said, the spotted web it all ties together and if one thread is broken it's going to make the whole web weaker and it's going to affect several other areas as well. So that's why retirement planning is so complex, and the more we do it, the more people we work with, the more complex I see that it is. And then the rules change and then you've got to adjust something because now this tax rule looks like that, but that income plan really does help tie a lot of that together.

Planning for Healthcare Costs

Speaker 1 8:28

RMDs are huge to plan for as part of your income plan. Of course that's part of our tax strategy. We don't want to be forced to take money out that we don't need. That's going to be taxed as high as it possibly can. So part of that strategy, part of that conversion strategy, income strategy. You see how they all work together. Next part plan for health care costs in retirement.

Speaker 2 8:50

This is one a lot of folks don't pay much attention to because they just kind of think well, I've got Medicare Part A, medicare Part B, I'll buy me a supplement or give me an Advantage program or whatever. But the latest stats are the average couple will spend over $300,000 on health care costs in retirement. That does not include long-term care, that's health care costs. So that's things like the cost of Medicare Part B, which right now is about $185 per person per month. That goes up a little bit every year. But then you start looking at deductibles, you start looking at things that aren't covered every year. But then you start looking at deductibles, you start looking at things that aren't covered. It just really is a lot more than people think about.

Speaker 2 9:30

And this is not to scare folks. We're not trying to say oh, you know gloom and doom, because I know when we present this in client meetings I can see the look on people's faces. They, just like I, might as well just not retire solutions and remedies to this. But it's all got to be part of what we call a retirement roadmap that brings it all together. And so we give you these stats not to scare you, but to make you aware that I need to look at it. Be proactive. Don't put your head in the sand.

Speaker 1 9:59

Yeah, absolutely, and the same with healthcare. Like you said, you're not including long-term care strategy in this conversation, but now, how much is long-term care strategy right now? What's the national average? Is it like 90K?

Speaker 2 10:10

It's around 90,000. I think that might be a Southeast maybe, but still 90,000 per year. And that's today. And healthcare cost the inflation on healthcare cost is 6% average. So now we're looking at a much quicker climbing.

Speaker 2 10:26

And of course, medicare is in trouble, medicaid is in trouble, all of that's happening. And so you know, take responsibility. And I'm not saying, definitely not saying, run out and buy a long-term care policy, I'm not saying don't, but I'm saying there are other solutions that might work better for most of you, part of that web of planning that we've talked about. So please, you, so please understand these are real costs. And what's interesting is a lot of our clients who are between the ages of 55 and 70, their parents are now dealing with the long-term care. So our clients are seeing the real effects of what's happening with them and how much money is being spent down.

Speaker 2 11:05

And think of this scenario. So let's say I have a long-term care, need I kind of progress through the different levels of care? And finally, you know I'm in a nursing home and then I pass away. If I leave a spouse. I've just spent down $200,000, $300,000, $400,000, $500,000 of my assets and her assets, and now you know she's left with much less to live on and possibility of running out of money or living with kids or whatever the solution may be. So it's got to be again a dual pronged attack on all of these areas yeah that's good and important, really, especially as long-term care is getting more expensive.

Speaker 1 11:42

Assisted living you know, we're there, we're, they're popping up all over the place, but even still they're incredibly understaffed. It's a. It's an we're going to have to solve and face in the next 10 years for sure.

Speaker 2 11:52

But again, hear us, there are solutions. So don't always have a fear of people just driving off the road if you're listening on the radio or throwing their phone out the window if you're listening on podcasts or something like that. But there are solutions in almost every case, and so that's why it's so critical that you get to get ahold of somebody like us that takes the holistic approach. So we're looking at every different area and how it affects all the other areas. Yeah, how can we do that? Well, I think a great place to start is the website, the website, which is our website, masterplanretirecom. Why is that important?

Speaker 2 12:27

Well, a couple of things you can accomplish. Number one some great resources, ranging from checklist of retirement to podcast and YouTube and our radio show being on there. If you've got 24 minutes of spare time, it's a great way to listen to every topic, as you've been hearing, if you've been listening to this show in the past. But the other really cool thing is there's a little button there that says schedule a meeting and that opens up our calendar and says okay, here are some times that you can meet with Master Plan Retirement and, first of all, just have a retirement chat.

Speaker 2 13:02

What are your dreams, what are your goals, but also what are your fears and concerns. And then at that point, if you so desire, we'll take a second step and it's complimentary as well and we'll run a series of reports to see where your weaknesses are. Maybe long-term care is not a weakness for you, maybe tax increases are not a problem for you, but I can almost promise you, out of those reports we run, there will be some weaknesses. Then you know what to attack and you know where you stand. So masterplanretirecom and that phone number, if you'd like to just call us and get on that as well, because the calendar can look crowded 770-980-9262.

Estate Planning Essentials

Speaker 1 13:41

So while you are spring cleaning your retirement plan, something else is really important to remember cleaning your retirement plan.

Speaker 2 13:50

Something else is really important to remember review your estate plan. That's a good one for a lot of reasons. Number one is do you have documents? Now, documents are not a plan, but it's the beginning of a plan. Do you have an updated will? Make sure it's not an I love you will we can't get into estate planning today but an I love you will. You could possibly disinherit children, grandchildren, so make sure it's a more complex will than that. Make sure it's for the state you live in. People move around a lot, so have you updated since you've moved to a new state? Because they are more state specific. And then there's that health care directive again state specific. Financial power of attorney also state specific, but also those two documents.

Speaker 2 14:28

In many states and I know at least in the Southeast those laws have changed over the last six to eight years. Yours may be out of date. It may not work appropriately. So those need to be checked, and we check our client's documents every three to five years. But maybe a trust is better for you. A lot of positives about a trust, very few negatives, and so maybe that's better. But then, even after all that, once the right documents are decided upon, you've got to make sure it ties into the rest of your plan, because guess what?

Speaker 2 14:57

Some of your accounts have beneficiaries. Beneficiaries override wills, right? Maybe the titling of the account needs to be changed, because now you have a trust and then we continually monitor and update and audit the beneficiaries as well. So maybe you have an account that doesn't have a beneficiary, but you don't want it to go through probate, so maybe you add something called a TOD, which is a transfer on death. You can do that with a bank account so much more complex than I mean. If you go to an attorney and say I want a will, guess what they're going to give you? They'll give you one, they'll give you a will and then they'll stop there.

Speaker 2 15:29

Now you can hire some attorneys that will do a trust and do all the funding Extremely expensive. We do the planning and the funding for our clients just for the cost of the legal work and because we work with our attorneys so often they do a much better job of being more of a value from a standpoint of the cost of the documents because, again, we've done the planning and the funding.

Speaker 1 15:55

Yeah, and part of what we offer our clients is we work with other professionals, other industry professionals, to make sure we're coordinating every area of your retirement plan. Because, yeah, we are not attorneys, we cannot draft wills or trusts or anything like that, but we do have a team of attorneys we work with who do that. So we work with them with your plan in accordance to how things need to work, and so far it's been working really well. It's a really powerful relationship.

Speaker 2 16:20

And, just like our other team members, we have a Medicare team that works with us. That's experts in that. We have a CPA team that does taxes. Now we do a lot of the tax planning, but of course CPAs will look backwards and and and report what's happened. But we work closely with them as well.

Speaker 1 16:37

So if it's not in-house, we still have at least a team that we work with consistently to make sure all areas are covered it's funny earlier when you were discussing state lines and I had a consultation yesterday and they have, like so many people in retirement, they have a Florida condo and they live in Georgia. You know, maybe someone has a mountain house or visits the grandkids and has little places next state over or something that's two different probate courts that you have to go to for that.

Speaker 1 17:07

So that can get really complicated and we already know two different probate courts that you have to go to for that yep. So that can get really complicated and we already know how expensive probate is on its own and complicated and can be very um problematic. We even now I've been working on a case for three plus months. There was just one account from a client that was never moved over. It was in a trust from his mother and his he shared it with his brother it was a mess we could never get him to get it uh titled um, the way that it needed to be um.

Reevaluating Your Retirement Age

Speaker 1 17:37

and yeah, I'm still working with a custodian and an attorney getting some new documents written up to get that into his heir's name. So take care of it while you can, because it's a lot, it's a lot, it is. It is Spring cleaning your retirement plan. The next point reevaluate your retirement age. Check if you can retire earlier or if you need to delay, based on savings investment performance. Lifestyle. Assess if you can retire earlier than planned or if you need to adjust your retirement age.

Speaker 2 18:08

That's a great one. And so what has really been cool about Master Plan Retirement we've been a firm for 15 years now. Happy birthday to us coming up is seeing folks that have come up and we've seen them and we've observed it being able to retire earlier because of the planning, because we're making everything so much more effective and efficient and so you know, if you get more miles per hour out of our car, you can get some more quicker. It's kind of the same thing we're trying to get more MPH out of every part of your retirement. I can't tell you how many people have said, hey, I was able to retire two years earlier, three years earlier. But in other cases it could be, hey, you're behind. I would recommend let's put in two more years. I think that would be enough based on the numbers we've run. But at least you know and you have a goal and you could put a clock on your wall that says retirement in two years. You know three months, 12 hours, whatever it may be, type of thing.

Speaker 1 19:04

And if it is tight for you, maybe you do need a little bit more time. You can't retire as early as you had hoped. When you do look at the numbers, it's shocking how much one or two years or even part-time work for a few years, how much of a difference that can make.

Speaker 2 19:16

Yeah, Maybe just part-time, maybe. Hey, I can't take this full-time anymore, but hey, I can put in 20, 25 hours doing something more like what I do, and that would provide that buffer for a couple of years, maybe save a little bit more or at least not dip into your current holdings and be able to make sure that you have a good retirement.

Speaker 1 19:34

And in the same vein, consider whether you want a phased retirement, maybe work part-time or in a less demanding job before fully retiring. Again, understand that transition point. What works for you? What do you need? Because also emotionally, socially, there's a lot of things with that transition that they can make a really big difference.

Speaker 2 19:56

I think that transition is almost a great idea regardless because, again, if I've been working 40 to 45 hours a week for practically 40 years plus for me, 50 years plus and all of a sudden I just quit going in, that's got to feel weird. It really does. And we've talked to our clients and, yeah, it is strange. Hopefully my next book, when I finish revising the current book, is going to be about that transition Financially, emotionally, socially, like you said. And so if you drop down to 25, you kind of get the idea of okay, now I'm just going in three days a week, I can get some things done in the other two weeks I still have my circle of friends at work, things like that. So it's much more. And especially if you have a spouse, that may be, you know, are they still working and all of a sudden you're home by yourself all day long? Or maybe you know, there's so many scenarios. And so it's not just numbers, it is discussions that we have with our clients about their feelings.

Speaker 2 20:56

I had practically a counseling session with a client a few months ago that he's in his mid seventies and he is basically being forced to retire. He said, mark, I grew up working at six years old, on a farm, starting at 6 am. I've never not worked and I don't know what I'm going to do. And he was literally tearing up and he said he quote, he said I'm afraid when I retire I'm going to die. And so we had a long discussion about what he could do, how he could spend his time. You know, he is such a nice man and client and has been for a long time and we just we practically had a counseling session about that and giving him ideas and discovering more about his feelings and things like that. So please don't disregard that part of retirement.

Speaker 1 21:40

Yeah, we're seeing that more and more too, of folks just tapering off their work schedule and especially type A personalities. I had a conversation again yesterday with someone who he said you know, it seems like I can retire. I want to know the numbers, but at the same time I'll probably still do something for income or just to get out of the house, because I can only cut the lawn and wash the truck so many times before I won't know what to do with myself.

Speaker 2 22:05

Well, even if it's not part-time work, just make sure that it's fulfilling, whether it be volunteer work, whether it be. You know, I have a lot of folks that will get much more involved at church. Yeah, we want to travel, but you can't unless you're going to be on a cruise ship for the next year. You can't really travel every day. I mean, I guess you could if you had the money, but I think I'd get bored of that after a while.

Speaker 1 22:26

I like home. Only so many cruise buffets before they wheel you off the ship.

Speaker 2 22:28

Yeah, and I like home as well. I like being home some too. You know, make sure you have a circle of friends. Clubs, you know, join the gym, things that have goals and purpose. You know I enjoy golf, but there's no way I could play golf five days a week. I'd drive myself crazy and probably not have any golf balls left either. But you know. So make sure you have a plan for that as well. Stick your toe in the water on several things. Just try it out. You know, here in Georgia, as in many other states, you can actually take classes at colleges with no cost. It doesn't count toward a degree, but it allows you to experience new things, whether it be writing and cooking or whatever it may be. So have a plan.

Transitioning Successfully to Retirement

Speaker 1 23:09

And that brings us to our last point. When spring cleaning your retirement, work with a financial advisor it doesn't have to be us, but make sure they're a holistic retirement planner Make sure they look at the full scale of the comprehensive retirement plan because, as you can see from this episode and the previous part one episode there are so many parts and they all affect each other and so many things to consider and also, everyone's plan is different, everyone's situation is different, so feel free to reach out to us. Masterplanretirecom.

Speaker 2 23:37

Mark any parting words well, if you are working with someone, make sure that get a second opinion, get a different perspective. I mean, if you're surgery, you wouldn't just talk to one person, I wouldn't think so. Get a second opinion. Masterplanretirecom, give us a call, but until we do see each other again, make sure to remember plan well and prosper. This was Retirement Roadmap Radio with Mark Fricks of Master Plan Retirement Consultants. To schedule a complimentary consultation, go to masterplanretirecom or call 770-980-9262. Thanks for listening and remember plan well and prosper.

Speaker 3 24:17

All matters discussed during the show are for informational purposes only. Each individual situation may vary and the opinions expressed here may not apply to everyone. Materials presented are believed to be from reliable sources and no representations can be made as to its accuracy. All ideas, we'll be right back.