Jacob Duke: What if I told you that most retirement plans might look good on paper but actually fail in reality? And I see it all the time. People have saved and invested throughout their careers for the opportunity to retire one day, and when they get there, they create the best plan on paper, but it ends up being unsuccessful. And I'm about to explain why this happens and why there's a certain place that most retirees just never get to. But before we jump in, welcome back to the Retirement Answers podcast.
My name is Jacob Duke. I'm your host as always. I'm also a certified financial planner and the owner of River Tree Wealth, a retirement planning firm that helps people just like you plan smarter and retire better. Now I'm pretty passionate about the topic that we're discussing on today's episode, so just bear with me as we go through this a bit because I think most people are doing retirement planning wrong. They focus only on the money and optimizing every single dollar, but this ultimately just misses the mark in what you should be trying to create.
I've had countless people come to me with their spreadsheets that are perfectly built and everything's been accounted for. They've got the perfect plan to get the ACA subsidies before '65 and then the perfect Roth conversion plan from '65 to '70 so Irma doesn't become a major issue later on down the road. And as someone tells me about all of their ideas and plans whenever we start talking about these types of things, they've got their perfectly manicured spreadsheets where every dollar's accounted for and and nothing's out of place. Even while talking through all of that, I start to see the problem, and this happens over and over again. So what I do, I start asking questions.
Some of them are are like, so all this is great, but I'm curious, what do you plan on doing in retirement? To which they might respond, well, I wanna travel, and I wanna take a nice vacation every year, and maybe go visit my kids more often that are across the country, and or maybe start a new hobby or a new side job or a business or something. And and all of that is great. And so my next question is is, so how are you gonna fund that? How are you gonna pay for that?
And this is where the light bulb typically starts to go off in their minds, and I can really see it when it happens. So as we go through these types of discussions and conversations, we start to discover that in order for all of the financial things to be the most optimal and happen in the best way, you often just have to sit at home, lock your front door, and just only go outside to go grab the mail every day. Outside of that, you wouldn't be able to withdraw money from your accounts because you will cause maybe maybe cause you to pay an extra $500 every month on your health insurance because you would have to pull money from a four zero one k, for example, and you'd miss out on part of those subsidies. So what we end up discovering as I start uncovering some of these these questions is that the most optimal financial plan often cannot overlap with the most optimal life plan. And they aren't necessarily mutually exclusive, so please don't mishear me on this.
But most of the time, more money and more life, they don't happen at the same times and in the same one to one relationship. And that's especially during retirement. It's a trade off. You typically can get part of one and part of another, but to think that you're gonna get both, where you go travel the world and enjoy life and do all of the bucket list items that you've wanted to do, you can't do that without proper funding. And sometimes, funding means you've got to pull from certain accounts, especially if you don't have after tax cash or really large brokerage accounts.
You've got to pull from certain accounts like 401Ks and IRAs in order to fund that, which means you've got to give up the opportunity to grab those ACA subsidies or do larger conversions. And so a few examples of this, you know, and even in my own life here, you know, my wife and I, we wanted kids. And when we decided that we wanted kids, we knew what we were choosing. We were choosing to actually have a lower financial net worth because kids are not cheap, and, they're definitely not cheap whenever your little girl asks for something in her sweet voice. And and so for me, I made a trade.
We traded more money for a in a bigger net worth for the joy of children, and that's a trade that maybe some people are willing to take and some people don't, and that's totally fine. But it's a trade that I would make every single time over again. Or maybe for you, you've chosen to live in, a high cost living area. Maybe you live out in the great part of California rather than, let's say, in the middle of Nebraska. And that's no offense to anyone who's from Nebraska.
It's just cheaper to live there. So whether or not you know it, you've made an active decision to enjoy the things of a high cost living area rather than optimizing every part of your financial life by living in that lower cost living area. And we could just keep going here. Right? You know, you pay for kids' private schools because you want them to have the best opportunity in your eyes compared to, you know, saving and investing that money for them over time.
Everything is a trade off. Life is full of trade offs, and you can find these trade offs every single day in your life, whether they're big or small. So the question is, why do we think that retirement is gonna be different? Why do we think that we can have the cheaper premiums and do the Roth conversions and lower the taxes and do all the fun things that you want to do? Most of the time, it's not possible to accomplish all of these things at the same time, so you have to ask yourself, how much is a life well lived worth to you?
How much would you pay to enjoy the life that you have with the people you love doing what you might love most? If you think that through for a bit, I'd argue that really that's all any of us are after in the first place. Yet we won't tell ourselves that or let ourselves be okay with that. We always want more money or the most optimized this or optimized that, and those things are all fine, but we have to hold them in the right place. So here's how this might play out for a retiree.
I'll give a couple examples. So let's say that you're fixated on getting the lowest premiums for your health insurance before 65. Let's just say that you're, I don't know, 58 years old. So in order to do this, you typically have to take less out of your IRA for this to be possible. But you also might have this family history of health issues that start at 70, whether it be heart disease or any other form of health issue.
So you know that, hey, maybe my longevity is not as as long as other people, but you've got that in one hand and you've got this this this premium thing for your health insurance than the other, and you can't stand to pay the higher premiums on the health insurance. Well, the best financial plan, if we think about just finances here, that would be to try to get the lowest premiums and push the vacations and push all the fun out till 65 and beyond once you have Medicare and so forth so that you don't get penalized or have those higher premiums. But the best life plan might be to say, what if we forget about those lower premiums, at least to an extent? Maybe your fulfillment in life is worth so much more than the increase in the premiums would cost you, and taking advantage of the time you have right now while you still have it might be the most, might be the best thing for you as an individual. Now, there's obviously some sort of middle ground that can be found here, but that requires planning and thought to make sure that you aren't, you know, tanking your chances of never running out of money.
But what I hate seeing is when people try to find every nook and cranny of opportunity all for the sake of optimization, but it costs them what matters most. And the second example is when someone is fixated on doing Roth conversions because they've heard about how awesome having money in a Roth is. And personally, I'm an advocate of Roth conversions in the right places because they can be very helpful in the right situations. But where this idea in optimizing every part of the tax plan starts to backfire is when you give up taking the family vacation every year because you wanna do Roth conversions and put more into that Roth IRA instead of pulling money more money out of the IRA itself to go on the vacation and spending it. Or maybe it's, you know, a kitchen remodel or whatever around the house that you wanna do.
You name it. You can fill in the blank for you. But if you keep putting those things off just for the sake of doing wrong conversions, you're trading again financial optimization for life optimization. And I would argue that the again, the point of today's episode is that even though the best plan on paper might make the most sense mathematically or even financially, it doesn't mean that you're gonna have the best result or outcome as an individual or as a family ultimately from a life perspective. So again, you're optimizing for more after tax money and not optimizing for what actually matters most to you as a person.
So as I present this to you, I want you to take away one thing from this conversation, and really it's just a question for yourself. What are you optimizing for? Is it more money or more life? Because if I can let you know a little secret, you're not gonna get a medal for dying one day with $2,000,000 instead of $1,800,000. But the memories that you make and leave with your loved ones one day, those last a lifetime and those things are that's what they're gonna remember and what they're gonna cherish.
They're not gonna care really how much money you had or didn't have. So I've found that that good financial planning is way more like planning for life rather than planning for money. The money is definitely the means, we have to do that well, but you have to hold it in the right place. It's not the end goal. The end goal is a life well lived, so don't give up your dreams and passions to save a few $100 a month on a health insurance premium.
Like, your life and your time is worth so much more than a few $100 every single month for a couple years. So that's what I wanted to share with you today. What are you optimizing for? What are you actually after? And I don't want you to misplace the benefits of a better financial plan and more optimization from a financial standpoint and good planning with doing everything you can to lower those health insurance costs, or to lower your tax bill, or to do this or improve your investments.
All those things are helpful, absolutely, and we must do them correctly. But I don't want you to put that before the end result of, hey, what does life look like? And is that something I will look back on and say, yeah, I'm glad I did it that way. Right? Because you could end up with $5,000,000 in your accounts one day, but you didn't do anything fun.
You You have any you didn't make any memories. You didn't, you know, enjoy the time you had. What's the point of the $5,000,000? Like, really, think about it. And so I want you I wanna leave you with that today.
And, again, all this does not mean that you can just live carefree and abandon any sort of planning around your money. You have to plan well so that you can do everything that you want to do. So if you're someone who's like, Jacob, that resonates. I get it. I've got lost in the weeds.
I've got lost in the detail. I feel like I'm over optimized everything and I'm more confused than ever. If that's you, or you want to avoid being in that spot and you're looking for a team that can partner with you to create your retirement plan and help you execute it over time so that your retirement plan actually gives you more life, not just more money, you can apply to work with us here at River Treat using the link down in the description below. We have some of the best advisors in the industry, and what we're building is is really fun, and I'm super excited about the direction we're heading. So if you felt like this episode resonated and someone that you know could benefit from it, feel free to share it with them.
And if you've been listening for a while and are enjoying these episodes, it would be appreciated by me if you left a rating and review there on Apple Podcasts or Spotify. It helps other people like you find the show and learn from these same types of conversations. And as always, thanks for tuning in and listening. We will see you again next week. Hey, it's Jacob again, and I wanted to remind you that nothing discussed in today's episode is meant to be financial, legal or tax advice.
Retirement Answers is for educational purposes only. Thanks for tuning in to this week's episode. I look forward to talking with you again next week.