21 Things to Do Before You Retire (Part 2)

Transcript:

On this episode of the Personal Finance Podcast, 21 Things To Do Before You Retire Part two.

What's up everybody, and welcome to the Personal Finance. Podcast, I'm your host Andrew, founder of Master money.co. And today on the Personal Finance Podcast, we're gonna be diving into 21 Things to Do before you retire. Part two. If you guys have any questions, make sure you join the Master Money Newsletter by going to Master Money at co slash newsletter.

And don't forget to follow us on Spotify, apple Podcast, YouTube, or whatever podcast player you love, listening to this podcast on it. If you wanna help out the show, consider leaving a fivestar rating and review on Apple Podcast, Spotify, or your favorite podcast player. Now, today we're diving into the second part or part two of 21.

Things to Do before. You retire if you did not hear part one. We do a deep dive into the first 10 things that you need to do before you retire. And if you haven't noticed already, these are action packed episodes. A lot of information and a lot of things to dive into. And so we're gonna go into part two now, and I'm not gonna waste any more time.

I wanna dive right into this. So without further ado, let's get into it. Alright, so the first thing we need to do, and we need to make sure we do this, is figure out the biggest wild card overall in retirement. And we need to figure out healthcare. So you can have a perfect financial plan and you can have all of your ducks in a row, but if you don't plan for healthcare properly, you could derail that entire financial plan.

So I'm gonna show you in this episode how to think about healthcare and some of the things you should be considering. Now I call healthcare one of the biggest wild cards in retirement because we don't really know how much we're gonna have to spend on healthcare in retirement. Now we can get a pretty good idea, but we don't know exactly how much we are going to need because a couple of things that fall into line here are long-term healthcare in addition to just healthcare, if you got sick or if you had some sort of illness.

So all of this put together means that you are gonna have an increased cost of healthcare over time. Now on average between Medicare premiums, supplemental plans, prescription drugs, and potential long-term care, a couple usually will spend 300,000 to $400,000 in retirement on healthcare. That's why you need a plan and not just having coverage in place.

Now here's what healthcare planning does. One is it turns this unknown, this big unknown in healthcare into a fortified plan where you're gonna have enough money in place to make sure that you have this set up. Two, it also is gonna give you the right insurance mix to ensure you could focus on living well and not worrying about all of these different what ifs.

If you have the right mix of insurance, you can have the right plan in place, and it's one of the few areas where preparation directly impacts your peace of mind so you can reduce your stress and anxiety. Infinitely by making sure you have this in place, there are way too many people I've seen that have retired and when they retire, they are so stressed about their healthcare and what they're gonna do next because they did not put a plan in place.

So here's some practical steps you need to think through. Number one is Medicare Part A. So this is hospital coverage and usually is premium free. So we need to understand how Medicare actually works. And then we have Medicare Part B, which this is doctor visits. And outpatient care, so this usually is going to have a monthly premium.

Then we have Part D, which is your prescription drugs. This is a separate plan. And then we have Medigap. So this covers what traditional Medicare doesn't, and we have Medicare advantage, which is part C, combines A, B, and D into one plan. Usually lower premiums, but has a lot. And I mean, a lot more restriction.

And so for a lot of folks out there, if you understand each of these different parts before you retire, and you develop a plan on how you're gonna utilize each of these parts, some have premiums, some have don't. That's gonna help you tremendously in the long run. Now, number two is I want you to plan for that pre-Medicare gap.

So before you retire or before the age of 65, you'll need coverage until Medicare starts. A lot of people listen to this podcast. They wanna retire early. Most people will come back to me and say, Hey, I wanna retire in my fifties or my sixties. We even have a lot of folks who wanna retire in their forties.

And so when this happens, what are some options that you have available? One is if you retire 18 months before this timeframe, you have Cobra available to you. So Cobra means you can utilize the same healthcare plan that you are currently using under your current employer for another 18 months. The problem is you're gonna be paying for what your employer was covering before, so it is very expensive right now to use Cobra two is the a CA marketplace.

Now this is often gonna give you subsidies if your income is low or if you are in early retirement. So this is a good place to start for some people out there. Also, if your spouse is still working, you can look at your spouse's employer healthcare coverage as well. That's another great place to look. Or you can start to shop around.

You can start to shop around different healthcare plans and finding an independent agent who can shop all the different plans that are out there for you. It is worth when it comes to healthcare, getting a ton. And I mean a ton of different quotes, because you could be saving yourself thousands of dollars every single year when you do this.

Now, number three is we need to address long-term care needs because long-term care is really, really going up in cost over the course of the last couple of years. In fact, 70% of retirees need some form. Of long-term care, just look at either your grandparents or your parents, what kind of care did they need or do they need currently, and how are they getting that care and coverage?

It costs money to get this kind of care, and so you need a long-term care plan. There's a number of things you can do. First is you can look at traditional long-term care insurance. Very expensive stuff, but it does pay for care, but your premiums can increase over time. Two is hybrid life plus long-term care policies and those combined life insurance with LTC benefits.

I'm not a big fan of utilizing, uh, life insurance for this. Three is self-funding, so using your investments to cover potential care costs and planning for that. So that's another big plan that you could have in place. And the key is to choose your strategy early and understand how this works. What happens to a lot of people though?

Is to get to this point in time, and you really need to plan this out and you need to sit down with your children. A lot of sibling fights later on in life are because of the care of the individuals in their life, and so you and your children need to sit down if you have children, and you need to have a conversation about this.

You just say, these are my long-term care wishes. This is how it's going to get paid for. This is the money I have set aside for this. Because what happens a lot of times is that siblings, as they get older, start to have arguments, well, I don't want to use the money 'cause that's my inheritance money. Or, I don't want to put them in this home.

No, all of you need to have this conversation and figure out exactly what you want them to do. If you wanna live with one of your children, or if you want to have specialized care, you need to stake that early and often. And if you want specialized care. You need to pay for it. That is really what we wanna do.

You don't wanna put this burden on your children. You need to make sure that you have a plan in place. So think about this as time goes on, or even if it's early, think about this early. Now, another thing you could utilize is your HSA. We'll talk more about the HSA in this episode, but that is something else that you can use to fund a lot of this stuff and why the HSA is really important in my eyes.

And then run healthcare scenario. So think through, you know, if something were to happen, let's look at Medicare and Medigap premiums. Let's look at out-of-pocket costs. Let's look at long-term care coverage. Inflation and let's factor all these costs in. What would that cost every single month if I were to get all of those different things?

Alright, now let's piece this together and make sure it fits into our plan. So that's the first thing I want you to do, is think about those plans now. Number 12. Now, one of the bigger threats to your retirement. Isn't just inflation or even taxes, but it is sequence of return risk. And what I mean by that is you having to draw down on your portfolio during really bad or down years.

And so how do you combat against this or what are some of the things that we can do to make sure that we always have enough cash on hand to cover our expenses? Well, what you do is you build that cash buffer fund. Now a cash buffer fund is basically an emergency fund, but you're gonna make a much larger emergency fund since you're not working anymore, and you're gonna give yourself a runway, a cash runway that allows you to pull from this fund when you retire if there are really bad down here.

So I want you to think about this for a second. I want you to go back into your way, back time machine and think about what happened in 2007, 2008. Imagine if you retired in 2007, 2008, and you were invested in that market. Well, that market pulled back 50% and if your portfolio pulled back 50%, you really don't wanna be drawing on it in that given year.

And so what if you had a bigger cash buffer on hand when you retire, that you planned for? And for all my young folks who are in their twenties or their thirties right now, you need to plan for this Now because this is a bigger buffer, which I'm gonna talk about here in a second. And what if you had this bigger cash buffer?

So if you had a two to three year cash buffer on hand, that would be a tremendous thing to have and it would give you peace of mind and you would worry less. And this can be for an emergency fund, but this can also be so that you have some extra places to pull cash from when you need it. And the market is down.

And so this reduces your sequence of return risk in your portfolio by having this cash buffer in place. Now, I say a two to three year cash buffer 'cause that's kind of the minimum that I really want you to have. A minimum is really one year of cash. Most people retire with not much cash whatsoever. I want you to at least have one year of cash, but having two to three years of cash, you can have this available and utilize it as a place to pull.

Now when I say cash, I don't mean you just have to stuff it under your mattress, and we'll talk about places to put this cash on hand, but just having money in place. That is liquid that you can pull from when you need it. Okay, so why is this so powerful? This is your sleep Well at night fund, your SWAN number is what we like to call sleep well at night number.

So for a lot of people out there, if you haven't heard our cash method, which is called the 1 3 6 Method for your emergency fund. In that method we have something called the SWAN number. This means you save up to a specific number that helps you sleep well at night, where your swan number in retirement should be a larger number, should be a few years of cash on hand to give you that buffer Also.

If you have this cash on hand, it lets you stay invested instead of bailing out way too early or freaking out when the market drops. This is gonna give you that peace of mind that, Hey, I have a couple of years available here that I could pull from if the market did drop so I don't have to worry as much.

And it turns a market crash into an inconvenience instead of a crisis. So you don't have to worry, oh my goodness, I gotta pull from this portfolio. It is down 50% right now. What am I gonna do? That's a crisis. But if you leave it invested, it should rebound and come back just like 2007, 2008. And so when that happens, you don't have to worry anymore.

It's just an inconvenience. It's just an annoyance overall. And then when it comes back, then. You can pull from that portfolio and replenish your cash fund. This is the way that this is going to work, where you're not losing so much because of that sequence of return risk, and it also is gonna smooth out your income flow.

Whereas some people, maybe you have guardrails set up and so you're worried that when the market goes down, you're gonna hit that lower level guardrail if you wanna smooth out that income. Having a cash buffer helps you do that when you go through this process. And so some practical steps that you need to think through is determine what size, cash buffer you want and start to work backwards on saving that up.

Let's say for example, you wanna live on a hundred thousand dollars per year. Well, a big old cash buffer would be about 300 grand in place that is sitting there allowing you to have three years of cash on hand. If you wanted to have two years of cash on hand, obviously 200 grand and one year of cash would be 100 grand.

And so working backwards from there, you can remove social security from the equation and you can remove any other guaranteed income. And then you have this cash buffer in place. Now, where do you keep this? There's a number of different places that you could keep this. Trying to get the highest yield is probably the best option, especially if you are retired.

So you could do a high yield savings count, that's number one. You can do something like a laddered c. That is something where you set up a CD and it matures every single month or every other month, and allows you to have liquid cash available, and then you just go and buy another CD if you don't need that cash right away.

You can also look at money market funds, and for my high net worth individuals or high earners, if you have a. Big chunk of cash. If you want the best tax option, then money market funds can be that, and we have treasury bills or T-bills is another great option for those out there if the yield is higher and it makes sense.

Otherwise, high yield savings count is the most liquid, uh, CDs if you can get a higher interest rate on those CDs, nothing wrong with having that, or you can ladder this up in another way too, where you can have maybe the first years in a high yield savings count. Year two is in a cd. Year threes and t-bills or whatever you wanna do, depending on what those rates are.

The goal isn't highest return, it's just reliability. Making sure you get that reliability if you can, is the biggest thing you want to do. And then again, during those strong markets, when the market rebounds, if you have to spend that cash down, then you can refill that cash with, uh, your portfolio gains later on down the line that you would have spent from your portfolio.

So just a perpetual cycle that you can have in place gives you three years that the market is down for a couple of years in a row. And allows you to really have that peace of mind. Now, you can integrate this with your withdrawal plan as well, so maybe, for example, you have three years of cash on hand, and so bucket one is cash if you're using the three bucket method.

Bucket two is that midterm goal and then bucket three of the long-term goals. Well, you can keep. Replenishing that and spending your cash each year, allowing your portfolio to grow and then replenishing it on the backend every year is another great option if you wanted to do that. Or if you have extra cash and you're unsure if it's too much, you can spend a year and then replenish with a year, spend a year, and then replenish with a year over and over again.

It's another great way to do this. And something that I've seen a lot of other folks do as well. So keeping cash on hand really important to retirement. I think everybody should consider starting to save now, even if you're young, even if you're in your twenties, just set up a little fund. You can put 10, 20 bucks a month in there if you want to.

If you have a long time horizon, you're gonna be amazed at how much this will build up over time, and it's gonna be a great way to reduce stress in retirement. Okay, next, let's do number 13. So debt and retirement don't mix well and for a lot of folks out there, I want you to think about becoming completely debt free by retirement, low interest and high interest, having it all gone.

Now for me specifically, this is part of my plan. I'm gonna make sure all my debt is paid off. The reason why I'm not completely debt free right now is 'cause I have a mortgage that is at 2.7% that I'm not paying off anytime soon. By the time I retire, I wanna have paid off house, paid off cars, everything is paid off where I don't have to worry about those payments.

Then the only payments I have to worry about are things like taxes, insurance, those types of things on my homes, my vehicles, and anything else that falls into that category. So it's not just about the number. This is also about freedom. It's about security. It's about peace of mind. Your retirement is a time that you should be enjoying and having to worry about money problems because you have debt is not something I want you spending time in retirement doing.

Now, this should not come before investing for your future if you're trying to hit your retirement number, but this should come later on down the line. And we speak about this a lot in the Wealth Builders journey in Master Money Academy. We talk through. All of these different sections and what order of operation to go in so that you note where you're going.

But every dollar you owe is a claim on your future income. And so if you don't want debt to have a claim on your future income, making sure that it's paid off before retirement is a key. This is also gonna reduce your retirement risk. So the risk in retirement if you have debt goes. Up, no matter what that specific interest rate is, or no matter what is going on, your risk will go up having more debt.

And so keeping debt off of your own personal balance sheet can be very, very helpful. The less you owe, the more predictable your life is as well. And so the borrower is a slave to the lender. And so noting that if you get this debt paid off, you don't have to worry as much. It's also gonna a lower your monthly expenses.

B, give you flexibility to spend how you want and not have to worry about also spending on making those debt payments. It's three gonna protect you from rising interest rates, especially if you have variable debts, if your mortgage is variable, or if you have a heloc, something along those lines. And there's a huge psychological benefit because your light secure and in control.

Light, secure and in control. That's how I want you to feel in retirement. So those are big, big things to do. Now, what are some practical steps to actually do this? Obviously we always want you to have your high interest debt paid off. So anything above a 6% interest rate, we always want you to have that paid off.

And then beyond that, when we look at lower interest debt, we wanna do this later on on the line. We wanna make sure we are maxing out those retirement accounts. Maybe even putting some money in a brokerage account, then we can look at some of that low interest debt way later on down the line. And so that's the order of operations that I would think about.

This is not straight up right away, but trying to gradually start to get debt free. Maybe get those cars paid off and you're like, you know what? I'm not gonna take a car payment ever again. I'm gonna make sure I save up enough cash to buy my next car. Or maybe you finally get the mortgage paid off and you're like, I'm gonna live in this house forever.

The mortgage is paid off. I enjoy being here. I like this location. My family likes being here. It's got enough space for all of us. And so you decide this is what I'm gonna do. I'm not gonna move into another house. Instead I'm gonna be mortgage free. Or you decide, hey, everyone's outta the house now I'm gonna downgrade to a smaller house 'cause I don't need all of this space anymore so I can be mortgage free.

My old bigger house is gonna pay off the small house and I can be mortgage free that way. Lot of fantastic options that you have here. And so that's how I would think about this, is trying to get rid of all your debt so you can shift to a cash flow. First mindset, meaning you're gonna be able to utilize your cash flow.

To do anything you want. Imagine what you would do with this debt freedom, all those extra payments that you'd be throwing out debt, you could be taking those payments and putting it towards your travel fund, putting it towards your hobby fund, your vacation fund. Maybe you wanna start a business in retirement and it goes towards that.

But this is gonna make your lifestyle so much better by having zero debt gives you peace, control, flexibility. Remember those three things? Peace, control, flexibility. That's what you get when you're completely debt free. Number 14. Is to utilize and max out your HSA before retirement. So there is one account that feels too good to be true, and it's the triple tax advantage of the HSA.

Now, the HSA has parameters and structures around it where it's not perfect. And the reason why it's not perfect is because you have to utilize the money for healthcare expenses until the age of 65. After the age of 65, it turns into a traditional IRA. Now we have entire episodes about the HSA and the nuances of exactly how it works.

Just to explain it really quickly, money goes in tax free. It grows tax free, and you can pull the money out tax free as long as you have a qualified medical expense. Now, we use the HSA in a very different way than what most people out there do because most people aren't educated on how the HSA actually works.

And so we use it as a investment tool, meaning a retirement tool. So most people put money in an HSA and they spend it on those medical expenses each year. Nah, nah, nah, nah, nah. Because you can invest the money in the HSA, this is going to allow you to grow your money. So once money goes into the HSA, you can grow it every single year and continue to max that out.

And guess what? Now you have money set aside for healthcare or long-term expenses where you don't have to worry as much because it's in that HSA. Then if you overinvest in your HSA and you've got too much money in that thing, which is a great problem to have, it turns into basically a traditional IRA when you turn 65.

So when you turn 65, you are gonna have to pull money outta there. And you'll get taxed on those dollars just like you would with your 401k or your IRA. So it's a very similar thing, and it is really, really powerful because of those triple tax advantages, because you get tax-free medical expenses. In addition, it compounds quietly for years, and you have this money just set aside for the biggest expense that you're gonna have in retirement, which is healthcare.

Again, we don't know what healthcare is gonna cost, but the rise in cost of healthcare and the problem that this country has with healthcare has been something that I don't wanna mess with whatsoever. And so you wanna make sure that you have that money set aside, even if it's small amounts of money, small amounts of money over time grow into very large amounts of money.

And so making sure you max out that HSA needs to be part of this retirement plan because overall most people overlook it. And if you can pocket enough now, you can make a big, big difference. So if you're spending your HSA right now, I highly recommend looking into our episodes where we talk about how to utilize it like a retirement account 'cause it's a supercharged triple tax advantage retirement account that I absolutely love to use.

Alright, so in last episode we talked about knowing your retirement number and how to find that retirement number. What I want you to do, and what I wanna talk about here in number 15 is to know that retirement number and then stress test that retirement number. Okay? So most people go into retirement guessing they go in and they hope their savings is enough.

They never run the numbers. And so you need to stress test your retirement number and figure out if this is actually gonna work. Now there's a number of different tools out there. Bolden is a great one, uh, that are gonna help you stress test your retirement number and make sure this works in every single scenario.

But what I want you to do is think through. The exact amount of money that you need. Now, you tr probably did a backup napkin math. You did the 25 x rule to figure out that retirement number. Now we wanna make sure that we know that this actually works because this is a very, very important number to note.

And as we make the adjustments each and every single year, we can look to see if this is actually something that is gonna work. And so for most people, they don't stress test their retirement number. I highly recommend you just do it because retirement is not something you wanna play with. Why is this powerful?

One is it transforms retirement from a guessing game into a measurable plan. But two, it helps you decide if you can safely retire. And how much flexibility you actually have. Having more flexibility in the retirement is one of my biggest priorities. I wanna be able to do what I want, when I want with whom I want.

And having the flexibility with your money is gonna allow you to do that. It's also gonna align your lifestyle dreams or your dream life with your financial goals. And when you stress test it, you can face the future. Confidently. See, what a lot of people do is they don't know what's gonna happen to their portfolio because they don't stress test them.

They don't look at scenarios or historic scenarios where there was a lot of downturns or there was a lot of other issues in the market. And so if you don't do that, then you won't be educated on what could happen to your portfolio. Because if your portfolio goes down and you actually have stress tested it over and over and over again, you know what's gonna happen.

Then what happens is you are competent. You're not worried. You don't make emotional or irrational decisions. Instead, you know what could happen and you are comfortable in your own scenario. So how do we do this? One is you calculate that annual spending. I would start with what you actually spend now and every year.

Just keep making those adjustments 'cause you're gonna get a better idea as time goes on, because then two, get your annual income target or whatever other income is gonna be coming in. And so thinking through what am I gonna get from social security? What am I gonna get from pensions? What am I gonna get from annuities?

And then find that target number. And then stress test it with something like a Monte Carlo simulation. So a Monte Carlo simulation. If you don't know what that is, runs your plan through thousands of different market scenarios, bull markets, bear markets, inflation spikes. What are all the different things that could happen in the probability of success?

And so you might see something like a 90% success over 30 years. It's percentage is too low. Then you can adjust and you can make some adjustments. By saving more, you can make adjustments by spending less delaying retirement. Retiring at a later date and or finding more guaranteed income that could come in, and so you can make those adjustments and not have to worry about it each year.

Again, updating this every year, this is why we update it every year, is because a lot of this stuff changes and Monte Carlo simulations can help you with that. I highly encourage to look at it and try to test it and see what you can do with some of these simulations. Number 16 is before you retire, you need to know your housing and lifestyle strategy.

Meaning that your home affects your budget. It's gonna affect your taxes, your healthcare access, your relationships, your overall happiness. Where are you gonna live? Are you gonna live where you currently are right now? Are you gonna stay in the house that you currently are in? Well, let's make a plan to pay off that mortgage at some point in time before you retire, 'cause that's gonna be an easy win for you.

Or do you plan on living somewhere else with a lower cost of living? We have a lot of listeners right now who are in some of the big cities. Los Angeles, New York. And if you are in these big expensive cities, do you plan on retiring there? Do you actually plan on retiring there, or do you plan on moving to a lower cost of living area so that you can have a better retirement?

That's a big question overall for some people, because housing for most is typically the largest expense. It can either support your goals or it can drain your freedom if you don't set this up correctly. And then also, the sooner you plan it, the more options you are going to have. So for example, I live in Florida.

And in Florida, we have a lot of retirees that come down here once they retire in some higher cost of living areas. And so we see that over and over and over again because it's less expensive to live here than it is to live in New York, for example. So is that something you plan on doing or are you making strategic decisions on where you are going to live?

Now? For those of you out there who live paycheck to paycheck and you live in a high cost of living area, the place that you live matters dramatically and you can really save a lot of money in taxes and you can save a lot more money so that you can retire and have financial freedom. If you live in a different area, I hate to say it and I would not move for money reasons, but for some of you out there, if you absolutely hate your job, you hate your life that you're living, moving may solve that problem.

And it may solve that problem in a number of different ways because you can save more for financial freedom, you can have more time with your family and friends and have the ability to save more in taxes. So those two things are really big. Uh, but I would not make a move just for money if I had family and friends around me that I might actually enjoying my life.

So if you enjoy where you live, that's not saying that whatsoever. But if you don't. Enjoy your life or don't enjoy where you live. Consider moving and looking at a lower cost of living area that may help you tremendously. All right, let's look at number 17 because social security is an incredible foundation.

It is a great foundation for a lot of folks out there, but for most retirees, it only covers about 40 to 50% of what they actually need. And so for you specifically, where are you building a guaranteed income floor? What is your guaranteed income gonna be? And we need to know what that number is outside of social security, uh, and everything else.

So we need to first figure this out because it removes the fear of running outta money. Secondly, though is it acts as a personal pension. It's a pension that you can put into place giving you a paycheck that you can't outlive, but three. It lets your investment portfolio take on less risk if you want to have some additional guaranteed income, and it gives you permission to actually enjoy your savings instead of hoarding your cash and worrying about it all the time.

So here's what I want you to do, is I want you to calculate your essential expenses, and so figure out what your minimum income floor is again. Every time we do these calculations, just utilize what you spend right now and then we will adjust it every year thereafter. And then think about your guaranteed sources or what you're going to have.

Will you have social security benefits? Will you have, what will those be? You can go to ssa.gov and try to get an estimate of what those would be, or try to. Run a quick calculation and get an estimate of what that would be, and then be conservative with it. Secondly, are you gonna get any pensions or do you have fixed annuities available, uh, that you have put money into?

And if that's the case, that's another great one. And then three, if you have rental income, that would be the third option of guaranteed income that could be coming in. And then you subtract this total from your essential expenses. The remainder is the gap your guaranteed income floor needs to fill. And so because of this, you have this retirement gap that is available and you need to fill that difference, what your guaranteed income floor needs, and so you can make decisions based on this.

Now, there's things like annuities that you can look into. Again, most people, annuities are not the best option because the fees are so high, but. Annuities, if you're worried about income is a guaranteed income option. Now the fees are so high that I, it's not my favorite thing in the world. Uh, but you can look into 'em, but you can also focus on the things you can control, which is coordinating your portfolio and get your portfolio in place to fill in that difference or that gap guaranteed.

So maybe you save enough or more than you need in order to fill in that gap. That's gonna be the great way to do it. And look at that guaranteed income floor. 'cause if you have a floor. You're in a great position. Number 18, let's talk about estate and legacy planning because this is something I think, uh, a lot of people forego or they wait too long before they actually do it.

Now I'm recording this episode and I'm actually meeting with my estate plan attorney this Tuesday, and so this is top of mind for me. There's a lot of things going on and I am going to continue to update my estate and trust and continue to make sure that I am improving that over time. Now, you've worked your whole life to build wealth.

Protecting it for your family is gonna be one of the most important things you wanna do. I don't want your money going to probate and going into probate where it takes months or years for your kids and your family to even be able to access the funds that you work so hard for. Just had friends, had a parent pass away, all the money went into probate, and they have not been able to get it for over a year already.

And so everything in that person's life went to probate, cars, house, everything. And so they've been sitting there waiting for all of this to get resolved for over a year because there was no will in place. There was no trust in place, and so everything is getting stuck. Probate. So this milestone is about protecting your family.

It's about preserving your wishes and leaving a legacy that lasts. If you want the money to go to the actual people you want it to go to, you need to have all of this set up. And probate is a huge legal headache. It's gonna cost a lot for your family to figure out. Also, if it went to probate, you're gonna have a lot higher estate taxes if you don't plan this out.

So planning out your estate taxes and your plan is very important. So number one is everybody needs to have a will. Why this is going to outline who is going to get your stuff and who's responsible for carrying out your wishes. You want to dictate who that is gonna be. Number two is I want you to take your will.

I want you to review it every year or every couple years and add in any major life changes. So if you get married. Children, you move away. All of those things need to be added. So I encourage you to do this at least once a year and update it. 'cause without a will, the state decides for you and that is never, ever ideal.

If you want the government to decide for you, fine, but the government can't even make decisions for itself. So why would you want it to decide for you when it doesn't even know you? Okay. Number two, as you can set up a living trust, if this is appropriate. So a revocable living trust allows your assets to transfer directly to your heirs or your kids without going through probate, and it keeps your estate private, but it also speeds up distribution and offers flexibility.

When you are alive, and so you're especially vulnerable if you have property in multiple states, those types of things. But once your net worth hits about a million dollars, I want you to make sure that you are looking or having conversations about having a trust, because trust can help you distribute those assets to people, uh, who really need to get it.

Okay. Number three is making sure you name beneficiaries. So for your retirement accounts or for life insurance or HSAs or any other beneficiary designations, uh, you wanna make sure that you are going in and putting beneficiaries in there. So if you have a Fidelity accounts or a Vanguard account, go in there and make sure all of your accounts have beneficiaries.

It takes two seconds for each one of these accounts. If you set up a new account, make sure you do that as well so that money goes to the correct person. Okay? Make sure you have a checkbox for your annual review. To review this. Alright, then you also wanna establish powers of attorney and healthcare directives.

So people who are gonna have power attorney for separate items for me specifically are gonna be different people. So people carrying out my healthcare directives are gonna be different than the people who are carrying power of attorney for different things like financial things. Uh, and so I have it dictated on very different spots.

But you can also plan for taxes and you can plan for charitable giving when you have this estate plan set up in place so that your money goes towards causes you believe in if you want it to, or if you just want it to go to your kids, it goes to your kids, and that's where you want it to go. Now also, everybody out there, I want you, especially if you have kids or heirs, I want you to communicate your wishes to these people.

Don't make it a big old grand opening surprise where everybody's sitting around the table. You see this in movies all the time. Everybody's sitting around the table with an attorney. They have no idea what's about to happen. Have a conversation with everybody. Tell 'em what is going on. If you have those surprises, you're gonna create rifts in your family.

You do not wanna have these surprises, and so making sure that you have clarity is gonna prevent conflict later. So clarity over conflict should always be your goal. If there is conflict, it shouldn't be between siblings or heirs or anything like that. They should know what's coming and you should be able to dictate and tell them what is coming.

If you don't have the balls to go ahead and tell 'em that, then really, I don't know what to tell you. I mean, that's just one of the things that you need to make sure that you are doing. Okay. Number 19 is thinking about inflation. So inflation is gonna dictate partially the longevity of your portfolio.

And the way that the 4% rule works, and we've talked about this a number of times, is that you're gonna withdraw 4% from your portfolio and you're gonna adjust for inflation every year thereafter. What if there are really high inflation in your years though? I want you to make sure that when you are stress testing your thinking about this and adding this into your retirement plan, because inflation can really dictate a lot of different things.

And so when you are planning for retirement, I like to tweak inflation rates and make sure that I have some years that are high, some years that are low. And so instead of just having a retirement number with zero inflation, make sure you factor in inflation and test your plan against time and rising prices.

That's what inflation testing is gonna do. So it protects your spending power over decades and making sure that you can do that. But also inflation testing is gonna ensure that your portfolio growth actually keeps pace with real life, which is what we wanna do. Real life is gonna happen. Everything and the price of everything is gonna increase.

You can't get a cheeseburger for 25 cents anymore. You can't get a coffee for a buck anymore. You can't go to the stat gas station and fill up 99 cents a gallon. And so all those days are gone. And so what's gonna happen over the course of the next 30 or 60 years? And so we wanna make sure we are stress testing against inflation and predicting what is gonna happen.

So most retirement plans assume two to 2.5%. I want you to rerun your numbers to three to 4% and see what would happen in those scenarios as well. Because really we've had about two to 3% over the course of the last couple of years, and in some years. Like right after COVID, we had really high inflation years because when the Fed cuts interest rates and they cut them dramatically after COVID upcoming years that are gonna have higher inflation rates.

So we wanna make sure that we just plan out for that kind of stuff. It will happen in your retirement. You're gonna have higher inflation years and you just wanna know what would happen. Number 20 is plan for RMDs or required minimum distributions. So starting at age 73 for most retirees under current law.

Some have slightly different rules. It depends on a couple of different factors, but you're required to withdraw a portion of your tax deferred counts each and every year. So your 4 0 1 Ks, your 4 57 bs, your four 50 sevens, your 4 0 3 bs, all of those are going to have something called RMDs. Now, why this matters is because those withdrawals are gonna be taxed as ordinary income and they can push you into higher tax brackets if you don't plan for them, and they can also increase your Medicare premiums and tax your social security benefits.

This is a big deal. Making sure you know where these are. And so failing to take them triggers a hefty 25% penalty also. And so these are all just different things that we need to know and we need to utilize them strategically. So why is this powerful to plan this out? One, it helps you control your tax brackets in your seventies and beyond.

Two prevents large force withdrawals. To eat in your portfolio. And three, keeps your retirement income predictable, which is really what we wanna do over that timeframe. So practical steps that I want you to think about is, first I want you to know when your RMDs start. RMDs are gonna begin at 73. It's rising to 75 for younger generations under current law, but for most it's gonna start at 73.

And your first RMD can be delayed until April 1st of the year after you turn age 73. And then I want you to estimate your future RMDs early. So use something like an RMD calculator to figure out what they possibly could be. And this is gonna help you anticipate your future taxable income, which is very, very important for a lot of folks out there now to reduce those RMDs before they start.

We can think about Roth conversions. So Roth conversions are gonna help us with this. And if you're in your sixties, you can lower those future RMDs by making some Roth conversions. You can also make some qualified charitable distributions where you are going to reduce your tax bill by donating some of the money early to causes that you believe in, or you can spend down tax deferred accounts strategically before 73.

And so I just want you to make sure that you have that plan in place for RMDs and you're thinking about this before retirement. Uh, and as you get closer to retirement age, this becomes more and more important. And number 21, which is the last one, is I want you to think about your phased retirement or work optional strategy.

So retirement doesn't have to be an on and off switch anymore. So for many people, the best retirement plan isn't quitting work, it's just redefining what you're doing. So that's the essence of a phased out retirement. So here's kind of what we're thinking about. Is what if you had a retirement plan in place, especially if you enjoy your job, where for the final decade of your working years, you start to slowly taper down how much you're working.

And then maybe in your late fifties you start to slowly taper it down even more. In your sixties, you start to taper down even more or do some consult. In your seventies, maybe you do some additional consulting or just find ways to make extra income and then you're fully retired midway through your seventies.

Well, if you do stuff like this, it's going to really help. You have to save less in retirement if you don't want to. Like, if you don't like saving big chunks of money over time and some people out there don't, you don't have to. If you do a phased out retirement plan one, it dramatically increases the long-term success of your portfolio and working part.

Time also keeps your portfolio compounding while reducing some of those withdrawals, and it eases the emotional transition from working into retirement. So you slowly start to just. Reduce how much you're working more and more and more. I think ripping the bandaid off and going from full on 40 hours per week, plus to zero hours per week working is what causes a lot of retirees to kind of spiral and go into a depression in early years.

Instead, if you actually had a plan in place to slowly taper down, that is gonna help you tremendously with your portfolio and financially. It's gonna help you with your mental state, and it is also gonna help you long-term with your health span. And so those three things are really important. It's gonna give you money, it's gonna give you meaning, it's gonna give you freedom, which I really, really like the thought of that.

So we did an entire episode on this, by the way, where we talked through never actually fully retiring, but making sure you're active and doing a lot of different things. And so I think this is really, really helpful for most folks. Now, if you could define what work optional looks like for you, because this can be a lot of different things for a lot of people.

What kind of work would you actually enjoy doing in retirement? How many hours per week would keep you feeling energized and wanting to continue to do this? And would you prefer flexible work, seasonal work, or something local that you can do? Because if you can bake this into your plan, I think it's very helpful for a lot of folks, even a modest part-time income can make a big difference.

So if you earn $20,000 per year, you're gonna need a lot less in your portfolio than you once thought you would. So if you want to retire faster or just reduce how much you're working, if you're working a long, long hours, then this may be another great option. But also you can continue if you get part-time benefits with some of these companies.

Your expenses go way, way down if you get some of those benefits and you can use the extra time to build your ideal routine, kind of figure out exactly what you wanna be doing. You're reducing down the amount of hours that you're working and then gradually transitioning into being fully retired. I think this is a graceful way to retire.

I think it's a great way for a lot of folks to think about this unless you are just absolutely done with working. You do not wanna work a single second anymore. I think most people should consider this. They should consider tapering down before they retire. I really, really like this idea. Well, listen, these are the 21 things you should do before you retire Part.

Two. I hope you enjoyed this two part episode. If you want more two part deep dive episodes just like this, feel free to email me andrew@mastermoney.co. I would love for you to join us on the Master Money Newsletter. Truly appreciate each and every single one of you being on this episode. And if you want help from me, join Master Money Academy.

In Master Money Academy. It's a community of other wealth builders who are all working on the common goal of becoming financially independent, and you get weekly coaching from me. So we go through all of that. You get a complete transformation of your entire financial picture, and so really, really hope you would consider joining Master Money Academy.

Again, that's linked up, down below in the show notes. If you have questions about Master Money Academy, feel free to shoot me an email. I'll answer. Any of those questions that you have in Mastermind Academy. Again, thank you so much for being here. I truly appreciate each and every single one of you, and we'll see you on the next episode.