Stages Of Retirement Planning

It is no secret that our financial plan will shift and change throughout our lives. However, this is even more prevalent the closer we get to retirement. Tony will discuss the different retirement planning stages and what the focus should be when you hit these checkpoints.

Important Links

Website: http://www.yourplanningpros.com

Call: 844-707-7381

Transcript Of Today's Show:

Mark: Hey everybody, welcome into this edition of Plan With The Tax Man, with [Tony Mauro 00:00:00:04]. Mark and I... I am Mark. Mark and Tony here talking about investing, finance and retirement. How are you doing bud?

Tony Mauro: I'm doing well. Thank you.

Mark: Better than me apparently. I'm all messed up today. Everything had been going okay so far?

Tony Mauro: It's been going good. You know we're in the throws of tax seasons, so it's a very busy time. But we know that every year, so it's not like it's a surprise.

Mark: Right. It's certainly been an interesting few weeks with everything going on between campaign stuff and financial stuff with a Coronavirus stuff. There's been lots of things going on over the last couple of weeks. But I'm going to focus right now here on a news article I saw when I ask you about this. That Bloomberg, obviously one of the gents running, has stated that unlike... I guess the point is he's kind of poking fun at the current president maybe. That he'll sell off all his financial data and media company if he was to win and become elected. It's worth estimated, I guess around 60 billion. My big question is not from a political standpoint, but how many buyers could there be for such a thing? Maybe Disney, they buy everything.

Tony Mauro: That's right. It would have to be somebody, a big company to buy something like that from him, because his wealth... If you ever looked at him like maybe some people were looking at our current president, he's into a lot of things and it would have to be a large company. Somebody like, say, an At&T, General Electric, somebody like that, somebody huge. Maybe it'll be one of these tech companies who knows, Google and Amazon, some of these companies are sitting on large piles of cash. Not probably that much, but it would have to be somebody like that. But it is interesting that they're kind of going back and forth to so-called billionaires on... Obviously he's making fun of the president a little bit, but he'd be willing to give up all his [crosstalk 00:01:56] what's happening now.

Mark: Now you kind of can't help but see the jab in there, but at the same time, I mean 60 billion. That's a pretty hefty price tag. So it would have to be definitely the right suitor, I'm sure.

Tony Mauro: [crosstalk 00:02:10].

Mark: We'll see how that all plays out as the year goes along. Obviously we're just in March right now, so plenty of time to go. But we'll see how things rock and roll. But for our conversation today, Tony, our main portion of our podcast, I want to talk about the stages of retirement planning. What I've done is, I've kind of broken them down into a couple of categories. Basically let's just assume for the sake of the argument and for the podcast today, that people are retiring at the age of 65. That's the number we all kind of associate anyway. So let's use that as our median number and say, let's talk through some stages. Stage one being those folks who, like myself, are about 15 years away or so from retirement. Maybe you're right around 50, maybe you're 49, 50, 51. What are some main financial things, some things we should start to focus on if we're this I guess preliminary stage, stage one if you will, of thinking about retirement planning? 15 years out.

Tony Mauro: 15 years out, and I'm right there with you. I think about it myself, my brother who just turned 50. It's like a switch went off with him, all of a sudden he's thinking about this more as well. So that seems to be kind of the age, 15 years or so out. But I think there's a number of things we could talk about here, but a few of them basically... I mean for me, one of the most important things is getting out and staying out of debt, trying to eliminate as much of that as you can in these next 15 years. So that you can not have those pressures you have when you're younger of, I've got to pay all these bills. It makes it a lot easier to live on less if you don't have all that debt. That'd be the number one I would say. Number two is, you've got to start thinking about what you want at the end in forms of different income streams and what you are going to have.

Tony Mauro: This is where the planning starts to come in, you can't wait until the last day to do this. You've got to kind of start planning on, here's where I'm at now, here's where I want to be and am I going to have enough? If not, how am I going to fix that? Then that opens up a whole new conversation. But that would be something else. Then the last thing would be, this is probably the last time, especially in today's market, that you want to be increasing your risk in your portfolio. If anything you want to start, if you're haven't already, getting your diversification intact and starting to take a little bit less risk for these next 15 years. Not I'm saying you have to go all the way, all the cash or anything like that, but certainly need to take a look at that and your appetite for that as you get a little closer.

Mark: Right. Now, I think that's a good idea. So 15 years out, you're really kind of in that beginning stage, you're starting to think about it. I think those are some good bullet points you gave us there, Tony, to start kind of considering. So let's move it into stage two and say okay, well maybe we find ourselves now at the 10 year window. Okay, so maybe we're 55, 56, somewhere in that neighborhood. We're starting to amp this up. Give us some bullet points, some ideas to start ticking this thing closer.

Tony Mauro: So a couple things we can do right off the bat and this is easily obtainable, is to get a statement not only from social security as to what your potential benefit will be at 65, maybe 67, 70. Finding out what your full retirement age will be for them, because they have increased it for us a little bit. Doing the same thing with any pensions that you might have. Not as many people have the old fashioned pensions, but if you do, you want to get a rough estimate of what your monthly benefit will be there.

Tony Mauro: I think another thing too is you got to start thinking about, because I know I will be. Okay, when do I really want to call it quit? Is it going to be 65, is it going to be 70, maybe I continue to work. Again, big picture stuff, but you need this start narrowing it down a little bit. That would be something to think about. Then last is, because it's all based on, I think for me again it's close to home. Because I want to know what people want to do in retirement. Because for me, it's not going to be the same as you or somebody else, but that's what it's all about for me, is what I actually want to do. And am I going to have enough money to do that or not?

Mark: Right. Of course everybody is different, but you are starting to pull these things together. You starting to determine or maybe getting closer and have an idea of where you want to retire, how you want to retire, what do you want it to look like? What are you wanting to do? Settle a lot of those things. I mean hopefully you've been thinking about that all along, but I think it starts to... naturally it starts to ramp up in our mind as we get closer, we start to have more conversations over dinner with our spouse and daydream maybe if you will, of things you want to do, so on and so forth.

Mark: All this kind of takes up and takes forward, but then we start to get to the five year window. Now hopefully by now we have actually started taking action on many of these items, hopefully anyway. But either way, let's talk about five years out. Now, let's just say, for the sake of the argument, we're 60 and it's right around the corner. Maybe 62 is looking better, maybe it's 65, maybe it's 67, whatever the case is. But what are some of the more serious things to consider here?

Tony Mauro: So now we're starting to get into a little more of a tighter funnel here. Because we're starting to come closer to the end. I think for a lot of people it's important, just like you said, is to think about, okay, what are we going to do for that date? What are we going to kind of pencil in, if you will, as to at least when we're going to start? The other thing I think, if you haven't already, you really need to take a serious look and not have a lot of your retirement assets tied up, maybe in equities. Now I'm not saying again move everything.

Tony Mauro: But you should be working with someone to assure that your portfolio or nest egg is well diversified and not taking the risks like a 25 year old would be, looking for growth. Because you don't have the time to make up those potential losses if they should occur. Then I think last probably is again, trying to get a tighter number on what streams of income are going to come in and how much, because you're getting close now and you want to firm up some of these numbers that you've been talking about over the last five years or so.

Mark: Right. When you're in that five year window, Tony, it's often referred to as the retirement red zone or the financial red zone or whatever. Hopefully you're working with an advisor at this point. Now, it's never too late, it's one of those things where you don't want to give somebody the impression they'd say, well, you've waited till five years out. Oh well, tough noogies. You can still come in-

Tony Mauro: There's always some things.

Mark: Always some things you can be doing, but hopefully you've been addressing some of these ahead of time. Working with an advisor is going to help you go through these different stages. I think the stages will obviously, if you even started with an advisor 15 years out, the level of working with him, it's going to slowly kind of amp up as well. As you're moving through this and getting closer, the activity between you two should be increasing as well. Or am I off there?

Tony Mauro: No, I think you're exactly right. We work mostly and have the most contact with our pre-retirees and retirees, because of the stage that they're at. In the growth stage, yes, you're monitoring the plan and making some small changes, but that's pretty much it. As goals change, adjusting, but retirees, it becomes a whole different thing, because you've got to make sure that you've got enough income coming. Make sure your taxes are paid and all this other stuff. So, yeah.

Mark: Okay. We've hit all these, we've hit these windows, the 15, the 10, the five, excuse me. So now Tony, well, it's the big day. We're on the day of retirement, what are the absolute essential things that we should have and need to have figured out at this point?

Tony Mauro: Well at this point, hopefully you've covered everything that we just talked about and you have your income sources in place, you know what they are. Then I think an important add on is, if they have never been taxed, make sure that your taxes are being withheld or your taxes are being paid. So you don't have a surprise come tax time that you owe a large tax bill. Then you need to have a really good grasp, and a lot of people don't. Because they've never done it, is to what our monthly expenses are going to be, our monthly budget? What do we spend in that we have to spend money on? Then what's the fun stuff? Another thing is, even though you are in retirement, I still think there's a need for some sort of emergency fund.

Tony Mauro: It doesn't need to be maybe to the extent of when during your earning years, but just something in case something happens. You've got some reserves, you're not wondering and maybe getting into debt to replace something or something like that. Then on the investment side, and I see it all the time on the tax side of our business. Retirees come in, they have a handful of CDs, they're getting 0.1% and they're wondering why they don't have enough income. You got to have something that's going to, at least with part of your money, to outpace inflation.

Mark: Right. No, definitely. I'll go back to the market drop a couple of weeks ago. Yeah, a couple of weeks ago, I guess at this point. The big first big day, I'm thinking about it from a standpoint of I was having a conversation with someone and we were talking about the diversification. So in 2019, it was a good year. I mean you had people overall 2019 ended up well. There are a lot of people saying that the average was somewhere between 25, 30%, right?

Tony Mauro: Yeah.

Mark: You have different people, I've heard from folks saying, well I didn't make 30% and I was upset with my advisor for it. It's like, well, a lot of that had to do with probably how you're allocated based on your risk tolerance, where you're at in life. Like the people that were making 30% that was mostly, if I'm not mistaken, all large cap, which is going to put you in a different risk category. Again, correct me if I'm wrong, because this is what you do every day. But that's the whole purpose of an advisor is to mitigate some of that. So if you were making 10, 12, 15, 17 you still were having a good year. That was based on the fact of your risk tolerance. Now in a case where the market's been dropping due to the Coronavirus, you're probably not losing as much as the 3% or the 4%. because again, you're diversified. Am I right in that?

Tony Mauro: No, you're too right on it. Yes, because as the markets have chugged up over the last four or five years, everybody's now thinking that no matter what their risk tolerance is, they should be getting anywhere 15, 20%. I mean something higher. What I'm telling them, because I have had a couple of clients, they're the pre-retirement, but they said the same thing. Hey, the market's up X, but we only got X. I'm quick to remind them that, hey, it's because here's the way we're invested based on your risk tolerance and your nearest to retirement.

Tony Mauro: We can't afford to take those risks. If you want to take those risks, I can make it very easy for you. We'll go out, we'll just basically drop everything and we'll buy an ETF in the S&P fund. You'll get the returns of the market, but you're also going to get the losses when they happen as well. So sometimes I have to try to correct what I call... I tell them what I feel like it's irrational thinking, that if you're basically using advisor to outperform the market, I think you're going to be disappointed in all cases. That doesn't mean we're bad. It just means that, we're out there trying to devise a portfolio that is going to work for you and your risk tolerance.

Mark: Right. Kind of weathering multiple storms. Yeah. I think that's where, of course, we've talked many times on the podcast, the greed factor that we all possess. And there's nothing wrong. It doesn't make you a bad person. You go, man, I want to make 30% too. But if you're 60 chasing 30%, it's probably not the best idea in last year's market in case of something like this. If you want to kind of use the conversation about the market downturn so far, early this year. We had multiple 10% drops in 19, yet it's still finished up almost 30%.

Tony Mauro: It still finished up.

Mark: Right. So you just don't know until as the year plays out. That's why investing is a longterm proposition, right?

Tony Mauro: Long-term proposition. In fact, I just had a funny story. I had a client who just emailed me two days ago. He's a client that isn't involved too much in this portfolio, but he started listing off all these points that have been happening the last few weeks.

Tony Mauro: He gets it from the news-

Mark: Of course, right.

Tony Mauro: ... of course, the internet. He pointed to China and the Coronavirus, maybe we should get out of any investments that hold anything over there, the economy. All the way down to if the democratic president becomes president, there's going to be a market correction. And I said, well, you're watching way too much [crosstalk 00:00:14:26]. We're longterm here. I said this is always happens. It may not be these points, but there's always something going on and the markets could be turbulent over the next six, eight months. But in the end, over time you have to view it as longterm, number one. But as you get closer to retirement, to our point, you can't be in that whirlwind of trying to chase those types of returns.

Mark: Now I think that's a great point. Well, I want to wrap this up here with our stages of retirement. So we went through 15, 10 and five. We also hit the big day of actual retirement. Of course the great thing about a podcast folks is, if you're listening to us and we tend to sometimes veer off target, kind of like we did just a second ago. But I think there were some good points in there. You can always go back and re-listen to it. You can pause, rewind, all those kinds of things and of course subscribe to the podcast so that you always get new episodes when they come out. You can listen to past episodes by going to yourplanningpros.com, that's yourplanningpros.com. But we've hit retirement. We went, I guess, like I said, 15, 10, five, the big day, we retire. That's it. Tony, we're done. There's nothing else to think about after you retire with a retirement plan on the day you retire. No.

Tony Mauro: I would say no [crosstalk 00:15:30] You could live anywhere from zero to 30 years from retirement, depending when you go and your longevity. So [crosstalk 00:15:38].

Mark: It should be a living document, it should flow and change with you through retirement. Now you need to think about post-retirement.

Tony Mauro: Yes. This is an important area, because again, a lot of retirees could spend 10 to 15, 20 years in this stage. Which is a long time and things change. I think a couple things they need to think about is a rising health costs and medical expenses and how that's going to affect their monthly cashflow, number one. But number two is, it's that real grim reaper that everybody thinks about and it isn't death. It's the dreaded nursing home. [crosstalk 00:16:14] about the possibility of ending up there, losing all your money. Everybody says that, nobody comes and says, well, maybe I should take this out of my name now and do this with it. I always ask them why? It's always because they are afraid that they're going to lose it if they go in a nursing home.

Tony Mauro: So I think there needs to be some planning around that really, that probably should have been done about 10, 15 years earlier. Not at this point, because generally there's not a ton of options there. But I think there's that. I think there's the fact of facing that there's going to be an end for all of us, making sure that your end and your legacy is carried out like you want it. I think the other thing is, trying to get your assets depending on where they're at, so they're transitioned to the next generation as smoothly as possible, and definitely the most efficient tax way possible. The optimized way, because there are some mistakes that people make, then their heirs end up paying more taxes than they should.

Mark: Yeah, definitely. Of course, you could see our episode, our podcast on... We just had not too long ago on some of that. We covered that topic. Of course the new elimination of the stretch IRA within the secure act also changes how you're going to try to leave money to your heirs in a tax efficient way and all that kind of stuff. So there's definitely a lot more planning that has to go involved. The idea of, again, stages of retirement planning. There's multiple stages you may find yourself in, whether you're in stage one and you're 15 years away like I am.

Mark: Or you're in stage two, you're 10 years away, or you're five years away, or you're getting close. Or even after retirement there's still planning that needs to be done to make sure that we're being as efficient and hopefully smooth as we can try to keep it. Anyway, that's the idea. There's always going to be something going on. But you want to try to keep it as smooth as we can through retirement, because God willing, you're not going to be retired for just a couple of years. You're going to be retired for many years, nowadays possibly 40.

Tony Mauro: Yeah, possibly.

Mark: It's pretty crazy when you think about that, versus our parents or our grandparents. So that's going to do it for our main show here on Plan With The Tax Man, with Tony Mauro. But before we go, I want to ask Tony something a little fun getting to know you. Since it is tax season and I know this gets to be your hectic time. What do you do to kind of chill out, remove some stress and work your way through this hectic busy month or two?

Tony Mauro: Sure. It is stressful, but I think everybody deals with stress and it is a more serious thing than I used to give it credit for. But now that I get a little older, I see people having some health problems and different things. So very mindful of it, not only during the day. But I'll tell you what I like to do, I do something at the start of the day and believe it or not, I actually pay for a journal that I actually kind of journal my day, what I'm going to try to accomplish?

Mark: Really? Okay.

Tony Mauro: What's going to make it a good day? Then of course try to get some exercise. For me that works, I have to actually pay for that. You think I could just write that down on my own, but I have that, I like it. So that's what I aspire to do. But to relieve my stress really, I like to get away and tune out. I'm not a big TV watcher, but I do like to read and I do like to do some yoga, because for me that's... I struggled so much with it just to maintain those little poses. [crosstalk 00:00:19:21].

Mark: It's tough, isn't it? Some of those are pretty complicated. I started doing that as well myself.,I had some back injuries. It's actually really helpful.

Tony Mauro: It is, but I'd say to people, you've got to find something that works for you. Don't think that stress isn't real, because I think it is definitely real.

Mark: No, it's absolutely, and it causes so many hidden things. I think we've gotten much better as a society and as a people understanding how stress affects us through the years versus, again, like even our parents or our grandparents. So certainly beneficial there. Good to hear that everybody takes a time or we should be taking the time to distress once in a while. Well folks, there you go. That's going to do it for this week, this episode on Plan With The Tax Man. If you have questions about what stage of retirement planning you might be in or you need some help getting through those stages, whether you've gotten this through an email blast from Tony or you've gone to the website, or you subscribe to it on whatever platform. We have Apple or Google or Spotify or Stitcher, definitely reach out and have a conversation with them.

Mark: They are Des Moines professional alternative at Tax Doctor Inc. You want to always talk with a professional about your specific situation before you take action. Because again, we're talking in generalities here on the podcast for a wide audience. So if you want to talk about the stage you might find yourself in, whether you're 15 years away or 10 years away or five years away, give them a call, get on the counter, have a chat at (844) 707-7381, that's (844) 707-7381 or go to yourplanningpros.com, that's your planning pros.com. Tony's been helping families in the area for more than 23 years. He's an EA and a CFP and my friend. Thanks for your time, buddy. I hope you have a great week.

Tony Mauro: All right, you take care. We'll talk to you next time.

Mark: We'll see you next time in a couple of weeks on more with Plan With The Tax Man, with Tony Mauro.