YFP Wealth

You’ve Saved for Retirement…Now What?

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You’ve spent decades saving for retirement. Learn how to turn those assets into a sustainable paycheck while managing taxes, healthcare, and risk.

Episode Summary

Pharmacists typically spend decades focused on accumulating wealth for retirement. Saving consistently, investing wisely, and watching account balances grow become familiar habits. But what happens when it’s time to reverse course and start using those assets to fund your life?

In this episode of Scripted Wealth: Money & Meaning for Pharmacists, Tim & Tim explore one of the most overlooked areas of financial planning: turning retirement savings into a sustainable retirement paycheck. They discuss why the decumulation phase is often more complex than accumulation, how Social Security, taxes, healthcare costs, and asset location decisions impact retirement income, and why many retirees struggle emotionally with spending the money they’ve worked so hard to save.

Whether retirement is right around the corner or several decades in the future, understanding how your future paycheck will be built can help you make better decisions today and create more confidence for tomorrow.

What you’ll learn in this episode:

  • Why retirement income planning deserves as much attention as retirement savings
  • How asset location and tax diversification can help reduce future tax burdens and improve retirement flexibility
  • The role Social Security plays in creating a sustainable retirement paycheck and key factors that influence claiming decisions
  • Why healthcare and long-term care costs can significantly impact retirement spending needs
  • The emotional shift from saving and accumulating wealth to confidently spending and using it in retirement

Mentioned in Today’s Episode

Episode Transcript

[00:00:00] Accumulation can be kind of exciting. You see the account balances grow and hopefully compound and exponential on some level or time. But there’s an emotional side of spending down your accounts that feels a little bit more technical and on some level m- emotionally heavy. And, and I think some people even struggle with that spend down, whereas the saving, especially for the box checkers, like, the saving is, it’s kind of a dopamine hit there, right, on, on the accumulation of that.

Tim, a lot of pharmacists spend 30, maybe 40-plus years focused on the accumulation side of the retirement conversation, right? Saving, investing, maxing out accounts, hopefully watching those balances grow over time. But I think very few people stop along that way to ask, you know, how, how is this money that we’re accumulating, how is it actually going to turn into an income someday in retirement?

And the question we talked about on last week’s [00:01:00] episode was, “Am I on track?” And I think that question at some point naturally evolves to, “Okay, not only am I on track, but how do I actually use this money that I’ve been saving and investing, you know, throughout my career?” So I’m curious to hear, hear your thoughts as we kick off this conversation.

You know, why do you think there’s not as much love, not as much attention on the decumulation side, which is our conversation today, of retirement as there is on the accumulation side? It’s a great question, Tim. Like, I don’t, I don’t know if I know the answer to that. I think the first thing that probably pops into my head is, like, I think that there’s just, like, an over…

Like, there’s a focus just on, like, the destination of retirement. And I think it’s, um, you know, it’s kind of a spaghetti against the wall, especially as you get 5 to 10 years out. Like, you know, spaghetti against the wall in terms of, like, I’m just gonna save as much as I can to just different buckets and, and hope for the best.

Um, [00:02:00] so I, I do think it’s this preoccupation with like, “Hey, I wanna retire at 62 or 65, and, and I’m just, you know, sticking my head down and…” But I think, like, once you get there, I think a lot of people are like, “Okay, what do, what do I do?” Um, and you know, I think there’s probably also this kind of belief that, like, “Hey, with what I’ve saved and with Social Security, I think I’ll be okay.”

Um, which could be true. Um, may- maybe not, you know, and, and okay, you know, is okay, like, meeting my current lifestyle. I will say that, and I’ve s- I think I might have said this before, you know, you know, we, we believe very, very, uh, much so that, like, the, the CFP designation is a designation that if you are advising clients on, you know, comprehensive financial planning, it’s, it’s not a nice to have, it’s a must-have.

But I think even with the, with that designation, I- my belief is that it falls short in terms of the [00:03:00] retirement income perspective. I think it’s very much a designation that- Um, focuses on the accumulation phase and less so on, like, okay, now the paycheck turns off and I’m in retirement, what do I do?

Which is where the RICP comes, Retirement Income Certified Professional comes in. Um, so I look at the CFPs almost like this is, this is what’s needed kind of glober- globally general, but more of a emphasis on accumulation. I think that RICP is, uh, you know, the, the, the other side of the, you know, the, the phase of withdrawal or decumulation.

So, I think it’s a psychological thing, to answer your question, for an investor or saver or retiree, um, pre-retiree, I think. But it’s also, like, I just think how professionals are trained is that it doesn’t get as much of the hype. It’s like, all right, you, you have $2 million, and it’s like, now what? And I think the now what question, it’s almost like when we talk [00:04:00] about, when we talk to students in our efforts with YFP Gives and, you know, the education, and we talk about student loans, like that Monopoly money doesn’t come, become real inter- un- until you start seeing those payments due- Yeah

um, you know, on the horizon. So, I think it’s a little bit of that Yeah, and just to define the alphabet soup, right? So RICP, Retirement Income Certified Professional. Did I get that right? Yes. RICP? Okay. Um, yeah, I agree with you, and, and not having gone through the CFP, obviously I didn’t live it like y- you and other planners on our team have.

But just looking at the curriculum, it’s very much focused on the planning of the accumulation, you know, side of things. And I, I do think there’s a, an emotional piece here. I, you were alluding to that a bit, right? Accumulation can be kind of exciting. You see the account balances grow and hopefully compound and exponential on some level or time.

We’ll come back to this, but there’s an emotional side of spending down your accounts that feels a little bit more technical and [00:05:00] on some level emotionally heavy, and, and I think some people even struggle with that spend down. Whereas the saving, especially for the box checkers, like the saving is, it’s kind of a dopamine hit there, right, on, on the accumulation of that.

And for those that have been listening to our show from, for a while, we’ve talked about a more passive, uh, investing philosophy and, you know, you’ve said on the show before that, hey, long-term investing for many people should be as boring as, as watching paint dry. And so on, on some level at, at the risk of oversimplifying, you know, accumulation, I don’t want to say straightforward, but can be, you know, if we have a more passive investing approach, can be a little bit more straightforward, right?

We’re trying to save consistently and, and do that, you know, each and every month, each and every year over a long period of time, and we’re, we’re trying to stay disciplined in that approach. However, the distribution side of it, I think there’s a lot more complexity, uh, you know, that’s involved. So Tim, I’m thinking about things like taxes and, and timing and various [00:06:00] buckets and accounts, right?

So the, the transition from the accumulation to the, the decumulation does add a layer of complexity. Again, I’m not, I’m not suggesting the accumulation is, is simple, but it feels like there’s more nuance and complexity on the decumulation side. W- would you agree with that? I think so. I think there’s a lot more moving pieces, and I think, I think now more than ever, you’re, you’re kind of out on an island, you know?

And what I mean by that is, like, you know, when- A lot, a lot of baby boomers, um, have, have pensions, um, or even generations before that, right? And when the 401came into vogue, like, the pension became extinct. So the big reason that that’s important is that it shifted the onus of risk and retirement planning from the employer to the employee.

But then the, it’s not just the accumulation phase, it’s like now you have that pot of money and the employer’s not, you know, calculating a benefit. You have to figure that out. [00:07:00] So that, that’s, I think the, the major backdrop and shift that’s happened. And then because of that, like, you know, we, we talk about, um…

We’ve talked about the tax bomb, so to kind of, to kind of jump to another idea here, like we’ve, we’ve talked ta- about a tax bomb, again, related to forgiveness and, and, and student loan planning. But for a lot of retire- or a lot of retirees, you could see a tax bomb with regard to your retirement accounts because you might be 100%, 90% in a traditional, um, 401, a traditional 457, that type of thing.

So you’re being forced to take those RMDs at age 72, and that’s a, that’s forcing you to climb the tax bracket where you don’t want to. So things like that are kind of ancillary things that you have to think about. So your point about you can kind of go on autopilot and just fill these buckets, it- that’s true, but it could have consequences in retirement if you don’t do that [00:08:00] correctly in accumulation.

So one of the strategies that we look at is tax location, asset location is another word for that, to make sure that the buckets of money that we have are diverse in a sense of pre-tax, Roth, and taxable. So I think more than, you know, Social Security, you know, claiming, um, you know, is nuanced. You know, we- healthcare, you know, a lot of, a lot of people believe that like, “Oh, Medicare will take care of you.”

That’s not the ca- or you know, that’s not the case. Um, long-term care expenses, we’re living longer. So now more than ever, all of these things kind of converge, and we’re left to kind of figure this out, and I would argue that we’re just not trained to kind of be the CFO of our situation in an accumulation phase, but I think even more so in a decumulation phase, in a withdrawal phase.

And that’s, that’s, I think what, you know, we can wing it, of course, yeah, and hopefully we, we get by. Maybe we have to tighten the belt because, you know, [00:09:00] we’re just not sure what to do or… But I, I, I think it’s important to kind of understand all of the different pieces of this and how they, how they put, are put together Yeah.

I, I’m glad you said what you just said, ’cause I think there’s an important distinction here between g- good to great, right? When we think about, um, someone who’s saved perhaps several million dollars, like, i- if you have a few million dollars saved, unless your, your expenses are outrageous on a month-to-month basis and you’re eventually drawing from Social Security, like, you’re gonna be okay, right, on some level.

But what’s the difference between okay and optimize, or the difference between good and great? That’s where the nuances really come in, in terms of asset location, tax decisions, uh, healthcare decisions, making sure we’re evaluating the risks around the, the retirement paycheck. And, and what we’re really talking about here, just to paint the picture before we go further, is the way you’ve described this before, Tim, which I love, is, is the concept of retirement paycheck, right?

So most of our, our listeners [00:10:00] Outside of maybe the, the entrepreneurs that are out there, you know, listening, they’re, they’re used to receiving a paycheck from their employer, and that, that will happen for 30 to 40 years. Sure, different employers over time, but you know, once a month, tw- twice a month, we, we get a paycheck, and then we budget and we plan accordingly.

Well, now what’s in front of us as we transition into retirement is, you know, we’ve got to move from that employer providing that paycheck to us producing that paycheck, and we’ve got several buckets that we’re gonna be pulling from. So you mentioned a few, right? Traditional accounts, Roth accounts, brokerage accounts.

Typically something like home equity, you know, might be in the decision. We’ve got Social Security. We might have a pension. We might have an annuity. We might have real estate. We might have business equity. We have all these buckets, and we’re trying to figure out between all these buckets, and let’s say somebody’s net worth is $3 million, $4 million, $5 million, where does that $3 million, $4 million or $5 million live?

And then based on where that lives, based on our expenses, based on Social Security decisions, based on healthcare decisions, all these [00:11:00] different factors, we then need to figure out how to pay ourselves a monthly paycheck or whatever frequency, and then how that’s going to adjust, uh, over time, and in what order we’re drawing down from those buckets.

And what I heard you say, and I want to spend a little bit more time on this, is that asset location, where your assets are located, doesn’t just matter when you’re in retirement, right? So while you’re in your accumulation phase, of course, where your assets end up are because of where you put your assets during accumulation.

And so are there planning opportunities, are there adjustments that could be made during accumulation to optimize our situation from an asset location, tax location in retirement? So let me get out of the textbook for a minute, Tim, and just give my personal situation, right? So I worked for, uh, two state universities here in Ohio for, uh, over a decade.

Uh, was contributing money to, uh, a 401, so think of that as the, the 401equivalent on, on the state [00:12:00] university side of things. When I left that work, I rolled all that over into a traditional IRA, and if you look at my asset pie, if we put the business aside for a moment, if you look at the asset pie, right, it’s very heavy on the traditional side, and we’ve got some Roth accounts, we’ve got some HSA accounts, we’ve got brokerage accounts, uh, but very heavy on the traditional side.

So here I am in my early 40s, and the nest egg calculation might look good, or the retirement calculator, how much is enough, looks good, but the question behind that is what potentially might be able to be done from an asset location to be able to balance out that traditional side a little bit further.

So c- can you just add some color to that? Yeah, so, so to your point, you know, we’ll just use round numbers. You might have $1 million in a, in a, you know, a rollover IRA, you know, that’s, that’s pre-tax. But if we assume a 25% tax bracket between what the federal government takes and the state of Ohio, whatever that is, like, you don’t have a million dollars, you have [00:13:00] $750,000.

The, the danger that you have, and for the… in a… we see this quite a bit, is when you get to be a certain age in retirement, the IRS says, “Hey, Tim, remember all those years that we allowed you to, um, grow that money tax-free? Now you’re age 72 and we are gonna force you to distribute an amount of that, uh, from that account every year.”

Right? So they’ll look at the balance, they’ll, they’ll look at a, uh, a table, and they’ll say, “Okay, this year you have to, you have to distribute $100,000 of that.” The problem with that forced distribution, these are called required minimum distributions, is that you have no control over the, the tax on that.

So, like, if that pushes you into a 24% tax brack- federal tax bracket, you’re paying more tax than if we were to just do that over time and get that into the Roth bucket, right? ‘Cause the Roth, there are no RMDs. So that’s the hidden tax bomb, is that they’re [00:14:00] forcing your hand to distribute that, which means you’re climbing the, the, the tax ladder.

And if, with a little bit of planning, we could say, “Okay, instead of paying that at the 24%-” Yeah. “… maybe we can pay that at the 12% or even the 22% on our own terms.” So that’s part of the danger, right? And yeah, to, to kind of go back to your point, you know, in the accumulation phase, the, the paycheck is what’s doing the heavy lifting for you.

You know? Yeah. You’re, you’re climbing, you’re earning, you’re saving, you’re investing, you’re, you’re building your wealth. And with, in the accumulation phase, especially, you know, early to mid into that phase, like- Mistakes can be corrected with time, future earnings. I can always earn more, right? Um, continued contributions.

And when that shifts to the withdrawal phase, a decumulation, um, you know, the volatility, which could have been an employer or just your ability to work, kind of shifts to, like, the markets, um, and how [00:15:00] much I can safely spend and, and draw down. So when… But if you overlay, like, what the government is forcing you to do because of these require- it, it can just be very inefficient, um, with regard to, um, how you’re spending this down and, you know, obviously we’re talking about some of the emotional sides, you know, the market volatility, sequence risk is at play.

Yeah. So you don’t really have a reset button that like, “Hey, I can always work longer,” um, you know, “I can always do more.” You’re kind of, you know, you’re 68, you’re 70 years old, like, maybe that’s not a mis- you know, a, a thing that you can do. I think the purpose of this, of these types of episodes is to shine a light further on down the road to get people to start thinking about this, because it just doesn’t have…

It’s like- Yeah … it’s the retirement number. It’s, “Hey, you’re gonna retire at 65.” It’s, you know, and, and it’s just, it’s, it’s not necessarily you, you reach that number or you reach that age and everything is, like, easy. It’s, it’s not. Yeah, and on our previous episode, we [00:16:00] were talking about expected net worth, and we’ll link to that in the show notes if people didn’t catch that.

And you gave some general rules of thumb based on age of where someone’s expected net worth, you know, might be, not for specific planning purposes, but just to get a general feel of, “Hey, I’m a, I’m a 50-year-old pharmacist,” like, you know, what, what might that mean quantitatively on track from a net worth standpoint, right?

Right. That’s the intent of those calculations. But as you articulated well in that episode, where, where those assets live is a really important secondary conversation. Um, and for those that are nearing retirement, obviously that’s gonna then be focused on, sure, maybe there’s some adjustments to be made, but in what order are we gonna distribute and how are we gonna optimize that?

For those that are listening in their mid-career, to your point and my situation, what could we be doing now from a planning standpoint to optimize for 20 years into the future? And if you go back to my example in the required minimum distributions, not, not only is there not a control on the tax standpoint, but there’s not a control on whether you need those funds or not.

They’re getting distributed and [00:17:00] they’re getting taxed. So, you know, let’s say that for whatever situation, which would be a good problem to have, but it’s still an in- inefficient one, that, you know, what, what if I don’t need that income in that year because of either other assets or, you know, hopefully I’m still healthy enough to be able to work or do other things?

Like, either way, that money’s getting pushed and you’re getting taxed, right? Uh, and it can’t stay, can’t stay invested and it can’t stay compounding or accumulating, so… Yeah, and it, you know, if you can always reinvest it, you can always put it into a savings account- Yeah, that’s right … you know, and- That’s right

and buffer. So that, those are possibilities. It’s just that, you know, if we were to flip the script and say 100% of your dollars are in Roth accounts, um, which there’s risk to that as well, but let’s say 100% of, you know, that million dollars, you know, that you- Yeah … theoretically have is in a Roth, the government’s already taken their bite of the apple, so they’re like, “We don’t c- like, you don’t have to distribute that.”

There’s no RMDs, and that million dollars is actually your million [00:18:00] dollars. Now, the risk of Of paying the tax upfront and then allow it to grow tax-free is that, you know, if you were to decide to move to Florida or Texas where there’s no state income tax, you’re paying state income tax in Ohio, um, on the front end, but then your…

So your tax bracket could be lower. And there is a chance, although I, I think it’s a very marginal chance, that, you know, you pay, let’s say, let’s say your effective rate is 20% this, you know, today, it could be lower in the future. Now, I don’t think that is, is with the way the government is spending and all that kind of stuff, but, like, it, that could happen is that, you know, actually, when you go to retire or withdraw that, maybe your effective rate is 15%, so you paid a 5% premium, um, tax-wise where you, you could have spent.

So there’s uncertainty there. You know, I would, I kinda believe that taxes are gonna go up in the future, and I’d rather just have control of the flow of money out of my [00:19:00] investments account, investment account. Now, that’s not to say, like, that, that it should be 100%. Now, there is, there are some books out there that says, like, you know, pay 0%, um, you know, uh, tax, and then it basically advocates to get everything in the Roth, but there’s risk in, in that strategy as well.

So, um, there’s just a lot of moving pieces Yeah, and then some of the other wrinkles I’m thinking about is, you know, often, maybe I’m speaking for myself and, and projecting this onto others, but, but I think often people that are in the midst of their working careers think of retirement as this, “I’m going from full-time to no time.”

And that might be the case, but I think for a lot of pharmacists, one of the unique aspects of our industry is that there is a lot of PRN or part-time work available. And so that significantly would have an impact on building your retirement paycheck if you’re able to, you know, pick up part-time or have the option to.

So one of the things you, you’ve talked about before on the show, sequence of return risk, market goes down, we’re for- forced to pull assets out of our portfolio. But if I have an option for [00:20:00] part-time work to mitigate the negative impact of that, and we have that lever to pull if we need it, that’s gonna be important, right?

When we’re building the, the retirement paycheck. So just so, so many different details to be thinking about, uh, a- as we’re saving and building our assets in accumulation, but also beginning to think about how we’re gonna build that paycheck in retirement. I, I do wanna talk about Social Security and healthcare here for a moment ’cause I, I think there’s a lot to consider, and we’re not gonna go in the weeds on, on either one, uh, except to mention the importance of them in the retirement income ’cause they, they are so significant.

And we did cover Social Security common mistakes before, episodes 294, 295, a few years back. So we’ll, we’ll link to those in the show notes. But Tim, for, for many people, you know, if we think about just general statistics, Americans nationwide, Social Security really does become the foundation of the retirement paycheck, right?

Yeah, it does. Um, obviously the higher you [00:21:00] are income-wise, and you know, I would say most pharmacists are gonna be in the top 10% at least, um, of, of household income in the United States. The higher you climb that ladder, the lower the percentage is. Yeah. Um, you know, if you’re, if you’re making, you know, 40 or 50 grand, it could be 100% of what your, you know, what your paycheck is in retirement.

But that doesn’t necessarily mitigate, you know, the, the, the decision from a Social Security perspective can be a six or seven-figure decision. So you know, I recently gave a, you know, a, a webinar and, you know, I was kind of listing some of my observations with Social Security. I, I think, you know, one of the things we hear is like, “It’s not gonna be there.”

You know, if I’m, if I’m in my 40s, you know, it’s not gonna be there in 20 years. It… I think it’ll be there. It’s, it’s definitely one of those things, unfortunately- We’re gonna be in real trouble as a country- Yeah … if there’s no Social Security. Yeah, for sure. Yeah. Yeah. So, um, it is one of those things where I think it’s, it’s too big to fail, but it will change, and I think, I think it’ll change in terms of- Maybe a lesser [00:22:00] benefit later, you know?

So you might, you know, it, it might be where you can’t claim Social Security at 62. Maybe the first time you can claim it is 64. Um, you know, maybe, you know, maybe they extend the credits on the back end, so, like, you can deli- get delayed credits at 70, maybe they’ll extend that back out to 72. Um, so I think…

And then I think also tax, you know, the tax, how Social Security’s tax will change, too. Um, I think more of the benefit will be taxed. Um, I, I think the other thing, too, is that, you know, I think that retirees us- um, often underestimate how long they’re gonna live. Um- Yeah, longevity. Mm-hmm. I think that they also sometimes can look at this in a silo.

So if we look at you and Jess, you know, you might say like, “Hey, you know, my family doesn’t live long, so I’m gonna re- I’m gonna, I’m gonna claim it as early as possible.” But that, um, might not necessarily be the, the best thing. Like, you have to look at this as a household, because when one spouse dies, the other one gets the higher of the remaining [00:23:00] benefit, right?

So spousal income impli- implications are really, really important for this. Um, and I think just people underestimate the permanence of the decision, meaning like, it’s not like Medicare or some of the other things that you have to decide throughout retirement. This is kind of a one and done and very, it, with very few exceptions.

So once you start, once you c- start your c- you know, claim your benefit, it’s really hard to unwind that. Um, and it, it can, it can lead to permanent, permanent loss in terms of the, um, the, the benefit that you receive. And, you know, I, I, I also think that the People underestimate the importance of an inflation protected, um, income stream.

So there’s no other- Like your Social Security. Right, right. So every year the government says, “Hey, you know, your benefit’s gonna go up 2.9%.” You know, a few years ago it was n- it was north of 8% because we had, you know, wild inflation. Everything else, you’re kind of [00:24:00] losing your, your s- your spending power. Um, you know, obviously if you’re invested, that’s part of the, the beauty of investing is, is to keep ahead of tax and inflation.

But, you know, that, that is one of the most powerful things. So even f- even though pharmacists for the most part it’ll be, uh, you know, a third of their paycheck, um, you know, 40% of their paycheck or maybe somewhere in there, that’s still significant. And if that’s inflation protected, it just allows your, um, your traditional portfolio to, to grow, um, and, and be protected if, if, if a good part of, like, what you need is, is coming from the, the, the Social Security benefit.

Yeah, I think a lot of pieces here for, for folks to think about, right? The t- the timing decision is the one that I think gets all the, the headlines for good reasons, but, you know, you talked about longevity, you talked about spousal considerations, uh, thinking about this as a household, um, what [00:25:00] portion this will make up of the, the broader retirement portfolio.

So a, a lot of pieces to be thinking about. And I, I, I do think one of the things that makes this challenging is from a planning perspective of someone who even, say, our phase of life, early 40s. You know, how… Let me ask you, how are, how are you thinking about Social Security? So we’re still, you know, 30 years away, right, from a, a potential, uh, withdrawal if we take a delayed, delayed benefit, and you’re trying to do retirement check projections and so forth.

Is it, is it you assume a zero ’cause it’s so far away and there’s so many question marks? Or you look at the current benefit and you say, “Eh, I think there’s gonna be some changes,” as you talked about, and so to be conservative I’m gonna assume half or, or what it would be. What, what do you think? I, I, I think honestly the way that I think about Social Security, um, for me now is claim at 70 I don’t really think of it in terms of percentages.

I think of it in terms of, um, just maximizing the [00:26:00] benefit for lifetime income, which right now the system, you know, you can claim as early as 62, and, and you can- you take a significant haircut on your benefit because most people’s full retirement age will be 65, 66, somewhere in that range. Um, but if you delay to 70, then you get, you know, every, every year d- you, uh, delay past your full retirement age, you get a 7 to 8% increase when you do, when you do- Yep

claim. So for me, when I, when I look at this, I think of it as, “Hey, let…” E- even if I retire at 65, for those first five years of my retirement, I’m gonna figure it out myself. So that could be, that could be where I am, um, maybe I’m working part-times, maybe I’m the old guy around, you know, YFP, um, still collecting some type of, of salary.

Sh- shaking your cane. Shaking my cane. Yeah. Waving my fist at the clouds. Um, it could be where, again, I’m just leaning on my traditional portfolio a little bit, knowing that when [00:27:00] that, when that age 70 rolls around, then I can take a little bit of a breather because I have that money coming in. And it could also be, you know, using another, uh, tool that we’ve talked about a bit is, um, an annuity, and maybe I, maybe I buy an i- you know, an, an annuity for period certain, meaning from 65 to 60 to, to 70.

You know, “Here, insurance company, here’s X amount of dollars. I need a paycheck for five years.” It’s a little bit of a dent into my portfolio, but not terrible. And then, and then I think those w- those are the way, that’s what, how I’m framing it in my mind. Um, it’s less so about, um, a percentage or the actual dollar benefit and just knowing, knowing what I know about the system, in most cases, even if I were not to live very long, Shay will probably live very long.

She’s very healthy and active and things like that. And if my benefit is higher, um, which may or may not be the case, but if it is, then I would want her to [00:28:00] have that, you know, when I’m, when I’m gone. So that’s how I’m framing it in my mind more so than, you know, the dollar amount or the percentage of what I, what we actually need.

Yeah, to think of it off the top of my head, I want to say it’s like 305, 306, something like that, when we did the annuity episode. So we’ll, we’ll link to that one in the show note as well. De- debunking some of the myths around annuities, where it may fit, where it may not, different types of annuities, uh, thinking about the decision to buy, does it make sense, et cetera.

So check that out in the show notes. Tim, I want to briefly talk about healthcare. You, you already said this earlier in the show, you know, common, common misunderstanding out there is that Medicare covers all healthcare expenses and that it covers nursing home and long-term care costs, which is not true.

Um, and therefore, if not true, we need to be thinking about the healthcare expense side of things as we’re building our, our, uh, savings and accumulation, and then also how we’re going to fund those in, in decumulation. And let me tee this up with one more thing. On last week’s episode, you talked about [00:29:00] a cognitive bias where, you know, we can look back a period of time and recognize that, hey, I’m different from where I was five years ago.

Could be my health, family situation, all different types of things. And so if we’re in our 40s or 50s, and hopefully we’re relatively healthy, it can be difficult to paint a picture of our 70s or 80s where there might be significant healthcare expenses. It’s, it’s just hard to visualize, right? Yeah. It, it really is.

And again, I think, I think the best way to do it is to kind of put yourself in, you know, if, if you’re You know, if your parents are 30 years older than you, like that’s, you know, envision yourself. Um, I had an interesting conversation with my parents who are, who are in their 70s, my dad turns 80 this year, um, where they’re starting to like acknowledge that, you know, when they retired to Florida a lot of…

They were kind of the younger crew, and now they’re not. Um, so, and I, I think there’s a, there is a little bit as you proceed through the, like retirement, I think there is a little bit more of [00:30:00] reflection in a sense that like when you’re, when you’re working and you’re raising a family and you’re doing things, like it’s hard for us to slow down and kind of like project out like that.

And I think, I think in retirement you can, I think you can start to see that a little bit more clear. Uh, maybe not at first, but as you kind of proceed and you start to see maybe people pass away and those types of things. So I, I think, I think the way that, you know, I wanna kind of open, you know, a little bit the healthcare dis- discussion is, you know, and this is one of the problems with the 4% rule.

So if you’re mil- if you’re fam- familiar with the 4% rule, the idea is that, you know, if you have a million dollars and you spend that down, you know, uh, 4% each, each year or 40 grand a year, the, the portfolio won’t fail. Like, you’ll have money and, and they overlay the worst rolling, I think, 30-year period and, you know, they, they overlay that as like the worst rolling 30-year period.

If you were to, um, distribute 4.2%, you’re good [00:31:00] to go. The problem with that is that it’s, it assumes a lot of things, and one of the things it assumes is linear spending. And what we have discovered is that in retirement we don’t spend linear- linearly. It’s, it’s actually more of a smile. So when we retire, we kind of g- get into the withdrawal, uh, decumulation phase in what’s called a go, a g- kind of a go, go mentality of like, “Okay, school’s out.

I don’t have to punch the clock anymore.” Vacation. Vacation, visit kids, grandkids, you know. Mm-hmm. YOLO, right? And as one should, right? Like, like all the things that you might have, um, not done because you had to, you know, go to an office every day, like now you don’t and you wanna take advantage of that.

And you’re still able-body, right? So you wanna be able to do those things, and then you kind of go into more… So spending is higher, right? You might be going out more, dining out, all that kind of stuff. Then you kind of move into more of a slow go, which I would, I would kind of put my parents at now, where it’s like- [00:32:00] You know, that trip to Europe, mm, maybe not so much anymore.

Um, you know, maybe some of those purchases that you were doing previously in retirement, you’re not doing that anymore. So your spending starts to slow, and that’s kind of the trough of the smile. And then you kind of transition into more of the no-go, um, stage of retirement where you’re, the, where you’re n- you’re not really doing a whole lot, but you see the increase in, in healthcare expenses, in long-term care.

End of life eventually, yep. Mm-hmm. So that, that’s the other, that’s the other side of the smile. So, um, you know, Fidelity do- does, does a study. I think they look at these numbers every year, and the most recent numbers that I found is that a, a 65-year-old individual retiring today is estimated to need about $172,500 in after-tax savings for healthcare expenses throughout retirement.

A retired couple at age 65, roughly 345,000. So- [00:33:00] Wow … I think one of the hard parts about retirement, so we talk about this from a l- a liquidity perspective and, and, and a savings plan, is having buckets for different purposes. If I have a $2 or $3 million portfolio, a lot of us don’t say, unless it’s in like an HSA, that, that, it, “Here’s my 345,000, Shay, for healthcare expenses,” right?

Yeah, you’re, you’re not assuming that, no. Right. So I think, I think not drawing that line, I think, can be a little bit, you know, worrisome. Mm-hmm. So just to kind of put some nuance to these numbers, this, these estimates generally assume enrollment in traditional Medicare Parts A, B, and D. Um, so inpatient, outpatient, and, and then a kind of a drug, a drug plan.

Um, they include premiums, co-pays, deductibles, and prescription drugs c- costs. They do not include long-term care expenses, which can absolutely nuke a retirement plan. Because when I look at that, you know, you could, the numbers are all over the place in terms of what you need, but you could need another half a million dollars or more just for that, right?

And, you know, staying, like you stay in a nursing home, [00:34:00] unless you are, you know, on Medicaid, which means you are well below the poverty line, like that’s all- Yeah … coming out of pocket. So what often happens is, if we don’t have a long-term care insurance policy, which again, a lot of people are a little bit hesitant to that, um, you’re, you’re self-insuring, which means it’s coming out of your pocket- Mm-hmm

and/or, you know, “Hey, son or daughter, can you-” hook mom and, mom and dad up and, like, take care of us. Um, so these are all the things that I think need to be accounted for in a retirement plan, um, that often are not, right? So, um, healthcare expenses, long-term care. You know, we’re living longer, so both of these, we probably can see these numbers increase.

And then of course, if you overlay the whole what, what is the highest expense in terms of inflation year over year? It’s probably healthcare, right? Um, so- Oh my gosh. At least, at least using our, [00:35:00] uh, e- employer healthcare costs as a, as a barometer, yes. Hey, Tim, guess what? Your, your, your health insurance plan is gonna get worse, and it’s gonna get more expensive.

That’s kind of the- 12% … on repeat. Yeah, uh, on repeat. Fear not, though. It’s below the industry average of 13. Right. It’s like, my goodness. Thanks. Yeah, yeah. No, I, I think it’s a really valuable conversation. And, and I like the bucket concept of, you know, are we thinking about our nest egg or a significant portion of our nest egg having to go to healthcare costs?

And obviously, underneath that is a lot of strategy, everything from potentially long-term cur- care insurance, Medicare decision-making. You know, even HSA accumulation is something that I’m thinking about as you’re talking about. So not only things for the pre-retirees to think about, but also those that are in the accumulation phase, you know, what might be, we be thinking about and doing as it relates to this.

And we’re bring- we’re bringing back all the goodies this episode, but we also did one on long-term care insurance, so we’ll link to that, uh, one in the show notes, along with the Social Security and the annuity episodes- And I’m- … and Medicare … shameless plug, Tim, I, I am doing [00:36:00] a, a webinar here, um, shortly on long-term care insurance, Medicare.

Let’s go. So, um, hope maybe we can link the- Yeah … um, invitation for that Yeah, so anytime we have, uh, upcoming webinars, you can just go to yfpwealth.com/events. We’ll link that in the show notes, but you’ll find that webinar in there once it’s, uh, ready to go live. I want to wrap up our discussion talking about the, the emotional shift from accumulation to decumulation.

Right? So what was once considered success, all throughout accumulation we’re trying to not touch our investments. Uh, we’re, we’re seeing the balances hopefully grow outside of, you know, dips in the market and some of the volatility that’s, that’s to be expected. But then that suddenly changes, and, and now if, if we’re, you know, doing our decumulation, um, strategy, we, we may in fact see those balances go down.

Or even if they’re going up, psychologically we’re pulling money. We’re not [00:37:00] contributing money anymore. Th- as obvious as this sounds, Tim, I, I think this is something that emotionally has to be challenging. I, I know I’m gonna struggle with it. But an- anyone who’s in a saver type of a mindset, the strategy that got you there now looks a little bit different that we’re trying to transition to.

Ta- talk through that a little bit more. Yeah, and, and one of the things at play here is called the en- en- the endowment effect. So, like, if I, if I’m sitting on $30,000 of savings and it, and it took me a couple years to get there and, um, um, um, and I, and it sits there and it earns me interest, I value that a lot more than if, like, money’s coming in and then going right back out.

So, like, the… we, we… even though a dollar is a dollar, we have this emotional attachment to that account. So, if you can imagine that over- 20, 30, 40 years. That’s, that’s what’s at, at play here. So if you’re in a savers mentality for so long, [00:38:00] it’s really hard to then flip the switch and start spending that down.

And a lot… Then you overlay the, the emotion of, like, a volatile market, and then we’re taking money out, it can be… It, it… A lot of retirees can really struggle with this. And losses feel more personal because, like, during the accumulation phase, a market decline is, you know, you’re not, you’re not pulling money out, but a market decl-decline is abstract.

Like, I make the, you know, I make the comment to someone that’s freaking out, they’re in their 40s, about the market going down 20%. And I’m like, “You’re not even gonna remember this at age 60.” Like, “You’re not even gonna remember this 10 years from now.” So it’s actually like, “Hey, guess what? You know, pri- like, things are on sale right now.”

So think of it, you know, frame it from that perspective. So it’s abstract in accumulation. It hits home in the withdrawal phase. So during retirement, you know, people can mentally connect market losses with years of life, lifestyle, travel, maybe helping kids and grandkids, and staying independent, [00:39:00] right? So, um, you know, a- and I think that there is a bit of, like, psychological scar ti-tissue of decades of savings that y- you know, what’s playing is the fear of running out, fear of running out of money, and an emotional discomfort of seeing portfolio balances decrease.

So, you know, I think… And but I, I see, I’ve a- I’ve actually seen this and, um, I remember talking to a, uh, two pharmacists, and they had a problem just going out and spending. Um, like, going out with each other, spending on a restaurant, spending on a baby- babysitter, and I’m like, “Let’s earmark those dollars for that.”

So part of this is, is, is coming up with a plan. It’s like, “Hey, this money is for that.” Um, and, and knowing that, you know, in the long term we’re gonna be okay. Now, again, I think the, I think part of working with a financial planner is being able to say, “Okay, this happened. Let’s run the numbers.” The pharmacist’s brain likes that, and it can affirm what are we, what [00:40:00] we are doing, or if it doesn’t affirm that, how can we adjust course and it not just be like, you know, sticking our finger in the air and being like, “Okay, I think I’m okay,” and we’re flying by the seat of our pants.

So, you know, there’s a lot at play. There’s the fear of the unknown. There’s guilt with spending, as we’ve talked about. Um, you know, if you’ve been in a lifetime of just plowing money into these accounts for the purpose of retirement, but then you actually get there, and it’s like, “All right,” start to take money out, that can be very, very scary and uncomfortable, and I think that’s, that’s…

We should acknowledge that, right? Um, because again, if we use the number $1 million, and then the next day you’re at $950,000 because you take out five th- like, 50,000, like, th- emotionally that’s like, “Ugh,” like, “What do I do?” Right? Um, and that can be paralyzing, and it can really force people to live much, much below kind of what they can live, um, because of all of these emotions that are kind of coursing through themselves and, and [00:41:00] trying to figure out what can I take and what, what’s safe and what’s not and, and all the things, right?

Yeah, and I, I, to your point, this is where the planning and some of the calculations can really help with the emotional side of it. I’m thinking of a, a couple I talked with several weeks ago where, you know, we’re, we’re talking about some of the retirement planning and, you know, he, he had shared that in conversation with a, an advisor inside of a big box, uh, custodian, you know, the, the message was sort of like, “You’re good.”

Like, “It’s, it’s all fine.” And he’s like, “Even if I know-” I hear that so– I hear that all the time. It’s like my advisor- Yeah … just tells me, “I’m good, I’m good, I’m good.” And I’m like, “What does that even mean?” Yeah, and to be fair, for some people, like, they want nothing more than that. I think for a lot of pharmacists, you know, e- even if the answer is the same, I’m good, seeing the math and looking at the calculations and knowing that there’s a plan, not if but when something’s gonna change, right, over, you know- Right

30 years. We, we, we don’t– We enter retirement with one plan. It [00:42:00] doesn’t mean that we’re gonna stay there. Things will change and evolve, you know, as we go throughout there. So a- and, and really the take-home point here is that we’re, we’re accumulating for 30 or 40 years, right? And we’re building up these accounts, and we’re not building them up to just stare at them.

Uh, a- and we have to build that spending muscle. You know, I know speaking for myself a little bit, it’s taken me 10, 15, 20 years to get more comfortable spending, uh, and really starting to shift that saver mindset. And for, for me, one of the big strategies that has helped that you alluded to is really earmarking those dollars.

E- even if it doesn’t change, you know, if I, i- if I have $5,000 or $10,000 that is earmarked specifically for an experience or a trip, that feels different to spend those if I pull them from a general savings account. Yeah. Or even if it’s pulled from, you know, an emergency fund or something that’s overfunded.

It, it just feels different because it’s been planned for and accounted for and, and I think that mindset can [00:43:00] also apply, you know, as we get into retirement. And, and I would argue that, like, if, if you, if you had 50 grand earmarked for this once in a lifetime trip or whatever it is versus you just take out 10,000 willy-nilly from a, like a– I think the 10,000 actually hurts more even though it’s 40 grand more.

Like I, I, I truly believe the psychology of bucketing and accounting for those dollars is that powerful. Um, and, and, and I think, I think having some type of that mentality in retirement to ease some of that stress around, um, spending down a portfolio is needed. Yeah, I agree, and that’s why we’re gonna call ’em Baker’s Buckets, or we do call ’em Baker’s Buckets, right?

They’ve been, they’ve been branded, uh- Oh, yeah … ’cause I think th- I think they matter that much, and it’s a philosophy we apply with, with our clients in the planning process as well. Tim, great stuff. This has been a really fun conversation. I’m, I’m looking forward. We’ve got some exciting episodes Coming down the pike, so I hope that you guys will stay with us [00:44:00] and catch those episodes.

We’re, we’re gonna be talking about everything from some of the financial decisions that matter most in that mid-career, 40s and 50s. Uh, we’re also gonna talk a little bit about if, if Tim and I were to start over, what would we do differently with money? What are some of the lessons that we’ve learned along the way?

And then finally, uh, a sneak peek that Tim and I are both going on a sabbatical coming up, uh, over the next several months, and we’re gonna talk about a sabbatical mindset and why developing a sabbatical mindset might be helpful even before you get to retirement. So Tim, looking forward to those and, and always, uh, appreciate the insights.

This is a good one. Thank you so much for listening to this episode of Scripted Wealth: Money and Meaning for Pharmacists. If you enjoyed the conversation, be sure to subscribe, leave us a rating and review, and share the show with a friend or colleague. It really helps more pharmacists discover the show and join us on the journey toward living a rich life today and tomorrow.

And if today’s episode got you thinking about your own financial plan, retirement goals, or what a rich life means for you, we’d love to [00:45:00] help. You can learn more about our fee-only comprehensive financial planning services by visiting yfpwealth.com. And finally, important reminder that the content in this podcast is provided to you for informational purposes only, and is not intended to provide and should not be relied on for investment or any other advice.

Information in the podcast and corresponding materials should not be construed as a solicitation or offer to buy or sell any investment or related financial products. For more information, you can visit yfpwealth.com/disclaimer. Thanks so much for listening. Have a great rest of your week.