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Episode #612 - Setting Retirement Goals: The Paradox of Knowing What You Want

“I optimized for a retirement that would have impressed my 40 year-old self, not one that would fulfill my 70 year-old self.” - Lee Eisenberg's The Number

Roger: Welcome to the show. Dedicated to helping you not just survive retirement, but to have the confidence to lean in and rock it. My name is Roger Whitney. Welcome to the show. If you are new here, we don't do this very often. If you are new here, new to listening to the show, two things I want to tell you. One is welcome. In this show, every week for the last 11 years we noodle on how to do retirement planning well. We're getting the reps in on doing the financial part well so that you can create a great life. Remember, that's the point of the exercise and it's so easy to miss that when we're geeking out on the number. So we talk about both sides on the show. That's the first thing I wanted to share. Second is if you haven't already, sign up for our noodle, sign up for the Noodle, which is our weekly email that comes out every Saturday where we share a recap of the show. We share resources we think are helpful and especially resources that we mentioned on the show. This is an easy way to get links to those resources or worksheets. If you're driving around, you can't get them while you're doing that. So you can go to thenoodle.me to get that.

WE ARE STARTING A FOUR WEEK SERIES ON RETIREMENT GOAL SETTING.

Roger: All right. Today we're starting a four week series on retirement goal setting. Today we're going to talk about the paradox of knowing what you want. Next week we're going to talk about building agile retirement goals. Then we're going to talk about how to navigate those goals when life is happening in retirement. And we'll end with a case study of sorts to try to tie this all together. All of this is going to lead to November 6th. We're going to have an, online hangout. I don't like the word webinar. That just sounds cold. I don't know. We're going to have an online meetup where I'm going to share some visuals on goal setting, on understanding the go go years and how to maximize those years. And also we're going to have open enrollment to the fall cohort of the Rock Retirement Club. A safe place to get all the resources and tools and community you need to really take your retirement planning to the next level. We'll have links to sign up for that meetup here in the noodle in coming weeks. But today we're going to talk about the paradox of knowing what you want.

WHY “WHAT DO YOU WANT TO SPEND IN RETIREMENT?” ISN’T THE RIGHT QUESTION.

Roger: So, Mrs. Smith, what do you want to spend in retirement? For about two decades, that was the extent of my goals conversation. So what do you want to spend? Tell me what you want to spend. I'll tell you a way that's possible and maybe we can figure out how to do it. What do you want to spend in retirement? I don't know how many times that question gets asked in our heads or in a financial planning meeting. It's a horrible question. Don't answer it. It's a bad question. It's framed incorrectly. One is, how the heck are you supposed to know? You've been toiling away for decades in a career of some sort of you've never retired before. How do you know what you want to spend? Your life has been structured in a way that everything is sort of scripted out career wise. And now you're trying. You're supposed to think about the next 20, 30 years of your life when you have no work or no structure and determine what you want to spend. That's a horrible question because it's not very easily answered. Secondly, answering in that question has significant impacts downstream on your retirement planning. So if someone asks you what do you want to spend in retirement? And then you just go with what you spend now. I want to spend 120 grand a year and maybe, you know, 10, 10 grand extra a year on travel. If you answer it in a very simplistic way, because it was asked that way, that will lead down to when you claim Social Security, whether you need to work, continue working or not, how to invest your assets, whether it's even feasible or not. It'll lead down to lots of really important decisions in the actual retirement planning process. And that could cause you either to have to work longer to save more while you're working, maybe to take more investment risk in order to achieve the goal, or it could cause you to not spend and optimize your go go years and underspend and end up having too much money. When you can't go-go, you have no go-go in you. There are a lot of significant downstream consequences to a simplistic discussion of retirement goals. That's why this is important.

So today we're going to talk about the paradox of knowing what you want. How the heck are we supposed to answer that question? And pressure increases on us. Do the asymmetry of retirement. We have these go go years. We know we better make the most of them before we can't go-go anymore. And this isn't really a hard question. It's not hard because hard questions just mean you need more information. More information isn't going to help you determine what you need to spend over the next 20, 30 years. So it's not a hard question. There's, you know, it's not really a paradox. A paradox is a logical contradiction. It's more paradox-like qualities.

NEXT WEEK, WE'LL TALK ABOUT HOW TO BE MORE NUANCED WHEN SETTING RETIREMENT GOALS.

So let's explore this because I want you to have a good appreciation. So next week when we're talking about setting retirement goals, you can be more nuanced and hopefully extract more life from your retirement. So when you're doing retirement planning, especially if you're still working, you're going from abstract, you know, years. Oh, I want to retire, I want to retire at age 60. It's just abstract. It's something in the future. It's not you. It's like a 12 year old thinking about their career. You know, I want to be a fireman. You know, whatever it is, it's from abstract. Now we're going to reality. This is getting real. Now you have to decide to do retirement planning for the next 30 years. So like we talked about and there's too much choice in this decision. You, you know, decades of external imposed structure to the world that you become. That's been your, your, your, the center of your life. You have your work that requires you to go certain places and do certain things and move up a certain career track. You have pathways created for you really since preschool. Right, preschool, K12, college, career choice, and then whatever training and career path you're on. So now you're faced with everything. The world is your oyster, but you've always been told what to do. And you know, sometimes in a literal sense, but in the career choices you make, and it's theoretical, you're suddenly asked to articulate desires for a life stage you've never experienced, using a self that is still evolving, a self that is coming from a structured life to now having no career path. Nobody's there to tell you what to do. Here's how you get to the next level, how you get that promotion, how you get your kids into this school, etc. There's no, no pathway for you to follow. It's all theoretical. Couple that with where you're at from an identity standpoint. While you're thinking about what do I want? You're operating from a, ah, work identity. You're that snake that is slowly shedding its skin from an identity of work and achievement and being active and goal setting. Your preferences are so intertwined with the practical constraints of your work identity that separating, what do I want from what was possible becomes really difficult. So the goal, the goal setting exercise asks us to clearly define what we want. And if this is done too simplistically, like I said, it can lead to really unintended consequences. The difficulty leads, you know, the difficulty. This, this paradoxical nature of. We're supposed to determine this when we've always had pathways. We have an identity that we're shedding as we go to a new self of not active achievement, but being with tons of time freedom. This leads us to go grab scripts that we co opt for ourselves.

THE PROBLEM WITH FOLLOWING OTHER PEOPLE’S SCRIPTS

Roger: I was just talking with my brother in law because we have a standing Sunday, Sunday, conversation, which is awesome. And he's like, he went down the YouTube rabbit hole on retirement planning because he's thinking about it, right? He's 61 or so and he's like, I am so sick of everybody telling me I'm supposed to travel and have an e bike and do all these things. I'm so sick of it. There's so many scripts out there. And he sort of, I think he did that. What is it called when you overload on something so you don't want it anymore? That was like Clockwork Orange, wasn't it? There's some, some name for that. I don't know what it is. But he basically went down this YouTube rabbit hole and he's like all these people telling me what I should do. And it's all about these, these tropes that we hold up of travel and all that other stuff. That's normal. Because we're supposed to do this in a, you know, we're supposed to answer that question, what do you want to spend in retirement, Mr. Jones? We lead to outside scripts as a shortcut to answer the question because it's too difficult to answer. You know, the traditional rule of thumb is then we go, you know, we Google this and traditional rule of thumb is, well, I'm supposed to spend 70 to 80% of pre retirement spending. Okay, that's my number financial engine or financial planner. And now we go off planning for that or we use the 4% rule, or we use other people's scripts, culture, friends, advisors. We go to our friends and colleagues and acquaintances, but we don't know if they're even doing it right for themselves. Oh, Johnny says I should travel Sally says I should join a book club. Everybody is doing things, and whatever they're doing, they're likely going to say, this is what you, you know, they're going to be endorsers of it. There's some psychological cover in doing that to begin with, but we don't even know if they were thoughtful in how they decided what they're going to do. But we're using them as scripts to do what we want to do. So we're going to co. Op. Oh, I guess I should travel. I need to have travel. Roger talks about Gogo all the time. Maybe I need to throw go money in there. We got to be careful about that. And obviously I'm, you know, I'm part of this because I'm in my own head figuring this out as well. So we, we grab scripts from friends and colleagues or acquaintances or people that we just see online or other places. Maybe it's Facebook. Then we can also grab. Grab scripts from media and advertisements, infomercials in the form of blogs, YouTube videos, Facebook, podcasts. All of those can be helpful, but they are infomercials of a, sort. They are marketing. They're either marketing to get you to view and to continue viewing. They're marketing to get you to sign up for something. They're marketing because they have ads on their channel, their marketing, so they can feel better about themselves. All sorts of things. you know, we talk about the Rock Retirement Club. We open enrollment three times a year. I'm very open about that. But all of these things can be infomercial. I guess the big thing is these scripts are, outside of you. And when you're retirement planning and you're doing your goal setting. What do I want? There's a lot of difficulty in answering that question. And we don't want to be too simplistic about it because it could have these downstream consequences of working longer or missing your life because you set a goal incorrectly.

THE PROBLEM OF GETTING TOO DETAILED

Roger: Now, on the flip side, we don't want to go down the rabbit. Well, let me re on the flip side, we don't want to go down the rabbit hole of having too many goals and getting too detailed. Trying to get more precise for more accuracy is the other extreme of this paradoxical nature of retirement goal setting. So I've seen clients where they have, like, three goals. This is my base. Great life. Here's some. Go, go travel. And they're not even open to exploring. They're not able to explore anything beyond that. That, that works for them. But I've seen The opposite extreme. I've seen like 10 things under base. Great life. I gotta buy that H vac system when in 7 years I want to put that number in there. I got a, you know, just. I have 10 different things in my discretionary wants. I need to buy that bicycle or that new sewing machine in 15 years and so forth. We can get too detailed thinking that by getting more precise in every single one for the next 30 years that somehow that's better. It's not. There's a in between there. And that's the art, right, of knowing what you want. And a lot of this hint is going to be less about what you want and more about setting the conditions to help you go explore your life. And that's exciting when we can get off what do I want and how do create the conditions to discover ourselves. Sounds a little foo foo. I know that is really exciting and it takes a lot of pressure off determining what we want our life to be for the next 30 years. And that's what we're going to talk about next week is how do we set agile goals in a low stakes way to set the conditions to create a great life rather than trying to predetermine what that life actually is. We're gonna do that next week, but for now let's go answer some of your questions.

LISTENER QUESTIONS

Roger: All right, now it's time to answer some of your questions to help you take a baby step on you rocking retirement. If you have a question for the show, you can go to askroger.me You can type in your question. You can leave an audio question. We love audio questions. We tend to bump those to the top by the way because we get lots of questions. Also, I love sharing rocking retirement in the wild stories, some way that you are not talking about it but doing it. Living a great life, putting in the reps to live a great life. Even if you're in some struggles. We all are. I love to hear those stories. I love to share them because we tend to think that's just us, but it's not, it's everybody. So the more that we can share how we're doing things, insights that we've had, maybe struggles that we're facing in the retirement process, but we're still facing them. I love those stories. Please share them there as well and we'll try to help others along the way.

AM I REQUIRED TO KEEP AN INHERITED IRA SEPARATE FROM MY OTHER IRA'S OR CAN IT BE COMBINED WITH AN EXISTING IRA FOR SIMPLICITY?

Roger: All right, what questions do we have today? All. right, our first question comes from Bill on account consolidation. Hey Roger, I'm becoming a huge fan of your podcast since I found it and listening about six or eight months ago. Welcome, Bill. Glad you're here. I'm slowly going back and listening to all your episodes. Oh, my goodness. That. Just when I hear that, I don't know. To me, I don't listen to my show very often, so it sounds a little painful. Bill says I have a million and one questions to ask about retirement. Oh, boy. We don't have that much time. But for today, I'll ask just one. My father passed away last year at 97 and left my siblings and me an IRA, which I now have as an inherited IRA. Am I required to keep this inherited IRA separate from my other IRAs, or can it be combined with, with existing IRAs for simplicity?

Great question, Bill. Simplicity. I love elegant simplicity, Bill. Oh, that's a whole nother. We could do a month on that. That is the goal of retirement planning, but also, well, life in general. But I won't do that today. All right, let's get to your question, Bill. Because you are not what is called an eligible designated beneficiary, which is generally going to be the spouse, you can't consolidate that into an ira. If it is your spouse that passes and you inherit their ira, you are able to take that IRA and put it into your own to get it down to one. But because this is your dad, you do have to keep this separate from your traditional IRAs. And the reason is you're going to need to track your required minimum distributions and withdrawals meeting the 10 year rule of emptying this account. And so the custodians are going to require you to keep this separate. Now, one thing you can do, Bill, is within the context of your retirement plan of record, now that you have this inherited ira, you can revisit your retirement plan and how you're going to pull money out of accounts to see if you can accelerate your required minimum distributions or the distributions from this inherited IRA and drain the account faster than the 10 years in what you're required to do? I'd love to hear more of your now million questions. but just shoot me one or so. One or, one or two at a time.

RICHARD WANTS TO NOODLE ON THE RETIREMENT DISTRIBUTION ORDER.

Roger: Our next question comes from Richard, and he wants to noodle on the retirement distribution order, meaning when does he pull money from different tax buckets? Hey, Roger. Because I have my retirement savings in an ira, a Roth and a taxable brokerage account, I have flexibility in retirement distributions. I have been retired for four years. I'm delaying Social Security until age 70 and have been doing moderate Size Roth conversions. My plan for distributions is to defer any distributions from my IRA other than Roth conversions and use my after tax brokerage assets to pay for taxes and supplement living expenses. And he has some deferred comp coming in. He said, after finishing conversions, I plan to switch to primarily using distributions from my IRA to pay for my needed retirement spending while controlling taxable income. Does this order make sense from a tax perspective and how to approach the order of distributions, mix of accounts?

Yeah, that makes sense. Sounds like you have a plan. That plan's going to change based on your preferences, the value of the accounts, your knowledge in retirement planning and life. But yeah, you have a plan. I think that sounds like a great plan. You want to make sure that you pay attention to what your required minimum distributions might be. So you don't. It sounds like you're doing that because you're doing some Roth conversions and then you're looking at doing qualified distributions. Awesome. You're using your after tax brokerage account to manage your income because you have these deferred comp numbers. You know, these deferred comp payouts right now. You know, some things to consider are, you're going to pay taxes. It's going to be, it's just going to happen. It's really the timing of taxes. So you want to be aware of, you know, hitting IRMAA limits on Medicare, so making sure you don't do too much in Roth conversions or realization of capital gains that might bump you up into a higher Medicare bracket and that the $1 over gets you over. So you want to just be thoughtful of that. You want to be thoughtful of your required minimum distributions downstream.

You also want to be thoughtful of Richard. And this is something we don't think about very often, is that where, you know, you've been married for a while, it sounds like you're planning for joint brackets. One of you is going to be in single brackets, which, is a very different thing. And if you know, the earlier that happens, obviously the worst for everything. But from a tax perspective, a, big issue. Also another thing to consider is on the after tax brokerage account or taxable brokerage account, tba, I never heard that phrase before, is if your intent is to give money to your family, usually the after tax assets with embedded capital gains are one of the better assets to give to the kids. You know, Roth would be great, but IRAs would not. It sounds like you have a great plan. I mean, I don't know your numbers. It's gonna evolve really you're making a decision year by year. So as the facts on the ground change, just have a protocol to revisit it. But, yeah, it sounds like a great plan. I don't see anything. Any major hiccups in your thinking now, one postscript to that answer, Richard, if you heard me, you're like, I had this question. I really wanted some detailed feedback. And he just says, yeah, sounds like a good plan. Normally the reaction is, but wait, let's go deeper on this, let's go deeper on that. That's normal. It's hard to accept, yeah, that looks great. It does, because you're so self. It sounds like you're so self aware and you have some framework, trust that there is no right answer. There's nothing, no voodoo we can create. Say, this is exactly the way you need to do it. So sometimes when you hear an answer of, yeah, that looks great, keep doing what you're doing. It's easy not to accept that because you want feedback and not criticism, but suggestions. But just trust yourself, own it. You got it.

I’M 3-5 YEARS FROM RETIREMENT. IS NOW THE RIGHT TIME TO JOIN ROCK RETIREMENT CLUB?

Roger: Our next question comes from Steven. And this is related to the Rock Retirement Club. I'm looking to join the Rock Retirement Club. I'm three to five years away from retirement. Do you think this is a good time to join? Now, obviously, I have a bias. I have a bias because I think the club is amazing in terms of the tools, the education and the community. I also have a bias because if you join, I'll make some money. So we want to acknowledge that in my answer. Is three to five years away from retirement a, good time to join? I think, yes, it's a perfect time to join.

And here is my logic, because three to five years is going to give you some flexibility to build a retirement plan of record and flesh out the details of that plan. You probably have a plan right now of some sort, Stephen, you must, if you, you're on the horizon, but this is going to give you time to go through a thoughtful process and begin again. You'd want to start at the beginning of the yellow brick road, follow the retirement masterclass and use the tools and revisit maybe many of the answers that you or assumptions that you haven't revisited in a while. So this is a perfect time to do that and flesh this out. And if you have a spouse to have thoughtful conversations in an organized way as you go through the process, perfect time to do that so that you can identify gaps in your planning and things that you did right and things that you should start considering. Definitely a good time to do that because you have some time, because a lot of this is pivoting from accumulation, growth, growth, growth, growth to how am I going to pay myself? The second reason is you're going to get world class tools. These are the same tools I use in my practice with clients. And you're going to get a community and coaches that know how to use the tools and that have done this and have a lot of reps in, you know, the planners that are coaches in the club. We have reps in doing the work. So it's a safe place to get guidance in group form, not advice. But also you have other people that are in the same spot as you or already retired that have a lot of reps, not just in using the tools and doing the planning, but in life. And the more you can get access to that in a safe way where you're not getting sold anything and we're all respectful, the better. So, yeah, I think it's a perfect time, all the conflicts aside.

ESTATE PREPARATION HINT FROM JANE ON THE THREE PASSWORDS A FAMILY NEEDS

Roger: Okay. Ah, to finish up today, we have Janice with an estate preparation suggestion. Hey Roger, I recently discovered your podcast. She's listening on both ends, the newest and the oldest. Interesting. Be interested in that. Doing that's an interesting way of doing that, Janice. Having settled a couple of estates now, she says my deceased spouse and my mother. I believe there are three essential passwords that a family needs. Number one, the password to your phone. Yeah, that makes sense. Number two, the passcode to your laptop makes sense. Number three, the passcode to your email account. With this information, most other accounts can be accessed. Any statements that don't come in the mail usually will be delivered by email. In my case, I have stored this information in the envelope that holds my will. So also you have access to the email for authentication, and the cell phone for authentication. You can reset passwords. You also have access, like on an Apple computer. If you're in the computer, you have access to the password keychain if someone uses that. The other one I would throw in here, Janice, is if someone is on an apple, is the password to the itunes or, the icloud account, because that is the password. Sometimes they ask you to enter that periodically, but those are great. So we got password to the phone, password to the laptop, passcode for the email account. Those will get you 90% of the way there, understanding what type of accounts that they have. Thanks Janice. I appreciate you sharing that. Now it's time to go set a smart sprint.

SMART SPRINT

Roger: Now it's time to set a smart sprint, a baby step you can take in the next seven days. Not just to rock retirement, but rock life. All right, in the next seven days, this is a good time to do it, is revisit your retirement goals. Don't make any changes, but just look at them and ask some questions about how meaningful are they to you? Are they too few? Are they too many? Are they someone else's goals that really aren't that meaningful to you? How excited are you about them? Just start to review them from that lens, and next week we'll talk about how to maybe refresh them in a more agile way.

OUTRO

Roger: So this week, Shawna and I are celebrating our 35th wedding anniversary. What? I was 23 when I got married. What the heck was I doing get married at 23? I don't. You don't know yourself at 23. I remember my kids at 23. They shouldn't have got married. They didn't. Thank goodness. Anyway, it's been a great journey, a lot of trials and tribulations, but we stuck leaning into each other even when we were not happy with each other. And I was reflecting on this today because I was journaling. And we are so comfortable with each other because of that shared history. And we've done the work to understand each other. So now when she reacts a certain way, I understand what's going on. So I don't take it personally and know relatively well how to give her space and when to lean in and vice versa. Like a good example of her thoughtfulness is we just had the roundup, our conference for the club. We had 350 people fly into Grapevine, Texas to spend two and a half days together noodling on retirement planning. And on the non-financial side, Wade Fowler was there. Christine Benz was coming in, but she got Covid. Oh, poor Christine. It was a big event last year. We had 200. So it was a little crazy. We were a little shocked. Well, this is only like 30, 40 minutes from our home. I spent the night at the hotel because the team was there and a lot of the people that were at the conference were there. She stayed home partly because Sherlock, our senior dog, but also because she knows me. Right? I'm there with 350 people. They all know me, even if we've never met, because they listen to the show or we chat in the club. And I want to be present for them. I want to be present for my team. I want to create a great event, an experience, and I love that. But it drains my energy, right? I'm an introvert by nature. I have to have alone time. So every night I'd get a meal at the, you know, at the bar at the Marriott and I'd go up to my room and I would just sit there and eat my meal and I'd maybe read or watch a show. She knows that, so she gave me that space. She calls it fussy baby. When I get too much input, I become fussy baby. That's the beauty of having someone that you love that understands you. So I love my wife. She's awesome.

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