As a pre-retiree, you’ve likely never experienced retirement before. After all, retirement is often something people only have one shot at. That’s why it can be difficult to know what questions you should be asking to prepare.
In this episode, Jeremy Keil draws on his years of experience guiding clients into retirement to share six key questions you should be asking when planning for yours.
In this episode, you’ll learn:
- Ways to figure out your retirement income
- Why it’s important to enjoy life now while also being able to live comfortably later
- Planning considerations for couples
- Ways to optimize your taxes in retirement
- And more!
Tune in now to discover the questions you should be seeking answers to as you put together the pieces of your retirement puzzle!
The information covered and posted represents the views and opinions of the guest and does not necessarily represent the views or opinions of Keil Financial Partners. Keil Financial Partners is a part of the Thrivent Advisor Network, a registered investment advisor. The Content has been made available for informational and educational purposes only. The Content is not intended to be a substitute for professional investing advice. Always seek the advice of your financial advisor or other qualified financial service provider with any questions you may have regarding your investment planning.
Related Blogs & Podcasts
Keil Financial Partners does not provide legal, accounting, or tax advice. Consult your attorney or tax professional. Representatives have general knowledge of the Social Security tenets. For complete details on your situation, contact the Social Security Administration.
Retirement Revealed Episode 15: What You Need To Know Before You Retire
Are you ready to uncover your retirement solution? Learn more as Jeremy Keil and his guests guide you along the path of retirement and reveal the five steps you need to take to solve your retirement puzzle. Now onto the show!
Aric Johnson: Hello and welcome to Retirement Revealed with Jeremy Keil. Today we're going to be talking about some really important questions. There are six of them, right Jeremy?
Jeremy Keil: That's it. We've been helping people get ready for retirement, and we find that a lot of times folks that are in that phase of life don't quite know what they're facing yet. Why would they? They've never faced it before, and we’ve discovered six questions that retirees aren't asking but should be.
Aric Johnson: So six questions retirees aren't asking but should be, and you actually have a very, very good resource that we're going to talk about a little bit later, and you're going to give some opportunities for folks to get this resource. It's these six questions in a document that is incredibly robust. It's 22 pages long. It really covers a ton of great stuff. I call that meat. It really is a meaty document that people really need to get into and explore because it goes into depth. We're going to be kind of giving that 30,000 ft view today of what those six questions are, but it’s very important for them to get this.
Jeremy Keil: Yeah, it’s a lot of good stuff. Thankfully we've got a good editing and graphics team. They helped organize it very well, so you can go in and flip through it and find what applies to you and what you need to work on. Take a look at the whole thing if you'd like. You'd probably read it in 20 minutes. Not too hard to go through, but it's important to get ready for retirement because you've never done this before. You've spent your whole life saving, and now you're going to spend the rest of your life spending. Not that you didn't spend before, but you're now spending out of your investments instead of adding to your investments. That one's tough. It's tough to go from seeing your accounts go up to all of a sudden taking money from those accounts. That's one of the biggest mental shifts that you've got to make when you switch over to retirement.
Aric Johnson: Yeah, absolutely. So for the sake of this podcast we're going to be covering all six questions a little bit quicker than the document does. Where do we really want to start today?
Jeremy Keil: Yeah. Well, we're going to start by talking a little bit about your retirement take home pay. A lot of people are trying to figure out how much they can take home in retirement or what their income is going to look like in retirement. Another reason why this is so difficult is that while you know when your retirement date starts, you don't know when your retirement's going to end, right? It’s kind of easy to save for a specific date. It’s difficult to save for a time period when you don’t know how long it’s going to last. That's a tough one. So when you're trying to come up with your retirement income, you're trying to figure out how much you can sustain over that timeframe whether it's short or whether it’s long. There's just a lot of things that are out there that give you some guidance, but we think it becomes almost a little bit too difficult, right? You read a magazine. It says you need 70% or 80% of your pre-retirement income. They're talking to 100 million people. How does that apply to you? What does that do for you? Or you read about this thing called the 4% rule that says, oh, I got $1 million. I can take out 4% or $40 grand a year for the rest of my life. Again, how does that apply to you specifically when you have a pension, social security, and things like that? So a lot of times people are looking at these general rules of thumb. We say you should almost work backwards and figure out what you're living on right now, and then when you're doing your planning find out if you can actually live on that. If you can't live on what your income is right now, then there's going to be some adjustments, and you're better off figuring that out before you hit retirement. So the question is, what will my retirement take home pay be? We like to talk about that take home pay because that's what you're living on right now, right? If you're looking at your income and you make $100 grand and you've got $1 million in investments, who cares about that? You are living on a certain dollar amount. Maybe it's $1,500 every two weeks, maybe it's $4,000 a month, or maybe it’s $7,000 a month. Whatever it is that shows up in your checking account right now, you're probably spending it, so that's what you should be shooting for: can my pension, my social security, and my investments help me hit that exact take home pay amount?
Aric Johnson: Absolutely.
Jeremy Keil: You already know the number. A lot of people are trying to figure out, what do I need in retirement? But you already know it. It’s sitting there. Check your paycheck. Whatever your take home pay is, that's what you're probably spending right now. That's what you need. You can build everything up from there. So that's the answer to number one. We'll tell you how to go about that and some certain things you need to add on to it later on in the guidebook, but that's step one. It is just what are you living on right now? That's your take home pay. That's your goal in retirement. Try to get that take home pay in retirement if you can.
Aric Johnson: Yeah, great advice.
Jeremy Keil: Yeah. The second question is, how do I enjoy life now but still live comfortably later? It's tough switching over from that saver mode to that spender mode. You don't want to take out so much that you run out of money later on. At the same time, when are you going to have more fun? When you're 62 or when you're 92? Probably when you're 62. So if you've got a good plan that allows you to spend a little bit more when you're younger when you have that bucket list, you can go ahead and do that without feeling guilty about taking out too much. At the same time, if you focus on some things like your long-term monthly income, the things you get every month like social security and pension, it can allow you to make sure you still have enough later on. It's a tough balance, but it's one that we want you to walk through and figure out, and that's what we do a lot for folks is help them figure out how they can enjoy life now. Oftentimes that means you spend a little bit more those first few years of retirement while making sure that you still have enough later on so that you don't have to worry about running out of money.
Aric Johnson: Yeah, and that's the big thing right there is not worrying about running out of money. Just recently my wife and I attended a dinner that was done by a hospital that's very close to us. They do this kind of lunch and learn, but it was more of a dinner and learn, and they had a surgeon there that gave a presentation about heart surgeries. For anybody who's between 30 and 40 years old right now that's listening to this podcast, you have another 30 years plus before you really retire, unless you're planning to retire early. Just think of all the technology that's developed since 1990 to now. That was 30 years ago. From 1990 to now we went from gas guzzling cars to electric cars that drive themselves. We went from all these things. This medical presentation was phenomenal. The surgeon talked about heart surgery without actually having to open the chest anymore. There were so many examples of that. So how much longer is somebody who’s between 30 and 40 or even between 40 and 50 going to live compared to how long people are living right now. That's something to be thinking about and to keep in mind when you're looking at enjoying life but still being comfortable later. Like you said at the beginning, we don't know when retirement ends, but for most people listening in the audience it's going to end later than it does now.
Jeremy Keil: Yeah, most likely. We were just talking to somebody yesterday about that. She's in her mid fifties, and we had to talk through and get a good expectation of how long she might live. She was telling me how all of her grandparents and parents are passing away in their mid eighties, so she said that must be roughly when she'll pass away. I said, that's a good starting point, but at the same time, your grandparents are probably 45-50 years older than you, right? You've got 45 to 50 years of medical advances. If they made it to the mid eighties and they had 1970s technology going on, what's that going to look like for you? By the time you get there 30 years from now it's going to be completely different. We’ve got to look past the mid eighties into the nineties for someone like herself who's in good health. She admitted it. She said, I've got a better, healthier lifestyle than these folks. Thankfully a lot of people these days have a healthier lifestyle than 30-50 years ago when more people were smoking, drinking more alcohol, eating more red meat, and all that kind of stuff. That’s kind of toned down a little bit.
Aric Johnson: Yeah. Well, her grandparents grew up when there were commercials with doctors on them suggesting that you smoke every day for your own health. That’s a huge difference compared to what we talk about today. So definitely.
Jeremy Keil: It is a big deal. Well, question number three is related a little bit to longevity. Oftentimes you get into retirement and there's two of you, but by the end of retirement it’s probably down to one person. When you're doing this retirement planning, things might look very rosy when he's got a pension, when she's got social security, and when he's got social security. That’s great, but we want to figure out how much income your spouse would lose if you were to pass away. That's a big deal. We call that the survivor gap, and it's a huge deal, especially for a lot of widows. We like to say that an 82 year old widow is living on the decisions of her 62 year old husband 20 some years ago. That happens for sure with social security. Whatever the two of you were getting is going to go down when the first person passes. If you happen to have a pension, depending on how you set that up, that might go down as well. The default is usually 50% survivorship. That means if you're getting $1,000, the default is that the spouse gets $500 so half of it. That's the default for most pensions. So we know for a fact that social security is going down. A lot of pensions do go down. Thankfully with the pensions you get a little bit of a choice. So hopefully you haven't chosen your pension decision yet. We can help you figure out how this is going to affect your widow. For the guys remember that it could be you. There's still a chance that the women might not out live you, so these decisions might be affecting you. For the women, well guess what? It probably will be you. You have to make sure you are a part of these decisions. You have to make sure your husband is considering the both of you. Later on the wife might live on for 5,7, or 10 years. My grandma's been a widow for almost 20 years now. She’s living on pension decisions that her husband made 30 years ago. This is a big deal, and you can't change it. You can't go back in time. You can't change it. When we talk to people about this a lot of times their initial reaction is well, there'll be half of us, right? Our expenses will go down. Okay, well, your property taxes don't go down. Your tax brackets actually go up. It's higher taxes for single folks a lot of times than when you're married. Then there are utilities. You live in your house. You've got to pay utilities. Well, where do you use less electricity or less water? I don't know how it is by you, but I got a family of four folks. There's four of us in our family, and we pay about $18 a month for water. You’re not saving that much on taxes when the first person dies and the second one is still using a little bit less water, right? That’s not going to be the salvation to your retirement. You have to figure that one out. You have to find ways to act on that. Maybe delay social security. Maybe delay your pension. Maybe you take a survivorship on your pension. Maybe you set some money aside and get ready for that situation. Maybe you still have life insurance into retirement. Those are all things that we talk about in the guidebook, things that we like to walk our clients through to make sure we know what their plan is. It's 25 years down the road, but you've got to have a plan now because now's the time when you're making decisions on it.
Aric Johnson: Yeah, absolutely.
Jeremy Keil: Now on to step four. We're halfway through. We're getting into taxes, one of our favorite topics. Number four is how do I arrange my taxes to get more deductions? It's an interesting situation. A lot of retirees maybe have some property taxes and some state income taxes. They give a good amount to charity. Up until a few years ago, a lot of them had these things called itemized deductions. Well, they changed the tax laws. So in 2018 and 2019, and it's set up to be this way for the next five or six years until 2026, they doubled the standard deduction, and when you hit 65 they actually give you a little bit of extra help, which is a good thing. They give you extra help on the standard deduction, but it's to the point now where you don't actually get to itemize until you hit about $27,000 on these deductions. Also, with this whole property and state income tax thing, they limited it now. So you might have had a couple properties. You might have had some high income taxes. You might have had $15,000-20,000 of deductions from that before. Guess what? They limit you now to $10,000, so they made the bar higher and let you count less of it. So it's tough these days to get these itemized deductions, and that's unfortunate because a lot of times when you're giving money to charity, it's kind of nice to get that extra tax help especially if you're used to it. You keep on giving to charity whether you get the tax help or not, but it's a wise thing to arrange your taxes around to kind of capture back those deductions, and there's some ways that you can do that on the charitable side, especially for retirement people. We can talk through some of those ways right now. Let's say you are retired and that you are a great giver. You're giving $500-$1,000 to church every month, or maybe you've got a few charities you really like, and you're giving a few thousand each year to those charities. You don't have to give it the way that you always were. You don't have to put the envelope in the bucket every single week. You don't have to cut a check in December, right? You could do this in January. You could do it the year before. You can do this thing called bunching deductions. You want to be mindful when planning out these charitable gifts because when you plan them out, you can bunch them together in order to get some extra tax deductions. We had a client recently who came in. Really good givers. They're giving 10% to their church plus a little bit extra to some different charities. We love working with those folks. We can help them out quite a bit, especially when it comes to this area. They had an extra $30,000 in their savings account. He said, where do you think we should invest this? Should we pay down our mortgage? What should we do with this extra $30,000? While we were talking through it we said, wait a second, you give $10,000 a year to your churches roughly, and you're not getting any of those deductions. Just because of the way it worked out with their standard deduction they were not getting any of those deductions. So we said, let's look into something called a donor advised fund, and that's a way that you can get a tax deduction today but not necessarily give it to the charity until later on. So we put that $30,000 into a donor advised fund. For them, let's just say that they got about $25,000 extra in deductions for that year, right? That's roughly how it worked out for these folks. They were in the 22% tax rate. If you multiply that out, that's about $5,500 in federal tax savings, and we're not talking about actually giving extra. We just said, do this a little bit differently. Instead of waiting for the next three years and putting $10,000 a year towards your church, just do it all at once towards this donor advised fund and then let that fund pay out to your church over the next three years. Instead of getting no itemized deductions for the next three years, they're going to get roughly $5,500 bucks in tax savings, right? If you just do the math, they had $25,000 extra in deductions this year times the 22% which gives $5,500 that they will get in tax savings. That'll be huge, right? That's a big help to them. That gives them a little bit more affordability to give a little bit extra to the churches and charities that they want to give to.
Aric Johnson: That's great.
Jeremy Keil: Yeah, it's just being mindful and planning that one out. There is another tax situation that is huge for people that are 70 and a half. We had a couple come in that had been working with another advisor, but they were thinking about moving over towards us. We said, oh, well, you're quite charitable. You've got these required minimum distributions. You have IRAs that the government forces you to take money out of. I assume you're having your IRA money go directly to the charity? Well, no. I’ve never heard of that before. Well, it turns out that they were taking their money from the IRA to themselves and then writing a check for just about the same dollar amount to the charity. We said, if you go from the IRA directly to the charity, the government's got a rule called qualified charitable distributions. You've got to be 70 and a half to do that, so it's for the folks that are into retirement a couple of years, but when you do that, it doesn't show up in your tax form. If it doesn't show up in your tax form, you don't pay the taxes on it, and for them that's about $10,000 a year that they were not getting a deduction on. They still don't get a deduction on it because when it goes from IRA to charity there's no deduction, but it wasn't showing up on their tax form. So $10,000 they were making use of doesn't show up on their tax form at a 22% tax rate. That was about $2,200 a year of savings. Well they signed up with us and became a client right away. It’s a big help, and they were unfortunately missing out on this because their advisor wasn't aware of it. Their accountant wasn't aware of it. No one was giving them that advice. So that's question number four. How do I arrange my taxes to get more deductions? You might be someone that used to have itemized deductions, and now you're wishing you still had them. There might be a way, and it's just about being mindful and strategic. Plan out that charity that you give. We talk about a couple of ways to do that in the guidebook.
Aric Johnson: All right.
Jeremy Keil: Two more questions here. Question number five and number six are a little bit related we would say. Number five is how can we leverage social security to lower our lifetime taxes? We've talked about social security before. A lot of people when it comes to social security mainly focus on when to take it and when it’s going to give you the most money, but there is an added benefit that folks don’t often focus on. They don't focus so much on how social security gets taxed. What do you think, Aric? How does social security get taxed? When you're getting social security, how does that work?
Aric Johnson: I would assume it gets taxed just like income.
Jeremy Keil: Yeah, that's about it. Some people ask us, what's the rate on social security? It’s whatever your normal income rate is, so if you're in the 12% bracket or the 22% bracket, that's what it is. There's no special rate on social security, but there is something that is different. Let’s say you get $30,000 in social security. Either none of that is taxable or 85% of it is taxable or anywhere in between. It's just a weird number. So you have the same rate as before, but a lot of your social security may or may not show up as being taxable, and it has everything to do with how much other income you have, which is a really odd situation. We dive more into it in the guidebook, but it's so interesting that if you have $30,000 from social security and $20,000 from your IRA, that's a way different tax situation than if you have $20,000 from social security and $30,000 from your IRA. Social security coming out to you is a better tax situation than taking money from your IRA. It is an interesting way that it justs compounds on each other. Now they changed the required minimum rules to age 72 where you're being forced to take money out, and you might have had a social security that was fairly low taxable before, and all of a sudden you have $5-20 grand more of income showing up from your IRA onto your tax form. It's not just that money that shows up as extra taxes. Parts of your social security might come from being no taxes to a higher tax situation. It's an odd situation. It involves something called provisional income. There’s a bunch of math that's in there. I'm telling you, it's worth looking into. If you have a tax accountant that isn't talking to you about how much your social security is being taxed right now, if your advisor isn't helping you find ways to take social security that was taxable and make it non-taxable, you gotta keep looking, right? It's just so interesting. It's an odd situation. It was based on laws in 1983 that haven't changed, and if you know the rules, you can figure out how to go about adjusting your other income so that less of your social security becomes taxed.
Aric Johnson: Yeah. I mean, if you're going to play the game, you have to know the rules, and unfortunately, the way these tax laws are all written out, it is like a game. It's a very complicated game, so bring in the expert that knows the rules and can talk to you about them because man, this is one game you don't want to lose.
Jeremy Keil: Yeah, that's exactly it. Unfortunately, most people delay these required minimums. They wait till they're forced to do things. Then all of a sudden they get their bill in April for taxes from last year. They say, oh man, what can I do? You can do a lot. You can't throw up your hands in the air and say, I can't do anything. What can I do? There's a lot you can do, and there's a lot you can do ahead of time. That's why we end with question number six. We think of this as one of the biggest ways combined with number five to leverage social security. The question is, how can I use Roth conversions to lower my lifetime tax bill? What's so interesting about retirement and so different than when you're working is that when you work, you're making your salary. You get your paycheck. You make your salary. You get your W2. You throw it in your tax form. When you're in retirement, what’s new is that you get to choose your tax bill, which sounds different, like why wouldn’t you just choose zero? You don't get to do that. You don't get to write a letter and say, this year I'm going to choose zero, but a lot of times you get to choose when things become taxable. You can choose to take money from your bank account for income or from your IRA for income. That's a different tax situation. You can choose to take money out in December but use it for January. That's a different tax situation. You have a lot of choices, and when you understand how the tax brackets work and when you understand how social security works and becomes taxable, you can put that all together for your advantage and lower your lifetime tax bill. One of the biggest ways to do this is to not wait until you're forced to take money out at 72. Don't wait until your social security becomes really weirdly taxable because you're taking IRA money out. Plan for it ahead of time. Right after you retire when you're in your early sixties and you haven't maybe taken your full social security yet, you might be in one of the lower tax brackets of your lifetime, and when you're in that lower tax bracket, you've got an option to pay taxes because you want to. Of course you'd only do that because you know it's a lower rate now than it would be later. We're not saying that you have to call up your 401k and say, send $50 grand to the bank and then just leave it there. We're saying that you've got traditional IRA investments, and you can choose if you want to leave them in the traditional IRA and keep pushing off the taxes, or you can do something called a Roth conversion. It could be a dollar. It could be your entire thing, but you can tell the institution, the place you're working with, let’s take $20,000 that's invested in the traditional IRA. Let's still keep it invested, but let's move it over to this thing called a Roth IRA. When you do that, it's called a conversion, and you'll get a tax form that says you did let's say $20,000, and that $20,000 would show up in your tax taxes for this year, but all that growth in the future is tax free as long as you follow those rules of the Roth IRA. So you can choose to keep your money invested, but let's just pay the taxes this year and allow it to grow and become tax free for the future.
Aric Johnson: Nice.
Jeremy Keil: Yeah. It's a good way to go, and when you're hitting retirement, there's going to be a lot of different points in retirement that you can predict a little bit, right? If you hit retirement today, you might be in a lower bracket. When they turn on social security, you might be in a higher bracket. When they turn on these required minimums, you might be in a higher bracket. When you become single, when the first person passes away, you'll switch over to a different tax situation, so you can kind of see, well, what are my brackets going to be looking like over time? You can target those lower tax brackets and pay taxes on purpose at the lower rate. The biggest way to do that is this thing called the Roth conversion. You still have the money invested. You're just telling the government, I don't want this in the traditional anymore. I want a specific dollar amount over into the Roth area. Let that grow tax free because I just took care of it in this one year that happens to be a lower tax year because you took the time to project out your rates. Again, a lot of this has to do with sitting down and planning for it. Thankfully, we’ve helped hundreds of people hit retirement. We've got a great ability to see what other folks are doing and what is going to come up in your retirement life. When you are retiring yourself, you've probably never done that before, right? So if you're facing a new situation, facing a new part of your life called retirement, find somebody that's been there before, and a lot of times we've been there before because we’ve helped your neighbors and friends hit retirement, and we can help you project out and put a strategy together for yourself.
Aric Johnson: Yeah, absolutely. Jeremy, this book, and I'll call it a book because it's robust, is great. It has a ton more information on all six of these questions that you just covered in the podcast. How do people get this?
Jeremy Keil: Yeah, pretty easy. It's right on our website: keilfp.com. It's so important that we put it on every single part of our webpage. So just go to keilfp.com, scroll down a little bit, you'll find a place to plug in your email, click download, and then by the time you checked your email again it's going to be sitting right there. We want to get it out to you as soon as possible, so we’d love to have you check it out. It's a great way to go through, find the questions that maybe are most relevant to you, but we found a lot of times that this is all new stuff, and we thought these were six great questions that you ought to be using to prepare for retirement.
Aric Johnson: Perfect. I agree 100%. Jeremy, thank you so much for your time today.
Jeremy Keil: Yeah, thank you, Aric.
Aric Johnson: You bet, and thank you for listening to the Retirement Revealed podcast with Jeremy Keil. If you have not subscribed to the podcast yet, please click the “Subscribe Now” button below. This way, when Jeremy comes out with a new podcast, it'll show up directly on your listening device. This makes it much easier to share these podcasts with your friends and family. If you have somebody who is approaching retirement or is 15-20 years away from retirement, it's never too early to plan. Share this podcast with them so they can go to the website, fill their email in, and download this wonderful resource that Jeremy is offering today. Again, thanks for listening today. For everyone at Keil Financial Partners, this is Aric Johnson reminding you to live your best day every day, and we'll see you next time.
Thank you for listening to the Retirement Revealed Podcast. Click on the subscribe button below to be notified when new episodes become available. Visit Retirement-Revealed.com to learn more. The information covered and posted represents the views and opinions of the guest and does not necessarily represent the views or opinions of Keil Financial Partners. Keil Financial Partners does not provide legal, accounting, or tax advice. Consult your attorney or tax professional. Representatives have general knowledge of the Social Security tenets. For complete details on your situation, contact the Social Security Administration. Keil Financial Partners is a part of the Thrivent Advisor Network, a registered investment advisor. The Content has been made available for informational and educational purposes only. The Content is not intended to be a substitute for professional investing advice. Always seek the advice of your financial advisor or other qualified financial service provider with any questions you may have regarding your investment planning.