Episode 89: Three Essential Questions for Retirement Success | Accessible Finance for Retirement

In this episode, Eric and Rachael Johns answer listener questions and discuss an article from The Retirement Manifesto titled 'Three Questions That Determine 99% of Your Retirement Success.' They delve into the importance of having a reliable cash flow plan, accounting for healthcare and unexpected costs, and how to spend time and stay fulfilled in retirement. The hosts also explore various aspects of retirement planning, including budgeting, healthcare, and the significance of estate planning, providing listeners with valuable insights on achieving a successful and fulfilling retirement.

🎙️ Have a financial scenario you’d like us to discuss (without giving personalized advice)? Send your questions to podcast@equilibriumfp.com—we’ll keep your information completely anonymous!

📢 Don’t forget to like, subscribe, and share with friends who could benefit from smarter retirement planning tips!

Read the Transcript

Episode 89

Eric: [00:00:00] Welcome to episode 89 of Accessible Finance for Retirement. I'm Eric Johns. And I'm Rachel Johns. Let's dive in. 

Rachael: Alright, we are gonna continue our segments of listener questions. The first one is from a listener who sent an article and wanted your thoughts.

Eric: Interesting. 

Rachael: Okay. So it is from The Retirement Manifesto and it is titled Three Questions That Determine 99% of Your Retirement Success. 

Eric: To be clear, I did not read this article. 

Rachael: No, of course not. I am just going to, did you want me to? No. 

Eric: Okay. 

Rachael: I want to ask you the three questions. Okay. I'm gonna have you weigh in on each question and then we are going to discuss if those three questions indeed do determine 99% of your retirement success, or if it's just a clickbaity name.[00:01:00] 

Are you there? Can I answer now? I know, 

Eric: I'm kidding. 

Rachael: But like, mostly kidding, not really. Not really kidding us. Um, but I do think it's probably worth diving into what the questions are. Yeah, let's do it. And what value could be gleaned from them? 

Eric: It 

Rachael: could be fun. So question number one is, do you have a reliable cash flow plan?

No one wants to spend their retirement worrying about money to minimize the concern in retirement. It's important to do some math on the front end, while many questions about retirement are difficult to answer. Getting a handle on your expenses and income isn't too difficult. Yeah, I think that's, 

Eric: I think it's fair to have a, I think it's absolutely true to say you should have an, a very firm grasp on your cash flow.

Mm-hmm. Right? I that is unequivocally correct in my mind. Yeah. Agreed. You have to know exactly how much you're spending every month, how, how that's gonna change in retirement. Right. Like a lot of, a lot of times people think they're gonna spend less in retirement. You'll hear estimates of 80% of what you spend now, you know, you'll spend 80% in retirement.

Mm-hmm. You'll hear retirement spending smile. Where what that means is they're saying you're gonna [00:02:00] spend more. Right when you first retire and then less. Right. And as you get later into retirement, you're just not as mobile and you don't really wanna do as much. Yeah. And then at the end they're saying your healthcare costs are gonna smi spike.

Wow. Spike. Um, so, so it's like a smile, right? Like you lot, little lot. Um, the idea is that you wanna have some idea both of what your expenses are gonna look like and where you're going to be drawing your funds from. So where's that cashflow coming from? I think that's fair. I think that's correct. Yeah.

I'm not sure that I would. Well, that doesn't, so just 

Rachael: for some background, this is essentially a man who kind of went through his own retirement things and is now saying like, based on what I've done, this is what I learned. This is what I 

Eric: found was most helpful. So 

Rachael: he says in their case, they tracked every dime that he and his wife spent for a year and then made adjustments to reflect how they expected their spending would change post-retirement.

That's smart. Like downsizing, more travel, et cetera. No, that's great. So they did get a grasp on the cash flow pre-retirement. 

Eric: Sure. 

Rachael: To be able to start like forecasting. Right. And it's a, it's 

Eric: important, right? That's absolutely [00:03:00] important. They had a good baseline and then they made proforma, you know, estimates based on that baseline.

I think that's great. Yeah, that's a good idea. 

Rachael: Okay, perfect. Question number one. So we're already at like 80%, right? 

Eric: What. 

Rachael: Of like retirement success, 

Eric: right? Yeah. Yeah. We there. I think 

Rachael: I just, I struggle with the fact that he's, 

Eric: I know title simplifies it for everybody. Just quick baby, right? I 

Rachael: struggle with it.

Okay. Question number two. Have you accounted for healthcare and unexpected costs? It's never good when you need to replace your HVAC system unexpectedly, and yet, unexpected costs are reality of life, right? How do we address these in our plans for retirement success? And so he talks about considering unexpected costs like healthcare costs, taxes, car replacement, and maintenance items, family assistance and charities, inflation, long-term care expenses.

Eric: So, so there's there, there's a lot to say about this. Yeah. Uh, one of the things I would, I would say is that we can hedge a lot of our healthcare costs with like Medicare participation, right? Mm-hmm. So you can get Medicare, you can have, you [00:04:00] know, part G. Have or a Medigap plan versus, you know, Medicare Advantage plans.

We, we've gone into that on prior episodes that you can, you can go look up if you'd like. You're gonna have a lot of the healthcare day-to-day, um, covered. Mm-hmm. It's just going to be like long-term care type things that you're gonna not have covered. Right. So, like nursing care, there are things that Medicare's just not gonna cover.

Hospital stays that exceed, uh, what is it, 10 days without any hope of recovery. Like Medicare gets out of paying for everything, right? So if it's longer, longer term, it doesn't look like there's an end in site. And, or you need like round the clock care, Medicare's typically not gonna cover that for very long.

Mm-hmm. And so that's gonna be out of pocket at some point, which is gonna be painful and on your pocketbook. Yeah. Um, so that's important. I agree. I would say that one of the ways you can look at that, one of the ways you can think about it is I, I would say we include. Unexpected expenses in our annual budget.

Yeah. And what I mean by that is this, right? Like so we, we hear this so frequently. So frequently, yeah. And it's easy to do on our own budget. Yeah. When we look at our [00:05:00] budget and we're like, oh, our water heater broke. So you know what? We normally spend five cameras. It's not 

Rachael: a normal month. F flee expense.

Right. 

Eric: So it's not a normal monthly expense. You can excuse it away. Yep. Right? And then you just kind of subtract it and you're just like, well, no, no, no. Our real expenses are, are real expenses, right? Yeah. Are like 5K can, it's, it's mental 2K water here. It's 

Rachael: the mental accounting of removing it. From the bottom line, right.

And say We did great this month. Yeah. 

Eric: Forget the water heater. Forget the new car tires. You know, the axle, whatever I needed like the struts, the jet 

Rachael: bills, 

Eric: the anything. I mean it's, you tell I don know anything about cars. 'cause I said axle, which I'm pretty sure is one of the things if you break it's like instantly your car's doomed.

Rachael: It's what? Tire keeps the tires. Yeah. I mean 

Eric: I understand what it is but I just am pointing out that I'm moron. I want it to really highlight that fact. Don't 

Rachael: him for handy to, I wanted highlight that fact. Handy things. No. 

Eric: Right. 

Rachael: Um, well, and you know, we do a cashflow analysis for the clients that we work with, and we try to stress to them that you are going to have months that are artificially higher.

Yeah. Or artificially lower based [00:06:00] on new, new pets. Old pets. Right, right. End of life stuff for pets is expensive, but we try to encourage them to look at the. Annual averages and the totals because we know right, that there are going to be outlier months. But um, you know, we're a little bit less out likely to have outlier 

Eric: years.

Correct. But ideally you'd have, uh, you know, a little bit even more data. Like he said, he had a year of data before they did it. But ideally we would like to see, you know, two to three at least. 

Rachael: Correct. And like we will always work with the data that we have available, but you should continue building that database.

It shouldn't be, I kept track of it for a year. I'm good. Like I spend this, I'm done. So 

Eric: I guess my long-winded point is try not to back anything out on your year, right? Yeah. Like, so try not to say, oh, well, you know, like you can yacht, you can, you can. You know, one time expense everything away. Yeah. If you really want to, right.

For sure. I mean, you can get down to a really bare bones budget if you just exclude everything. That was a onetime expense. Exactly. Like I only bought that pickleball racket once, you know, a new snowboard once, and then you know, on your third purchase you're [00:07:00] like, huh. I don't know if i's real anymore. But the point is you still have to, I only had to get 

Rachael: the kids school uniforms once this year.

Right, right. I mean, it's true. And like there are months, but depending upon like. What your lifestyle looks like that are going to be higher. Like when you have to pay the tuition for your kids, right? Yeah. You 

Eric: need a new car. 

Rachael: Yes. Um, your insurance, like insurance is not monthly for a lot of people. A lot of people pay six months or even a year.

So in that month it looks really bad 'cause you're paying a year's worth of insurance in a month. 

Eric: One thing I did wanna say, 'cause I said car and we're talking about things that I'm advocating, expensing, or. Expensing monthly. I would actually say that like capital expenditures, like a car, like a down payment on a house, you know, a vacation home.

Those things should probably be in a separate category for like goals, right? Like I actually would say yes, that you would back a car out of your monthly expenses, but the 

Rachael: car repairs, but you 

Eric: still correct car repairs. Stay. Yeah. And insurance and, and upkeep costs stay. But I would say that. If you know you're driving, you know, a 2012 Honda Civic and you know it's gonna have to be replaced, 

Rachael: he may or may not be talking about that.

I [00:08:00] may or may 

Eric: not have a 24, we may or may not have a 2012 Honda Civic parked in the driveway. Might not be talking about. Yeah. Anyway, it's looking worse for the wear. Uh, if you know that's the case going into retire. Then you should probably set aside, you know, 30, $40,000 earmarked that as the purchase from that things aren't lasting 

Rachael: forever.

Right. Um, and you know, especially living down here, um, every hurricane season we, we kind up, yeah, we, I mean we've replaced the roof. Yeah. We've replaced many things. At some 

Eric: point it's irrational not to plan to pay a hurricane down payment on your house. You know what I mean? Like hurricane de should 

Rachael: Correct.

Correct. Like just having that budgeted in and like. Being conservative in those estimates is great because the upside is that you have more money to go spend in middle. Yeah. You had funds that you earmarked for something that you don't need. Um, and the downside is. Minimal. Correct. Whereas, um, being on the other side is not great.

Eric: Correct. But yes, absolutely. Account for these variables. Honestly, planning software helps with a ton [00:09:00] of this. Yeah. You talked about Medicare costs. That's, uh, medical cost that's in there. Usually if you're DY it 

Rachael: or you're doing it yourself, a spreadsheet is great too. Sure. Like there are many ways to do it, but it's just taking the step to.

To do it. 

Eric: Yeah, you, it is hard to conceptualize all of these things when you're just trying to think off the top of your head, like, oh, what do I need to consider? Oh, inflation. There are tons of 

Rachael: templates online as well, right, for budgeting and cash flow things. And 

Eric: there's also free software, I believe, online that you can use, yeah, I forgot what it's called, but I think retirement plan today or retirement planning, something like that.

There's like a calculator where you can kind of, it's like a bare bones like planning software type of belief. 

Rachael: Yes, yes, yes, yes. Um. 

Eric: But anyway, yeah, you should absolutely think this through. You should have, I would argue that you should also have like a tax plan, right? Especially if all your money's in tax deferred and you have multiple years before between retirement and Yeah.

Either claiming a pension, social security distributions from your, or RMDs. 

Rachael: And so the very last, um, question that is here is. One of my favorites in my area [00:10:00] of happiness is the, yeah. How will you spend your time and stay fulfilled? Right? A common mistake many folks make when planning for retirement. Is to focus primarily on the financial issues.

And while that is very important, and we see a lot of people not focusing on them that need to, um, money is only a tool and most folks find achieving their financial goal doesn't in and of itself lead to happiness in life. Did you know retirement increases the probability of depression by 40%? 

Eric: Yeah, that's true.

Right? You, I mean, I, I've heard the, one of the, we've 

Rachael: seen the. 

Eric: There's a bunch of data points to go on here. Yeah. That are in very super interesting. Like, I find this fascinating. Um, one of the things to talk about when we're talking about spending, I just wanna go back to that real quick. We talked about the spending smile.

One of the things that happens is mm-hmm. When you find yourself not at work all day, yeah. You have to do something to occupy your time and some people into your hobbies that might be a little bit more expensive. Maybe, maybe you're a golfer and you golf every day now, but now that means, Hey, I want buy.

Rachael: Fees I paying for balls. Right. 

Eric: I don't, I wouldn't know any of these things because I don't golf. But like you, you'd wanna get the [00:11:00] cart. You might want things like if I'm playing pickleball, I might, I might want new tennis shoes. Right. And pickleball, I would imagine is probably one of the cheaper things you can do.

It is here anyway. Well, you still racket balls, tennis shoes, 

Rachael: depending upon where you are, you have to rent the courts. Or if you're going to pickle and pins, that's gonna add up real fast. Yeah, yeah, that's true. Right? We found that out the hard way. Yeah. You might wanna never shoot to courts. Um, yeah, so there's definitely like figuring out.

How, or you might just go to a bunch with your friends that you playing with. That's what I was gonna say. It could be eating, it could be gonna the movies. Um, but whatever hobby you are taking on, there's some type of marginal cost, even if your hobby is knitting or puzzle. Right. I love puzzles, but I think to this question, you're still having to buy said puzzles.

Yeah. And to, 

Eric: to this question's point. You may want to plan for spending that money so that you can increase your fulfillment. Yes. Like the sense of belonging is often found. That's what's particularly for males. Yeah. With their coworkers, right? Yeah. Their sense of purpose, their sense of self, and their friends are typically their coworkers, whereas females will often have more relationships outside of work, which is, we used to a very interesting dynamic where when males and when couples retire, yeah.

The [00:12:00] females are pretty content. Not spending all that much time with their husband. 'cause they've already got their networks in the communities and they, they built their friends base out. That's not just their colleagues. Whereas the husbands were just the colleagues, right? So now they've got nothing and they're like, Hey, let's, Hey Rachel, let's go spend some time.

Rachel's like, I'm going lunch with the ladies. I already have 

Rachael: plans. Yeah, 

Eric: I got lunch with the gals. I'm out. And so the hu So I'm sitting here very depressed. 

Rachael: Twiddling your thumbs 

Eric: because I'm not as good at snowboarding anymore. And it's maybe, maybe it's summertime. What, what could be worse? You know what I mean?

You can 

Rachael: always go watch the grandkids. 

Eric: There's, there's video games, there's still video games, 

Rachael: there's, 

Eric: you know what I mean? They'll be 

Rachael: fine. Um, but, but it's true. And I, I like that. One of the three questions here focuses on retirement. As a whole, and not just the financial aspect of it, absolutely, but the financial aspect has to be under control to enable you a hundred 

Eric: percent to 

Rachael: be able to decide how do I wanna spend the time?

What's my purpose gonna be? What kind of relationships am I gonna have? Like what activities am I gonna do? 

Eric: Yeah. Um, we would, we would encourage [00:13:00] people to think through exactly what they want their days to look like. Yeah. Right. And I know that sounds silly. They're like, well, I'll just wake up and do whatever I want.

Okay. What does that mean? And like the first day, like some people are like, you know, I'll wake up and do absolutely nothing and that might be fine for the first day, first week, the first month. Depends on who you are. Well, I would probably, it wouldn't take me very long to get really bored and just dive or something if you don't have a thing 

Rachael: to wake up to.

Eric: Right. 

Rachael: Then oftentimes there are lots of studies done that report that there are people who just. We'll stay in bed longer. Yeah, right. They'll sleep the day away and then it's becomes really hard to feel. Like you enjoyed yourself or you're happy, or you have any kind of personal fulfillment if you haven't done anything during the day, 

Eric: right?

Conventional wisdom in the retirement planning community is that you should want to retire to something instead of retiring from something, right? Mm-hmm. So you'll hear a lot of people say, oh, I'm going to retire from my job. Yeah. I'm gonna stop working. Yeah, right. I'm gonna stop my, I'm, I'm essentially terminating my relationship with the company, right?

I'm stopping employment, I'm retiring from, we hear all about how people can, being a financial advisor can't wait 

Rachael: to leave. Right what they're doing now. 

Eric: Right. [00:14:00] Until they like to, the grass is always greener. Right. And you think, Hey, this is amazing. I have control over my time. I have absolute autonomy. But I may or may not have a purpose.

I may or may not be driven and motivated to do things anymore, right? Like exactly there, there's a lot of, yeah, you're running the rat race kind of a thing. You're trying to accumulate wealth. Now I've accumulated it and I'm kind of like mean, there's a lot of, what am I gonna do with it that's going to.

Bring me happiness. 

Rachael: Yeah. So Eric, three good questions. I think we find all three of them very, um, yeah, they're, they're absolutely insightful. Solid. Um, do they determine 99% of your retirement success? 

Eric: I mean, it's a lot. I think that's a, a large component. It depends on how granular we wanna be, like distribution, strategy, think helpful.

Of 

Rachael: the questions were very broad. Yeah, very 

Eric: general, 

Rachael: very broad. So they're trying to address multiple areas. In retirement. Right. Which is great. We didn't really get a touch on 

Eric: estate planning at all. 

Rachael: Exactly. Estate planning I think, was, um, a very big gap as well as, um, [00:15:00] withdrawal strategies, right? Correct.

We talked about cash flow. Correct. Um, but we didn't really, that could mean a number 

Eric: of things and I, yes, there's a lot to talk about with cashflow and retirement. You'll hear bucket strategies you'll hear. Treasure chest strategies. Yeah, like where you keep, just to be clear, like the bucket strategy is, I withdraw only from this bucket and then only from this bucket, and then, you know, I, the treasure chest is, I'm gonna keep like a treasure trove of cash so that if I think that the average recession takes three, lasts three years, I'm gonna keep three years worth of my cash.

And then I'm only gonna withdraw from the cash there. It's essentially a modified bucket strategy where you're only withdrawing from cash in certain time. Uh, like you have, you set a framework around when you're gonna pull from which bucket. Mm-hmm. Right? And then you just adhere to this predetermined framework and try to stick with it.

Yeah. 'cause it's just really easy as it is with any investments to be like, oh, this one looks good right now, like, I'm gonna go with this. Yeah. And so you, you tend to always be kind of chasing the winners and that with mean reversion doesn't always work out. So the point is, there's a number of ways to do it.

Um, [00:16:00] rebalancing is another strategy, right, where you don't have buckets, you don't have predetermined withdrawals. You're literally just rebalancing and drawing, withdrawing from the thing that has, um, elevated returns most recently, right? Mm-hmm. So that's another strategy. Um, yeah. Yeah, there's a lot, there's a lot to think about with the, how are we gonna create our income stream?

How are we gonna fund it? Do we have extra money in our taxable account after funding it? Right? Like you can pull the money from a, a variety of different types of assets. Correct. Social security. So I can pull it from stocks, I can pull it from bonds, I can pull it from um, like actual income sources, like a pension or social security, um, or an annuity, right?

So I could do that, and then I have to think of which accounts I'm pulling from. Okay, so 

Rachael: exactly in 

Eric: terms of taxable tax, deferred, tax free. And then even beyond that, there's various types of, each of those accounts. Which one's advantageous and why? Who's, which spouses are we gonna deplete first, and why are we doing that?

Um, yeah, there's, I mean, there's, there's just a ton, right? So if we're thinking about depleting a Roth, IRA, we would always choose the older spouse or the one that we mm-hmm. Determined would have the. [00:17:00] Earlier end of plan, which just is a nicer way to say that they pass first, right? Mm-hmm. So the person that's gonna pass first, we would deplete theirs, uh, Roth first, so that, well, I guess if they're married it, it shouldn't really matter because the, the wife can just convert it into her name.

But the idea is if something happened, and I dunno, they got un, they, they divorced, right? Yep. Then the um. Then the spouse would no longer be able to do, to have that advantage and the accounts to the, uh, survivors that are not the spouse or within 10 years would have 10 years to dump the account. Right.

So I said 10 years twice there. I did. It wasn't a misspeak. It's actually that It's your surviving spouse, or I believe it's a relative that's within 10 years of your age or a beneficiary that's within 10 years of your age. Yeah. So it's usually like a brother sister. Right. Um, so it's relative. Within 10 years of age, those would have, uh, special qualifying status.

Mm-hmm. And then they would not have to distribute the Roth within 10 years. But if you don't have that status, then you do. Right. So you would take the person that's more likely to meet their demise sooner and they. [00:18:00] Probably not the best way to phrase that, but you would want them, their account to be emptied first, 

Rachael: particularly first.

Eric: No, not at all. Sorry, team. 

Rachael: Well, and so we have, we did an episode a while back about, um. We had answered a question about somebody who reached out asking how to have hard conversations about, um, estate planning with their parent because they were like, how do I have a conversation with them without sounding too morbid or money grubbing?

But I genuinely just wanna make sure that they're okay. And we talked about. Big picture, it's, it's a tough thing to talk about is end of life planning. That last phase is difficult, and then you're having to face the reality of like. Which spouse you mean? You're literally having to bet on which spouse you think is going to live longer.

Mm-hmm. Um, and then you're coming to terms with, you know, your own mortality or what life looks like without the other person. There's a [00:19:00] lot that goes into it. It's emotionally draining. It's one of the reasons that we advocate having a very trusted professional help you during those times. Because if it's not planned out ahead of time, trying to navigate.

That stuff in the midst of emotional grief and a new reality is just it cruel. It feels cruel. 

Eric: Also, bring a trusted person on your end to the meetings. 

Rachael: Yes, exactly. 

Eric: I would, we would strongly advocate that. Yes. Right. So bring you know, son, daughter. Yes. Somebody that you trust to have your best interest at heart.

Yeah. So that you can be sure that you know someone 

Rachael: who, yes. Who will be willing to ask. The questions that you don't think of or the questions that you may not feel comfortable asking? Yeah, I mean, it's the same thing that we would ask or we would recommend doing if you're going to a doctor, right? If you're going to an important doctor's visit.

Yep. Bringing somebody. Along. It's really helpful, like speaking from personal experience, like I find myself to be relatively different to doctors. I'm, I am such a people pleaser. I'm like, thank you. That's amazing. That's wonderful. And then he'll ask [00:20:00] like 20 questions to all of them. Um, and it's helpful because there are things I would never think to ask, but things that are really important to know and you need that when you're talking about financial planning, when you're talking about estate planning, when you're talking about anything having to do with 

Eric: mm-hmm.

Rachael: You're life. 

Eric: Absolutely. Um, 

Rachael: excellent. Alright. Well the same author did write multiple other articles that this poster asked, um, opinions about, which we can touch on some later episodes. Um, but it's. It's interesting. I think that those three very broad categories are really good starting place. I'll 

Eric: say they covered a lot more than I thought they would.

Rachael: Yeah. Yeah. It was broad. You got really worried with the title, didn't you? 

Eric: Yeah. The title was not promising. 

Rachael: But the questions themselves are important things to, to be thinking about. By no means are they 

Eric: comprehensive. 

Rachael: Yes, exactly. Um, alright, well then we will continue with this question and answer series next time.

Eric: Alrighty. Bye.