Jacob: Every single retirement plan has this major problem. It's something that we can't avoid. It's something that you can't out plan or or work harder to avoid. So we're gonna talk about this problem today here on the show. I want to outline what it is.
I'm going to talk about why it's it's something that everyone has to deal with, and maybe some of the workarounds and things that you could do to set proper expectations around what your retirement plan is and why it's important. Hey, friends. My name is Jacob Duke, I welcome you into the show today. I'm your host here as always of the Retirement Answers podcast. If you're a frequent listener, thank you so much for being here.
It means a lot to know that I'm adding value to your life and just adding value to your education around retirement planning. If you're new here, welcome. I'm glad to have you as well. And if you find this episode helpful, you might find some other ones from previous weeks helpful. So go back and listen to those and see what you think.
Also, if you have questions that you want answered here on the show, I invite you to send me an email. My email should be listed down in the description below. So shoot me an email, say, hey, I want to hear more about this topic or here's a question that came up as I'm thinking about my situation. Can you talk more about this? I want to do that because again, this is for you and this is to help you enjoy a better retirement and do it with confidence.
So let's go ahead and jump into today's episode. All right, what is the big problem that everyone is facing? Every single retirement plan has this problem. It is the fact that the only thing we know about your retirement plan is that it's going to be wrong. It's going to be incorrect, meaning everything you put on that piece of paper, however you build your plan, whatever software you might use, all the things that we're trying to do and accomplish and taxes we're trying to lower and when to take social security and how to spend money from your portfolio and how your portfolio should be invested.
The only thing we know about our plan that we build today is that it's gonna be wrong tomorrow. And I say tomorrow kind of in jest, it could be wrong next week, next month, next year, but at some point, our plan will be wrong. And the proof is simply just the evidence of our life so far. If you look back over your life, how much of your life went according to plan? And I want you to take some time just to think about that, like did it actually go according to plan?
And most likely it didn't, right? Most things in life do not go the way we envision them and we have a lot of hardships along the way and many things just don't work out how we want them to, many things are a lot better than we expected them to be. Maybe we wanted to start something or do something and it took longer to get there to doing that thing and the timeline wasn't exactly right, but we finally accomplished that goal. And the point of just kind of looking and talking about that is that whatever you set out to do when you were 20, or 25, or 30, or 35, or 40, or even now if you're in your 50s or 60s, whatever you set out to do five years from now is probably not going to happen the way you thought it would. And a perfect example of this in my life is, you know, I have two kids now.
I have one who's 19 old and I have another who's three months old. And we did not plan to have two kids under two, 15 apart. That was not a part of what we planned out. But that's the way it happened. And so we have to adjust.
And so if I just think about my personal life, right? Saving for my kids and investing for their future and trying to prepare for education or college expenses that might come up in the future, my timelines got shifted, you know, my timelines changed and maybe I have to give up something else on the personal side that I wanted to buy, you know, this year or next year and have to shift that towards my kids funding so that they have something to go on once they get to those ages in the future. And so, that's a perfect example of life just not going the way that we plan it out. And the fact again, talking more about this here in just a moment that we have to understand our plan is going to be wrong, and so we have to be able to adjust as we go. So if we tie this into our retirement plan, why do we think our retirement plan is going to be the thing that we follow for the rest of our life?
It's not. As much as you want it to be, it's not going to be. And so what I've found is a lot of people end up struggling and just toiling over finding every single detail and uncovering every single way to minimize an extra dollar of tax or whatever might be in trying to over optimize everything so much so that it ends up becoming a burden, the whole retirement experience becomes a burden because you're trying to optimize everything to the nth degree. And another example of this is simply the tax code. The tax code is changing a major way twice in the last four years.
If you think back to the secure act, the original one that started in 2020, and you think back to the second one, secure act 2.0 in 2022. That's two major changes in terms of the rules RMDs changed, all the distribution rules changed. So many things have changed around how the tax code works in regards to retirement specifically and around Roth and non Roth specifically. Now, here's what's about to happen. We're about to have tax changes yet again here in 2026.
Now that President Trump is in office, and obviously there will be reform to the tax code, to what degree we don't know, what's going to stay, what's going to change, how much of the current TCJA is going to be extended and what parts are going to be changed. We have no idea, but that will happen. So if we build a full fledged comprehensive retirement plan today based on everything we know today, guess what, it's going to be wrong next year. So my emphasis today is to share with you don't try to figure everything out. You waste a lot of time and a lot of energy trying to figure out every single answer to every single problem, or even the problems that you make up and you're trying to find a solution for something that's not actually a problem, trying to over optimize, it's not worth it.
So instead of trying to figure out the exact right answers to all of the things that you think you need to do right now today in five years in terms of how much of a Roth conversion should I do in the first ten years of my retirement? The answer is as well, if everything stays exactly the same after these hundreds of assumptions assumptions that have to remain true over the next ten years, here's what you should do. But the problem is, is the majority of those assumptions, if not all of them are going to be incorrect six months, a year, two years, five years down the road. So you're gonna have to rebuild the plan every year anyway. So here's maybe what I would say is a good way to approach this, actually the way that I'm shifting to approach this in my practice with my clients, the way we approach retirement planning is, it's almost like you want to have the right answer just in time.
So just in time planning is kind of what I'm thinking about here is maybe the ideas, is we don't know the right thing to do until we're in the moment. You don't know how to handle a certain situation until you're in the moment almost. You can plan for it all day, but when things get heated and you're in the moment of something, whether it's good or bad, that's when you know what you're really gonna do, because that's when you have to make the decision to do it. So what I would suggest to you is this, stop looking for the right solutions right now. Simply start asking the right questions.
Here's what I mean. You don't have to write down on a piece of paper called your retirement plan. Don't have to go and say, I'm going convert 103,000 in 2028, because that'll fill up the 22% tax bracket, and I'm going to tax gain harvest $10.23 dollars from my brokerage account at a 0% rate because that's going to be optimal. Now I'm going to make sure that I have $23,002 in my checking account to buy this car that I'm going to have to upgrade and so forth. And so you can kind of see how maybe ridiculous that sounds, right?
We start planning this out and look at all these different things and we get to that spot five years down the road and nothing's the same. The tax code's not the same, the tax brackets aren't the same, your account balances are not the same, your income needs are not the same, your goals are not the same, what you're trying to accomplish isn't the same, everything's different. So what's the point of working so hard right now today to build a plan that's simply going to be wrong? So here's what I suggest instead. Look at your retirement plan as a document, you want to write these things down, but think of it more as a document that reminds you what to consider and what to think about instead of what exactly you should be doing.
Okay, and so maybe there's different components of this thing called a retirement plan. Maybe you have different components called like this six months or this year, I will do this. These are the things we have to do based on what we know. So you can kind of break it down into like annual sub plans, like one year at a time type thing, but there's really no value in projecting out five, ten years down the road because you know that it's going to be wrong. And instead on the longer portions, long term view, just simply write down the questions you need to ask yourself as you get closer to those milestones.
Should I turn on Social Security at 62 or 65 or 67 or 70? What's the pros and cons? We need to evaluate that. Should I do a tax gain harvest instead of a Roth conversion this year? Should I do Roth conversions at all?
What's the benefit of Roth conversions? Should I be investing my money in a more aggressive manner? Well, that depends on the current environment and your income needs and your goals and everything that you're trying to, you know, to do and sustain throughout the rest of your life. So what I'm starting to think is, is as a retirement plan, just write down all the questions and things to consider and think about at different moments throughout your journey. Don't think about the right answer to write it down today because again, it's going to be wrong.
Think of it almost as like a study guide. I don't know if you remember back to like college or high school or something where the teacher would give you a study guide and say, here are like all the things that you need to think about whenever you prepare for this test. Here's some of the questions and what they might look like and where the questions will be coming from and the concepts and the things that you need to focus on to make sure you do well on this test. What the study guide doesn't do is it doesn't give you the answers to the test exactly how the test is gonna ask the questions or even the same questions, right? What it does is it tells you how to think and the things that you should be focused on.
So view your retirement plan as a study guide, something that's going to guide you, something that's going to prompt the right questions and give you ideas around what to think about and consider, so that you can take the concepts and then apply them correctly to the test, which is in the moment at the time of having to execute a Roth conversion, all the times that you need to do a tax gain harvest, when you should take Social Security, that's the test. You don't need the answers to the test five years in advance. You just need to know what to look at when you get to that point in the future. So maybe this is kind of odd to hear from someone like myself, who's a financial planner and financial advisor for clients. But I figured out by doing this over a number of years and just kind of what I do every day, is that every single time a client asked me a question, the answer is always it depends.
It depends well, if the tax code changes, well, our strategy might change or are your income needs going to be the same ten years from now? Well, maybe or maybe not. So I've just figured out that it just doesn't make sense to build out something that's simply going to be wrong. It just doesn't make sense to do that. I would rather, like I said, stop looking for the right solutions and start asking the right questions.
We need to know what to look for before we can even fix it or solve for that problem. So think of your retirement plan as a way to write down and document all the things you need to consider before you make a decision. And then in the moment, you can make a decision within that particular year and say, here's the things we're going do, here's why. So hopefully that is maybe comforting maybe for you, right? As you're trying to figure out like, what is your plan for retirement?
I've to have all this stuff figured out. The answer is no, you don't. You just need to know what to look for. And a lot of folks reach out to me, Jacob, do you do one time plans? And my answer is always no.
Jacob, why not? It seems like a good solution. I probably got most of this stuff pretty much figured out, just need to make sure I'm solid on a few things and reassure myself in different areas. And it comes back to the fact that I just don't believe in creating something that's going to be wrong tomorrow. It just doesn't make sense to me.
Why would we plan it all out and work so hard to do that, just to have it wrong? So does a one time plan help? Yes, you've got to have a plan, you've got to have an idea of what direction you're going and what you need to look out for. You gotta have those things in mind and have it written down so that you know what to look for, but you can't count on it. It's not going to be right.
So I don't do one time plans because I truly believe that it's not what's in your best interest. It's not within my fiduciary duty to actually create a one time plan for you because I know, I know it's gonna be wrong tomorrow or next year or five years from now. So that's why I don't create one time plans, because it's just simply not valuable. It doesn't help anybody. It just raises more questions or uncertainties, if not anything else.
Because everything that I would put in that plan trying to make it exactly right, all has to have an asterisk at the end of it that says, if this and this, or if this stays the same, or if this changes, or if this. So the real answer is, it depends, but here's the idea. When we get there, we'll see if that idea still is valid. And if so, then we'll execute on the strategy. So that's the problem with nearly every financial plan is the only thing we know about them is that they're wrong.
And that has to be okay with us. We have to know that that's okay and understand that yes, there's not the answers here on this document, but we've got the solutions because we know how to think about this. We know how to think about it, when to think about it, what are the things we need to consider in these different time periods throughout retirement. And then from there, you can make the right decision just in time. So just in time planning is the way I want you to think about this so that you can make the right decision when those different moments arise.
So I hope this helps. I'm curious your thoughts. I really am because this might be an episode that ruffles feathers or even, you know, stands opposite of what you thought I am about. So I'm curious what your opinions are. I'd love to have a conversation around it, and maybe flush this out in more depth.
Let me know if you want to hear more about this topic. And hey, Jacob, can you show me how that actually works? And what are you actually building here in terms of retirement plan? What are you considering? What are all the things I need to look out for?
Just let me know, shoot me an email and we can even schedule a call just to chat through it. And if you're looking for help with your retirement plan, just know I'm available to help you with that. We are taking on clients here this year, and happy to have a conversation to see if you might be a good fit for what we do. All right, I hope you have a wonderful rest of your week and we'll talk to you again next week. Hey, it's Jacob again, and I wanted to extend a quick offer to you.
If you have a question and you would like to have it answered here on the show, please email me at jacob@retirementanswers.net. And I'd love to answer that question for you right here on the show. Also, 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.