You Don’t Have a Retirement Plan. You Have a Junk Drawer.

By: J. Barry Watts, Expert Tax Strategist and Retirement Designer

Every house has one. Ours is in the kitchen, same as yours.

When you and I were children, the junk drawer held a screwdriver and maybe the cord to a plug-in coffee pot that had come unplugged at both ends. That was the extent of it. Today it holds nine power cords, not one of them labeled, and nobody alive can tell you which cord belongs to which device. Somebody ought to get rich solving that problem.

I see the financial version of that drawer nearly every week. A man sets three cardboard boxes on my conference table — statements, policies, a trust his lawyer drew up in 2009, the annuity his brother-in-law sold him — and tells me, with a straight face, that this is his retirement plan.

It is not a plan. It is a drawer. And the difference between the two is the difference between hoping your retirement works and knowing it will.

The Problem Isn’t the Problem

Watching somebody try to plan a retirement they don’t understand is a miserable thing. I do this every day, so I see it clearly — but the person across the table has never done it once, and as I lay out the steps I can watch the paralysis settle in behind their eyes. Then comes the sentence I hear more than any other.

“Well, Barry, I want to think about that.”

Good. I think you should. In fact, let’s think about it together — so tell me specifically what you’d like to think about.

They almost never have an answer. Not because they aren’t smart, and not because they aren’t trying. A friend of mine who works as a business coach put his finger on it years ago and I’ve never gotten the line out of my head. He said the problem isn’t the problem; the problem is you don’t know how to think about the problem.

That is analysis paralysis in one sentence, and the cure is not more thinking. The cure is a sequence. You take the plan one step at a time and ask a single question at each one: does this step make sense, and is it right? If it is, check it off — it has been dealt with. Move to the next. Otherwise you’ll stand at that drawer for the rest of your life sorting cords, and never get to the retirement you actually wanted.

What Gets You to Retirement Will Not Get You Through It

Saving for retirement and spending in retirement are two entirely different activities, and the habits that carried you through the first will not carry you through the second.

I grew up on a dairy farm down in Stone County, on the Arkansas line, so let me put it the way I actually understand it. You take a heifer calf and you grow her. You grow her and you grow her and you grow her. Every decision for years is about growth. Then one morning it is no longer about growing her at all. She goes into the milking string, and from that day forward the whole enterprise is about what she produces — every day, reliably, for the rest of her working life.

Your retirement account is that heifer. You spent forty years growing her, and there comes a day when it is time to start milking the retirement cow. Done properly, the withdrawal shouldn’t erode your nest egg — but most people have never been shown how it’s done properly, because it is the first time they have ever retired. That is why they aren’t confident, and why a good many of them keep driving to work year after year for no reason other than that nobody ever handed them the numbers.

Six Steps, One Staircase

The core of what we do is a process we call the six steps to retirement confidence, and notice what the whole thing aims at. Not returns. Not products. Confidence.

Even confident people get afraid approaching retirement, and they should. You are giving up a check that has arrived every two weeks for forty years and trading it for no check at all beyond whatever Social Security or a pension sends. That produces real fear, and our job is to find out precisely what you’re afraid of and eliminate those things one at a time.

Picture a staircase climbing toward confidence.

The bottom step is income. How much do you need, how much will you have, where does it come from, and how much has to be manufactured out of your own investments? And does it hold all the way to age 100? Everything else rests on that step, which is why it sits on the ground.

The second step is tax-free or tax-minimized income. It is entirely possible for some families to sit in the zero percent bracket, and people assume that must mean those folks don’t have much. Nothing could be further from the truth — you can be quite wealthy, receive a substantial income, and receive a great deal of it tax free, if the structure was built for it. Where we can’t get a family all the way there, we get them to the lowest bracket available, because I don’t expect rates to be lower in the years ahead. When taxes rise, I would far rather climb from ten percent to fifteen than from twenty-four to thirty-five to forty-five.

The third step is principal protection. Some portion of everyone’s money ought to be protected — money a bad market cannot touch. How large that portion is, and which tools protect it, is your decision and not mine. Then, for whatever stays exposed, we work to smooth the ride, so you get a steadier passage across the waves instead of every peak and trough.

The fourth step is long-term care and Medicare planning. Medicare arrives at 65 and gets reviewed each year after. Long-term care is the one that frightens people, because most families have no protection and have concluded they can’t afford any. Conventionally, they’re right — but there are ways around that problem, and we put one in place for a family the very morning we taped this segment, arrangements that pay not only in a facility but for care delivered at home, and can do it tax free.

Notice what those steps have in common: every one is de-risking. We took the risk out of taxes, out of the market, out of health care costs.

The fifth step is legacy planning, and I choose that word deliberately over estate planning. Estate planning is the legal machinery — the will, the trust, the documents that move assets to your children or your church. That work matters. But there are things death cannot take and money cannot buy: the values and beliefs you hold, the ones you most want carried down to grandchildren you will never meet. Those transfer only if somebody plans for them to. Ask a room full of people whether they’d rather pass on the values or the money, and it isn’t close.

The sixth step is the strategy visit. Once a year we sit down and review the other five — assets, liquidity, income, growth, taxes, and the estate, because now and then an in-law becomes an outlaw and the documents have to change.

There was a boogeyman hiding in each of those first five steps. I could run out of money. I could overpay my taxes. I could lose my principal in a rough market. I could be bankrupted by a nursing home. I could leave my estate in such shape that the government takes a share on the way out. We kill them one at a time, and what’s left standing at the top of that staircase is a person who can finally relax.

Start With You, Not With Your Money

People are often surprised I don’t open by asking about their account balances. But the balance isn’t the question. The process starts with you.

Let me tell you what the process is not. It is not somebody steering you toward a product; if you feel one being pushed at you and you look deep enough, you’ll usually find a commission at the bottom of it. Nobody walks into a garage, studies the tools on the wall, and decides the trouble with the car must be a loose nut because there’s a wrench hanging up there. You describe the problem, and then the mechanic reaches for a tool. Products are tools. They come last, or not at all.

So I start by telling you we’re going to hire Norman Rockwell to paint everything you want in retirement, and your job is to say what goes in the painting. Ask a man flatly what he wants out of retirement and you’ll get nothing; ask him what Norman should paint and he’ll start talking. The best answer I ever got was four words: my suitcase, packed, by the door.

Then a second question. Suppose you and I are sitting here three years from today. What has to have happened in your life financially for you to feel satisfied with the progress you’ve made? People sit with that a moment, and then it comes: I need to know my income is secure. I’d like the remodel finished. I’d like this cancer treatment behind me. Now the benchmark for success belongs to you rather than to some index.

And then we come to numbers, starting with your sitting on the porch number — the amount that has to hit your bank account each month to cover the mortgage or the rent, the utilities, the taxes, the groceries, the fellow who mows the yard, and whatever it takes to keep the car on the road. If that feels impossible to produce out of thin air, get the checkbook: multiply what lands on payday by the number of paydays, do the same for your spouse, and ask whether you’re spending all of it or still saving some.

That number is where the plan starts, not where it ends, because life comes with items that never show up in a monthly average. Nobody buys a car out of it, so how often do you trade and what does that run now? Almost everyone travels, so a trip goes in as its own line. And I always ask about teeth and hearing aids, which sounds strange until you’ve watched it as often as I have. People appear in my office needing money in a hurry because their teeth all went bad at once, or because they can’t hear across the table and the hearing aids run several thousand dollars — and in five or six years it comes around again. I believe in a plan that can spend for teeth. Only once the cars and the trips and the teeth are in do we turn to Social Security, the pension, the rent house, and finally your investment accounts to see which dollars produce that income.

The Social Security Question of the Day

Here’s one we get constantly, and it usually arrives as a premise: since the average person collects about the same from Social Security no matter when they claim, why bother delaying?

The answer is hiding inside the question. No, you don’t get the same.

Your benefit is built around your full retirement age. For anyone born in 1960 or later, that age is 67 — sixty-seven is the new sixty-five, for those of us who grew up expecting to be finished at sixty-five. You may certainly claim as early as 62, but doing so costs you roughly thirty percent of your monthly benefit, permanently. The only sound reason I can think of to accept that haircut is that you have inside information about how long you’re going to live.

Here’s the part people rarely act on. Wait past full retirement age and your benefit grows about eight percent for every year you delay, up to 70. That’s three years — 68, 69, 70. I went to school down at Galena, so I have to hold my fingers up and count them out, but three times eight is twenty-four. Roughly twenty-four percent more in the check, every month, permanently locked in. If you’re planning to live to 100 — and we plan every client to 100 — waiting is worth real money.

There’s a second reason that matters at least as much, and it has nothing to do with you. When you die, your spouse steps into your benefit if yours is the larger one; they give up their own check and take yours. So the check you build isn’t only your income — it is the income of whoever survives you, for as long as they live. Careless claiming decisions walk away from tens of thousands of dollars, and a married couple has far more combinations to weigh than most people realize. That is worth an afternoon with somebody who does it for a living.

The Biggest Expense You Never Budgeted For

Most folks never give taxes the first thought until I bring them up. It’s the most common reaction I get from people who come through the classes I teach — it never once occurred to me this would be an issue.

Here is the truth, and I’d hang it on the wall if I could: your largest expense in retirement is going to be taxes. Get taxes wrong and very little else we do in the plan will matter. Ordinary retired people — not tycoons, nobody with an exotic situation — routinely turn out to be sitting on a great deal of avoidable lifetime tax, and all we did was show them how to pay it a different way.

And let me put down a fear I meet constantly: people believe whatever they already own has them locked in. It doesn’t. Very few financial decisions are truly irreversible. I helped a family replace an old, inefficiently designed insurance policy the same morning we recorded this, and it saves them a meaningful sum every year going forward. You shouldn’t merely be able to adjust — you should be adjusting, because the world around you keeps adjusting whether you do or not.

Do You Actually Need a Second Opinion?

I’ve never thought a second opinion was a bad idea. If you want to test whether you need one, don’t evaluate your advisor’s personality — evaluate the questions he has asked you and the work he has shown you.

Has he shown you how to avoid tax on your Social Security, or talked with you about moving money out of taxable accounts and into Roth accounts while conditions favor it? Here’s the big one: has he prepared a retirement income cash-flow projection for every single year of your retirement, so you can point at the page and say show me the year I turn 73? If nobody has handed you that, I’d like to know how you’re expected to retire with confidence. And has he shown you how your principal is protected when the market falls? Plenty of people tell me they’re protected — then I ask whether their account went down the last time the market went down, and they say yes, it did.

Much of what passes for advice in this business is money management and nothing more, because managing the money is how the advice gets paid for. The deeper questions, the ones that determine whether a retiree makes it, never get asked.

The Bottom Line

Strip away the staircase and the paintings and the dairy cows, and retirement planning comes down to three critical questions.

What do you want? That one deserves an hour on the porch with a cup of coffee and no phone in your hand. What do you have? That’s the boxes on the table, finally sorted into something legible. And then: what can we do with what you have to get you what you want? That’s the whole discipline — and if you can tell me the first two, I can help you build the plan that connects them.

Worrying is not a strategy. You can stand in the kitchen wringing your hands, drive to work another year because you still aren’t sure, and leave the drawer as it is. Or you can get a written plan — not a six-inch stack of paper, but a clear page for your income, a page for your taxes, a page for protecting your investments, a page for long-term care and Medicare, and a page for your legacy.

Empty the drawer. Label the cords. Then go sit on the porch because you want to, not because you’re afraid to do anything else.

Barry Watts is a retirement designer and tax strategist with WealthCare Retirement Solutions, the author of the book Watts on Wealth, and the host of a television program and radio show by the same name. Our YouTube channel is also called Watts on Wealth. If you are interested in listening to our podcast, it’s called The Truth about Taxes and Retirement and is available wherever you get your podcasts. Investment advisory services are offered through WealthCare Asset Management, LLC, an SEC registered investment advisor. Tax strategy, tax compliance, accounting, and insurance services are provided through its affiliate, WealthCare Tax Advisors, LLC. Remember: Investing involves risk, including the potential loss of principal, and past performance never guarantees future results. Any references to protection, safety, or lifetime income may refer to fixed insurance products. Insurance guarantees are backed by the financial strength and claims-paying ability of the issuing carrier. This article is for informational purposes only and should not be used as the basis for personal financial decisions without first consulting your personal qualified advisor. Case examples are illustrative of planning work performed for specific clients and are not a promise of similar results.

#RetirementPlanning #RetirementIncome #DistributionPlanning #DecumulationStrategy #WithdrawalStrategy #TaxEfficientWithdrawals #SocialSecurityOptimization #WhenToClaimSocialSecurity #SocialSecurityEarningsTest #ClaimingAtSixtyTwo #TaxPlanning #RetirementTaxes #RothIRA #RothConversion #Inflation #LongTermCarePlanning #RetirementConfidence #RetireWithConfidence #FinancialPlanning #EarlyRetirement #QuestionsFromOurViewers #WattsOnWealth #TruthAboutTaxesAndRetirement #BarryWatts #JBarryWatts #JamesBarryWatts #JeremyZickefoose #MattDean #JoeyLedford #WealthCare #WealthCareCorporation #WealthCareRetirementSolutions #Springfield417 #RetirementChecklist #SixStepsToRetirementConfidence #FinancialJunkDrawer #SittingOnThePorchNumber #WrittenRetirementPlan #IncomeToAgeOneHundred #PrincipalProtection #LegacyPlanning #NormanRockwellRetirement #MilkingTheRetirementCow #ThreeCriticalQuestions #FullRetirementAgeSixtySeven #DelayingUntilSeventy #SpousalSurvivorBenefit #SecondOpinionOnYourPlan #AnalysisParalysis #LifetimeTaxBill