Home > Podcasts > Rethink Your Money > A Simple Guide to Determine Your Retirement Readiness


A Simple Guide to Determine Your Retirement Readiness

Published on March 6, 2023

John Hagensen

Deciding it’s time to retire isn’t easy, but John’s here to simplify this complex decision. You may be financially ready but not emotionally ready, or vice versa. So how can you be confident it’s time for the next chapter? Tune is as John explores the questions to ask and plans to have in place so that you can be confident in your decision.

Episode Notes:

Presented by Creative Planning, each week Host and Managing Director John Hagensen cuts through the headlines and loud takes to challenge the advice you may have been given and reaffirm what you know to be true. Plus, don’t miss his weekly interviews with Creative Planning specialists as they cover investing, taxes, estate planning and many other areas that impact your financial life!

John: Welcome to the Rethink Your Money podcast presented by Creative Planning. I’m John Hagensen and ahead on today’s show, how to know if you’re ready to retire. Also, the essential estate planning bucket list as well as what to consider when choosing between a lump sum or pension payments. Now join me as I help you rethink your mind.

My wife, Brittany and I just returned home from the beautiful island of Maui in Hawaii. We were celebrating a big milestone birthday for me. I am no longer considered young by anyone. We had a fantastic time. It was our first trip with no kids for longer than a day or two in over five years, and I’d be remiss if I didn’t pause for a moment and thank my in-laws. That was their gift to me was watching the kids. Best gift ever, and I’m expecting to be able to thank them in person in probably, I don’t know, another week or so when they finally get out of bed from their week or two recovery chasing around all the grandkids.

Something struck me in the lead up to this trip as my wife opened a suitcase several days in advance of us departing and she was borrowing dresses for certain dinners from friends and going through her closet and sorting through swimsuits and workout gear and all the stuff that she would need for the trip.

Meanwhile, do you think I did that? No. I am the notorious last minute packer. I knew I needed my golf clubs. I made sure those were there, and then a couple pairs of swim trunks and a few aloha shirts. Good to go. And here’s the problem with my style of packing.

We land in Hawaii only for me to realize I didn’t bring sunglasses, not a great thing to forget. And of course, my wife just kind of chuckles thinking to herself probably this is why I pack in advance. I’m prepared. And there are two takeaways for our retirement that parallel with this birthday trip.

And the first of those is just how much we’ll plan for a one-week vacation. We were only gone five days, but we had dinner reservations, whale watching, certainly our airfare and hotel accommodations all planned out months in advance. Compare this with retirement, which is essentially a 2000-week vacation.

Do we put in 2000% the effort? Unlikely. Unfortunately, oftentimes we’re squinting through our fingers like a little kid watching a horror movie when it comes to our retirement planning. We’re hoping that we’ve done enough, that we’ve saved enough. A detailed financial plan for a vacation that essentially lasts two, three, four decades is an absolute must.

And the sooner that you make that plan, you’ll have more time to course correct so you don’t end up like me with the last minute packing, having to buy overpriced sunglasses in the hotel gift shop. So don’t be me, don’t be that guy when it comes to your retirement planning. And so my first observation is just how much time and energy we spend planning for a one-week vacation relative to how long retirement is.

My second takeaway as I reflected on my life up to this point and this birthday is just how seasonal life is. I mean, I can look back on the last 40 years of my life and distinctly see various seasons, and I’m sure you can do the same with your own life. Every season has pros and cons, blessings and challenges.

When you’re like me in the raising children stage, got to remind yourself the days are long, but the years are short. And while a vacation without children is needed from time to time for some restfulness, it’s less fulfilling. You end up sitting around talking about your children with your spouse and how much you miss them and what souvenirs and the little stuffed animals, you’re going to bring them back.

And so while yes, we want to spend considerable time planning for our future to secure that so that we position ourselves and our family members for success, we also want to embrace the present, Creative Planning president Peter Mallouk spoke about this very thing on his podcast. Have a listen.

Peter Mallouk: There are certain things that come with an expiration date and they are not worth sacrificing for. So I think it’s admirable that you have somebody who’s going, look, I’m not going to backpack Europe this summer because it’s going to cost me $5000 and instead I’m going to put that $5000 away and I’m going to go to work early and then later in life I can go do these things. Well, the thing is you can’t do them later in life. You might be able to go to Europe, but you’re not going to do it this way. You’re not going to do it with a backpack. You’re not going to tolerate being in a room with five people. You’re just not going to experience it this way. That has an expiration date. And so for that student, I told him, “My advice to you is go to Europe, spend the money. It will be almost impossible to imagine a scenario where 20, 30, 40 years from now you regret that decision and there will be more dollars to be made, right?” So it’s a balancing act. So many people just don’t save at all. But on the other end of the spectrum is a small group of people that do save, but they can’t get themselves to enjoy their money during the period where it could bring them the most pleasure and the best memories and the best experiences. And I think it applies to people of all ages in different circumstances. And it’s a mistake I see a lot of people make.

John: Again, that was Creative Planning president Peter Mallouk and I could not agree more with that statement. And the interesting aspect of seasons is that some seasons transition to another one gradually and others are extraordinarily abrupt. And as humans, we tend to do better with these gradual transitions where we can prepare for them, whether it be financially or emotionally.

And what I have found as a wealth manager visiting with thousands of new retirees is that even when it feels like it’s going to be gradual, it’s planned for, it can feel very abrupt. And that can be a big challenge because in general, we don’t like change and oftentimes a lot of our identity is wrapped up in our occupation.

Here are a few interesting statistics regarding retirement. The average retirement age is 62, while the expected retirement age for current workers is 66. That is up from age 60 back in 1995. The percentage of adults retiring between the ages of 55 to 74 is declining. The reason I chose this topic to lead the show is because an average of 10000 baby boomers turn 65 years old every single day.

And so I suspect this topic is broadly relevant. And speaking of generations in 2030, that marks the start of Gen X’ers retiring if you can believe that they’re already now at retirement age. And so here’s the big idea, how do you know if you’re ready for retirement? My childhood best friend, best man in each other’s weddings came to town. We got together.

I said, “How’s your dad doing? Did he retire yet?” He said, “No, not yet.” And I asked him, “When’s he thinking?” He said, “Oh, he was thinking like five years ago, but he just can’t pull the trigger.” And of course my response was, “That’s really typical. That’s not that uncommon.”

And if you have questions regarding your retirement, you’re not sure if you’re ready, you want to confirm that you’re in a good position to retire here at Creative Planning, we provide a complimentary consultation to review that retirement plan, or if you don’t have one help you design a customized plan to fit your needs. You don’t need to guess or have anything less than 100% certainty that you’re on track.

Go to creativeplanning.com/radio to meet with one of our local advisors. Let’s unpack three main questions. And these aren’t anecdotal, these aren’t rhetorical. I want you to think these through for your specific situation. Number one, are you financially ready to retire? Number two, are you emotionally ready to retire? And number three, what’s your plan for monthly income?


And so let’s break these down. Number one, are you financially ready? Answering this question comes down to looking at where you currently stand, verse where you hope to be. Here are a few key components. Potential retirement income. Calculate how much income you can likely expect in retirement. This may include things like social security benefits, investment and retirement accounts where you can take distributions, pensions, company-sponsored benefits, health savings accounts, and any other additional sources of income like rental properties or an inheritance.

And when it comes to this retirement income, it’s imperative that you consider things like life expectancy and time horizons to help determine how much you should expect. And I highly recommend you find a great financial advisor who’s not looking to sell you something to map this out with you and get a second set of eyes on what will be extremely important to your success in retirement.

Another consideration of whether you’re financially ready is potential expenses. What are your non-discretionary expenses? Housing, healthcare, food, transportation, utilities, as well as those discretionary expenses, hobbies, travel gifts. Are those going to increase, decrease? A lot of people say, I’m going to spend a lot less money in retirement because I’ll be older.

No, I don’t typically see that to be the case. In fact, oftentimes it’s the other way because Tuesday at noon instead of working, you’re at a matinee with a giant bag of buttery popcorn watching your fourth movie of the month, and you’re following that up with happy hour with friends.

But your expense calculation is likely the number one factor in answering whether you’re financially ready to retire. And so if you’re looking at an income replacement ratio, the old rule of thumb was 80% of your pre-retirement income, it was about what you’ll need to replace. I would say that’s correct if you’re saving 20% right now because you won’t need to save more money once you’re in retirement.

But I advise you extract what you’re currently saving and plan on spending 100% of your pre-retirement income. Another broad calculation you can run is calculate what four to 5% from all the assets that you have earmarked for retirement would be. So for example, if you have a million dollars saved, about 40 to $50000 a year is around the threshold.

Now obviously, how old are you when you’re retiring? Do you have big legacy objectives or do you want the check to the morgue to bounce? Will you be caring for an aging parent or receiving an inheritance along the way? I mean, all of these personalized questions completely impact what that number actually is, but that’s a decent starting place.

If you need a hundred thousand dollars a year from your investments to supplement social security and other income sources, and you have a million dollars saved, which sounds like a lot, you’re massively underfunded, you’re not close, you would need about $2 million to be in the ballpark.

And then I would suggest that you run projections based on various scenarios and any good certified financial planner can do this for you. And in fact, here at Creative Planning, we have proprietary software that we have designed that will clearly communicate to you whether you have a shortage, whether you have a surplus, exactly how much that is, and then we can tweak various things regarding life expectancy, changing monthly income needs, healthcare expenses, some of the estate planning goals that you might have that are a bit more nuanced to see how that impacts your specific retirement scenario.

We are not talking about a five-day birthday trip, but rather a 2000-week vacation. Make sure that you are financially ready and that your plan works. Do not go about this alone. We have been helping families just like you since 1983, managing or advising on $225 billion for clients in all 50 states in 85 countries around the world.

We’re not a brokerage firm. We don’t have proprietary products. We’re not looking to sell you things, but rather, our mission as fiduciaries is simple to give you clarity around what you’ve worked a lifetime to save. We’re a law firm, a tax practice, as well as a wealth management firm. Lean on our experience and meet with a local advisor by going to creativeplanning.com/radio right now. That’s creativeplanning.com/radio. Why not give your wealth a second look?

My special guest today is Chrissy Knopke, estate planning attorney here at Creative Planning. I’ve asked her to share with us what I believe to be the most important checklist when it comes to protecting and taking care of those whom you love most in the event that you are incapacitated or you pass away. And so with that said, Chrissy, welcome back to Rethink Your Money.

Chrissy: Thank you for having me as a guest.

John: I always enjoy our conversations. Today we’re going to talk about an estate planning bucket list. So let’s just start with what is that?

Chrissy: The first thing that I always tell clients to do is make a list of their items. That should include everything they own, their house, what bank accounts they have, do they have 401ks at their employer? What are the account numbers? Making a very detailed itemized list of exactly what they own so if something happens to them, no one has to go run around and try and figure out what did this person own? Where is it at? How do I get control of it?

In doing that itemized list, it’s also a good idea to think about, okay, what about the stuff inside my house? Do I have collectibles? Is there jewelry? Do I have vehicles? Where should they go if something happens to me? The first start to any type of estate planning bucket list is what do I have? Where is it located? Getting a really good list of those assets.

John: Well, and I’ve seen firsthand as a wealth manager, there are sentimental things that people don’t think about that are extremely important to members of the family, and those oftentimes are what tend to be contentious and fought over even more so than the things of value because it might be some heirloom ring or an old guitar that dad got from grandpa that, well, I play more music than you now, so why would you get that guitar?

John: I’ve seen those sorts of things. Would you agree that making a point to ensure that those things are listed and notated is important?

Chrissy: Definitely. So I think out of all of my years doing this, the arguments are always about things. It’s really easy to distribute money and cut money in half. It’s not easy to cut a ring in half. Both of you can’t have the picture over the fireplace. So it’s those things that mean a lot to people that are sentimental that cause the most problems after death.

Chrissy: Candid conversation with your family members about, okay, how do we see this going? If something happened to me, who gets what? It seems really morbid, but the more you talk about it, the easier it is on the family if something happens.

John: What’s the next step in this estate planning bucket list?

Chrissy: We live in a total digital world, so my next suggestion is making a really good list of your passwords because oftentimes that’s the only way that after you pass away, someone can get to your Facebook account, get into your bank account, those types of things.

Chrissy: I just learned this week that you can put a legacy contact on your iPhone, and so who’s going to be able to look in your iPhone, get information out if you pass away, and you can go right into your settings, add one right now. We live in this very digital world where almost our whole life is online, and so to give people the ability to get in there, make decisions, turn things off, do what they need to do after you pass away is a big deal.

John: I saw that internal communication as well from our estate planning team or our wealth manager here at Creative Planning, and I went on and sent my wife a link. She was like, “What is this? If you die, I need a password?” She’s very confused. She’s like, “Do I need to know something here?” No, no. This is probably for 50 years from now, but here’s what it is.

Chrissy: And I bypassed my husband because I was like, of all the people, I think I’m going to go straight to my daughter. She’s the techie person. She’s the one who’s going to want to get in the phone and figure out what’s going on.

John: That’s great.

Chrissy: When I have had clients or family and friends that have passed away unexpectedly, that’s been a big deal. Apple locks the phone now. And so I had a friend who passed away in his sleep. He was very young and they wanted to know what he did the night before. No one could get into his phone, they couldn’t read his text messages. Apple wouldn’t open it up. So that has become a big deal. You wouldn’t think about it. Who cares about a phone, but sometimes it could be very important.

John: One other story that I have is someone passed away with a tremendous amount of movies and music purchased through iTunes and nobody could get into it. Tens of thousands of dollars worth of stuff that none of the kids could access.

Chrissy: Wow. Things we really have kind of taken for granted that you don’t think about, like, oh, it was bought with his iTunes account. It’s fine.

John: All right, let’s keep going through the list. What else needs to be on all of our estate planning bucket lists?

Chrissy: It’s always a good idea to make a list of what bills are regularly paid so that if somebody has to step into your shoes and start paying the mortgage, paying the insurance, paying the utility bills, there’s a list right there of what the company is, what the monthly bill typically is.

Chrissy: So it’s a good idea to make a list of bills and debts that you have. Now, really getting into it after you’ve made these kind of lists, the asset lists, the debt list, the password list, so you’ve got all these lists now, now really, what are you doing with that?

Well, you got to think in terms of who am I picking to be responsible enough to handle this if something happens to me? So the next big bucket list item is picking a responsible representative and whatever that’s going to mean after you pass away. Is that paying all your bills? Is that distributing to minor children? How are your assets going to be distributed and who do you feel comfortable allowing that to happen?

John: We are rolling through the estate planning bucket list with creative planning attorney Chrissy Knopke. If you have estate planning matters specific to you, speak with our team of nearly 50 attorneys by going to creativeplanning.com/radio. Maybe your estate plan hasn’t been reviewed since 2019’s Secure Act. Have you had life changes since your last update? Do you even have an estate plan?

John: Don’t leave those that you love hanging out to drive by procrastinating on your estate plan. Go to creativeplanning.com/radio now. If you have any questions, get those answered. All right, Chrissy, let’s jump back in. What is next on your estate planning bucket list?

Chrissy: So once you’ve determined who the responsible person is, who am I going to put in the hot seat if something happens to me, well then you’ve really got to have a plan. And so overall, it’s whether we create a will or a trust, and really you should work with an estate planning attorney to determine what is the best option for your family.

Chrissy: Typically, if you have minor children, you live in a state that doesn’t allow us to put beneficiaries on real estate, I’m going to look more towards a trust for you. But if we have adult children, we live in a state where we can put beneficiaries on everything, I may lean towards using a will.

Chrissy: But it’s imperative that as you are creating this estate plan and this bucket list that you understand the difference and what’s going to benefit you and your family if something were to unexpectedly happen to you.

John: Well, that’s great advice. What about transfer on death designations? Should that be on there?

Chrissy: Yep. So I always want people to realize that after they’ve made that plan, whether it’s a will, whether it’s a trust, you always have to go through and if it’s a will, put your beneficiaries down, transfer on death, payable on death, beneficiary on a 401k. You’ve always got to go back through your assets that you made, enlist number one, and make sure they all have a beneficiary.

Chrissy: If you created a trust, it’s the same exercise, but instead of people being named as beneficiary, you’re making sure the asset is either owned by a trust or has a beneficiary of the trust, and oftentimes people forget to do this step. If it doesn’t happen, then that asset has to go through probate.

Chrissy: John, and you and I have talked many times about the nightmare of probate. That’s not what anybody wants. And so once you’ve actually created that plan, there’s the next step of going back to that asset list and making sure that everything is up-to-date and correlates with that plan.

John: Yeah, great advice. What’s your last item here on the estate planning bucket list?

Chrissy: So everybody is always, what do I do before I die? Well, a lot of times before we die, we’re sick or we’re in an accident and we haven’t passed away yet, but we’re incapacitated in some manner. So we’re in a car accident where we’re unconscious, we have suffered a brain injury, we have Alzheimer’s, dementia.

Those are all things that render us incapacitated. And when that happens, if we don’t have valid documents allowing our loved ones to make decisions for us, they don’t just get to step in and start making healthcare and financial decisions. So after you’ve looked at everything that you own, it’s imperative that you also pick people to make medical and financial decisions for you if you are alive, but incapacitated and make sure those documents are put in place. And those are power of attorney documents.

John: There’s a lot that goes into that. I mean, I remember when my wife Britney and I were going through this and thinking about these things, obviously with seven kids, it was a big ask to go to someone and say, hey, you have four kids, it would be 11 if something were to happen to us.

But I mean really thinking that through and playing that out and saying, what actually would that look like? What school would they go to? Could they stay at their current school? Would they be able to maintain some of their friendships? Would we want to pick a family member, but they don’t live in state versus a friend who their kids already go to the same school, so they wouldn’t have as much disruption there.

What are the ages of these people? What would it actually look like if they were to be guardians? For us, with a 20-year age gap between our oldest and youngest, thinking about those sorts of things for a one-year-old, they’re not going to be out of the house for 17 more years. So, I think that’s really important.

And far too often I’ve seen people with children, I’m not kind of making them feel bad, but it’s like, hey, you’ve got three kids and you don’t have any of this done. I don’t think you want people trying to figure out where your kids should go if something were to happen. So I feel like that’s such an important one if you have minor children.

Chrissy: I just had this conversation with a girl who does my hair this morning. She’s like, “We just keep putting off estate planning because we can’t pick who that person would be.” And I always urge people, I know it’s a hard decision, just like what you discussed, but putting someone down because if something happens and you don’t have anyone designated, that’s when the claws come out.

Chrissy: That’s when grandma says, no, I should have them. Uncle Johnny says, no, I’m supposed to have them. And it just becomes a bigger argument between the family members. And so it might not be perfect today, this plan, but that’s great about these plans is you can always change them as your life changes, as your kids get older and have different personalities. But the first step is going through this and making an actual plan.

John: That’s fantastic advice. So to recap the seven, we’ve got itemizing your assets, leaving a detailed list of what you own and where it’s located, making a list of all passwords. And I don’t know if we talked about this, Chrissy, but that should include your email too, because the olden days where all the bills would come in the mail the first couple of months, and then somebody would track all those down and figure out what needs to get paid, a lot of those are just now alerting you on your email through an E-statement.

Chrissy: Well, yeah, and unfortunately what people end up having to do now is kind of almost waiting till because they’re not getting mail, we used to tell people, just wait and look in the mail. Now people are almost having to wait till tax time when all those 10-99s come in the mail, they’re like, I had no idea they had X, Y, and Z and they didn’t know it until tax time came.

John: Yep, absolutely. So, making a list of all those bills to help that person with that after the passwords, selecting a responsible representative to administer your estate plan after death and ensure minor children are taken care of, create a will or a trust to your point, great to work with an attorney on that because they can help you determine what makes the most sense relative to your situation and your goals.

Transfer on death designations and making sure the trust, if you have one, is properly funded and then completing other important documents. This is something that like you said, is procrastinated on because it’s not like taxes where you have to do it or you get penalized, but it’s every bit as important to ensuring that your family and your loved ones are taken care of if anything were to happen to you. So thanks so much for covering this important topic with me today, Chrissy.

Chrissy: Thank you for having me.

John: I’ve been speaking with a estate planning attorney, Chrissy Knopke, and if your estate planning bucket list is incomplete, it doesn’t need to be. And if you want to complete it, we here at Creative Planning can show you how. Barons has called us a family office for all for a reason. 300 certified financial planners, 50 attorneys, 100 CPAs, wealth management firm, law firm, tax practice, all working together on your behalf to help you get answers to your most important financial questions.

If you’re not 100% confident in the plan that you have and you aren’t sure where to turn, visit us now at creativeplanning.com/radio to speak with a local fiduciary. I want to continue on with our discussion from the top of the show regarding a simple guide to making the decision to retire.

The three main questions to ask yourself, am I financially ready, which we already discussed as well as whether you’re emotionally ready and what your plan is for monthly income. So now theoretically we’ve answered whether or not you’re financially ready, but are you emotionally ready?

I would say this is equally as important. You might not think so, but in my experience it is. Psychologically, are you ready for this new season of life? It can be a huge change. Before you retire, I really encourage you take time to consider your priorities and how you wish to spend your time.

Make a plan to structure your retirement around the things that actually bring you fulfillment and a sense of purpose. For some folks that might be golfing five days a week, but for many who think that’s what the ideal retirement looks like, they’re sitting in my office six months into retirement going, this is kind of empty.

I mean, I do enjoy golf maybe one or two days a week, but I think I’m going to go back to work or I’ve got to volunteer or do something else because I’m not feeling the way I expected I would be feeling when I envisioned retirement. Our director of financial education, Jonathan Clemens, who wrote for the Wall Street Journal for many years and is the founder of the Humble Dollar website, had a great piece on this very concept.

In fact, I’ll post it to the radio page of our website if you’d like to read it in its entirety. And I love the title of the article, A Friendly Reminder. And the premise of this was that research was done in Australia and it found over a 10-year period, older people who had many friends had their risk of dying decreased by 22% than others with fewer friends.

Interestingly, having a robust social network of children and relatives didn’t affect the survival rate, which I don’t know, I was kind of bummed out by that because with seven kids I was thinking I was going to live to 130, but I don’t know, maybe they’re just factoring in that every family’s a little bit nuts. I don’t know.

But what I’ve seen is sometimes when you retire, you don’t always stay in touch with many of your friends because your patterns change and your schedule changes. And so per the research cited in this article, don’t forget to embrace your friends and be intentional with those relationships.

What else should be considered when determining whether you’re emotionally ready to retire? Are you the type of person that can’t wait to retire? If so, what’s the reason that you feel this way? Is it positive or negative? Is it a drag having a fixed schedule?

Are you very stressed out managing future responsibilities? Is your job requiring you to travel a lot and that’s difficult? Or maybe you’re in a positive way, looking ahead to the future. You’re very excited about what retirement has to offer. So it’s important that you determine the reason and whether it’s the job itself or if you’re ready to just entirely be out of the workforce, you don’t enjoy work anymore, we all spend a lot of time at work.

So ideally we’re doing something that we’re passionate about and that we love, but that’s not always the case. So if you’re feeling unmotivated, apathetic, maybe resentful towards coworkers or bosses, you might be ready to move on. But just as I mentioned before, it’s important that you determine is this a specific situational thing?

Like I just don’t like my current job and if I were doing something different or with different people or with a different schedule, maybe I would want to continue working. That’s a lot different than saying I am completely ready to be retired and out of the workforce entirely.

You may be emotionally ready to retire if you feel like work is just kind of in the way. If you have personal goals that you can’t achieve or priorities or values that are being hindered by working, that may be a clear emotional signal that you are ready to retire.

One of the most common that I see is I want to be involved in my grandchildren’s life. My work schedule doesn’t permit that, so I’m missing little league games and I’m missing dance recitals and that’s a huge priority to me. Maybe you feel left behind. In fact, I have a friend from flight school that talks to me about this. He’s an awesome guy.

He’s in his 40s, he’s still single, he’s a pilot. He has a weird schedule, but he’s seen all of his friends get married, buying houses, having babies, and while he has a great career, he just kind of feels like the world’s past him by. And the exact same thing can happen to people at the end.

Friends start retiring. Sometimes it’s even your spouse that retires and then you’re still working and that can create friction because your spouse is saying, I’d like to travel. I’d like to take long walks on the beach and have lazy mornings with brunch together. And the working spouse is like, hey, that sounds great, but I’ve got responsibilities.

I’m out the door at six in the morning. And speaking of spouses, my last tip to consider is that you and your spouse are on the same page. Retirement is a huge decision. It affects your career, it affects your finances, it affects your lifestyle. And so I want to encourage you to really have these important conversations with those around you who this decision will directly impact, namely your spouse.

So we’ve unpacked the first two questions for you to determine if you’re ready to retire. Are you financially ready or are you emotionally ready? And the last question to answer, what is my plan for monthly income? This can be a shock to the system and there are many different philosophies on how to drive income in retirement.

I’m going to speak to the most common three, and if you’d like more details on this, one of our certified financial planners here at Creative Planning, Mercedes Gibbons wrote a great article that I will post at creativeplanning.com/radio entitled Thinking of Retirement, where he’s able to outline in more detail than I am here on some of these nuances regarding retirement income strategies.

The first would be what’s called a flooring strategy. This strategy accounts for the expenses that you’ll need on a monthly basis indexed for an assumed level of inflation. You then drop in social security income if you have a pension, rental properties, any other income sources that might help cover some of those expenses.

And then whatever the gap is, you buy some sort of income oriented annuity, and I’m not talking about some high-priced expensive deferred variable annuity, but rather a SPIA, single premium immediate annuity. And how much of your assets you allocate to purchase that contract is calculated by backing in the math to exactly how much income you need to cover your expenses.

Now some people want to buy just enough of an annuity like that to cover the non-discretionary expenses. Others want to allocate enough to that insurance vehicle to ensure that basically all of their monthly expenses are covered and then they invest the remaining dollars. Now, full disclosure, this is not what I advise.

It’s almost always suboptimal to the strategy of driving retirement income that I’ll share here in a moment that I adhere to, but it is an option, especially for someone who says, I need this simple. I don’t like investing. I don’t have a good financial advisor. I don’t want to have to worry about running out of money if I live too long. I don’t care much at all about what is left to those around me.

So that would be a flooring strategy using some sort of immediate annuity. Second strategy would be a dividend oriented strategy. You build a portfolio where the average dividend is enough to satisfy your income gap each year, and so while the investment share prices will go up and down in value, the dividend income theoretically will still be sweeping into your money market and generating the income you need in retirement to offset the lack of a paycheck.

Broadly speaking, this strategy is suboptimal in my opinion as well because you tend to be under diversified because you’re only chasing high dividend payers, all of which tend to have similar risks, ala rising interest rates.

And if you get in a 2008, 2009 scenario where things get really bad, where a lot of companies cut their dividend or completely stop paying it, those share prices then plummet because many people like you were owning them for the dividend, now you’re not getting the income and the volatility level of the underlying portfolio may be far more than you were expecting.

This is the type of thing that can blow up a retirement plan, too big of a bet in one single spot when it comes to dividends. Third and final retirement income strategy, and this is in fact what I recommend and that is a systematic withdrawal strategy. It involves you taking a scheduled withdrawal from your investible assets based on a reasonable withdrawal rate that is guided by that financial plan that you hear me so often talk about.

So painting with a broad brush, you may start by withdrawing 4% or 5% of your savings and adjust it for inflation after that. Effectively, what you’re able to do with this strategy is build your asset allocation in a broadly diversified way. So you have some dividend payers, but you also have some growth stocks. You also have some short term bonds with that mix being determined by how much you need from the portfolio over the next five to seven years.

So you buffer your stocks with bonds to ensure that extended periods of down market trends or volatility in the market doesn’t force you to sell stocks at the wrong time. You rebalance the account systematically, you tax loss harvest along the way, and so you can stay very low cost with the investments and it’s extremely flexible as your life changes.

And we’re talking about a 20, 30, 40 year retirement. The problem with the strategies above is you’re fairly committed to those, and I don’t know about you, but my life changes a lot over three years, let alone 30. I like the flexibility and the efficiency of the systematic withdrawal strategy. And if we want to go a layer deeper, there are different types of withdrawal strategies.

You could do a tax efficient withdrawal strategy where you’re diversified across multiple account types, IRAs, 401ks, Roth IRAs, taxable accounts, and you may have the ability to optimize your income that you’re pulling by implementing a tax efficient withdrawal strategy. We do this for our clients here at Creative Planning.

What that effectively means is that you know exactly how much of your income you’re pulling from which type of account, and of course, I highly recommend you work with a credentialed fiduciary. Find a wealth manager that can help you better determine how you’re going to replace your income, which type of strategy and philosophy fits your needs and your goals.

If they’re pushing some big heavy insurance strategy early on in the relationship, to me that’s a red flag. Those generate huge commissions and are extremely inflexible. So I would tread carefully there. If they’re pushing a dividend strategy, I would also be a little bit reluctant for the reasons that I just shared and instead I would encourage you to look at that systematic withdrawal strategy.

If you’re approaching retirement or you’re already in retirement and you want to review in a personalized way, whether you’re financially ready, whether you’re emotionally ready, how you’d replace that monthly income, don’t go about this alone. It is far too important.

I’m not saying you have to work with us here at Creative Planning. Of course I’m biased. I think we do a fantastic job and have been doing so since 1983 for families in all 50 states in 85 countries around the world. But regardless, get a second set of eyes that has tremendous experience to ensure that you aren’t missing anything when it comes to your retirement.

If you’d like to speak with someone just like me, one of our local wealth managers, go to creativeplanning.com/radio now to request a complimentary consultation. Again, that’s creative planning.com/radio. Each week I break down common wisdom or a hot take from the financial headlines and together we decide if we should rethink it or reaffirm it.


Today’s piece of common wisdom is that taking the lump sum is always better than the pension payments. I saw recently that the winner of the lottery that was over $1 billion took receipt of the payment via a lump sum rather than electing for a stream of income payments. Now, you might be saying to yourself, John, that’s a billion dollars. What kind of choice is that?

Yeah, they’re probably going to be okay either way, you’re right there. But this type of decision is one that retirees who are fortunate enough to have a divine benefit plan, also known as a pension plan at their employer, have to make when they retire. Now, as I often do, let’s look at the pros of each before I provide you with some considerations for your specific situation.

The pros to taking the lump sum are fairly intuitive. It’s a bird in the hand. You’re not certain oftentimes of the reliability of your employer. As a former airline pilot, a lot of these pension plans suffered greatly after 911 and then in 2008 and 2009, taking the lump sum offers flexibility. What if you don’t want the same amount every single month?

The lump sum offers a legacy for your children. If you die three years in, the lump sum is in your possession. You’ve got immediate control of the assets. And if you don’t end up living a very long time, you generally win by taking the lump sum. You also have significantly more tax flexibility.

You can potentially Roth convert some of the lump sum partially, and in the event like many that lump sum is only a portion of your overall retirement assets. You can choose to defer from a tax strategy standpoint or accelerate depending upon your current and future tax brackets.

So you might be thinking to yourself, well John, this is going to be a reaffirm, then taking the lump sum is always better because those make perfect sense. Why would anyone take a pension? Well, there are some great pros to the pension as well, so let’s look at those.

The number one concern of retirees in virtually every study is living too long and running out of money. The pension solves that because it’s available to you as long as you live, you don’t have to depend upon the stock and bond market for your success. You’re not looking at the markets and wondering if the returns will be sufficient to sustain you for the rest of your life.

And so if you’re a really conservative investor who keeps a lot of money in cash and isn’t comfortable investing, you may end up getting a better internal rate of return on that pension stream than what you would’ve earned trying to invest the lump sum in low performing asset classes.

Another benefit to the pension is it removes a lot of the uncertainties. Sure you don’t have a big pile of cash, but you know what your income stream’s going to be coming in every single month for the rest of your life. The pension offers simplicity as one of the pros and to dive a little bit more into the weeds, for those of you who are interested, it can replicate a quasi stretch IRA option because you could name your grand kid or a much younger child as the joint annuitant.

Now of course, the catch to that is their life expectancy would be far longer than yours, so your payment would be quite small on a monthly basis because it would be stretched out for so many more years. And in my experience, most retirees want as much income as possible.

They’re not looking for a tiny payment that can go for 50 years for their grandkids, but if they have a lot of wealth elsewhere, that can be a delayed strategy that I’ve seen. So now that I’ve listed out the pros, here is what I would consider if I were you. How is your health and what is your projected life expectancy?

If you think you’re going to live to 100, the pension option is far better than if you’ve already had cancer three times and no one in your family lives beyond 75. You have to first consider that. Secondly, if you took the lump sum option and then put it all in a private immediate annuity, would that insurance company offer you a higher or lower income stream than taking the pension through your company?

Now, normally when you run that calculation, taking the pension through the company does offer the best income stream because they don’t have to pay out commissions and there’s lower administrative costs and some other things, but it’s worth doing because you wouldn’t want to take the company pension then find out later you could have taken the lump sum, dumped it all into a private annuity and received higher income.

On the pension, you’ll usually receive options of whether you want to take a single life annuity, meaning the income stops once the annuitant passes away verse a joint life. So if you’re married, you can say, well, I want this pension to be the same amount until the second one of us dies. You may also say it can be reduced by 50% or by 25% when the annuitant passes away, but I want the surviving spouse to receive part of the income.

Now, if you do that, you may want to consider purchasing a life insurance policy to protect the surviving spouse who is either going to lose all the pension income or some of the pension income. And again, that comes back to can you qualify for life insurance? Are you healthy enough?

Sometimes you’re trying to obtain that insurance in your 60s or 70s, and it can be really expensive or impossible, which that again might inform not only which options to take within the pension, but whether you would prefer to elect the lump sum instead. Next consideration. Do you desire to spend more money earlier in retirement?

If you do, the lump sum is probably going to be a better choice. Creative planning president Peter Mallouk spoke on his podcast, Down The Middle on what he believes is the sweet spot for retirement spending. Have a listen.

Peter: People look at their horizon and they go, okay, I’ve retired. I’m 58, I’m 68, whatever it is, and I need this money to last till I’m 100. And that’s true. Some of our clients are over a hundred, right? And with healthcare and technology and everything else, who knows, but your peak spending years are not going to be when you’re 93 and 94.

You really have this window and that window is in my experience, and people are different, but it’s really the late 70s and not because there aren’t people perfectly capable in their 80s of doing it, but because oftentimes a couple is married or has a good friend or a significant other that they do things with, right?

Statistically we know well the odds are pretty good that one person can make it healthy to their 80s. The odds are not great that two people can.


Again, that was Creative planning president Peter Mallouk. And my last consideration when deciding between a lump sum or a pension is do you have a good financial advisor that you trust 100%? If not, the pension offers less of a chance for you making a big mistake.

I think the more confidence you have in your financial plan and in the advice that you are getting, the more comfortable you are getting control of the assets, having the flexibility with the lump sum and being responsible for growing that and driving income from it.

If you don’t have that confidence, you may be better off taking the pension and keeping things simple. If you’re confronted with this decision because you are approaching retirement, our team runs these types of calculations on a daily basis for clients in all 50 states and 85 countries around the world.

We’ve been helping families since 1983. Why not give your wealth a second look. Speak with a local advisor by going to creativeplanning.com/radio now to get your retirement questions answered. What’s time for listener questions? Remember, you can submit your questions to radio@creativeplanning.com. Our first question comes from Neil in Wichita, Kansas.


Given high inflation, how much should I take from my portfolio for retirement? So it’s a normal question, and that’s by the way, something I didn’t mention. But oftentimes pensions do not offer an inflation adjustment. If they don’t, that’s one of the big cons for not taking the lump sum. But back to Neil’s question, your income obviously has to account for inflation because every 20 to 25 years, your income will need to double just to be the same as what it previously was.

So if you have a 30-year retirement and you never adjusted it for inflation, your income will be 30 or 40% of what it started as most people can’t live on 30 or 40% of what they’re needing early in retirement. So when you look at rules of thumb when it comes to retirement income, like the 4% rule, that rigid rule, which by the way I don’t entirely agree with necessarily, but let’s just use this as a baseline, assumes that you as a retiree take out 4% in the first year of retirement.

After that, your annual withdrawals are adjusted by the rate of inflation or theoretically the rate of deflation if those were to occur. So most of the 4% rule studies, I’ve been asked before, how would someone run out of money only spending 4% a year if they were invested properly? Well, it’s because it’s assuming a long retirement and that you’re adjusting that income every single year for inflation.

So Neil, that is a great question. Since we are headquartered in the state of Kansas, we have plenty of people to help you with that. If you’d like a review of your retirement income, you can certainly do so by going to creativeplanning.com/radio. My next question comes from Janet in Chandler, Arizona.

What is the better option, a traditional 401K or a Roth 401k? Well, that depends on a multitude of other factors and certainly your current and future tax liabilities, which is why I’m going to follow that up with Jason from Tampa, Florida’s question, if taxes do increase in the future, is there a way I can start preparing for them now?

Yeah, this is where the Roth 401K option or Roth conversions within your IRA become viable because right now with the Trump tax reform, we’re in one of the lowest tax environments we’ve seen in decades. We also presently sit with over $30 trillion of national debt.

If you go back to the World War two years, top tax rate was over 90% for 40 years following the top tax rate, never dropped below 70%. Our top tax rate right now is 37%. And so to reference back to Janet’s question, if you are a married couple, even making $350000 a year and you are saving into a traditional 401k, you’re betting on the fact that the 24% you’re deferring today is going to be a higher rate than you will withdraw that money from once you get into retirement.

And of course, no one knows that answer for certain because there are too many unknowns between now and then. But if you go back to even the Bush tax cut years, which were historically low, the 25% tax bracket for a married couple started at $76,000. And this is precisely why you have likely heard so much of the word Roth, by the way, last name of a Delaware senator that came up with this idea.

That’s why they’re called Roths, and that’s why it’s getting a lot of headlines because most people to Jason’s question, expect tax rates to go up from where they are today. And if you’re asking to pay them later by deferring IRAs and 401ks, you may not love the rate that you’re forced to pay when you finally make those withdrawals in a potentially higher tax rate environment.

Talk with a CPA about this. If you don’t have one, you don’t know where to turn, we have over 100 CPAs here at Creative Planning, and we are a tax practice doing thousands of tax returns for our clients get probably the most important first question answered, which isn’t how should I be investing? It’s where should I be investing?


Well, we have covered all sorts of financial topics today, but the reality is even if you do a fantastic job with your money, maybe even a perfect job with your money, which you and I both know is never accomplished, but what if you could, but you never actually figured out why any of the money was important to you, why it mattered, you’d basically just die with a pile of cash? Who cares?

Because money isn’t inherently valuable. It’s not a friendship. Your relationship with God, marriage, time with children or grandchildren, those things are inherently valuable. They’re valuable because they exist. Money is just a tool that aids in those valuable aspects of your life.

And so if we never make that connection, we’ve essentially missed all the value with which money can provide. And so I want to end today by posing a question for you. If you inherited $20 million, would you spend your days the same way you spend them right now?

Second question to that, if you inherited that $20 million and you knew that you only had 10 years left to live, what would you continue to do and what would you not do that you’re currently doing? Truly give that some thought. If you had $20 million and 10 years to live, how would you think? How would you act? How would you live differently?

And while the $20 million inheritance may be unrealistic, and I hope that the 10 years left to live isn’t your situation, honestly, answering those questions will help you tap into what’s really important to you and help you live life more today in the present around the things that you value.

And the answers to these questions are so important because we are the wealthiest society in the history of planet earth. Let’s all make our money matter. If you enjoy the podcast, please subscribe, share, and leave us a rating.

Disclaimer: The preceding program is furnished by Creative Planning an SEC registered investment advisory firm that manages or advises on $225 billion in assets. John Hagensen works for Creative Planning and all opinions expressed by John or his guests are solely their own and do not represent the opinion of Creative Planning.

This show is designed to be informational in nature and does not constitute investment advice. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy, including those discussed on this show, will be profitable or equal any historical performance levels.

Clients of Creative Planning may maintain positions in the securities discussed on this show. For individual guidance, please speak with an attorney, CPA or financial planner directly for customized legal tax or financial advice that accounts for your personal risk tolerance, objectives, and suitability. If you would like our help request to speak to an advisor by going to creativeplanning.com, Creative Planning tax and legal are separate entities that must be engaged independently.

Important Legal Disclosure

Have questions or topic suggestions? 
Email us @ podcasts@creativeplanning.com

Let's Talk

Find out how Creative Planning can help you maximize your wealth.