how to create a good life in retirement. So, we’re going to be talking about some retirement income ideas for you today. Just want to do a little bit of a housekeeping first. Um, you saw uh most of you the chat feature. So, as I go through the presentation today, any of the slides that uh you might have questions on, just let me know. As I’m talking, you could just go ahead and put any questions in the chat feature or the Q&A feature of the uh Zoom meeting. And again, if anything happens, any technical difficulties, go ahead and put it in there as well. I’ll kind of monitor monitor that through the presentation, get that adjusted for you. But yeah, feel free to uh just kind of throw your questions in there as I’m talking. Uh credit union asks me to let you know that uh one of the questions that come up uh do we record these meetings? Um we do not record them. We just kind of do them on a onetoone basis here. So we don’t record and we ask that you do the same. Please do not record, reproduce, distribute any part of this presentation either through uh audio, video, screen capture, or any of those AI based tools. So, thank you for that. Um, just a little more housekeeping. I do an every other week uh webinar series for the credit union here. Today, we’re talking about life after work. In a couple weeks, October 14th, I’m going to be talking about a uh presentation I created and entitled the good, the bad, and the ugly of annuities. Uh what are they and who would want one? So, inevitably, someone has owned an annuity, been presented an annuity, and this is really kind of clearing up the myths, myths and misconceptions around the annuity category. So, if you uh have any questions on that specific topic, please join me on the 14th. I do my presentations at 12 central time on uh every other Wednesday. And then on October 28th, we’re getting into tax season here towards the end of the year. So, we’re going to talk about some uh tax planning changes. I’m going to call it the four stages of retirement. But uh again kind of like today’s topic uh income in retirement taxation and timing of taxation order is going to be different in retirement. What sources do you pull it from? What’s the best tax efficient way to invest your funds to withdraw your funds? Some uh search charges and penalties that you need to be aware of as well. And some new tax law uh legislation that’s been recently updated. So, we’ll be talking about taxes in the fourth quarter here to get you ready for tax filing time. Uh here’s a complete list of all the webinars. We do uh an entire webinar series. Uh I’m also the co-host of the podcast here at the credit union. Uh and there’s also a financial blog on our website. I always say I don’t expect you to memorize this link or write this whole link down, but you could tell it’s the credit union website. So, our department erys alliance retirement and investment services.allantcreditun.comvents
backl back slmpodcast for the podcast or blog. Easier way to do it is if you go to the credit union website, click on the investment tab on the homepage. It’s going to take you to uh our website here for investment services. At the top of the page, you’ll see webinar button, complete list of all the upcoming webinars, podcast series, and blog there as well. So, uh just want to introduce uh our financial planning capabilities into this conversation. So, as we go through today’s uh material, I’m going to be referring back to some slides from financial planning outputs. This is just one to uh get us going here a little bit. This is a uh cash flow overview and love the title of this slide. Right? A goal without a plan is just a wish. So we want to put together a financial plan. We don’t want to put together a financial wish. But this is our department in the credit union. I feel that we are the best kept secret here at the credit union. So we’re a full services investment arm of the credit union. We’re a fiduciary firm and we offer members of the credit union really a no cost, no obligation service to build these financial plans, do an overall check-in for you on your finances. And really by going through this process, we sit down together, we’ll have a meeting, we can have an initial meeting to see if this is the the right route to work on a financial plan together, but in a planning meeting, we’ll have a discussion, gather some basic information for from you to build this plan. And by doing this, what it does, it gives you a clear picture of where you are today and where you want to go into the future. Helps you make sure your investments, retirement accounts, taxes, insurance, estate planning, it all works together. And we look for potential gaps or opportunities in your overall financial plan to help determine are you on track to reach your goals? Are you on track for your retirement income is what we’ll talk about today. And then from there, we could uh talk a little bit more deeply about investments, what to do with those uh old 401k plans, and really kind of review today’s markets and make sure everything is aligned for a coordinated long-term strategy for you as well. So, that’s what we do here uh in the financial planning side. We talk about ways of uh reducing taxes, fighting inflation, generating more income from your income, from your income sources, from your account. So, this here uh will answer a lot of questions, do a lot of coordination, and answer those whatifs, right? Will I have enough? Will it last my lifetime? And really, uh we’re doing this only 36% of Americans have a written financial plan. We’re trying to change that a little bit for our memberships. Make sure if this is appropriate for you, you have access to a financial plan and a financial planner to help you with those. So, again, if that’s uh something that you’d like to explore, uh please you could put a note in the chat feature. there’s an email that comes out after the uh presentation, so you can just respond back to the email if you’d like to talk a little bit more about our capabilities or financial planning here. So, uh again, we’re going to talk uh today we’re getting back on topic, right? We’re going to talk about uh life after retirement, creating a uh good life in retirement, but really the agenda is these bullet points here. How does your retire uh retirement plan currently measure up? uh imagining your life in retirement, looking at all potential sources of income, determining a withdrawal strategy. We’ll talk a little bit about taxes, and then how to get started on creating your specific comprehensive financial plan. Again, if you do have any questions, please just go ahead and use that chat feature, and we’ll make sure we get to them at the end of the presentation. But, uh, we’re going to look at retirement income, right? So, a retirement income plan. The first bullet point here, how much income will you need in retirement? That’s a big question. I really think that boils down to your expenses and how much you spend in retirement. We’ll have some questions that pop up. Do I have enough? Do I need a million dollars? Do I need a $2 million in my retirement plan? But everyone’s going to be a little bit different. And I think that’s really driven by your expenses. How much will you spend? And to cover those expenses, where will that income come from? As you can see here, all these different accounts are pieces of a puzzle. So, we have social security that we’ll talk about today. We have your specific investment accounts, 401k accounts, if you’re lucky enough to have it, a pension plan to provide some of that income, Roth IAS, but basically you have to look at all these income sources and you have to look at those expenses and you have to make sure that these assets or this income plan that we put together has the ability to provide income over a 30-year retirement. We’ll talk about life expectancy here in a little bit, but we just want to make sure that these assets or this income stream is able to last an extended period for you. This is a recent study, a little bit older, but uh this is a study. It’s a retirement confidence study. I find this interesting because it pulled two different sources, right? Pre-retirees in dark blue, so workers and retirees. and it was looking at potential retirement income sources. So those who are working, where do they think their income is going to come from? Those who are retired, where is the income actually coming from? So when you look at this, I think a few things kind of jump out at me. Uh the first one is social security, right? of those who are working. If you look at your social security estimated benefits, if you do some calculations, if you put it together in a financial plan, but if you’re working, you might think this could be a major source of income from for me. Don’t know that’s going to cover all expenses, but workers have social security listed as 88% uh as a major source of income. When in actual retirement, retirees are calling social security a larger source of their income all the way up to 94% is a major source of income for retirees on social security. Now, that goes to the next one as well. Next one is a workplace retirement savings plan. So, let’s call it a 401k plan. So, as you’re working and as you’re saving and you see those balances get bigger and bigger, you think to yourself, “This is being substantial. this is going to provide me a lot of income in retirement to the tune of 84% of workers responded that their 401k is going to be a major source of income when in actuality in retirement most retirees are saying that’s about 49%. Really not relying too much on the 401k most of the heavy lifting is being done maybe from social security maybe from a pension. So, that kind of begs the question, which we’ll talk about a little bit more, but what to do with those retirement plan savings, those 401ks, as they keep growing and growing over time if you’re not distributing from it if it’s not a major source of your income. Do we look at estate or legacy planning? Do we look at tax planning with those dollars? So, that’s another one that kind of jumped out. And then if I go all the way down, fifth one, work for pay. We have these conversations quite a bit as we’re going through a financial plan. Maybe the idea is I’m going to switch careers, maybe end this career, do something for fun, maybe some part-time work that uh will pay the bills in retirement. Maybe if I’m under age 65, that work will also cover some medical expenses, some health care plans until I reach 65 for Medicare. So workers, 73% said, “I may have a job, whether it be full-time or part-time or consulting in retirement, and that may be a major source of income for me in my retirement years.” When in actuality, maybe it’s conceptual. Maybe most people don’t act on this and actually continue working. when they stop working and they enjoy maybe like we’re talking about today, the good life, only 23% of retirees actually continue on and get a job in retirement and work for pay. So to me, those are the big ones here. Social Security, 401k plans, and then will I work in the future? So, uh, one of our bullet points here, right? How do we measure up? How is your retirement plan savings doing right now as compared to others? So the first one we have is 28% of American workers have no retirement savings. So if you have any retirement savings, then you’re ahead of 28% of workers in this country. So this might be a little misleading because sometimes we’ll run into situations where if you look at social security benefit estimates, if you look at a pension uh uh benefit estimate, especially for governmental workers, those uh pensions could be substantial. So maybe that person didn’t really see the need for private uh retirement plan savings. So but just to give you an idea, if you have retirement savings at all, you are going to be ahead of uh 28% of the country. Only 16% of Americans uh take advantage of the ketchup contribution in their IAS. Ketchup contribution. I’ve done presentations uh in the past on these. Hopefully you all know what the catch-up contribution is. Now, catch-up contribution is available in an IRA account. It’s available in a 401k plan account, but basically it means for those of us over 50 years old, you can add more money into your retirement plan savings, whether it’s an IRA, a 401k. So maybe at that point in life, you have more free cash flow. Maybe the kids are out of the house, maybe college expenses are paid off, maybe the mortgage is paid off. That more free cash flow can be put into retirement plans to kind of superersize the retirement plan savings towards the later years. IRA account, if you’re over age 50, you can add an extra $1,100 into the IRA for this year, 2026. So the standard amount is $7,500. If you’re over age 50, that’s going to come out to 8,600 for an IRA. Now, the 401k contributions, those are bigger than IRA. So, if you have a 401k contribution, the base amount that you can do this year is going to be $24,500. But if you’re over age 50, you can do a catch-up contribution for an additional $8,000. So, that would bring the total up to $32,500. It’s kind of a a quirky rule here. In the 401ks, ketchup contribution, if you are age 60 to 63, they give you a bigger ketchup contribution. So, that number is $11,250 for the ketchup. So, that would take you to a total of 35,000 in the 401k if you are ages 60, 61, 62, or 63. So, make sure you understand and you take advantage of those catch-up contributions while you can. There was a new rule change to the ketchup contribution. If you make income over a certain level, the ketchup has to go into a Roth portion of the 401k. Another point here, right? Are you on track? Only 41% of Americans age 60 and older think their retirement savings are on track. And then finally, going back to my financial planning statistic, right? Only 36% of American households have $250,000 or more in retirement savings. Goes back to our financial planning bullet point, right? Only I think the number was 36% of Americans have a financial plan in place. So, I think it helps understand, do I need more than 250,000? Do I have a confidence in my plan going forward as well? If you could see it kind of all put together. So that’s kind of uh just stacking it all together, looking at statistically to give you a feel of how your plan or how your assets might fit into the other uh averages across the country. So now we’re going to talk a little bit about life in retirement, right? Where will you live? How much home do you need? What will you do? How long will you live? I know I mentioned we need assets to last 30 years in retirement. So we’ll define that a little bit more. what surprises may come up in the future uh additional expenses and how much income will you need to cover all this. So when we look at it, the first bullet point, where will you live? It’s a personal question. Um most of the survey respondents here, right? Where do I choose to live? Most important factors are nearby family and friends, affordability of the housing, uh maybe access to health care and hospitals, climate, good weather. It’s not the top one. Usually that comes up in conversation, but that would be number four on the list. Crime rate, leisure, recreation activities, but it really kind of boils down to nearby family and friends, and affordable housing. So, what’s interesting, I started the presentation talking a bit about financial planning. So, this is always one of the questions that comes up, right? Where will you live? Will you maintain the same household? Are you going to downsize? Maybe in this conversation, it might even be a second home or a vacation property or something like that. But in those financial plans, we have the ability to model sever several different scenarios. Number one would be maybe do nothing, keep the same house, keep the same expenses, watch the mortgage pay off over time and see how that affects the financial plan. We can also do a side-by-side comparison on housing saying, “Okay, in this year after another three or four, I’m probably going to sell this house. I am probably going to move to this state and we may downsize.” So, we could run some of those assumptions and say, “Well, if you downsize, here’s what it would look like to have the mortgage paid off. Here’s what your lower expenses would look like. Here’s how it it would affect your overall financial plan.” So even on housing in those financial plans, we could run sideby-side comparisons, whether it’s kind of reducing downsizing the house or increasing the size of the house with the second home or so. We could show you the factors involved in that and what that would look like for the next 10 to 20 years in a financial plan. What will you do? What will you do in retirement? So right hand side, right? Some things that this is kind of what we talked about before. Uh this is a survey. Uh this is light purple retirement dreams, right? Most people say I want to travel. I want to do certain things. So 60% said travel is important as they’re nearing retirement. Actually spending time in retirement. 36%. Again, these are all completely personal choices. Everybody’s going to be a little bit different as to what you want to do. But I think more importantly in this conversation is the left hand side. The left hand side. This is the way I look at this, right? We are either looking at income generating activities or we are looking at expense generated activities. Income generated activities, right? Making income. Maybe I want to work for fun. Maybe there’s something I want to do that uh is not full-time, but it’ll provide me a bit of a paycheck. It’ll keep me busy. It’ll maybe pay some of those health care plans until I’m 65. Maybe I’ve done some work already. I’ve started a business. This business is fun and this business is profitable for me. Keeps me busy, but it is not a drain on my expenses. It’s actually adding to the story. So, income generating activities, expense generating activities, right over on the right hand side, a lot of people dream of retirement, uh I’m sorry, of traveling in retirement. So travel, we budget a certain amount in a financial plan for travel expenses, but that is going to be an expense generating activity that’s going to increase with inflation over time as well. Hobbies, right? I love to golf. Golf expenses, tea fe ges are expensive. So we could model certain discretionary spending to match what those activities might look like for you. And then finally, uh, owning a business, a startup, it may be capital intensive. It may cost you money to get that going. It may be a bit detrimental to your income plan. All things that we could model together, but it’s important to understand is what I’m doing. Income generating, helping out the overall plan, or expense generating. Next one we’re looking at is how long will you live? And we could run through all the statistics on the right hand side. If you reach a certain age, life expectancy factors will take you to a certain age, right? But a lot of times when we have these conversations, it’s important to a financial plan because at some point we don’t want the accounts or the income plan to run out of money. So usually what we’ll do is kind of default a plan to age 95. know a lot of times that’s easier said than done for age 95. So I’ll have a conversation with my clients. We’ll talk about some family history. Within that family history, I’ll receive stories of relatives who are octogenarians or centiggenarians and there’s a lot of longevity in the family. So we need to plan accordingly. Again, back to what I said before on that 30-year income plan. We just don’t want to leave you destitute at any certain time. And then the flip side, these are completely customizable plans. So based on family history, we could use whatever time frame or whatever is appropriate. So we could do some uh guesstimating here. There’s also a website living00.com. It’ll walk you through a questionnaire and ask you a a bunch of lifestyle questions and come up with some of the calculations. But uh again, we just want to make sure that whatever plan we put together has the ability and the probability of success to reach well into your expected life expectancy. So when I put this together, right, I said there might be a couple outputs here in the presentation of our financial plans. So this one here is called lifetime portfolio value. So this one is just a hypothetical example. We ran this plan out to age 95, but this is showing portfolio values at various ages. This could be affected by market performance. I have this one set to a average market performance for this moderate investor over time, but you’re going to see the balances change year-over-year. some accumulation going on in the account. If the accounts are growing, if the uh uh there’s additions into the investments, either through required distributions going back invested in the plan, or you’re just not spending all the money. So, basically, year-over-year, we can see what the portfolio value is. Now, this one is set to portfolio value. This is not looking at home values or illlquid assets. We could say at any given time, this happens to be at age 95, this plan had $2 million left over in it. But then we could say, all right, at age 85, this is potentially what your assets will grow to. I think this is also important to know and to understand because a lot of times in conversations we will talk about possibly long-term long-term care and some long-term care planning. If we model some of those projections of if that scenario were to happen and what the average costs are, we just want to make sure that the conversation is had that there’s either assets in the plan to cover some of those types of major medical expenses or that you’ve had a conversation or discuss long-term care uh coverage in the past. So, this is a great way to do it just to see yearbyear what the projections are for longevity and your portfolio values. So next what we want to do is we want to look at all potential sources of income. Right back to the piggy bank that we looked at before, social security, pension payments if you’re eligible for a pension, possibly annuity payments, which kind of behave like that pension payment for income or lifetime income. Again, working if you’re not working, if you are working, if it’s part-time work, can it be relied on? How long do you think you might do something like that? And business interests as well. So when you look at each one of these categories, characteristics of each, what we’re looking at at the top, the key term here is guaranteed income, right? Guaranteed income for life. So social social security at the top. Two important factors. Uh social security is inflation adjusted for income. So you probably hear about this every year. and we’re just waiting in October to get the cost of living adjustment on social security. Last year declared for 2026 at 2.8%. So it goes up over time and it’s guaranteed for life. So guaranteed income. Next is the pension, right? Fixed income may or may not have that inflation adjustment or the cost of living adjustment depending on your specific plan, but it’s going to carry that guaranteed for life. Right? So, we have two guaranteed for life there. From there, we’re going to go into earnings from work questionable. How how long may this go on? How much might I get paid? So, it’s not going to have that uh kind of designation of guaranteed for life. the annuity C category. It could, right? You could use it guaranteed for life. So, that is a possibility. The income it provides you may be fixed. It may be variable. It may have a a cost of living adjustment depending on which route you may have taken on the annuity. And then really other income, right? other income, investment properties, business interest, uh withdrawals from your investment accounts, IRA, 401ks, savings, uh nonqualified means nonretirement accounts. So, if you have a brokerage account, mutual funds, a stock account, how do you coordinate the investment uh the income from those investments? But what I want to do here, I just want to point out again, the first two were guaranteed for life. pensions and social security, possibly the annuity, but the key there is guaranteed for life. So, what that’s going to help me do is determine what your income stability ratio is. How much of your monthly income is from a stable fixed source that has nothing to do with the market, with the stock market. It does not fluctuate. It is stable income. And how much of your income on a monthly basis is questionable. Maybe from that employment income, maybe from market driven investments. We come up with your personal income stability ratio. For example, you spend $2,000 a month. Your social security is $1,000 a month. Your income stability ratio there would be 50, right? 50%, the 50% ratio. So, we’d like to have conversations around that number. Understand that there could be fluctuation in that other 50%. look at ways to advance that number above 50%. Whether potentially it’s waiting longer to take social security to get a bigger payment, whether it’s uh deciding when to start the pension payment, your annuity payments, things like that. But we just want to make sure you have a good amount of stable income coming in on a monthly basis. Uh this one here, just average retirement income sources. kind of hinted at this in the past, but uh major source of income for most people is social security. So, it was never meant to be the sole source of income. It was meant to be a complement to those pensions, personal savings, uh all those different things. But most income is coming from retirement income is coming from social security with a smaller amount coming from pension plans. even smaller amount coming from 401ks and IRA. Everything else gets very small after that. Inheritance, home equity, anything like that. So, the first three are going to be the biggest categories. Social security being the biggest one. I’m sure you know I offered before if you have questions, put it in the chat feature. I’m sure there’s a lot of questions on social security. Uh so we could definitely answer those for you or have some conversations offline about your specific situation or the viability of social security going forward. But uh when you look at this, this is social security. This is just kind of uh emphasizing the cost of living adjustments 2.8% this year. This is basically saying that if your monthly benefit is $2,000 right now with the cost of living adjustment in 10 years that would come out to 2600. In 20 years it would be 3,400 a month. 30 years 4500. So it’s going to be uh continuing to grow and grow. So now I’m just going to pause here and say if you haven’t yet gone to the website below ssa.gov/s /estimator. What you want to do is just go to that website. You want to get logged in. You want to create your own password. You want to make sure the account is secure so nobody else can access your information or falsely file for any kind of benefits. Number two, you want to go in there and you want to get your benefits of statement, statement of benefits. You want to see what the projections look like when you are depending on your personal time frame, but let’s see what your benefits will be at 62, at 65, at full retirement age, maybe 67, and then if you let it grow for some time all the way to age 70, what would the difference be there as well? It’s important key if we uh run any financial analysis or put together a financial plan. So if you have some time take a look at the social security website secure it and then understand your benefits as well. And then the next question right what age will you start social security will you and your spouse start social security and how can you optimize your benefits? So if you put that all together those are some pretty big questions. Um, what I would say is if you look at it within a plan, how it coordinates with other income sources, how it coordinates with your taxes and what you’re trying to accomplish on the tax side. We could come up with a time frame that may be appropriate for you to start that benefit. Now, a lot of people will ask, they’ll say, “I’ve heard that there’s a break even point in time.” And that break even point in time, what that means is if you start your benefits early, you’re going to get a lower amount. It’s going to continue on for life. If you defer for a few years, you’re going to get a higher amount and that’s going to go on for life. But at some point in time, if you wait a little bit longer, there’s going to be a break even point. And usually for most people, that break even point is right around age 80. That means at age 80, you would have been paid the same amount whether you started early or you started later. So, it goes back to our question before about longevity in your family. How long would you potentially receive these benefits? Because the longer you wait, the more you get paid. Now, if you are full retirement age 67, if you have the ability or luxury to wait till age 70, you’re going to have what they call deferred credits. Deferred benefit credits. You wait from age 67 to 70. The amount you are paid in benefits goes up a guaranteed 8% each year until age 70, which would be a 24% increase over your age 67 full retirement age amount. So you wait the maximum, age 70, 24% increase. You could start your benefits all the way as early as 62. You started at 62. Every year there’s going to be a reduction of 6 and a4%. So if you take it the earliest you can, you would have a 30% reduction. So a lot of calculations go into this. Not only your own personal calculation, but coordinating with your spouse or spousal benefits in there as well. So really going through a financial plan can help answer a lot of these questions. What difference will it make to me and what opportunities would be presented to me if I wait as far as taxation or uh working on my other investment accounts for some income sources. So we’re happy to talk to you about uh social security as well. Pensions if you look at pensions if you get one right do you get one at all? When do you become eligible for it? How much will it be? what are your distribution options? So, I would really say with pensions, if you have one, if you haven’t received an estimate of benefits in quite some time, this is a good opportunity. Hopefully, now it’s on the top of your mind, but you contact that plan administrator and you have them run an estimate, an estimate of benefits. They’re going to ask you a couple questions. Uh, when would you like to see the example run? At what age? And it kind of goes back to these conversations, a little bit of financial planning, but you’ll be able to tell them, say, I would like to start my benefits at 62 or 65 or whatever the appropriate age would be. And then they’re also going to ask you about your spouse and if you’d want any continued benefits to go to your spouse as well. So really what we’re looking there for there, similar to social security, we want to find out what the monthly amount is and we also want to know if a pension plan has a cost of living adjustment. Some do, some do not. So uh you want to find out that see if they have any kind of a inflation factor where your payments would go up over time. The other thing is we want to know what the spousal benefit would be. bigger the age and difference, the lower the payment is going to be for kind of a uh joint life payment. But just want to run a couple examples just to make some educated decision and get those uh uh pension estimates put together. The next category we have is earnings from work. Right? Same thing we’ve talked about before. Uh will you work full-time, part-time? What do you want to do? How much can you expect to make? and how long can you expect this work to go on. So, I know these are some big questions, but uh some estimates that we like to deal with when we’re creating an income plan and also kind of judging going forward. We don’t want to overexaggerate your income. So, we just want to put a little thought into this to see if this is something that would actually take place where most retirees say, “I didn’t actually work when I said I would work in retirement.” So, uh, annuities, um, I have a whole presentation coming up on annuities in two weeks. So, we can dive deeper into that, uh, this category then. But if you have an existing annuity, uh, a lot of times, now these are all different and we’re going to go over myths and misconceptions, but you have an existing annuity. A lot of people, uh, purchased an annuity for lifetime income, which is great if you need it. It may help you with that income stability ratio, may help to replace some of your income as well and complement social security, especially if you don’t have a pension or a private pension plan. If you do have uh one of these annuities, you just want to do a review on it because these have drastically changed over the last 10 years or just things you want to take a look at. Uh do you have an income ride or an income benefit? What would that pay you? What does it cost you in expenses and fees to maintain something like that with your annuity company? Do you have any charges, any surrender charges that you would be liable for if you make any changes to your annuity? And then the tax implications of receiving that income. Is it a retirement account? Is it all taxable? Is it a non-retirement account? You might you have a exclusion ratio? Part is taxable, part is not taxable. So different things that we could uh help you explore just to make sure you’re making the right decision if you have one of those investment categories. And then from there, right, we’re going to look at uh investment, income, personal savings, great big category, but for income sources, IRA, if you have a traditional IRA, it’s taxed differently than the Roth IRA. Traditional IRA is all taxable. It all counts as income on the tax brackets where the Roth does not. So, we want to make sure you coordinate distributions from each of those to make sure you’re uh spreading out or doing the most tax efficient income distribution as you can. Along those same lines, right, uh SE IRA, simple IRA, all different versions. If you have one of these, you’re familiar with it. Self-employed IAS, but all different versions of that pre-tax model of the traditional IRA. Uh continuing on with the Kio 401k, all same pre-tax kind of dollar, but here we go into a few different categories. Now, we’re out of retirement accounts, but we have a uh cash designation. We have brokerage accounts. The brokerage accounts are going to be again like stock and mutual fund investments. They’re going to qualify for a capital gain distribution tax. different than the retirement accounts account as income. Brokerage accounts are a bit more tax efficient with the capital gain distribution and it says nonqualified accounts here. Basically, non-qualified accounts means nonretirement account does not qualify for any special tax treatment as well. But the main idea here is there’s many different investment account registration designations. So, you have to look at this in a couple different ways. You have to say, well, the first way is investing. How am I invested in my pre-tax retirement accounts versus my Roth or tax-free investments? Do I want more growth in the Roth and the tax-free? Because it’s all tax-free, I’ll have a more growth lean into those types of investments. May I then be a little more conservative with the pre-tax dollars because that continues to snowball and create a larger tax liability for me? But if you put the two together, you’re going to balance them out into the exact portfolio you’re looking for. You’re just looking for more of the growth to happen within that Roth account. So that’s number one, investment accounts diversified by tax treatment. But you also want to look at these when we start the income distributions. You want to look at the most taxefficient way to withdraw from your investments. Most tax efficient way, right? Some is pre-tax, maybe some is brokerage, those capital gains. There’s a mixture of everything in there. But we can go through these different categories and we can model different scenarios to find the most tax efficient way. default theory is we look at cash accounts, brokerage accounts first, then we look at taxable accounts uh then uh I’m sorry cash and brokerage account taxable accounts first then we go into pre-tax accounts next or distributions final phase of the distribution strategy is the tax-free or Roth. So taxable accounts first, pre-tax, traditional IAS, Roth at the end. Now, if we run that together in a plan, we could say, “All right, this is how it works out for a tax liability for you, but there’s alternative tax strategies, right? What if we take money to live off of, we start our social security, we do distributions from cash and brokerage accounts, and then we do Roth conversions in there as well.” So we can model different scenarios but we’re looking for the most taxefficient way to distribute from income accounts. Now these are uh a little bit other income sources might uh be applicable might not be applicable to to each one of you but home equity it’s uh it’s there there’s conversations around it. Um uh not necessarily something that we uh see or take into consideration in a income plan. real estate investments. Uh if it’s ongoing rental income that you can count on, we have to look at that in the same respect that we talked about housing for primary housing before. Do you plan to continue this rental property, the maintenance of it, the income? Is it going to be sold at some point? Can we model the sale of that, the tax implications? Business ventures, right? Maybe I’ll do this business for a while, maybe I won’t. Maybe I’ll sell it. inheritance in the future, trust accounts, all those different things. They’re consideration. They might be one off in most financial plans, but different things that that we could take a look at. So, with that said, I just talked about five or 10 minutes about different income sources. So, I say the best way to look at this again is uh as a comprehensive view. This is where I started the presentation in a cash flow overview that takes all those categories I just mentioned. It puts it all together on one clean source. And really what it’s trying to do here within the plan is solve for that red line for those expenses in the middle. So we calculate our expenses and we say all right where do I need to take my income from to meet that red line of expenses. Left hand side is easy. Those uh light blue bars are employment income. The dark blue bars are social security. And then the yellow and then the orange are withdrawals from your accounts to meet those expenses. So this is where we get into some of that tax efficiency strategy in there. Just a couple ideas on withdrawal strategies for you as well. But uh once you’re at that point, we need to create some income. Couple different ways to do that. We’re just going to bullet point a few of these here. Um, you’ll probably be able to tell which one is my favorite as I go through this, but uh, the first one is something called live off the interest. Next one is the 4% rule, maybe four to 5% rule, bucket strategy, and then uh, covering mandatory versus [clears throat] discretionary expenses. Just a couple minutes on each one of those, but uh, living off the interest, it is exactly as it sounds. uh assets are invested in an income oriented security. So think to yourself here at the credit union the savings account is 3% their CDs a little bit north of 4%. Think of a bond that will pay a coupon rate or an interest payment to you on a monthly basis. Maybe in this category it says dividend paying stocks. Dividend paying stocks might have some principal fluctuation in there. But the basic idea is this is going to pay an interest rate. This is going to pay me a dividend and I’m going to live off of that interest rate or that dividend. My main goal here is to keep that principle and untouched and live off of the interest. So that’s number one, just living off the interest. Number two is 4% rule, 5% rule maybe just to expand it a little bit. But the investments or the assets are invested for total return. Right? So this may be a portfolio stocks and bonds maybe a moderate portfolio might be 60% stocks and 40% bonds. You may have some other holdings in there that pay some interest. Other stocks that pay dividends, but you’re investing really for total return. So, what you’re going to do is have your investment portfolio with all these different pieces in there, all these different pieces to the puzzle and then you simply go in there and you withdraw 4%. So, if you have $100,000, you’re taking out $4,000 and you increase that a little bit each year for your own inflation adjustment or for the cost of living adjustment. Now, I said 4%, I said 5%, right? Studies show that four to 5% is a safe withdrawal rate to sustain a income plan for an extended period of time. But when you look at the 4% you say well if I am receiving 4%. And inflation is 3% we’re kind of taking money out but eroding the account by about 7% per year. I need these portfolio assets to return that maybe six to eight% per year to keep up with this strategy. But basically, you’re just going into your accounts and you’re removing a set amount plus inflation each year. Now, the bucket strategy is kind of taking those first two concepts together. Now, what this does, it segments assets into durations into different time periods. So assets are placed into buckets for the corresponding time horizon. Investments are dependent on that time horizon. The longer the time horizon, the more growth oriented an investment can be. And then income is taken from the bucket specifically designated or earmarked for that purpose. Other buckets are left to grow. Again, real simple example. Uh, in my example before, I said maybe expenses are 2,000 a month, maybe social security covers 1,000 a month. So, you have a $1,000 a month shortfall. You have $12,000 a year shortfall. So, the theory here is 12,000 for one year, 12,000 for year 2, 12,000 for year three. So if you take 36,000 maybe 50,000 of the overall portfolio and you put that into bucket number one, safe, conservative, fixed rates, nothing to do with the market, you’re eventually going to deplete bucket number one. So as time goes on, your withdrawals are from that bucket. Bucket number two is investments, lower volatility. Think of your blue chip stocks, your dividend paying stocks, things like that that would have a five to 10 year horizon. The last bucket is your growth component, right? So, you’d have access to different investments, maybe have a bit of a more uh stock exposure in there, more of a growth lean. Conceptually, here’s what happens. If you wake up and you see the market is down and it continues to go down 10 20% and it goes through a bare market period, you know to yourself that you’ve already planned for this specifically. There’s enough funds in bucket number one to carry you for the next 3 to four years. So you don’t have to worry about what the market is doing in the short term. It’s not going to affect your spending. Now, on the flip side of that, if the market is up, right, if we do account reviews and we say, “Hey, it’s been a great year, you just spent six months or a year of bucket number one, because the markets are doing so well. Why don’t we take some money out of bucket number three or bucket number two and replenish bucket number one to give you that fresh three-year horizon of the income?” So, that’s the uh the bucket strategy. Final thing is the mandatory versus discretionary expenses. This is uh a little interesting. Mandatory expenses, right? Utilities, property taxes, keeping the lights on. Everything that is mandatory is funded by guaranteed. So making sure that social security and pension is enough to cover those mandatory. Discretionary, the fund money, the travel, the gifting, the shopping, all that kind of stuff. Discretionary are funded by investment accounts with growth potential. So this one this one’s a little bit interesting because I think you know if you look at it if the market’s down and your fund money is in overly growth opportunity potentials uh you might have to skip a year of some of the fund money. So I always kind of lean towards the bucket strategies just making sure all bases are covered for any market condition. But then when you do a comparison of all this right living off the interest it’s simple you just take the uh the interest off of it. The problem with that is if interest rates go down, dividends go down, your income will go down over time as well. Mandatory versus discretionary kind of peace of mind that the base expenses will be met, but you just don’t know that you’ll fully be able to fund all this the discretionary spending you want to. Uh 4% rule is great. Uh success depends on the investments. I’ll just say this in 2022 stock market was down, the bond market was down. So even diversified portfolios were down kind of uh accentuating that would be taking a 4% withdrawal from both uh asset classes that are down. And then finally bucket strategy like we talked to like we talked about uh a little bit more complex. You got to monitor a little bit harder to uh set up. It’s a little easier right now because uh interest rates are remaining high. So it helps that bucket number one story as well. So that’s some uh distribution ideas. Uh we’re going to talk a little bit about taxes, tax basics, tax regulations for different income sources. So all the things that we talked about uh so far, these are just the uh tax liabilities that come along with those. We talked about housing and moving to different states. Uh I’m currently I’m here in Illinois and Illinois we do have high property taxes, but we are a retireefriendly state. Illinois does not tax social security or pensions, retirement account distributions, IRA distributions, anything like that. So, just something to keep in mind as you’re looking to maybe move in retirement or even what your current state taxation is. Everything mentioned here is going to be a federal taxation. So, no matter what happened with the one big beautiful bill, no matter what you’ve heard, um social security is taxable. There’s different tiers. Most people pay 85% on their social security benefits. 85% is taxable. Uh pensions, think this is a little misleading. All or part may be taxable. I’d imagine for most people all of your pension income is going to be federally uh taxable as well. And we talked about earnings from work. That’s income. Investment income depends how it’s invested. Uh if you have dividends, you might receive some qualified dividend payments that qualify for capital gains. You take money out of an investment account. If you held it over a year, that’s capital gains. On those accounts, if it’s under a year, it’s going to be considered income, ordinary income. And then also on the IRA, IAS are income treated as well. So all IRA distributions be federally taxable as uh as the marginal income tax break brackets. Then finally, since we talked about it, right, just a little bit on annuities, it depends if your annuity is an IRA retirement annuity. It would all be taxable unless it’s a Roth or if it’s an annuity that is uh not a retirement account, that annuity grew uh tax deferred. So, part of it is going to be a tax liability to you as well. So, I went through that kind of quickly, but uh let me know if you have any questions on uh on taxation of accounts. So, uh, just a little bit on taxation again. Uh, the required minimum distributions on retirement accounts. The line in the sand is 1960. If you were born before 1960, your required distribution age is 73. Anybody born 1960 or later, you get to wait till age 75. So some strategies are right uh before those required distributions come along converting some of the money from a traditional pre-tax IRA to a Roth. I’ve done presentations on that. We can model that within a financial plan. So let me know if that uh is something you have a question on. Um if you delay your social security, it’s going to do two things for you by delaying social security. Number one, it’s going to lower your taxes for those years you’re delaying because most people are going to pay 85% taxes on social security, but it’s also going to increase your benefit. So, the longer you wait, the more you get paid. So, it’s kind of twofold by delaying social security. And then again, uh reducing expenses. That’s where we started today, right? If you have lower expenses, all these stories are much easier. But focusing on paying down debt, uh simpler lifestyle, maybe downsizing the house would help with some of those reduced expenses, which will then reduce the amount you have to take from your retirement accounts, which reduces taxation on it. And then finally, uh big bullet point here, but continue to manage taxes throughout retirement. It’s an ongoing conversation. Tax laws and legislation are constantly changing, especially with required distributions, right? We just want to monitor your tax brackets and your Medicare u premium charges. So just a few strategies there on the tax front. And then finally, right, taxes. You have different tax accounts. We talked about this taxable accounts. A stock account, mutual fund account, it’s taxable. It’s not a retirement account. Tax deferred account. You have to pay the taxes on it when you take it out. It’s going to be counted as income. And then tax-free is the Roth, right? So also types of investments, risk horizon, time horizon, risk tolerance, all this stuff put together. But I’m just going to look at these top section here, tax deferred and taxfree. We put the whole tax conversation together. You’re going to have a tax liability. Now, you’re going to be able to see within a financial plan, what do my taxes look like today? I’m working, so maybe my taxes are a little bit higher. What do my tax liabilities look like at maybe the 10% rate, the 12% tax rate? What do my taxes look like when I stop working? And then we mention required distributions. What does it look like in the future? Will my taxes be higher in the future? This is kind of a little typical of a uh retirement plan, right? Higher taxes in the beginning, kind of a valley there where there’s no employment income, but yet required distributions haven’t started. This is going to be the opportunity for a lot of retirement account tax planning. Whether it’s taking some of that money out, spending it, do different things. You just want to pay the taxes at the lower rate or we start to introduce the idea of doing a Roth conversion, converting some of those dollars at a lower tax rate when you can anticipate your tax rate would be higher in the future. So within this plan, alls we do is we say, “All right, for those low tax years, I want to do a conversion to Roth. I want to pay the taxes now so I never have to pay the taxes again.” And in this example, I just put in a 12% tax rate. So basically what we did here is we just added some yellow bars into our tax pax bracket financial report. Those yellow bars are Roth conversions up to the 12% bracket. So you can see it added a little more income with the yellow brackets, but it smoothed out the future taxation. And at the bottom of the plan, whenever you do a uh Roth conversion, right? Whenever you look at that conceptually, you want to say, does this help me? Does it lower my taxes? Bottom middle of the screen in this example, it was able to lower lifetime taxes by $112,000. and also added portfolio value by doing a conversion. Added portfolio value of $600,000. So if you don’t do that, this is the do nothing plan, right? Social security, dark blue. You hit age 73 or 75. You have all those big orange bars. We can do the calculation on the required minimum distribution. and we could show you what it potentially will look like in 10 years with some assumed growth in the account and what it’s going to look like tax-wise year-over-year if you do nothing. We take the do nothing scenario, we compare it to the Roth conversion scenario and see if that may be appropriate in your situation. So, with that said, right, I think we’re uh kind of wrapping up here a little bit on all my life after work uh bullet points, but uh action plan, right? gather resources on transitioning to retirement. We kind of talked a little bit about getting your social security benefit statement. We talked about pension statements. We talked about putting together that financial plan. See how it all works together. Make sure everything is coordinated to reach your goals. Put together a list of questions, concerns, anything that we might have touched on today that you want to talk about in a little bit more detail. And then of course, uh create a make an appointment, talk a little bit more about this. It’s what we do here uh at the credit union. Um how we can help. I’m just going to launch. Credit union likes me to put out a poll. If you’d like to talk, if you have any questions, if you’d like to explore seeing if putting together a financial plan is uh is ideal for you, just let me know there on the survey. We’ll be sure to get back to you. But uh we can help, right? life planning questions to help uh imagine your life in retirement, creating those income plans, determining your income needs, identifying those sources of income for you. We can help look at uh the IRA accounts, IRA rollovers, 401k rollovers, model your personal Roth conversions, and create that uh tax efficient withdrawal plan for you as well. And then of course, we also do uh I’m a certified financial planner. I’m also a registered investment adviser. So, we could do portfolio review and management. We can review your uh current investments and take c tax consideration into your investment portfolio. So, with that said, I am going to wrap up. I’m sorry we went uh just a little bit long on today’s topic, but again, a goal without a plan is a wish. We don’t want to wish for a successful plan. We want to plan for a successful plan. This is all my contact information. Uh I always say call, click, or visit. We could talk over the phone. You could uh scan the QR code and access my calendar to set up a time. U if you do that, it’ll set up a Zoom meeting for us. Same format as we’re doing here, but uh we just talk about your specific situation. And then if you’re in the Chicago area, I’m at the credit union headquarters every day and happy to meet in person with you as well. So, with that said, I know uh I promised I would get to the uh Q&A, the chat feature. So, if you have any questions, let’s go ahead and put it in there. I’ll take a quick look at that and uh see if we can answer some questions for you. There’s also going to be a credit union sends an email out on my behalf at the end of these presentations. So, any questions, comments, any additional topics you’d like to see or if you’d like to uh talk a little bit more about your personal situation and your comprehensive plan, just uh let me know. So, I’m going to go to Q&A first. Uh actually chat first. So, we got uh somebody wrote in here, what constitutes taxable accounts? So, taxable accounts uh we’re going to define that really as nonretirement accounts. So, a taxable account would be a savings account, a checking account. Those type of accounts are going to earn interest or dividends. It’s taxable every year. You’re going to get a 1099 int. Another taxable account is have a brokerage account. You have some stocks. So you have some bonds, you have some mutual funds, anything like that. It’s going to be a taxable account really on an annual basis. You’ll receive a 1099 DIIV, a dividend report. So those are all taxable accounts. Now the other accounts are tax deferred for a traditional IRA. You got to pay the taxes eventually, but it’s tax deferred. [snorts] And then the other one is the Roth, which is tax-free. So kind of different tax treatments, but taxable account you kind of pay as you go. either credit union, uh, brokerage accounts, anything like that. So, another question came in. Are withdrawals from traditional IAS considered income that is taxable? The answer there is yes. Uh, I’m struggling because there’s no other way to answer that. Uh, somebody has to pay the taxes on traditional IAS. So if you do it yourself, if you take some money out, uh it would be treated as income that year and it goes through those marginal income tax brackets. You get a standard deduction, but then some would be taxed at 10%, some at 12, and it kind of goes through the uh the different tax brackets. That’s why those required distributions kind of wreak so much havoc at the end of a plan because they’re larger distributions and they go right through those uh those tax brackets. So the other way I would look at this is you know sometimes we run financial plans and there’s money left over and it goes to the next generation or the kids and in that situation uh that money is still taxable. Traditional IAS are going to be taxable to the beneficiaries. uh Roth IAS are not taxable to the beneficiary. So it just gives a little more validation to having that uh Roth conversation. Uh somebody asked is there a cost for your services here? So when we talk when we meet we’ll have an introductory meeting that financial planning is right for you and your situation making sure it’s a good match to continue on. We do that financial plan. There’s no cost. it’s part of your membership at the credit unions. We just don’t charge for that. I know a lot of advisors don’t even offer full financial planning. They charge for maybe we don’t do that. It’s it’s just part of the the membership here. Now, I mentioned I’m a certified financial planner. I’m also a registered investment adviser. So, throughout the plan, throughout the journey, there might be some investment recommendations that I make to help you reach your goals. Now, some investments do have a fee, some investments don’t have a fee. Again, you’re under no obligation, but uh I would completely disclose any any fees on the investment side for you as well, but uh whatever’s in your best interest. Again, we are a fiduciary firm here. Uh another question, how safe is it to use you for advice as I have all my Fidelity, all my accounts with Fidelity? It’s a great question. um that’s that’s a little tough because we can’t really manage uh assets that are not here. So, we could have conversations with you. We can go over some of those topics, answer some of your questions, but it just wouldn’t be an ongoing financial advisor relationship going forward, but u happy to get some uh some questions answered for you as well. Uh, another maybe same person. I have only used Fidelity financial advisors, but I feel like they are only order takers. Yeah, that’s what we’re trying to to give you a little bit more of the uh personalized experience. Um, so it’s uh me here. There’s a couple of us in Chicago, few others across the country, but we work with our individual clients. We work creating your financial plan, going over it with you. I would be your contact person. So really instead of uh dialing up those 800 numbers and talking to a different person each time, it’s really kind of building that relationship and working on that financial plan throughout the year as well. So I think we’re good on the chat feature Q&A. So uh another great question here, right? Does the 8% social security increase after 67 include cola? It does not. So again, uh if you’re over full retirement age in this question, 67, each year you wait, your benefits will go up at a guaranteed 8%. You don’t have to wait the full year. You can get 11 12th of that, 612ths of that whenever you start your benefit. But your benefit goes up 8% per year. And then on top of that, you’re going to get the cost of living adjustment. So if you waited, all right, this year, you got 8% this year plus it was uh 2.8 8% cost of living adjustment. So this year the payment would have gone up uh 10.8%. That’s a good question. Uh so another question, can one do a Roth conversion in the year turning 73 but before actually turning 73? So I’m assuming your required distribution is at 73. If you’re born in 1960, it’s 75. But if you have the required distribution, the year you turn 73, you have to take the required distribution out first. So if you’re 73, but your birthday is in, let’s say, October, right? You can’t do the Roth conversion until you do the required distribution. Once you get that required distribution done, that can’t go into Roth, but once you get that one done, then you’re free to do the Roth conversion. Uh, another question. I retired three years ago. Would it be a benefit of me to convert my IRA to a Roth? Uh, the answer there is it depends. Depends on a few factors. Um, number one, we kind of look at your age. Uh, one of the factors in Roth conversions is kind of time. How much time you have to let this grow tax-free. We look at how you would pay for it, making sure there’s funds available to cover the taxation of it. So, there’s a couple things that uh kind of swirl around that question. Love to uh answer that with you on a kind of onetoone basis and go over your situation. But, you know, if you retired a few years ago, if you’re close to the required distribution age, a lot of times I say we lost some time there. You don’t have the time to to really benefit from all the tax-free growth. you start to look at it as you do the conversion for your beneficiaries. So, that’s still an option, but yeah, happy to uh to go over that with you if you’d like. All right, I think we did it. Got all the questions answered. Appreciate you bearing with me. Sorry for going so long just uh talking about our topic here today. But again, there’ll be an email with my contact information. Happy to answer your questions or uh go down a little bit uh more of a comprehensive path with you on some of these planning topics. Hope everybody has a great Wednesday afternoon and um thanks for joining me. Take care.