transcript
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Episode #551 - Service, Sacrifice, and Second Acts: Military Retirees
Roger: The show is a proud member of the Retirement Podcast Network.
Welcome to the show dedicated to helping you not just survive retirement, but to have the confidence that you're doing the work to really lean in and rock it. My name is Roger Whitney by day, I am a practicing retirement planner with 30 years’ experience, founder of Agile Retirement Management. For the last 10 years or so, I have had the honor of hanging out here with you and using this podcast as my own mastery journey to improve my craft as a retirement planner, which has been a blast, but also even more fun has been to hopefully empower you to create a plan of record so you can live a great retirement with confidence.
Today on the show, we are starting a unique retirement series where we're going to talk about different ways of retiring. Today, we're going to talk about retiring from military service with a military benefits package and how that should inform retirement planning.
Next week, we're going to talk about retiring with special needs children. A lot of special considerations there. We're going to bring on an expert to talk about navigating that and finding that balance between being a good steward and parents, but also having a great retirement. The week after that we're talking about retiring without borders, the expat lifestyle. We're going to bring on an expat to the U. S. that focuses there and share some stories that I received from many of you when I said I was going to do that two years ago. The last week of the month, we're going to talk about retiring with illness or injury and how that should inform your retirement planning process. In addition, we're always going to answer your questions and talk about other things, but we'll have some focus on those types of things.
Before we get started with retiring from the military, I feel like I need to say something. Retirement planning, there's a lot of aspects to it, right? We've been talking about it for one0 years plus on the show, poking at it from different angles. It's easy to allow this to become an intellectual exercise. Oh, that's interesting. Let me examine this aspect of retirement and go down that rabbit hole or go down that rabbit hole. It can be interesting to solve these problems and discover. There's some value in that.
Retirement planning is not an intellectual exercise. It is a practical exercise. It is a means to an end, and that end is you actually living your life and having confidence and not doing this stuff every day. It's easy to forget that, because we find comfort and security and redoing the plan and looking at the numbers. So, I always want to remind myself, I'm focused on work out. We got to do something. We have got to get this done so we can go live a great life. Not so we can become amazing retirement planners. Do that in small increments by using an agile process where you have check ins that are predetermined with agendas so you don't have to think about it all the time.
Okay. Soapbox away. Let's get to talking about a military retirement.
A MILITARY RETIREMENT WITH SCOTT SANDBORN
One type of unique retirement is retiring from a career in the military, and to help us navigate that is Scott Sanborn. How are you doing, Scott?
Scott: Good, Roger. How are you?
Roger: Good. Now, you were 30 years active military service in the U. S. Army, correct?
Scott: Correct. That is correct.
Roger: Years ago, you and I and your spouse did a retirement plan as you were navigating that, which inspired you to begin the journey of getting your CFP, which you've passed all the education requirements and you're just waiting for the experience.
Why did you do that?
Scott: Why did I go down this pathway of following in your footsteps, so to speak?
Roger: Yeah, well, actually, I remember the conversation early on is you wanted to help career military individuals retire. That was something that you wanted to focus on. Why was that?
Scott: Well, sure. Well, when you and I worked together with my wife, back 7 years ago now, I was on the cusp of the decision of do I continue a military career or at least continue in the specialty that developed in my military career and work for a number of years longer? Or do we decide our dream journey of what we want to do retirement?
As I transitioned out of uniform and you and I worked together, the long story condensed down is that you gave us the confidence that we didn't have to go do a necessarily a paying career, and then we could start our journey of traveling the country and doing all sorts of wonderful things and throughout those early years of that journey, I realized how much freedom we had gained because of our experience. I realized the value of that, that I don't think I would have gotten from any other source. So, I decided that I wanted to go down that same pathway so I could provide that same value to others. Hopefully some of those would be those in the military career, and I've had the opportunity to work with a few to this point, and it's been very, very rewarding doing that.
Roger: Well, let's define what retiring from career military means. For those that are not in the military or don't know what we're talking about.
Scott: Sure. Some unique aspects of military service, especially if you serve 20 to 30 years or longer is there is the benefit of a guaranteed pension. The system changed about six years ago. It used to be 50 percent of your base pay. It's now 40%, but there's some other benefits that are added to help compensate for that reduction, but the benefit of this pension that begins once you leave uniform is that it is an enabler. It's one of the things I want to talk about today is it's an enabler that I think we often discount where we think we have to continue another career after leaving uniform. Perhaps that may not be true.
But for those that are not experienced with this, I'm focusing on those that are approaching the end of a military career with my observations today, perhaps they've served 20, maybe 30 years, but it's those individuals that may have the option to decide not to continue working, or maybe working in a company, career field that they wouldn't have given themselves permission to do. Maybe it's a volunteer opportunity that they wouldn't have attempted otherwise, because they felt the need to continue another following career.
Roger: Okay, and we're going to get to some financial aspects and some non-financial aspects.
But I would imagine one of the non-financial aspects. Is just like it would be if you worked for the same corporation forever is institutionalization in terms of your view of options and the imagination of other things you could do.
Scott: Sure.
Certainly, with any career, but in particular, the military, you're trained for a specialty and for many, not all, but many that serve a 20, 30 year, you're either directly in that specialty or you're in a supervisory role regarding that specialty and that kind of leads you and sometimes mentally confines you to that path beyond service.
I think that's one of the things that may or may not be true that I'm trying to encourage thinking outside the box.
Roger: Okay. So, let's start with the financial pieces of this, and you already mentioned one is the pension and that it's easy to underestimate that when evaluating your readiness to transition.
So, let's talk through that.
Scott: Right, and this is speaking not only from my own experience. But it's also conversations with peers, mentors along the way, who I've seen this play out many, many times. It's the idea that, okay, I've earned this benefit, whether it's the pension, plus the military and the government's 401k, what we call the thrift savings plan. I've earned and accumulated this benefit, but I'm going to discount, or I'm going to assume that it's not necessarily going to be as valuable as what it really is. We do this and it's the same thing that I think a lot of folks do with benefits such as Social Security. I'm going to assume it's not going to be there, or I'm going to assume it's not going to increase at the rate of inflation and we go through this challenge of mental discounting as a safeguard because we just don't know what the future looks like. We don't have an accurate view of what the future potential might be. So, one of the things I would encourage those approaching the end of their military career is do an honest accounting of what your benefit truly is.
Don't apply these buffers and say, it's not going to be there, or it's going to be reduced because the inflation adjustments won't keep pace but do an honest assessment of what that benefit really is. I think the risk of not doing that is, as I suggested a few minutes ago, we underestimate the value and we make decisions that may be contrary to what our true desires are for the next phase of our life.
Roger: It's part of human evolution that we always look for the threat around the corner and when it comes to benefits, social security in the private sector, or even pensions, you always worry about what could go wrong and that mental discounting occurs, right? You know, this is an election year, and if we look outward to what is the state of the world or the country, you're probably not going to be too encouraged.
Scott: Right.
Roger: That's not a good way to operate though.
Scott: Exactly. That's not a good way to operate. We let the noise of the world and we follow these sources of information that seem to accentuate the negative and downplay the positive. It's the natural reaction. We create these defense mechanisms to try and counter. What if all that's true? When in reality, when you step back and take an honest accounting of where things stand and what your benefits might be, that's very unlikely to happen.
But the first step is let's at least assess what's the true value of those benefits, whether it be the pension guarantee and pension component or what you've accumulated in the thrift savings program.
Roger: Okay. I just want to put a bow on that briefly and then we can move on to healthcare, which is another big question. Internally and full disclaimer, Scott works with our firm, he does flat fee planning, and he has been instrumental in helping refine the process because he's a process guy. That's what his expertise was in the military, but we're doing a book study internally on mental models and when we think of second, third order consequences, and we're discounting our benefits because of this, that, or the other thing, politically or economically or whatever, it's important to do. You don't ignore doing that, but what tends to happen is we go too far down that trail of how bad it could be and then catastrophe it rather than think of it more in a reasoned way.
Did you want to add to that or not?
Scott: That's the framework we follow is let's just see what's feasible without putting any of these discounts on, mental discounting, applying these safeguards up front. Let's do the honest feasibility assessment up front, and then let's look at the risk and go through a resilience assessment to understand, well, how bad could it be? Then we can start to think about adding some buffers. But I think what I see most people do is before they even start to assess the feasibility, they start adding in all these buffers and before you know it, you constrain their potential future life to a subset of what it really could be.
Roger: The cost of that is literally your life, years of not having time, freedom, missed experiences, et cetera. So, there's a real cost to that.
Scott: Absolutely. Time with family, being able to find purpose in perhaps a career field that may be closer to your passion, being able to volunteer in a non-compensated role in a meaningful way that gives you joy and allows you to help others. Those are the things that are the opportunity costs because we do that discounting up front.
Roger: Is there any different thinking in terms of the military pension than a private pension?
Scott: Well, I think the biggest is the fact that it is inflation adjusted. So again, that adds an additional safeguard, it is significant. I think that's one of the largest eye openers as I've transitioned into this new encore career, giving me, I think even a greater appreciation for the benefit and not even suggesting that it's not deserved, certainly 30 years of sacrifice or even longer for those that serve longer. It's something that's worth the value of the service provided, but it, we don't want to discount that and underestimate that truly is something that's unique.
Roger: Now, another aspect financially, that's a little bit different for those retiring from a career in the military is healthcare, which is a big issue for anybody retiring prior to 65 in the private sector.
So, talk about retirement healthcare benefits and how to navigate that.
Scott: This is again, one of the other big, more obvious lessons that I probably didn't appreciate, but working with a wide variety of clients approaching retirement, understanding that for most, it's this threshold of reaching Medicare that gives you much greater travel flexibility, mobility, flexibility, but that's a benefit that those transitioning from the military with a pension with the retirement program with the Tricare, which is very similar to the Medicare allows that greater flexibility and mobility freedom that for others, they have to wait until Medicare age.
Roger: Are you referring to like, I'm on an HMO so if I go travel to Colorado, I don't have in network people because it's a Texas HMO. Is that what you're referring to?
Scott: That kind of exactly. There's a couple of different components of the military's retiree healthcare system under Tricare.
Tricare prime is like what you're describing. You're more confined to a regional network. And so that mobility doesn't necessarily apply, but that's typically to those that retired near a military installation and they have the option to select that.
There's also the Tricare Select, I believe is what the new name is, where it's really more of the standard Medicare model where you can choose the provider you want, doesn't necessarily have to be the network. There may be a discount for some of the copays if it's in network, but the restrictions are not nearly as onerous as, say, an HMO. That opens up all sorts of opportunities to live in a greater variety of different areas and also to be mobile.
You know, we talked about the fact that as I transitioned, I wanted to live our dream, and that was traveling in an RV for three years, worrying about where to get health care was not a driver of our decision to go do that adventure because we knew that we had the Tricare option to go into a variety of locations to seek care. I think, again, it's another benefit that we really don't think about until we're out of the military. We realize, hey, that's something that's a unique aspect that could allow me to make different decisions on what I want to do, where I want to live, and how I want to travel once I retire.
Roger: Okay, what other financial aspects are a little bit more unique to retiring from military?
Scott: I think one of the best things to think about the military pension, going back to that, is the fact that it starts right as the service member leaves service, again, assuming someone served 20 years.
Roger: So, when you retired at 52, it started. You didn't have to wait till 60 or 65.
Scott: That's right. It starts the day or should say the month after you retire, the pension begins. Again, as we talked earlier, it's inflation adjusted. So it starts at whatever the beginning amount is and then receives the cost of living adjustment each subsequent year and continues to grow at the rate of inflation.
Roger: There's no benefit of delaying that after you've retired.
Scott: Correct. There is a benefit to serving longer. So again, someone retiring at 20 years, it gets 40 percent of the benefit retiring at 30 gets 60 percent of the benefit. Plus, they also have that action to the TSP and so when you add that fact that the pension begins when you leave service and that Tricare health care benefit continues throughout that period, there's a small annual fee for that that opens up all these opportunities where you've got the cash flow that's coming in from that. Health care is a measurable expense. It creates all these different opportunities for decisions that you don't necessarily find someone to stay in that same career field they trained in.
If you love that opportunity to serve in that same career field. Go for it. Awesome. But if there's this other dream job that you wanted that may not pay nearly as much or there's volunteer opportunities that you want to pursue that pay nothing that cash flow provided by the pension that begins at retirement is a key enabler combined with the fact that the health care is now predictable and understandable.
Roger: It takes those off the table.
I mean, I know a lot of people in the private sector that they're very worried about health care prior to Medicare ACA is foreign to them. It's very difficult to understand. There's not a lot of clear things. It takes some of that anxiety off the table. At least some of it is related to that.
Scott: Absolutely.
Roger: I had a friend a while ago, Scott, that went to the academy and was trying to start a nonprofit to help retiring military figure out what they're going to do. I'm assuming there's a lot of services to help figure out what those alternate career paths are. I mean, you created yours internally. But from financial support or counseling supportive, how do we reimagine if I've been institutionalized as a mechanic or as a whatever, I'm going to show my ignorance if I say name specific tasks. How do you start to think creatively to take advantage of this opportunity.
Scott: Well, I think this is a good transition to our first non-financial aspect of military retirement.
That starts with beginning to think about what it is you want to do, whether it's transitioning your current specialty into a civilian sector opportunity, or as you talked about doing something completely different, one of the things I think is most important for anyone approaching retirement in the military is this idea of enrolling in taking the transition program that the service offers the army's program. I think it's called soldier for life that experience starts the juices flowing, if you will, to understand what's the mental steps necessary to make the transition. Part of that is understanding what some of those different training opportunities and maybe certification opportunities are to transition into the civilian sector. If you want to continue that career, there's things like skill bridge and internships with corporations that those serving the military, even in their while still serving in their last few months could do an opportunity with a major corporation. I just had someone who had worked for me years ago, just recently retired. He did an internship with Google for the two months prior to his retirement and later landed an opportunity with Google. So, it's just one of the many opportunities and examples, but it starts with starting the transition program that the service offers each service offers their own.
My only caution and encouragement are to start that process early. Typically, it's allowed to attend two years prior to retirement. For those of us that serve in uniform, we understand that it's a 60 to 70, 80 hour a week commitment for just the basic job. We don't seem to think that there's the opportunity to go attend that until the last possible minute.
Personal example, I thought I was going to retire two years earlier than I actually did. I went through the Army's transition program about six months prior to that and it was a shocking eye opener of how unprepared I was for the thinking that was necessary to make a successful transition. I actually delayed my retirement another two years because I knew I was not mentally ready to make that transition because I didn't know what I wanted to do next. So, attending those transition programs not only gives you the ideas of how to transition the skills, but offer up the topics that you have to think about. They're not going to give you the answers. They're going to present the information that you must consider on what do you want to do with the rest of your life.
That's, I think, a key aspect of what these non-financial topics that I think military folks need to think about as they make the transition.
Roger: I would imagine one of the dangers of retiring from the military that's probably more acute than others, you can tell me if I'm wrong here is that you can approach it as I'm just going to a new assignment rather than thinking more broadly about what might be possible. The idea of time freedom, you may want to slow down, you may be tired of the grind and everything else, but it's very easy. It's comfortable to just go to another assignment, go to Google, do an internship and take a role.
How do you think more expansively about that so you don't just follow the path?
Scott: It's a great point.
I think from my experience talking with peers who have gone through this transition mentors who followed ahead of me or gone ahead of me and seeing others who have followed behind me is not only do we think it's another assignment, but we also seek the opportunity that is in the same career field and it's with the same people because we're comfortable with them. That's great. If that's what you want to do. I know a number of folks that have served in defense industry and many of the people that they work with were either folks that they were associated in uniform or they had met in their experiences in uniform, and if that's what you want to do, fabulous. There are lucrative opportunities. It's an opportunity to continue to contribute to the security of the nation.
What I'm suggesting is if that's not what you want to do, think broadly, because there are more opportunities than you may realize that may give you greater joy, and it doesn't necessarily have to be about the income you might receive.
That gets to my second non-financial advice that I would provide to those transition out of the military, which is think about what you want to be when you grow up. Yes, you may be 48 or 52 as you make the transition. Maybe you're 42 at retiring at the end of a 20-year career or so. I just had this conversation with a former colleague that had worked for me a couple of different times. He retired early this year down in Texas and I had a chance to talk to him as a sidebar at his retirement ceremony.
But I said, "So what are you going to do next?"
He listed out all these opportunities that were mostly associated with his career field. We were both aviators. So, he was looking at flying opportunities.
I said, "Is that what you want to do?" He goes, "I'm not really sure" and I said, "Listen, just take a step back. Pretend you're 12 again. What do you want to do? You've got a long, Life ahead of you and you have a lot of opportunity. How do you think about what it is when you want to be when you grow up" and that's the advice that you give to anyone is don't be confined if that's not what you want to do to what you necessarily train for unless it's what your passion is.
Roger: Let me ask a question about that. It’s not something you can necessarily whiteboard.
You can't just get in front of a whiteboard, go out for a weekend, and figure that out. My thought is, and my experience is, whether you're in the military or not, sometimes you just need to extract yourself from your situation, and it may take a year to journal and think and write and talk to friends.
It's not something you can just say this is what it is over a weekend.
Scott: Right, and that's exactly what I went through when I tried to go to the transition program when I thought I was going to retire earlier, those are the exact issues that I realized I hadn't thought about.
Roger: Okay.
Scott: I didn't know how to whiteboard it and I needed the additional time to reflect. I got some great advice along the way where someone who had retired a few years ahead of me said think about what you want to do you, next, more importantly, think about what you don't want to do, and that will help you think more clearly of what's the best path for you.
Roger: Another good mental model of inversion.
Scott: Sure. Absolutely.
Roger: Flip it around. One last thing I want to talk about, I think we should talk about, from a non-financial aspect. I mean, you know, I am the Retirement Answer Man. If I ever retire, I won't be that title anymore, not that I ever say that I am. But in the military titles, and hierarchy are extremely important, Colonel Sanborn.
Scott: We wear our resume to work every day with our uniform, with the badges that we've earned and the ribbons that we've accumulated. So, when you walk into a room, people know not only who you are, but what you've done and what your experience is. That's another, I think potentially difficult area, and this is not unique to the military, but those that serve in highly specialized positions, maybe they've served in government. Maybe they've been a doctor or a lawyer and their identity was known to all that they work with and they're highly regarded, but those issues of identity transition. It's part of that mental thinking about what do you want to be when you're going to transition, we're going to hang up that uniform. What do you want to be when you grow up? It's also accepting that. Yes, you've done all these wonderful things in your career, but that's not who you are.
It's difficult because in uniform, we wear it every day, and we think that is our identity. We think our rank is our identity, but that's really not necessarily the case. I think that's part of why attending the transition program two years out starts that mental activity of processing the fact that your identity is not necessarily what your job was.
Roger: Now, I remember your first identity that I knew you by because Scott, he was one of the original members of the Rock Retirement Club, that's how we met, and then I quasi mentored him as he was doing his CFP, and we just stayed in touch. But your initial identity was RV traveler, which I still call you RV from time to time. How did you come about that? Do you think that was just sort of a flippant thing you did, or was that part of your process?
Scott: I think it started as a flippant step.
When I came to realize it was an essential part of my identity transition to wash away, not to discount the value of my service, but to help wash away the idea that my identity was tied to my rank, and what I had done, and I adopted this persona of RV traveler, because again, my wife and I shared the dream that at some point, when we retired, we were going to travel the country in an RV and that built momentum as we approach retirement. We adopted the persona of, hey, we're just a couple of RV travelers. That's who we are now and it was glorious, and it's been glorious, but I adopted the name, the moniker RV traveler, because it's about that time that I really embraced that persona is when the club was being formed. I said, well, What's my name going to be in the clubs, RV traveler? It's the only obvious answer because that's who I am now. It's just an example of one way to make the identity transition is identify who you want to be next and adopt that persona and embrace it.
Roger: One thing that you and I were talking offline before is the process, the structure in which you make decisions and think through vision and feasibility, resilience, and optimize doesn't really change if you have a good scaffolding of a structure, but when you bring in someone with special needs, you know, it has a special needs child or someone that's solo or someone that's retiring from the military, either as a career or somewhere in between, it just makes certain parts of the process. more acute or important, and it adds or deletes tools available to create a plan you can actually have confidence in.
Does that make sense?
Scott: Sure.
Everything we've talked about today is not necessarily unique to the military. Perhaps it's more acute on some of these aspects, but many of these same topics apply regardless of what your career was. These are transition considerations as we want to go from being an employee and a career professional to someone who wants to truly rock retirement.
Like you said, the process is the same, these are just some highlights that might require some accentuation for those transitioning from the military, but they'd certainly have applicability to everyone making this transition.
Roger: Well, with that, I'm going to go get to some listener questions. Thanks for hanging out with us, Scott.
Scott: Always a pleasure, Roger.
LISTENER QUESTIONS
Roger: Now it's time to get some of your questions and comments. If you have either for the show, you can go to askroger.me. Leave an audio question, type in a question or a comment I read them all and we'll do our best to get them on the show and help you take a little baby step towards rocking retirement.
All right.
Last month, during a postscript to a show, we had like a 20, 30 minute. Discussion myself and my friend Mark Ross about my winding journey towards purchasing a place in Colorado and I got a lot of feedback from many of you sharing your journey, but also encouraging me and I appreciate that it enriches me and I want to just thank you for that because I can't get to every single one in terms of all the emails and replying back. I just want to thank you for that.
PENNY IS TRYING TO DECIDE WHETHER TO STAY OR MOVE CLOSER TO FAMILY
Today, I have a couple questions related to relocating in retirement or near retirement. So, I thought we could weave those in. Our first one comes from Penny.
Penny says,
"Adventures this summer. Heading out in our new to us trailer for camping adventures and cross-country trips."
Ooh, that sounds exciting. I want to do that.
"Rob retired February 2nd and we are really enjoying this time together. Really liked your segment on moving to Colorado.
Our dilemma is deciding whether to leave Colorado and move closer to our daughter in Virginia. It is helpful to know that decisions can change and move in other directions. Sometimes I get so afraid of making the wrong decision. Welcome to Colorado, Roger. Hopefully we will run into each other sometime."
It's easy, Penny, to make these decisions, one-way decisions, just like kids do with choosing a major when they're going to college. If I don't choose the correct major, my life is ruined.
When in actuality people change majors, people get a major and they don't work in their major. My major in college was international relations, but we tend to view most decisions as one way. Almost all of them are two-way decisions. Now, yes, there may be friction to go back, but almost everything can be undone from a decision-making standpoint.
So, relocating towards your kids in Virginia is one of those that you could do that and say, I don't want to be in Virginia. This isn't what I want. I want to be in Colorado, which I would get. Yeah, you might have to sell that house or whatever you did there, or it might be more expensive to purchase in Colorado. There are risks there. I'm not saying there aren't consequences for undoing decisions, but you can flow.
My suggestion would be, as you're considering this, to start with your values, and then think about your life and how do you live a life that's best aligned to the values and the goals that you and Rob set for each other.
Living in Virginia is very different than living in Colorado, and being near your children is a big pull, but who knows whether they're going to be in Virginia forever. You may move there and find four years from now that they will move somewhere else because of a relocation or some other item. Now you're there and that's not where you would have wanted to be in the first place if they're not there.
But if you can build a life, what is it about being near the children that you want? That's essentially what we're trying to get here, Penny, is for you and Rob, when you have this pull to move closer to the kids, what is it that that is going to provide you? Get some clarity on that, and that might help you navigate this decision more.
Is it that you want to go to lunch every day with your daughter? Or you want, if they, I don't know if you have grandchildren, but you want to be someone that watches your grandchildren once or twice a week? Or be there for all of the sports and be integrated in their life for a season? Or is it that you just feel safer having access to them?
Tease out what it is you actually want by being close to your kids. in Virginia, and then maybe do a mind map and explore other ways that you can achieve those things without moving. Not that you're going to pursue one of those, but maybe moving is the right decision. But if you start to explore, what do I really want by being close to them? Then what are other ways that I can get that? That will help you make sense of this and get to a better judgment call. My mother-in-law, she's going up to Minnesota for two months to be with her son, who's always lived remote. Kevin and his family come down maybe two, three times a year in addition to her going up there so they have that closeness and they do FaceTime all the time. Maybe that is the solution.
Like with us in moving to Colorado, which is really a slow relocation because of a consideration that you brought up, Penny is, and this is related to the audio question coming is my mother-in-law lives here and our kids live here and we don't want to relocate.
Now, when my mother-in-law passes, and that could be 10 years from now, the current plan is to permanently relocate to Colorado, but that could change. Our kids, like Spencer, who is an ICU nurse at the local hospital here, has a serious girlfriend and he's already exploring jobs that are close to her and she lives an hour and a half away, so they're going to move based off of where they find their spouse wise and where their career takes them. But for us, we feel close enough to our kids that, hey, if we move to Colorado, we will maintain that closeness. But I would start to explore it that way. Most of these decisions are made in two ways. There may be consequences and costs. and friction in life, but you can undo them.
As an aside, I just had this happen with a client who had a big health scare about a year ago and thankfully is on the mend. Since then, she has made decisions really quickly, sometimes not in her best interest. She always was that way a little bit in that she's like chasing a chicken around, always just all over the place, hard to keep track of where she is. Unbeknownst to me, she put her house on the market where she's lived for years and bought a house. in another city, maybe 40 miles away, moved to that house. Her house hadn’t sold yet and after a month or so in that house, she woke up and said, what am I doing? I don't want to live here. This is when she calls me, after the fact. Now, she is going to put that house on sale and go back to the house that hasn't sold yet where she was originally. She's undoing that. She called me to negotiate with a realtor on getting the commission lowered on the sale of the house that she just bought and then she's going to move back, regretting the decision that she made. She did that too quickly, obviously. This is a legacy client I've had for years, so not quite in our processes as good as she could be. But my point is, Penny, it's going to cost her some money, right, to undo. Lord knows what she'll be able to sell that house for. Hopefully she'll get her money out. She may take a loss on that, but she'll get back to her house. It's undoable. It's a two-way street.
Just trust yourself and focus on what it is you really want to accomplish, and I'm sure you'll make a judgment call you're comfortable with.
HOW TO DECIDE WHEN AND HOW TO RELOCATE?
Our next question is related to this. It's an audio question on relocation from Cindy.
Cindy: Hello, Roger. This is Cindy.
I had a question about your recent purchase of your town home in Colorado and your move, and I'm sorry if you already mentioned this on your podcast and I missed it, but I was curious from the personal point of view, how you and your wife made the decision to leave a place that you've lived for a long time and raised your kids and the emotional and psychological side of picking up and changing.
I know a lot of people that move cross country or they move to a new town when they start retirement and I was just curious how that worked for you and your family.
Thank you so much.
Roger: Thanks for the question, Cindy. And you make a really good point about severing those ties. I'd be interested in anyone having comments that has walked this journey and how you navigated this. You can go to askroger.me and share that. Maybe I can share that in a future episode.
For us, it's a slow-moving relocation. So, Cindy, we haven't relocated precisely for the reason that you mentioned, specifically my mother-in-law, who lost her husband last year, lives about a mile away, very close to my wife and I, and we want to be here to help her live independently and be there for. We helped her, you know, get her tire patched yesterday because she had a flat tire. She's 81 and just needs somebody around. So, we are not quite relocated because we want to honor that. With our children, when that honor of helping her is over, we will move. This is the plan now. Our children, as I talked about, they're starting to go their different ways and we'll create ways to maintain connection.
Now, one thing that is helping us that might be harder for others is we don't have a tight knit community of friends here. We don't have a church community. We don't have people we go hang out with all the time, maybe one or two couples, but not something very robust that I could see how that would make it harder. But hopefully others will have some comments that they can share to help you in your journey.
HOW TO PAY THE TAX FROM MY ROTH CONVERSIONS?
Our next question comes from Joe related to Roth conversions and inherited IRAs.
Joe says,
"I retired last year and I'm rocking retirement."
Awesome to hear Joe. Thanks for being a large part of that.
"I started by listening to every episode of the podcast and taking the Rock Retirement Club masterclass. Thank you. Thank you. Thank you."
You're welcome, welcome, welcome.
"My question is this. I have several small inherited IRAs from my father who passed away last year. Is it wise to use my required withdrawals from these accounts to pay the tax on partial Roth conversions for my personal rollover IRA, which I plan to begin doing this year, or is it wiser to pay the tax from the interest and dividends from my brokerage account? I am in the 22 percent tax bracket.
So, the central question is, how do I pay the taxes for these conversions?"
Joe, I don't think it matters. I think whether you use the required minimum distributions from the inherited IRAs or you use the interest and dividends from your after-tax investments, it's pretty equivalent because both are going to be taxable events that are going to happen either way.
The key thing here is that you have some different things going on. You're going to have withdrawals from your inherited IRAs, which are required, but you could do more. You're going to have these interests and dividends, and then we're going to add on Roth conversions. Be mindful of your tax brackets. You're in the 22 percent bracket, so you go over a little bit, you'll be in the 24 percent bracket. But from a practical matter, using your inherited withdrawals or interest and dividends doesn't matter.
IS THE IRMAA SURCHARGE CALCULATED EACH YEAR?
Alright, our next question is another IRMAAA question, which is the Medicare surcharge. They just keep coming. This is like Roth conversion questions.
This question is,
"Is your modified adjusted gross income reviewed every year from age 63 and beyond for Medicare IRMAA or just the year you apply? I'm 64 and want to sell my owner occupied duplex this year and retire. Should I wait until 2025 and sell and retire early in order to avoid taxes in terms of IRMAA surcharges?
I'm single and I understand I'll have to pay taxes on the business part of it."
Well, the answer is it's actually age 63 because at 65, when you apply for Medicare or right before 65, they're going to look at your tax return two years prior. But the short answer here is, this calculation happens every single year to determine your IRMAA surcharge threshold for the rest of your life.
So, when you are 70, they're going to look at your tax return two years prior to get an understanding of your modified adjusted gross income in order to determine whether you are subject to any IRMAA surcharges. This is an annual calculation that will happen in the background, so you want to be mindful of that as you do Roth conversions and do other types of transactions to understand the impact of IRMAA two years down the road.
HOW TO CREATE MY RETIREMENT PAYCHECK? BY WITHDRAWING A LUMP SUM OR SMALLER AMOUNTS EACH MONTH?
Next question comes from an implementation question. So, this is more optimization from Brian.
"Hey Roger, love your podcast. I've listened to all the episodes from the beginning."
God bless you, sir.
"My question is, when I begin to withdraw money from my 401k from my base great life, Should I withdraw a lump sum at the start of the year for the year's spending or withdraw several times throughout the year?
Thanks in advance."
Brian, either way is fine. Let's assume you need 100,000 for 2025. At the beginning of 2025, or the end of 2024, you could take out your 100,000 and you might do it in one tax year or the other, depending on tax planning, and then put that into a high yield money market and use that as your payroll reserve.
The advantage of that is just logistics, you get it done, you know the tax bill, and you have the money available in after tax assets, so you can move quickly. The disadvantage of that, and this is one reason why you might want to do this quarterly or semiannually, is once you take out that 100,000, that is a taxable event.
Whereas if you take it out quarter by quarter, 25, 000 each quarter, you may get to six months in the year and get a windfall from your great aunt and not need to take the money out and that can help you not take the money out, which means you only have 50, 000 of withdrawals rather than 100,000. So, it maintains some flexibility on what your actual income is for the year by staggering it.
Either way is fine, but one is going to give you optionality to have all the money up front and be able to move quickly. The other is going to give you optionality to control your tax bill by increasing or decreasing withdrawals because your life changed to get another good example outside the aunt would be, let's assume that 100,000 that you needed in 2025 you assumed. that you needed 30, 000 of that for a new car and then three months later, you decide you don't want to buy the new car this year. Well, if you've already taken the money out, you've already realized the income, you can't undo that easily from a tax perspective. So those are some considerations as you think about this implementation.
STANDARD DEVIATION AND CREATING AN N OF 1
Next comes from Al with a little bit of feedback on me using statistical examples.
"Hey, Roger,
I recently listened to an episode and have two comments. You explain the concept of standard deviation using the temperature of San Diego and Dallas. I have taught statistics many times and I think that example is better than I've ever used.
It's perfectly capturing the essential nature of standard deviation."
Nice. Well, thanks, Al.
" Second comment is I think the episode. with Dr. Bobby, we were talking about N of 1. This is a statistical notion. If you have 365 days of temperatures from San Diego, the sample size is succinctly described as N equal 365.
Roger: What Bobby means when he says N of one, is the sample size, one, N equal one, because it involves just you. So, the next time he says N of 1, just think N equal 1, meaning that I am the only person in the sample doing this test on myself."
Great point, Al. Thanks for the clarification. It's good not to be too loose with language.
This N of 1, N equal 1, is important for you, not just in thinking about statistical terms, But when you're building your retirement plan, your retirement plan of record, what's your vision? Is it feasible? How do I make it resilient? How do I optimize it? This is an N of 1 exercise. You are one sample.
How your neighbor Bob is doing it, how Roger's doing it for another client over there, or another RRC er that's explaining how they do it, or an article saying this is the way it's supposed to be done. Those things can inform your study, but they should not dictate your study. Your one iteration of life is unique to you, and your plan is unique to you.
That's one reason why we have this agile structure, which helps you think through it in an organized way. So, the thing that is homogeneous in my view is the structure for creating a plan of record and how to navigate making organized decisions so that once you have that structure, your individual plan, you make judgment calls based on your life and preferences.
That's really important. Because we get into, as we'll see, things like heuristics 4 percent rule, always use safety first. Those don't apply to everybody. You build your plan. You're N of one.
Now let's go set a smart sprint.
TODAY’S SMART SPRINT SEGMENT
On your marks, get set.
Now it's time to take a baby step you can take in the next seven days to not just rock retirement, but rock life.
All right. In the next seven days, we need to start building our smart sprint muscles back. We're getting towards the end of the year, second half of the year, where we're going to have a lot more planning tasks to deal with, and we've been taking a few weeks off of any tasks so let's start building some muscles back.
The muscle I want you to build first is remembering what your intent is. This retirement planning exercise that you're going through and learning on shows like this and other sources Is a means to an end which is to create a great life and we only have so much time. It's okay to go down intellectual rabbit holes, but we need to make sure the task at hand is creating a retirement plan and then executing on it so you can have a great life. That's the point. So become self-aware of when you're starting to go down rabbit holes that may not actually get you further Towards your goal of creating a great life
As always, it's great to hang out with you on the show. This is a little bit pre-recorded. I'm actually hanging out in Nags Head, North Carolina this week with a high school friend and his family. Got my kids and Shauna here and we're having a grand old time. I'm probably in the pool playing pool volleyball right at this moment.
Hopefully you're doing something fun too and staying cool.
The opinions voiced in this podcast are for general information only and not intended to provide specific advice or recommendations for any individual. All performance reference is historical and does not guarantee future results. All indices are unmanaged and cannot be invested in directly. Make sure you consult your legal, tax, or financial advisor before making any decisions.