5 Uncommon Financial New Years’ Resolutions

In this show, Mike and Amy continue to discuss New Years’ Resolutions and five of the most UNCOMMON financial resolutions people may not know can help them in the New Year and beyond.  We hit the highpoints of the following uncommon but useful financial resolutions:

1. Visualizing Retirement (2:52)
2. Insurance/ Protecting Your Family (7:09)
3. Estate Planning (9:05)
4. Health/ Dental/ Vision Insurance after military retirement (13:03)
5. Tax Planning (18:26)
   

Transcript:

00:00:34 Amy: Hey, Mike, it’s good to see you back. So we’re a little bit into the new Year now. How’s the Jim census looking?

00:00:43 Mike: Busy, I expect. Probably a couple more weeks, hopefully not months, but yeah, it’ll it’ll eventually drop off, but right now, people still seem to be holding on to that New Year’s resolution of getting in shape.

00:01:00 Amy: Yeah. Yeah, A lot of people kind of sort of stick it out through the month of January, but then drop off after they’re after that cause, you know, resolutions are just just hard to stick to, whether it’s a fitness resolution or something else.

00:01:17 Mike: Yeah, it was. I was looking up some stats and it says that, you know, 23% supposedly drop after the first week of their resolution and 43% end up dropping by the end of June.  January and, you know, really only about 9 to 12% actually kind of stick through and either make it, you know, an ongoing new habit or you know get through the year. So it’s, you know, not not looking too good if you don’t really have a good plan for how you’re gonna tackle that resolution.

00:01:53 Amy: Yeah, I guess I’m surprised that the people who stick it out, it’s as high as 9 to 12%. That’s a little bit surprising to me. But you’re right. You know, having a plan is probably what helps make those people successful.

00:02:11 Mike: Yeah, exactly so You know, last week we talked about Some of the common things that are out there that people will make resolutions about on the financial side and this week we wanted to talk about some of the uncommon ones that people should be thinking about. But maybe it isn’t high enough in their mind to Making an actual resolution. So, Amy, what’s one thing that folks should be thinking about as they approach either military retirement or ultimate retirement And get ready for that, that big transition.

00:02:52 Amy: Yeah. So I think that probably the thing that people spend maybe the least time thinking about as they prepare for retirement and if you’re listening to a podcast called Operation Retirement Readiness, you’re probably interested in this, but I need a lot of people who Are very excited to leave what they’re doing, whether to leave the military behind or their civilian job behind and have. You know a different life. They spend a lot of time thinking about all the reasons they want to leave. They don’t spend a lot of time thinking about what they want the next chapter to Look like and quite honestly, I mean, that’s where all plans begin, right? You start with the end in mind. That’s the ideal. So that you know where you want to get to and it’s exactly the same when you’re. Planning retirement. What do you want retirement to look like? It’s not enough to just say I really want to be done with the military. I can’t wait to sometimes people go as far as I can’t wait to move back home to pick the pick. The place that home is or I can’t wait to move to the beach or do whatever, but they don’t really fill out what the day looks like. What a day in life look like and really put purpose behind their retirement. Over the years I’ve worked with a lot of clients over the last several years and many of them well into their seventies, 80s and 90s and the clients who were the most healthy and the happiest in retirement were those that were driven by a purpose, they were busy all the time. They were having fun doing what they were doing and the things they were doing had purpose behind it. For them and my clients who, you know, spent a lot of time. Doing nothing or, you know, just kind of grinding through the day-to-day of life, you know, cooking dinner, going grocery shopping, the normal stuff. They were a lot less happy and a lot less healthy. So this is a critical thing that people should be spending time on, even if it doesn’t seem obvious.

00:05:05 Mike:

Yeah, I agree. I’ve always heard the, you know, statement. You need to retire to something. Not just from something. And it’s important. If you look at any of the research, like you said, the people that are happiest and healthiest had that other thing that they were passionate about and you know a lot of times people were. Like, oh, it’s the You know, cliche one is I’m going to golf every day type thing, but honestly, in some ways that can get old. I mean, unless you are, you know, that’s a small percentage of folks typically. So you want to have some varied things that you like to do that you can do regularly. Really having friends and you know that support network is incredibly important as you make either of these transitions because yeah, it can be difficult, especially if you’ve done something for 20 Plus years or you know if you were civilian, 30-35 plus years and cut it off cold Turkey that that can be hard. So yeah, having that thinking about it and maybe even trying to dry run of some type you know, can you take extended leave, can you slowly ramp down through? You know, maybe part time work or something else, consulting that you can do. You know a little bit at a time and just, you know, transition slowly or is incredibly important.

00:06:35 Amy: Yeah. And I mean, I think since both of us have quite a lot to say about this particular sort of introduction, it’ll be good when we get a chance later to dive more into this course. Being planners at heart, we’re very interested in starting with the end in mind, but it’s just so critical. It makes such a big difference.  So looking forward to digging more into, it but for but for now, Mike, what’s another uncommon thing, that financial resolution that people should be considering.

00:07:09 Mike:

One of the big things, especially as you’re approaching either of these transitions, is life insurance. Now, if you’re in the military right now, you’re covered by you know, typically SLI. If you’ve opted in for that. The Survivor Benefit Plan, which you know is really kind of a decision point at retirement, but you’re actually covered by that same kind of program while you’re in. So if something happened to the military member, the family would be taken care of and get that money coming in. So understanding all of that, there are options. There’s the veterans Group life insurance as you transition, but just taking a holistic look at what’s your need for life insurance during the transition and after the transition? It also applies at retirement. Maybe you have a policy that you don’t need anymore because you know you’ve got enough saved up, you’ve got enough income that you’ve earmarked for this and you can take care of it without that life insurance. And then other times in retirement, you may want to actually add life insurance. It could be a good estate planning tool where if you are, you know, planning to leave money to your children that you know, Life insurance can be a way to do that, so just taking an assessment of what you have and what you need? Determining who relies on, you know, any kind of income. You know, if it’s a pension or something like that. And if something happened to that person, would somebody else who relies on their income be taken care of?

00:09:05 Amy: Yeah, I mean it’s hard to. It’s a hard topic to think about. So I think sometimes people try to avoid it. Insurance tends to be one of those things that’s a little bit mystical and hard to understand. Sometimes there’s different products out there and it’s hard to understand which is better. And then you’ve got, you know, people driven by different motivations and talking about those products. So it’s hard to know who to trust and what advice to trust. So I think sometimes this one gets overlooked because it might fall into the too hard to do category. And along those lines, you know, one of the other resolutions, that’s sort of uncommon financial resolutions that people should be thinking about is along the same lines as you mentioned is estate planning. So when people hear estate planning, some people might think that, you know, that’s for wealthy people. I don’t have a lot of money. I don’t have a lot of assets. I don’t need to worry about it or I’m by myself, I don’t need to worry about it, but the fact of the matter is just like if you were, you know, on active duty or in the reserves and you were preparing for deployment you had to go to JAG. You had to get a will, and there’s a reason for that. It’s because it helps your loved ones out. It’s not for you, it’s for your loved ones. It helps your loved ones out, in making things a little bit more clear on what you wanted to have happen and can Make the process. Faster and smoother for your loved ones. So as you transition into retirement, it’s key to remember that you know wills are governed at the state level. They’re not federal. So if you move from one state to another state, there might be a reason that you need to update your will so that it takes into account state specific considerations for where you move to. If you get married, if you have a child, if you get divorced or a spouse passes away, or your executor passes away, you need to make updates so the bottom line is that this is, you know, your will and your other estate planning documents like powers of attorney. And advanced directives and things like that. They’re not set it and forget it. At least at least every couple years. And when you’re going to, and when you’ve experienced a big life change, you need to revalidate that your will still applies and is in good shape. And if it’s not then you know you can get you can, you know, Google legal assistance for your closest military installation. So if you’re retiring with a pension, you’re still entitled to use a Military Legal Assistance Office to help get your will together.  In certain situations, the Legal Assistance Office may not be equipped to handle your needs, so they will let you know, and then maybe even be able to provide you with at least the type of estate planning attorney that you would be looking for out in the private sector.

00:12:17 Mike: Yeah, it’s it. It’s incredibly important you you hear the kind of horror stories of folks you know, whether on active duty or after. Active duty or or after being in the military that don’t have a will and something happens and it just can be a whole lot more time consuming expensive. All of that can just be be such, you know, a challenge that.  You know, it’s it’s important to just check it every couple years, you know, or when you’ve got that big life change that you talked about to make sure you’re still covered.

00:13:03 Amy: Yeah, yeah, exactly. And Mike, I think the next one that you’re about to talk about is huge for transitions as well, especially the retirement transition.  Your health insurance vision dental as you either transition into retirement again. Applicable to both military transitions and overall retirement, as you start looking ahead to Medicare. For military retirement, you’re still going to get Tricare. That’s still an option, and if you’re working the second job, you may get additional options there for you and your family, you know, through a civilian workplace. So you want to be aware of that. You’re gonna need to look. You used to get your vision and dental all done through the military for the member. And now you’re going to need to typically go to the benefits program, which offers dental and vision and insurance, so you know, making sure that you have the coverage you need. There’s numerous options that you probably never dealt with before. So you know, at transition you’re kind of given that option and then each year late you know mid, mid, November through December is typically the open enrollment period for all those services. So make sure if you need to make a change, you know you’re aware of that and when you can do it so. There’s a lot to think about making sure you have the right coverage and understanding that now you’re going to have to pay for vision and dental for you as well as your family. You know you’re looking ahead to ultimate retirements at 65, you have the Medicare transition. And just making sure you’re aware of that and the decisions that entails. Now, if you’re military retiree, you’ll have Tricare for Life at that point. So that’s kind of a supplement to Medicare. You still need to enroll in Medicare, but Tricare for Life will cover some of the additional expenses that Medicare doesn’t.  So making sure you’re aware of that. And then again if you’ve got a gap between, maybe you retire early in your early 60s military retirees will be covered through Tricare at that point, but if you, you know, separated and and are just a veteran, you need to understand how you’re going to have healthcare before you’re eligible for Medicare or so. And that oftentimes can be a pretty significant expense. For folks, if they retire early, factoring that into your budget is critical.

00:16:15 Amy: And it’s intimidating. I mean, even though I had already, you know, been through the certified Financial Planner curriculum passed the exam when I retired. And, you know, I really enjoyed this stuff. So I had been doing my homework for years and years and years even. Even with that, the decisions around. You know what kind of Tricare I wanted to select for my family? Picking one of the you know, 100 dental plans or however many there are. And then same with the vision plans like how do you pick these things. It’s a very intimidating process. It was also difficult to understand exactly what the timeline needed to be so that we didn’t have you know a lapsing coverage. And whether you’re retiring from the military or retiring from a private sector job, this can be equally intimidating, maybe even more so if you’re transitioning from a civilian job some employers will allow you to take coverage in your retirement. Many do not, so you know Being really careful. Understanding what you’re going to do for healthcare coverage before age 65, before Medicare kicks in is a really big deal and the time to think about it. Three months before you retire, it really is, you know, much further out so that you know that you have enough money to fund the retirement lifestyle. You style you want and make sure that you’re covered by the right health insurance.

00:17:49 Mike: Yeah, those are all critical things and you’re right, it is. I was looking again the other night just at the plan and everything for dental because my daughter had some dental work and you know is there a cap on it for the year and how does that work. And so yeah, it’s new for a lot of military folks. It’s a new adventure because they haven’t really had to deal with that prior to transition, so.

00:18:26 Amy: Yeah, and the last one that we’ll talk about is the last sort of uncommon financial resolution that that people really should be thinking about is probably equally mystical to health insurance and dental insurance. And that’s tax planning. I mean, we all file our taxes every single year.

00:18:46 Amy:

Which is a little bit, you know, tax planning is a little bit different than filing your taxes, filing your taxes is what you have to do to stay out of trouble. So it’s compliance but.

00:18:56 Amy: And you know, one of the goals when you file your taxes is to make sure that you pay as little as you have to in tax. Right. So everything that you have to pay legally but not a penny more is sort of the goal there. But, you know, looking long term, particularly when you’re considering when you’re talking about. And military service member, the complexities of tax planning and looking down the road further are really important considerations.  You know the near term consideration as you approach retirement is that you know in the military a large portion of your income is tax free with your housing allowance, your subsistence and maybe some other, you know, pay items that might be tax free. So that might be as much as you know 25 to 30% of your paycheck. If you plan to retire and get a private sector job on top of your retirement, you’re actually going to jump up, you know, potentially at least one tax bracket maybe, but you’re certainly going to pay more tax overall because more of your salary is going to be taxed. Plus you have your pension on top of it. And as you know, as everyone knows, the tax code code is complex, so there might be other things that then pile on because you have this additional Income and then looking down later, you know later down the road if you’ve done a good job saving and you have a pension, there’s these things called required minimum distributions that happen sometime in your 70s, you know sometime between 73- 75 depending on your age you have to take money. Out of your 401K and that money, if you have to take it out is all taxable income. So if it went in pre tax, it’s got to. Come out and you have to pay tax on it and what we see a lot of times is folks with pensions who did a good job. And maybe they did a good job saving pre tax rather than using Roth. They end up in the highest tax bracket of their lives in their 70s and 80s and 90s. But that’s not a foregone conclusion. There’s options that you might have that fit into your overall financial picture. And so why not choose to pay taxes when your tax rates are a little bit A little bit lower. And then the last consideration around taxes, you know, moving back to the near. Term is if you’re going to retire and move if you’re military, there’s a good chance that you haven’t been paying state tax at all. Even if you, even if you have been paying state tax and You move the The new state might have. A different tax structure, so that might be to your benefit or not. So it’s a good idea to plan out ahead of time and just know whether or not you’re going to be subject to this additional, you know, 5-6-7 percent tax at the State level.

00:21:59 Mike: Yeah, all great points. I mean like like you said, I like that you want to pay the, you know, amount you’re legally supposed to, but not anymore. And that is that can be tough, but planning is what’s critical, because sometimes people are like, no, I just want to pay the minimum amount this year and that that can be a sub optimal strategy because you’ve Taken money that you could have, you know, use the tax brackets like you said to to maximum effectiveness. Maybe paid a little more, you know in the near term or deferred in the near term and you know than pay it in the future because you think your income will be lower. So having that Plan can save you thousands. I mean, if you look at it after military, if you got that second job in the retirement You’ll be, like you said, earning a lot more and understanding, you know how to best do that is critically important because I mean. You can save over a lifetime, you know, probably hundreds of thousands of dollars by having a smart tax plan.  So yeah, it’s one of the things that I really like to focus on with clients and making sure they understand that, yeah, we may pay more now or we may decide, yeah, we’re going to pay the taxes later. But having that plan and understanding.

00:23:39 Amy: Yeah, yeah, I mean. Like you Said where, you know, it could make hundreds of thousands of dollars of difference and that’s why you spend so much time on it with your clients. And I agree. I actually think that tax planning is probably, you know. f not number one, then definitely you know number two thing that impacts plans. So taxes are just such a big part of everything. So it deserves quite a bit of attention.

00:24:17 Mike: Yeah, completely agree. So this has been great. You know, we’ve now over 2 shows kind of knocked out 10 big financial resolutions that people either you know, commonly think about or maybe don’t think about but should. So I think now we’re going to just maybe do some deeper dives into some of these topics and talk about them. That, you know, really how you go about Implementing them, what you  tools and tricks you can use to stay on track and make sure you actually can achieve that resolution. So I think next week or next podcast is gonna be about savings which is incredibly important for both A military transition or a retirement, you know, full retirement transition and making sure you have that money available to live off of when you need it. So I’ll look forward to talking about that in our next podcast.

00:25:21 Amy: I’m looking forward to it as well. It’ll be fund to deep dive into these and and especially like you said the savings because I know that’s one of the most common ones that we hear. So I think everybody will. Get something good out of that.

00:25:36 Mike:

Great. We’ll see you next time.

00:25:38 Amy:

We’ll see you next time. Thanks, Mike. Take care.