The Ultimate Retirement Checklist: 6 Things To Include in Your Plan
Yes, we can make them super long. We can have a 30 page printout of here's all the things you need to do in your retirement in order to do it successfully. But in my opinion, I think you can distill all that down to bullet points on a checklist, in order to say, hey, this is when I take my income for this, this is whenever I need invest this way, and that's how I like to actually make an actionable retirement plan. Welcome to Retirement Answers, a podcast built to answer your most pressing retirement questions. If you're someone who's either thinking about retirement or already in retirement, well, you're in the right place.
Jacob:Hey there, my name is Jacob Duke, and each week I'll be walking through different tips and strategies to help you succeed in retirement. So let's go ahead and get started with today's show. Hey friends. Welcome back to Retirement Answers, a podcast built to help you successfully retire. So excited that you're here today.
Jacob:I've got a really good episode in store for you, and we're gonna be talking about all the things that I think that you need to include in your retirement plan. So typically here on the show, I like to talk about individual retirement topics or planning ideas or strategies, but today I just wanted to zoom out a little bit and give you an overview of how all of those different planning topics or strategies work together to build a comprehensive plan. So I've labeled this the Ultimate Retirement Checklist. And, today I think we'll see that these things are interconnected and they're actually dependent on each other. So your income plan ultimately is dependent on your investment plan and vice versa and your social security strategies that they are dependent on your income plan and vice versa.
Jacob:So I like to do it this way because I think this is a, the mark of a true retirement plan. You know, I think that most of us think we have a plan, but it's not really comprehensive, right? Like just doing investments is not a comprehensive retirement plan. And only having a plan for your income is not simply a retirement plan either. So the mark of a true retirement plan is one that's comprehensive yet it is still simple and actionable.
Jacob:So here's what a retirement plan is not. A retirement plan in my opinion is not just Monte Carlo projections. Software is really good. It's really helpful. It's really useful in terms of projecting things into the future based on all the different variables that could or may or may not happen.
Jacob:So we wanna use those tools absolutely, but we also don't want to rely completely on them because we know if anything is true about life, that it just does not go according to plan. So we wanna use all the planning tools that we can, the social security calculators, the investment projections, the income calculators, all those different things we want to use them. But once we're done using them, we still have to distill that information down into actionable steps that are simple to understand and we can actually implement them. So one of my favorite quotes is from Leonardo da Vinci and he said that simplicity is the ultimate sophistication. And what he means by that is that you kind of have to work through all of the messiness and complications of whatever you're doing ultimately to get to the other side of it, where you've created it and distilled it down to something that is simple and able to be comprehended and then also able to be acted on.
Jacob:So that's what I wanted to say about what a plan is to me in terms of a comprehensive plan. Yes, we can make them super long. We can have a 30 page printout of here's all the things that you need to do in your retirement in order to do it successfully. But my opinion, I think you can distill all that down to bullet points on a checklist, in order to say, hey, this is when I take my income for this. This is whenever I need to invest this way.
Jacob:That's how I like to actually make an actionable retirement plan. So without further ado, here are the six different components to what I think makes up a really good retirement plan. So the first one is having an income plan. So do you have an income plan? Because one of the scariest things about retirement is that you're actually going to be turning off your income, right?
Jacob:You're no longer going to be earning your salary. You're not going to work again. And that can be really frightening and really scary because that's something you've relied upon. And honestly, you've gotten used to over time. But now as you turn that off, you have to turn on your income from other sources, whether that be a pension, whether that be an annuity, maybe that social security, that might be your retirement portfolio.
Jacob:All those different places are where you're gonna have to start living and drawing income off of. So we need to create a plan around where to take the money from and when to do it. So I like to build out a retirement income timeline. So that way, for example, if you're age 60, well, when are you gonna turn on social security? Well, let's say we start at 62, just for example.
Jacob:Well, you've got two years to make up a gap of income that you otherwise will not have. So where's that money gonna come from? Is it gonna come from cash, taxable account, Roth IRAs, traditional IRAs or 401ks? We have to kind of build a retirement income timeline to know, hey, we need a $100,000 a year and every single year we need to have a plan for where that $100,000 is gonna come from. And another thing that we had to factor in as well, which accounts do we draw down first?
Jacob:Do we draw down our tax deferred IRAs first? Or do we start using our Roth money first? And that's actually gonna lend itself to the tax discussion in terms of building a tax plan that we're gonna talk about in just a minute. But that also could impact where you pull money from and how you do it. So that's another example of how all of these things are gonna be interconnected and dependent on each other.
Jacob:Along with that income timeline, we wanna see, hey, what's the most optimal way to pull social security? Is it to do it at 62 because we've got maybe a health history or family health history that indicates maybe we won't live until 85 or 90, or could it be more beneficial to delay that into full retirement age or somewhere in between, or perhaps even 70. So we have to kind of build a plan for social security and we have to understand the benefits and the drawbacks of that. And then also maybe we want to actually do different strategies from a social security standpoint for each spouse if you're married, right? One might want to delay it until 70 and one might want to take it at 62 depending on how that might benefit you whenever we factor in spousal benefits and future survivor benefits that could be in play at some point, we have to make sure we have a social security plan that we all agree with and one that we can actually execute, but we have to think through all the messiness of it first, ultimately to come out to the other side of here's what we're gonna do and why we're gonna do it.
Jacob:Also, when it comes to income, we've got to think about do we have pensions? If we do, then we need to know when those start and we need to know before those start, what are we going to do in terms of income once again? And then finally RMDs that are going to plant a tax considerations a lot later on in retirement at 73 or 75, depending on your age. So RMDs, those are going to come from your tax deferred accounts, four zero three Bs, 401ks, your IRAs, anything that is tax deferred, you will have to take money out at that point. So whenever we think about this income plan, that's the first component of actually building a comprehensive plan.
Jacob:We got to know what our income is going to be and what we need, but then also where is it all gonna come from and when is it gonna come? So I encourage you to think about building out that retirement income timeline. So if you plan on retiring at 60, well, you gotta have a plan for your income from 60 to 62. And then if you start social security at 62, well then you have to have a plan for both social securities if you're married, and then how do we get what do we do with RMDs one day, which accounts do we draw down first? So that's the first component of building a comprehensive retirement plan.
Jacob:We have to know what our income plan is gonna be. Okay. The second component that we have to have in place in order to retire successfully is an investment plan. And, we have to think about things like sequence of return risk. Well, what if I retire today and the market goes down 30% and therefore my retirement could be in jeopardy immediately?
Jacob:Well, that's what's called sequence of return risk. We wanna have a plan for that in terms of how we invest your money to make sure we're covered in the short term, but also covered in the long term once we get to the later years of our lives. We also have to factor in based on that how aggressive we should be. You know, should I be a 100% stock? Should I be 0% stock or somewhere in between?
Jacob:What's the differences? What's the benefits? What's the drawbacks? What's really the risk there? I've done previous episodes on the risk of stocks.
Jacob:So go back and listen to that episode. We also have to think about from an investment standpoint, we have to think about diversification. Are we diversified enough? Are all of our assets wrapped up in one singular stock that we were paid over time at the company we worked for? Should we own international stocks or not?
Jacob:How often should we make adjustments to our investment portfolio? These are all the questions that you need to have actually written down plans for. And the way I like to do this, and I've actually done a previous episode on this is I like to use a three bucket investment plan and income plan. These two are very closely connected when it comes to retirement in my opinion. So I use a three bucket plan.
Jacob:I've explained this previously, so go back and listen to that episode if you've not heard it yet. But basically, I wanna have a cash bucket, a bond bucket, and then a stock bucket. Each of those different buckets have different amounts allocated to them, in terms of how they're invested because we know that the cash bucket is gonna be our short term bucket. We know that the bond bucket, treasuries, CDs, things like that. That is going to be our middle of the road buckets, years three through five or three through six.
Jacob:Anything that we would need six years from now or beyond, that money is gonna be allowed to be in the stock market. So that would be our stock bucket. And that's our long term growth bucket. And so by doing this, what we've done is we've actually backed into our investment allocation that we're gonna take in your accounts. We say, hey, we've got enough money to live for three to six years on bonds, treasuries, and CDs that are also producing a little bit more income than just a normal money market fund.
Jacob:And so what we've done, it was kind of bridge this gap of short term to long term and said we've got a short term bucket, a midterm bucket, and a long term bucket that we were covered on all basis. So from an investment planning standpoint, I like to say you have to have a plan for all these things in terms of how you want to actually invest, how diversified we should or shouldn't be, why should we be diversified, how does that eliminate risk? And then we also want to make sure we build out the income plan, which is the bucket strategy, but that also tells us how we need to be investing our money throughout our retirement years to cover all of the different things that could come up short and long term. So that's the second component of a comprehensive plan. We have to have a plan for our investments, but remember, those things are really closely tied to our income plan and how and when we're gonna take income from your portfolio.
Jacob:Okay. The third component of a comprehensive retirement plan is gonna be that you need a tax plan. You need to have a plan for your taxes because the reality is if you think about it and you've looked at it throughout your whole life, taxes have been and probably will continue to be your largest expense every single year. Right? It's one of the largest line items that we have in a budget.
Jacob:You If think about it that way, taxes are an expense. So it would be wise of us to have a really good plan around how we pay them, when we pay them, and if there's different strategies or ways to lower those, if that's something that's important to us. Now, of the easiest ways to immediately lower your tax bill is through what I call asset location. And this is a way to say, I wanna have a certain type of investment in my taxable investment account. I wanna have a certain type of investment in my Roth accounts and a certain type in my tax deferred accounts.
Jacob:So I've done previous episodes on this yet again, so go back and check that out. But just really quickly, because of the account type and how it's taxed, we wanna make sure that we are allocating the investments accordingly. So for example, you would not wanna have all CDs, all bonds, all interest paying assets in your taxable account because what that does is now you've gotta pay income taxes on that because of the account type every single year, and then also because of the interest or dividends that are coming in from the investments you're holding, those are now gonna be taxable as normal income as opposed to if you were holding stock funds or individual stocks in that account, then you would have qualified dividends and then long term capital gains perhaps that would be taxed at a lower rate. So the type of investment in the type of account actually matters. And it's one of the easiest things that you can do and make changes to, to lower your tax bill right now this year.
Jacob:So that's asset location. And that's one of the first things that we need to pay attention to. And also every year, I think that you should or can build out a plan for tax loss harvesting. And the reason for this is every single year you can deduct up to $3,000 of your investment losses. So this will be in your taxable investment or brokerage account.
Jacob:You can take up to $3,000 of losses per year and deduct that off of your normal income. Now that is limited to the 3,000 as I mentioned, but you could offset other gains within your account more than that. So you can do as much tax loss harvesting as you want within your brokerage account, but just know that if you have $3,000 of losses left over each year, that's how much you can deduct off your normal income. Now, just to be clear, let's say you have $50,000 of losses this year that you've realized. Well, then that means at the end of the year, you now have 47,000 that you can still carry forward to future years because remember you can only use 3,000 per year to deduct off of your normal income.
Jacob:So tax loss harvesting is yet again another easy way to lower your tax bill each year. One tax strategy that kind of flies under the radar is called tax gain harvesting. So it's the opposite of tax loss harvesting, but really quickly, I'll explain what it is. Tax gain harvesting is whenever you realize capital gains at a 0% capital gains bracket. Now this is dependent on your income in the year in which you realize the gains, but just know that if your income is low enough, then you can perhaps actually realize gains at a 0% tax rate.
Jacob:So I'm not gonna get into the details of tax gain harvesting today. I'll do a different episode on that here in the future. But just know that tax gain harvesting, if your income is low enough, could be a powerful strategy to realizing long term gains at a 0% rate. Another thing we have to think about when it comes to taxes is IRMA, which stands for income related monthly adjustment amount. And that has to do with your Medicare premiums and your income levels, in accordance with that.
Jacob:So I'm not gonna get into IRMA fully today, but just know that we have to have a plan for IRMA and it kind of ties into Roth conversions a lot of times, because whenever we think about IRMAA, it's basically an increased premium on your Medicare premiums. But when we think about Roth conversions and maybe doing those in the early stages of your retirement, let's say 63 to let's say 67. Well, it's important to factor in whether or not we should go over the IRMA income limits or not. And if we're going to be close to the limit, I would say, hey, let's go ahead and just stay under that limit. But a lot of people avoid doing Roth conversions simply because they're gonna pay a little bit of extra money for one year on their Medicare premiums.
Jacob:But I would say if you actually do the math on it and look at that, it's not worth avoiding Irma for one year because you've got so much more money in Roth accounts lowering your RMDs in the future. So, IRMAA is an important thing to factor in, but I don't think that it should be avoided at all costs. So another factor that I just mentioned was Roth conversions. Do we have a strategy for that? Are they gonna be beneficial?
Jacob:Are they not beneficial? What's the best way to do that? And when should we be doing those conversions? In the early stages of retirement between which years before social security turns on or while social security is turned on, what's the best strategy? What's the best way to pay the taxes?
Jacob:All those different things that are factored in there to the conversions that you may be doing. And then finally, wanna talk about RMDs because that is most of the time, one of the largest tax bills that people face once they get to that age. And then also when it comes to RMDs, is there ways to offset those and especially if we're charitable, right? There's a thing called a qualified charitable distribution, so QCD for short. And that is a way for people to ultimately give to the charity of their choice, whether it be a church, a nonprofit, whatever charity they would like to give to.
Jacob:And then they get to offset their RMD requirements with their charitable contributions by doing it through a QCD. Now I'm not gonna get into how QCDs work today, but just know that it is possible and there are some things that you have to be aware of if you're gonna do that so that you do it correctly. But you need to have a plan for it. So all these things from a tax planning standpoint, we wanna have these written down in our tax plan and these ultimately once again tie into your income and your investment plans. Okay, the fourth component of a really good comprehensive retirement plan is gonna be having a plan for insurance.
Jacob:Now this is one of my least favorite ones to actually talk about and it's most people's least favorite to think about is, you know, let's say that you retire before 65. Well, what do you do for insurance? Maybe your employer will help you out and allow you to continue on the coverage you're currently on without it being COBRA. Do I take COBRA for the eighteen months that I can? And then if I'm still not 65, then what do I do?
Jacob:Do I go find private insurance? Do I think about the affordable care act and the opportunities that are built in there in terms of controlling your income so that you get some subsidies and lower prices on your medical insurance premiums? What about MediShare, which is like a cost sharing service? It's not insurance, but it's built like insurance. Typically MediShare type companies are faith based.
Jacob:So that might be something that is an option for you. So insurance, especially health insurance, if you are before 65 is sometimes a hard thing to figure out, but you need to evaluate all your options and say, number one, is it worth it for me to retire before 65 because of this? And number two, if I do, I need to have a plan for it. Once you do get to 65 though, then we'll have Medicare. Well, you have Part A and Part B, but what about Part C, is Medicare Advantage or Part D, which is the drug plan.
Jacob:And then also what about Medicare Supplement or Medigap? Understanding the differences between Medigap and Medicare Advantage is gonna be really important in terms of which one you're gonna decide to use. There are pros and cons of each one. There are cost differences between the two, but there are also differences in terms of coverage and ultimately out of pocket maximums that could be there. So building a plan for your Medicare once you do get to age 65 and beyond is really important.
Jacob:And in addition to that, we need to think about long term care insurance. Do we at least have a plan for long term care? You know, do I actually need to go buy an insurance policy which may or may not be the best option because they're somewhat expensive? Or do I need to do what's called self insuring in terms of, hey, I've got enough money to insure myself if something were to happen where I need to be in a facility or need to be cared for. So having a plan for your long term care does not mean just having an insurance policy that's a long term care policy, it just means that you have to have an idea of what you're gonna do if that situation arises and who's gonna be paying for it.
Jacob:Are you gonna be the one paying for it? Or do you have a long term care policy that you've technically paid for over time? Is that gonna pay for your long term care? So long term care is really always a hard one once again to actually give you a correct answer on. It's just a tough one because insurance premiums are really, really expensive and they are able to go up really quickly and self insuring a lot of times leaves people with an uneasy feeling in their stomach because they're like, what if I don't have enough money when I do get to that point later on in life?
Jacob:Now, one question that I often get is do I need life insurance in retirement? Well, and this is a maybe or maybe not, because it just depends on who is depending on you from an income standpoint. If you've got a spouse and you perhaps maybe don't have adequate savings to meet their needs after you pass away, or maybe a pension is fully dependent on you and there's no survivor benefit for that pension. Well, might make sense to have a life insurance policy in place. Or if you don't have any dependents depending on your income, then maybe a life insurance policy is not useful.
Jacob:So, this really comes down to what is the need for someone after you pass away? How dependent on your income that goes away with you is someone and then you can decide is insurance right for me? But just remember that life insurance premiums, especially if you're buying a new policy are gonna be really, really high as you get older. Okay, so that's the fourth component. We've gotta have a plan for insurance and some of the risks that come with that in terms of building out a comprehensive plan.
Jacob:All right, the fifth component of a well built comprehensive plan is having a plan for your estate, and everything that's gonna happen after you pass away. And this is something that is really often overlooked and just not paid attention to. Now, I wanted to make a disclaimer on the front end. I'm not an attorney. I'm a financial planner.
Jacob:But knowing different things about how these things have gone wrong in the past helps me understand here's some of the things we need to pay attention to as we move forward. So, we have to think about what actually happens to my assets when I die. What happens to my house? What happens to my IRA? What happens to my HSA?
Jacob:What happens to all my different investment accounts? What happens to my business? All these different things, what happens to them and who is gonna receive them whenever I pass away? If we don't have a plan for that, if we don't understand where that money is going and who's gonna receive it, I've seen it many times where a lot of people end up with a lot of money that they otherwise should not have, and they end up spending it the wrong way or misusing it in some fashion. So we have to think about where that money is gonna go whenever we pass away, because you would not want your money to go somewhere that you otherwise wouldn't want to.
Jacob:Also, we have to think about the tax implications of your estate plan. You know, what type of accounts are gonna be taxable, which assets are gonna be taxable, which ones will receive a step up in basis. And we also have to think about, hey, who is actually the beneficiary named on the account because of the account type. So back in 2020, the Secure Act eliminated the stretch IRA provision for non spouse beneficiaries. It's still in place for spouses, but perhaps you're leaving an IRA to your two kids and it's a million dollar IRA.
Jacob:Well, each of them will have $500,000, let's say, split evenly, but they would then have to distribute that money over a ten year period due to the Secure Act because that's the new distribution period for non spouse beneficiaries. So going back to how all of this is interconnected, well, whenever you understand how your estate plan is gonna be distributed to your heirs or beneficiaries one day, you can then build a tax plan to help make that more tax efficient for them and ultimately leave more money in your family's pocket. And one of the things that a lot of people just don't do correctly is they just don't have their beneficiaries named correctly. I see this all the time as you've had an account for a number of years, you've not made any updates or changes to that beneficiary or contingent beneficiaries, and perhaps someone else's predeceased you that's named as the primary beneficiary, then they're not gonna be there whenever you pass away. Therefore it goes to the contingents.
Jacob:But what if the contingents are no longer who you want them to be? So updating and just double checking your beneficiaries on your accounts every single year, think is a very good kind of policy and thing to do because I've seen so many times where people end up getting money that otherwise that was not the intention because they had not updated their beneficiaries, whether it may be from a divorce, a previous spouse or previous kids or something like that, where, hey, these people are getting this money because they legally have to because it's written on your account, but you did not want that to happen and you just never made the changes or double checked any of it. So that's the easiest and first thing to check on is are my beneficiaries named correctly? Also, a lot of people think that wills are the most powerful thing out there in the whole world, but that's just not the reality. Wills are useful.
Jacob:Yes, we want to have them written out and actually directing things in terms of how we want things done, But just know that wills also have to go through probate. So if you don't want all of your assets available in terms of public knowledge, then I would not use a will to pass those things to the next generation. I would probably set up a trust and make sure your beneficiaries are named in that trust, and then you have control over how and when they receive the assets that are in question. So wills are good, yes, but I would probably emphasize using a trust and making sure that your retirement accounts actually have beneficiaries named on the accounts. Okay, so that's the fifth thing is having a proper estate plan in place, having all those documents, Medicare directives, all those different things that you need to have for end of life situation, have those in place, go speak with your trusted estate planning attorney.
Jacob:They can absolutely help you with that to make sure that your documents are in place. And finally, I think this is the thing that maybe is most important and it's perhaps one of the most overlooked things. We always think about the financial side of building retirement plan. But the sixth thing that I wanted to tell you about today that I think is important is, do you have a plan for what you're gonna do and what's your purpose gonna be in retirement? This is, like I said, often really overlooked and we're always trying to retire from the thing that we don't like anymore.
Jacob:But I want to encourage you that you should actually have something to look forward to. What are you going to accomplish? What are you going to learn in retirement? What are you going to try new in retirement? All those things are going to be important to your success because many struggle to find purpose in retirement and data has shown that loneliness, so not having a community and not having anything to do, ultimately leads to a premature death.
Jacob:And so, in order to avoid that, whenever you have purpose in terms of community and the people you're involved with, then also the things that you're doing. I don't know about you, I'm a big pickleball fan and it's really fun. And I think if you're not into pickleball yet, you probably will be soon. But that is a really good, easy sport to go learn and play at your own pace. So go find a group of friends, go play some pickleball, and that will keep you active.
Jacob:So that's good from a health standpoint. And then also it will give you community. And then finally it will help you keep you sharp mentally because honestly, the rules are kind of hard if you're just starting out. So go play some pickleball with a friend if you're thinking about retirement, but, what are you gonna do? How, what are you gonna grow in?
Jacob:What are you gonna get better at? What are you gonna use your time to do since you have more time than perhaps you've ever had? I think having a purpose, and like I said, this is the sixth component of a really good retirement plan. Having your purpose written down, what you're trying to accomplish, what you're trying to do, think is gonna be really helpful and ultimately you succeeding in retirement. Okay, so those are the six different things that I think are the marks of a good comprehensive retirement plan.
Jacob:And I typically wouldn't recommend retiring without having each of these different components taken care of. So whenever we think about we have to have an income plan, we've got to have an investment plan, we've got to have, an insurance plan, we've got to have a tax plan, we've got to have an estate plan, and also we have to have a plan for what we're going to do and kind of our purpose plan. Once we have all those things together, I think you've seen that these are all kind of intertwined. They're all dependent on each other and that's why I think it's important to have a comprehensive plan. You can't just have just an income plan or just an investment plan and think, oh, that's my retirement plan.
Jacob:You need to have a plan for all these things and I'll leave you with this. A retirement plan, as I mentioned earlier, is not a Monte Carlo simulation. It is not projections. Those are helpful, yes. But ultimately, I think a retirement plan can be written down on a couple sheets of paper with bullet points.
Jacob:It says income plan, that's the first title and then bullet points under that and then tax plan and then bullet points under that and then investment plan and then bullets up points under that. And it could be as simple as take social security at 63, begin pension at 65, start taking from IRA at 67, take from Roth IRA until 67. Here's how much I need in bucket number one. Here's how much I need in bucket number two, and then run down the list like that. It can be that simple, but whenever we create simplicity, we then get to actually be able to act on those items and actually do them instead of just having a plan that we never execute.
Jacob:So take some time, run through these different thought exercises, all the different questions that I mentioned that you might need to be thinking about in terms of each different plan type and condense all of those things down into a one or two page document. And that is your retirement plan. And this is maybe really scary because we think we need all of the different technology or projections or numbers, but it becomes as simple as once we've gone through the numbers, we can end up with a bullet point checklist of all the things we need to do and when we need to do them. So I hope this is helpful for you as you continue to develop and build out your retirement plan. If you've got questions on this or if you have other questions that you would like for me to answer here on the show, send them to jacobretirementanswers dot net, and that's where I can receive those questions and then also answer them here on the show.
Jacob:I'd love to do that for you. So thank you so much for tuning into this week's episode of Retirement Answers. Hope I it was helpful, I look forward to talking with you again really soon. Hey, it's Jacob again, and I wanted to extend a quick offer to you. If you have a question and you would like to have it answered here on the show, please email me at jacobretirementanswers dot net, And I'd love to answer that question for you right here on the show.
Jacob:Also, wanted to remind you that nothing discussed in today's episode is meant to be financial, legal or tax advice. Retirement Answers is for educational purposes only. Thanks for tuning into this week's episode. I look forward to talking with you again next week.
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