management um in investment planning. Uh broad variety of investments uh maybe even a little bit of life coaching when it comes to your retirement years. Speaking of our webinars, we offer multiple webinars throughout the week with different presenters. Each of us will host a uh twice a month uh on a variety of topics. So, our team at Alliant Retirement Investment Service, we’re really focused on helping you understand the ins and outs of investing, saving for retirement, and much more. I encourage you to take a look at our resources at our website, which is aris.allantcreditun.com.
Um, and you can see a list of our weekly webinars, um, our podcast, which is called Investsavvy, um, our blog, uh, and other financial resources that are available to you. Um, frankly, the easiest way to find us is right on the Alliant Credit Union website where in the upper right hand corner, the tab that says retire and invest. As I mentioned, we each do two a month. So, my next webinar will be on Tuesday, that’s June 2nd, at 6:00 p.m. Central, 700 p.m. Eastern. Um, and that will be Social Security. It’s a choice of a lifetime. We’ll look at benefits, eligibility, claiming strategies, things you should consider, and the impacts, some of the tax impacts, um, implications, etc. I try to do one in the evening and one in the afternoon. So, after that, I’ll be back in the afternoon on Wednesday, June 17th at 2:00 p.m. Central, 3:00 Eastern Standard Time. Um, we’ll be talking about the anatomy of res a recession. So, I think this is always an especially relevant topic this past year as well as years in the past. Um, you know, tariff lawsuits, midterm elections, wars. We’ll talk about recessions from a historical perspective and how they apply to our current situation. I’ll give you some updated current uh data. We’ll discuss Fed rate cuts, your non-cuts, maybe even raise rate, maybe even a hike. Um tariffs, whatever that might be, our government shutdown, which finally ended, uh geopolit geopolitical decisions, etc.
All right, so today’s agenda. Look, if you’re here, it mean you’re probably thinking ahead to retirement and wondering how are you going to replace that income. Uh once those paychecks start coming, uh you spent years saving, scrimping, planning, and you probably amassed a goodsized piggy bank. We’ll call your nest eggs piggy banks here. Uh maybe even a couple of piggy banks. So yet there’s still worry that your savings and retirements are not enough to support you in those golden years. And I would say this is probably a um kind of a big issue, right, as far as will you have enough? It’s a big concern for most Americans out there. So, over the next 30 minutes or so, uh we’ll talk about how you can manage your piggy banks to generate that retirement income you’ll need. I’ll walk you through some of the basic guidelines on building a retirement income plan. Um and we’ll be happy to take your questions at the end of the presentation. Uh if you have any questions, you can either save them or just go ahead and enter that into the chat or the Q&A box now and um we’ll feel those at the end. If there’s something that is somewhat timely, I’ll try to look at the questions and if if I can answer them quickly during the presentation, I’ll do that. Um so this webinar is titled life after work, right? Because retirement income planning is really all about it’s creating the good life for yourself after you leave your primary job. And that doesn’t mean you won’t necessarily work. Frankly, most people are planning to continue working in some capacity after they leave their main job. But hopefully the work you do in retirement won’t feel like work, right? It’s something that you want to do, not that you have to do because work is a thing that you’re spending your whole life trying to get away from. And life is what you’re moving toward.
So now, like anything else you buy or invest in, you need to figure out how to fund your life at work. You need a budget and a plan.
Now, for many of us, you know, we could we’re talking about 30 years um where you’re responsible for your own paycheck. So given that length of time, you should probably have some type of retirement income plan.
So now I would say if there’s ever a time to plan, retirement is probably the time, right? That’s probably the biggest decision you’ll be making in your life because once you leave your primary occupation, you know, you start depending on multiple sources of income in retirement and you want to make sure that that income lasts because at the end of the day, nobody wants to go back to work at 80 years old because they didn’t plan right. So it’s really important to have a plan. So retirement in uh retirement income helps you determine how much income you need. Right? That’s why we plan and where that income will come from when you start social security, whether or not you’re going to work, how you manage withdrawals from your retirement accounts or investment accounts that are not retirement accounts, so you have the sustainable lifestyle throughout that retirement. Look, at the end of the day, above all, you want to be sure that your income outlasts your last breath of air. So, you need to manage your plan of retirement. Now, the recommended is over 30 years, maybe more, maybe less. Now, obviously, you could live to 100. Um, that’s something that we talk to clients about when when we’re doing the planning process. We talk about your family’s longevity. So, that’s something that you want to take into account. I mean, the reality is, how many people live 30 years in retirement? Not that many. It’s really far fewer, but it is something that you probably want to plan for maybe 25 or somewhere around there. So, the problem with living longer, because people do live to be 100, is that will you have enough money, right? How is your retirement plan measuring up for that?
So some of the research out there I think it’s really interesting, right? So they they look at some polls and they talk to people who about their expectations on income uh sources in retirement and they ask people who are still working and then they ask people who are actually retired and as you can see right social security most people expect social security to be a major source of of their income. Um there’s a couple though that I want to point out and and let me basically explain how this works. Right? So if you look at that second that second one where it says workplace retirement savings plan right that’s your 401k 43b things like that. So the survey they expected a major source of income 84% of those people said that who are the actual workers but they haven’t reached retirement yet. So when they they talked to people who are actually retired, only about half of them, a little less, and 49% said that was the case. Um, so that one’s an interesting one. And that’s really we’ll we’ll talk that talk about that a little bit is that what we found is that people think it’s important and they know it’s important, but the reality is as life gets in the way, right? They start putting other things as a priority, right? And and I’m not saying they’re not important, right? you know, your your family, your children, you have to take care of your parents, whatever that might be, housing, layoffs. Um, but but that’s where where our plan and sometimes the reality of things impact it, right? They they collide. Uh, so the other one I thought was really interesting too was 245 down where it says work for pay. Now about 3/4 of workers say, “Hey, you know what? We plan on on working in retirement. The reality of it is only about a fourth end up working.” And a lot of that is either health, right, or they’re unable to find a job because I know agism is legal in the United States, but the reality is it exists. So if you’re planning when when folks talk to us about that we usually say hey
um so someone said hey this is from 2023 it is a little bit but it’s not too far uh that you’ll find that that might be a little bit right so like the work for pay was up 73 from 68 what I would say is it might look a little bit different now um but I would say somewhat of a a cycle anomaly, right, where we’re going through a bit of of uneasiness, right, with inflation where they feel like they have to push this back, people are cutting back. So, you know, I’ll actually reach out to our marketing folks and see if they have an updated number just to see how that changes. I would be interested to see though. But I would also say that whatever the change is, I would also say does it revert back to the mean um once we go through these really kind of I don’t want to say strange cycles, but for lack of a better word, strange cycles.
So just some retirement statistics, right? So we give you context context and this is not to scare anyone or anything like that and and I would I would caution against this, right? So I would caution against using these statistics to say woo it’s not me. I am fine. That means I’m fine because this is a very individual thing. Um but the numbers frankly are alarming. Uh and at some point this is going to come to a head in the next decade or two. Uh so 28% of American workers have no retirement savings. said, “Yes, this date is a few days old, but I would pro or a few years old, but again, I would contend that we’re probably not too far different on that. So, as advisers, we try very hard to help you aim higher and we like to think that the SEGS, which are the companies that are affiliated with our credit union, uh that participation rate is much much higher because we very much encourage that participation your form of case. So, how about an IRA, right? How many of you save money in a traditional or a Roth? Only about a third have IAS. Now, I will tell you, is that required? Not really. If you’re actively and aggressively participating in your 401k, the key is to have something right and make sure it’s yours. But it’s an alarmingly low number.
So, um, for those who are contributing to their IAS and either and their 401ks, right, only 16% of Americans age 50 and up take advantage of their catchup contributions to their IRA. Uh, and for those of you unfamiliar with it, this year in 2026, you are allowed to, if you’re over 50, you’re allowed to do an extra $1,100. So, where you would have $7,500 and what you can contribute, now you can do an extra $1,100. Just a little bit of a an FYI for your 401k, those contribution limits are much much higher where for 2026 you can do $24,500. And on that catch up provision, uh you can do an extra $8,000 which would take you to 325. Uh there’s actually this really cool super catchup provision. They didn’t get too creative in their names. Uh where you could do 11,250, but that’s only from ages 60 to 63. Hopefully they will extend that from 60 and up. I think that would be a wonderful thing.
So, this is something that I think is interesting. Do you think your retirement savings are on track? Hopefully, everybody on this call says yes. They feel 100% confident with it. Um, but we find that less than half of those who are age 60 plus going into that home stretch, right? They look at the retirement savings and they’re maybe not sure if they’re on track or not. I can tell you it’s even less for those of us who are between 50 and 59. Uh that’s only 34%.
Uh, and the last little tidbit on some stats, only about a third of American households have 250 or more in retirement savings. Um, I don’t know if that’s as alarming, right? Because because they are looking at at total households and you know, when you’re 20s and your 30s, it takes a little bit of time through compounding and and diligent contributions to get to that much. But with that said, it’s still a somewhat low amount.
Um, oh, someone asked a question about over uh about income. I’ll I’ll address that one at the end. The short answer is there’s a loophole on that. Um, so so when you imagine your retirement, and this is different for everyone, right? some general commonalities in it but still at the end of the day it’s a very individual thing or an individual and her joint thing right so imagine your life in retirement right so you take a step back for a moment you visualize how you want to live that new life right how will things be different for you or you and your spouse after you leave your current job right what do you want your life to be like where will you live what will you do you know how How long do you think you’ll live? Um, what surprises does life hold? How much income you’ll think you need? Look, and I’ve been doing this for over 30 years, right? And I’ve been dealing with retirees and my parents were being part of that group. These are real practical questions um that many clients have a concern with. So, one of the things that we do is when we’re meeting, right, for some pre-retirees, right, the first consideration is where they’ll live, right? So, we kind of reverse engineer this when we do their planning. And not everyone changes their residence in retirement, but a lot of people do. So, if you’re not tied to a job and you can live, you’re free to live anywhere. Maybe you’d like to live closer to your children or grandchildren or other family members or closer to a particular hobby or a particular weather. Um maybe you’d like to downsize. Uh so affordability is a key consideration or maybe convenience, right? You have this big house and you’re like, you know what, the maintenance is just such a headache. Um maybe it’s just a little bit easier to just go buy a condo near the beach or near a golf course and spend my days there. So I will say this as individual it is this right there are some general preferences like climate and culture some recreational opportunities that are really similar right amongst amongst most retirees. So even if you don’t have an idea of what your retirement looks like for you knowing what other people do I think it’s a good baseline for a conversation. So, as you can see, probably the biggest two or three are being near family or friends, um affordable cost of living, uh and access to health care, right? Because as we get older, as a general rule, as a general rule, we don’t get healthier. Things need a little more maintenance here and there. So, let’s talk a little bit about this. So, how much home will you need? And it’s how much home do you need versus how much home do you want, right? Uh will you downsize? Should you even rent? So the average American, right, over 65 has 300,000 in home equity. That might come into play later as an asset or at least potential source of income. But when you look at why many retirees move, right, it’s reducing their expenses, right? downsize into a smaller home or they’re moving closer to family and friends, right? Moving to a better climate. All the snowbirds up there who come down here, that’s completely reasonable. Um, or maybe you just want something different. I think all of those are very exciting and very good reasons, but you definitely want to think about how those impact you, right? And and this is something that I would say you probably want to start thinking about a few years before you actually retire, right? Unless you know for an absolute fact where you’re going to retire, you know, oh, my kids and grandkids are in North Carolina, so I’m going to move from Texas to there um or Florida.
Everybody’s a little bit different there. So, so what will you do, right? So, there’s some income generating activities and expense generating activities, right? So, you continue working, own a business that’s profitable, right? So, just owning a business doesn’t necessarily mean it’s going to be an income generating uh income generating uh activity, I guess. So, the expense sharing activities, right? Your biggest ones are hobby and travel. uh and those will vary right because you have control over those right now owning a business like a startup you always want to try a new venture that’s certainly an outflow of cash and things like that should probably be planned prior prior to right that way you have an idea of how much seed money you’ll want to spend what your burden rate is we could look at things like that uh
Let’s look at the next slide. So, how long will you live? Right? And frankly, if we all knew that life would be much much much much easier. Um, and this is what I would tell you. So, this is actually kind of important when we talk about life expectancy because because life expectancy and mortality tables. So, I’ll take just a few minutes on this. So, so the last bullet point over there says ensure your money lasts to age 95 or 100. Now, there’s some quite a bit of push back in our industry on that. And and the reason why is is this matters. This is why we talk about um your mortality, right? We talk about like your longevity and your family’s history and things like that. So, and the reason why that matters is that in a zero sum world, right? If money were infinite and wealth were infinite, of course you want to plan for 95 or 100. But the reality is a very small number of people are going to reach that. And if everybody focuses on living to 100, that’s okay if you still have enough assets to do everything that you wanted to do. The problem is is if you’re like, well, I really wanted to do these things, but I’m really worried that I want to have enough money in case I live to 100. Right? That’s that balance on on on what you do, right? I mean, how much do you spend? What age is an appropriate age for you to plan? And that’s a very individual thing. And that’s one of the things that we talk about. We look at different scenarios. Um, but here’s the interesting thing about life expectancy, especially since we probably have a very broad range of people who are attending this webinar, right? So we know that you like 81 somewhere around there is life expectancy that we hear um for men maybe a little bit older for women couple years more than that. So here’s the thing about mortality tables, right? So at age 50, I’m just going to use men. Current age 50. Additional life expectancy for men is 28 years, right? So that takes you to 78. Well, now at 55, we look at that and that additional life expectancy is 24 years. You’re like, wait a minute, that is 79. So what happened? And then let’s go to age 60. So then it’s 20.4. 4 years. So now, wait a minute, that takes me to over age 80 and to 65, which is right around retirement age, right? So you’re looking at 81 almost 82. So then obviously 70 it falls down to 13. So now you’re looking at 83.7, right? So it’s a little bit older. So this is what happens. And this is why mortality table are very interesting is that from a very very big big sample size of the population
there’s a fair amount of people who die I’ll just go through each one from 50 to 55 55 to 60 etc etc so from 50 to 55 a certain number of people will pass away right whether it’s by accident natural causes cancer heart attack stroke whatever that may So the point is, so that takes out a certain percentage of the population as a whole. So when you go to 55, if you’ve made it to that, you’ve m you’ve avoided some of those becoming a statistic, right? I guess. And and so on and so forth. So when you get to 50, you you’ve bypassed a lot. When you’ve done 55, you’ve you’ve missed out on a lot of things that might have taken people out, etc., etc. So, so there are these statistics that you know if you make it if you’ve made it to 70 your chances of living to 90 are much greater. So always be mindful of that. That’s one of the reasons why we say hey you know plan to 90 or 95 or 100. And the reality is we’re talking to people usually in their 40s or 50s or 60s because you kind of know what happens as you go down the road. I would tell you this, the reality is most people who are in their 90s aren’t spending anywhere near as much money as they were in their 60s, right? So that’s part of the eb and flow. That’s part of wealth planning. That’s certainly part of retirement planning and retirement income planning. So what surprises I forgot this is the next slide and this is exactly why. So what surprises does life hold, right? health things we have some control over but the reality is father time forgets no one. So as we get older start moving a little bit slower might need a little more maintenance. So things happen. Family, it’s the same thing. Family gets older, right? So they might need some help. Whether it’s parents, whether it’s our adult kids, whether it is our grandkids, right? So there’s so many things out there. The economy, I wish we could control that, but it is um it is a concern. Sorry, I just saw uh something come through. Um so whether it’s the economy or some major disasters right so many things that you can’t control so we have an allowance on how we plan for that so how much income will you need so I think these are great if you have not done this before um the retirement budget worksheet is actually on our website if you need it uh can’t find it just shoot me a quick email or something and I’ll send it to you um but this is something that everyone should work on at least have an idea and this in theory should not take long. This is like a five or a 10 minute thing. Um and what you do is when I always tell folks when you run that budget right run where your current budget is roughly and then right next to it in parenthesis put what you think those numbers will be in today’s dollars right at retirement. And what you can do is you can see how things will change or how things will reduce like commute right that cost is x amount of dollars. Well once I retire that should go to zero but my travel right it might be very low and it might increase it’s one of my hobbies or if you love golf which I do not well I like the game it doesn’t love me um that might go up. So whatever that might be and this is a very individual snapshot of your cash flow. really good baseline for your planning.
So, um, so what you also want to do is as you’re going in, right, you’re reviewing all of those potential sources of income, right? your social security, your pensions if you’re lucky enough to have that, annuities if you have one, um built one, uh maybe part-time work if you plan on working, uh some investment properties, maybe you have some business interest, right? So, all of those are important. Uh and what we do is when we look at those, right, maybe those might not be for the entire time that you’re retired, right? For example, your business interest might say, “Hey, look, I want to do this. It’s kind of a hobby. It’s profitable, but it kills time, and I enjoy doing it, but I’m not going to do this forever.” Or part-time work might be the same thing, right? I I hope to work for the rest of my life, but the reality is I probably won’t. Um I by choice, right? Not financially. Um I I imagine myself to be that guy at Ace Hardware working part-time just shooting the bull on ideas on projects. So, it’s something that I enjoy doing. So everybody’s different. So when we look at those, we’ll talk a little bit about that like this, right? So here are the characteristics of those, right? Social security, right? This is guaranteed for life, right? And there’s income that is guaranteed for life and other income that is not. So you always have to look at these things, right? So social security, as you all know, it’s inflationadjusted income. It is guaranteed for life. Hot tip, insider tip. even though it’s adjusted for inflation over time, it does not pace inflation. It’s a little bit behind it. Um, pensions, they’re fixed income and they’re guaranteed for life. Now, most pensions are are are static, meaning the x amount of dollars that you’re getting for that month, 10, 20 years down the road, you’re going to be getting that same dollar amount, and it’s still nice, right? But the purchasing power is less. You can’t buy as much. So you always want to make an accommodation for inflation and increase in prices. Um earnings from work fixed variable income that is not permanent. At some point it could um cease if your health changes or as we get older, right? We might not be able just to physically do that. Um annuities fixed or variable. Now you have to manage those for sustainability. they’ve really come a long way and they’re a very useful tool. Uh other income, right, whether it’s investment property or business interest, even at some point those might just become too much of a hassle over time. Um but they still can be a great idea. So income from your investments, right? And this is like your income and withdrawals, your IAS, your 401ks, savings accounts, nonqualified investment accounts, which basically means your brokerage accounts like that. Uh but where do most so where do retirees say their income is actually coming from? Right? So this is the average retirey. So the average retiree makes about 48,000 a year. I saw some more recent numbers at about like 54,000 somewhere around there. Um so a fair share of that actually comes from social security. Uh and then from that you have company pensions. Now, I would probably contend that if I were doing this in another 10 or 15 years, I would imagine that pension percentage would be much much lower. I would hope the 401ks are much much higher as we transition through the generations, right? That we have a better grasp and understanding. For you Gen Xers, um that was a difficult time, right? Because Gen X’s, boomers, baby boomers were used to pensions. Gen Xers came into that time where pensions were kind of going away. So, it’s pretty rare if you have a pension if you’re generation X and certainly even less so if you’re younger than that, right? Um, inheritance, we can all hope, uh, home equity, etc. So, other other savings and investments, and that’s usually, and that’s us like your brokerage accounts, IAS, things like that. But let’s take a look at each one of those, right? So, Social Security, what will your benefit be? What will your spouse’s benefit be? This is actually a really good thing to have kind of an understanding of as far as you factor that into your planning. We actually do a webinar specifically about this. What age should you and your spouse claim? How you maximize social security? And it’s not just about the maximum dollar, right? It’s the maximum dollar combined with the quality of life that you’re trying to imagine yourself, right? How do you optimize those benefits? Um, now with your cost of living, right? So, if it’s 2,000, just to give you an idea, if it were a $2,000 payment today, in 10 years at 2.8, which uh you’d look at about 2,600 in 10 years, you’d look at about 3,400. Uh, and in 30 years, you’d look at about 4,500. Right? Now, in theory, that amount, even though it’s more as the dollar amount on the nominal, what it does do is it should in theory buy the same amount of goods as it does today, right? So, yes, it’s more money, but you’re still buying the same amount of goods. If you have not done this before, right, that SSA gov, that estimator, it’s really good, and you should already have a an account with social security. is free to sign up and it’s a secure website. If you haven’t done that, you should and it’ll give you an individual estimate of your specific. If you don’t have it, you want a quick one, they have a quick calculator on the Social Security website. It’s actually a great idea just to have a rough idea as part of it. Pensions, um, we’re not going to spend a whole lot of time on this because these are far far fewer, but the big question on a pension when you’re planning is whether you even get one or not, right? And if you’re with a company, uh, I would probably say, cuz companies with downsizing and everything, unless you’re already into this and you’ve been in it for a while and you’re guaranteed a certain amount, if it’s early on and you’re working for a company that has a pension, there’s probably a good chance at some point they’re going to suspend that. It’s just too costly for companies. So, from a sustainability aspect of it, um, but that would be an individual I whether you would consider that in your plan or not. um you know when you’re eligible for it right do you need 20 years do you need 30 years etc how much will it be what are your distribution options and when you look at those those specifics and how it applies to you I think at that point whether is when you’d say yeah you know you know I do want it as part of my my plan or or I don’t frankly so earnings from work will you work during your retirement what will you do full-time part-time how much income do you effect how long can you work for? All these things are really good questions, right? So what I normally tell people is we should always first run the plans assuming you can’t work or choose not to work and then see where you fall, right? And then you know are you working because you have to or working because you want to because I think that makes a big difference on what you choose to do, right? Or how much you enjoy work or what you’re going to decide to do from there. Um,
uh, we had someone raised their hand. So, what I would do is we normally don’t do the audio on the question. So, if you don’t mind if you could just type that question in there. I’ll be happy to address that uh, a little bit later toward the end here. Um, so we talk about working, right? That’s one of those things that you want to look at. And I would always say do not assume you’ll work or will be able to work. um annuities. Do you have an existing annuity? Uh are you looking to replace that income? Right, since you’re not going to be working anymore, uh if you do or you don’t, some of the options you want to look at are like these living benefit writers, right? Which is basically like your guaranteed income, how that works, guaranteed income, benefits, uh fees involved in those, any surrender charges, any tax implications on that. Right? So these I would say they’re neither good nor bad, right? Uh if you look at annuities, they kind of get a bad rap out there. And I don’t necessarily agree with that. Um I think less so now because the annuity world is has really become a they’ve come a long way as far as flexibility and pricing and things like that. Um I wouldn’t say it’s a categorical yes or a categorical no. Uh it’s one of those things that you should actually look at your particular situation. uh income investments from and your personal savings. So these are like the different types of you know retirement accounts whether it’s a company whether it’s an individual cash your broker account can vary so much because it depends on how you may uh actually be investing right risk how that is allocated what types of products you have in there’s a lot of choices in there um
other income so home equity earlier earlier we talked about uh someone you know The average person has like 300,000 in home equity in their home. One of the things that you can do is you can use a reverse mortgage. Now, I always say approach that with great caution. Uh because and you want to make sure the source you’re going with, the interest that they’re going to be charging you, the implications on that. Uh you might have real estate out there, whether you’re going to carry that through retirement or just use it asset and sell that off for a lump sum, business ventures, etc. So that really applies to a very small percentage of of the folks who attend these and actually even our our our membership with Alliant inheritances again if only right choose your parents wisely. Um if you have those that’s great if you don’t you’re not alone. Majority of people do not have anything significant as far as the inheritance goes. Uh and the same thing falls into trusts. So let’s talk a little bit about strategies. Uh, and this is this is kind of where we’ll we’ll spend a little bit of time here. So, there’s there’s as a general rule, there’s these three general strategies out there, right? Whether you’re living off your interests, uh, or whether you use the the 4% rule, and that’s been around for like 30 years now, um, and your bucket strategy. And we’ll go we’ll go into each one. Now, you want to look at when you’re looking at your withdrawal strategy, right? You want to look at mandatory expenses and discretionary expenses. So as a general rule, your mandatory is shelter, right? Transportation, food, associated utilities, um healthcare. The discretionary is how much do we go out to eat? Yes, we need to eat, but do we need to go out every night? Um how often do we travel? How much money do we spend on our grandkids, etc.?
So, the first one, it’s it’s a strategy that’s used less often now, right? It was living off the interest. And basically,
what you would do is you would invest your assets in something that generates some kind of dividend or some kind of interest. And then what you would do is whatever that income is is that’s what you would spend, but you wouldn’t touch your principal. That sounds kind of obvious. Now, we’ll talk a little bit about advantages, disadvantage a little bit. I’ll give you the quick sum. Now, here is the 4% rule, which most people go by. Um, I would say now it’s the 4.7% rule, but we we’ll we’ll expand on that. Um so the invest these assets are invested for a total return right so some capital gains some dividends some interest. Um so your withdrawals might come from different sources right it might come from a stock it might come from a bond interest it might be coming from a like a preferred dividend. uh the amount that you withdraw is not dependent on how much those assets earn. Some years they might earn 10, some years they might earn two, but your withdrawal is still really consistent. So basically the way it works is your first year withdrawal is 4% of the account value and then you use that as your baseline moving forward. That’s an example. you have a million. 4% of a million is $40,000. And then no matter what happens in the following year, whether that’s up or down, you will take that $40,000 and adjust that for cost of living. And then the next year, you’ll take that amount and adjust that for cost of living. That’s usually a little bit more complicated, right? And it’s I would say from a practical side that’s good in theory, but that is really hard to do if you go through a year where you’re where you’re portfolio loses you know 20%. To still still continue that and there’s a certain level of risk that goes with that. But um I said now the 4.7 rule. So when this was done back in the ‘9s it was called the 4% rule and it was really like a 4.12 or 4.15 but they just rounded it to four for discussion. Um the argument sake now is that 4% might be too conservative, right? Because the reality is people retiring a little bit later and they’re not living to 90 or 95, right? So you have this shorter withdrawal period. So the argument is that hey, you know, and and with the complexity and the broad choices of investments now, um that your earnings might be a little bit higher. So you might be in a position to be able to withdraw a little bit more than the four or even the 4.7 depending on when you start and depending upon how your investments are allocated. Uh the assumption on that was like a 50/50. So like 50% stocks, 50% bonds. The reality is most people rarely carry a 50/50 going into retirement. They’re usually closer to like a 65% stocks. Um and they they went back they went back like to the mid20s when they when they tested this right that 4% withdrawal rate on 50% stocks 50% bonds and at that point they had a zero chance of failure over 30 years. Um so that’s where it kind of became the standard for retirement. But I would tell you even though it’s happened in the past that and I cannot say this enough or stress this enough that this does not guarantee success. Right? the market is going to do what the market is going to do. So that’s why you have plants. Um let’s talk a little bit about the bucket strategy. So if you can imagine assets are placed in buckets based on time horizon and your expenses, right? So your current expenses, your upcoming expenses like I got a major purchase etc in the next 5 years and you have an aotted amount of money for that and that is invested a certain way right it’s more conservative then you go to your next bucket which is money that will be spent in five to 5 to 10 years now part of what that money will be used for is to replenish the 0 to 5 years and that will be invested it a certain way, right? Somewhere moderate risks, a range in your risk. And then your final bucket, right? That growth with that little sprouting tree. I think it’s a tree um with a 10 plus years. So, because it’s over 10 years, that pretty much covers most market cycles. So, you can pretty much focus on growth at that point, right? It’s just left to grow or left to bake in the oven.
Now, whichever strategy or combination of strategies that you use, now I will tell you for our purposes when we’re working with clients and as far as how I do it myself for my own personal assets, I use a combination of those buckets, right? Each each of those strategies has a strength and a weakness. So, utilizing all three of them to what suits your purpose the best. So, whatever strategy you use, don’t forget about Uncle Sam. Don’t forget about taxes because they’re not going to forget about you. So taxes are an important element right in your retirement income plan because obviously 401ks, regular IAS, those are taxed as traditional of just regular income, ordinary income, but you know things like capital gains are taxed lower. Some things that contribute or distribute from a Roth are taxfree altogether. So what I would say is this is one of the reasons why you start planning 5 years aggressively planning 5 years before your retirement. So you can start looking at your assets and the impact of how that distribution looks like, whether you need to start doing conversions into a Roth, how that might impact your social security, how that might impact your Medicare, right, with Irma, um that penalty for earning too much money. Um all of those factor in, right? So this is a good idea to start planning and looking at your income and having a rough income plan. Additionally, I would say is that even though you have your baseline for income, an annual revisit on, hey, what’s changed in your life? We expect that to change, go up, go down. Do we need to change how the income is coming from, you know, or the source or the amount? And it might be a little bit from here, it might be a little bit from there, it might be a little bit from there. So, all of that is part of your retirement income planning.
So, how retirement income is taxed? We briefly talked about this, right? So, social security and a lot of folks are surprised by this, but your social security is actually taxed. So, depending on how much you make and I have a feeling that if you’re on this, you are probably going to have your social security tax because it doesn’t take that much money to be taxed. So, up to 85% of those benefits can be taxed as regular income. Pensions, right? All are part of it depending on your plan. Earnings from work, right? still regular ordinary income. Now, your investment income if it’s in a regular brokerage account or like a you know some kind of stock or something taxes are paid on well differently, right? So, it could be long-term capital gain which is a lower bracket or a short-term capital gain or even some of your dividends. Those could be qualified dividends so they’re taxed on the lower. So, regular IRA distributions are taxed as ordinary income. So annuities, it depends on the type of annuity and depends on the amount that you’re taking out over the time. Uh and other assets, it just depends, right? Real estate, rental, selling property, etc. Um and all of those should be taken into account and looked at when you’re actually running your plan. It’s one of the things that we look at when we look at the different types of assets that someone has or plans to use. So where do you go from here? Right? So what I would say is the next step is I would always recommend an action plan in itself. Right? This is where you’re gathering your resources on transitioning into retirement. What that looks like whether you’re talking to folks who are already retired, you know, some of your co-workers who have recently retired or been retired for a very short period or recently and you’re still in touch with them. Those are great they’re great sources, right? um any necessary financial information, we can always help with any of those. Make a list of the questions and concerns you have on that and then make an appointment with an adviser, you know, whether it’s us, whether it’s who you work with and that’s how you get started and then you adjust your plan over time. There’s one that we call a fragile decade, which is the five years before. We map that out and then the five years after on what that looks like as far as some of the milestones that you should be looking at. um
how we can help um so life planning right questions to help you imagine your life in retirement if you haven’t thought about it one of the things that we do I think one of our biggest strengths on wealth management like mine is that helping you answer the question that you didn’t even know needed to be asked right um something that you haven’t considered maybe budgeting we have those budgets out there and we’ll look over those budgets and I can tell you, hey, you know, this is maybe a conservative play, you know, or amount that you’re putting in there. Have you considered this and this and this? You might want to consider upping that or not, but I want you to make an informed decision. Obviously, the account managers, we can help you with rollovers. We can help you with conversions, helping you more importantly establish a suitable withdrawal plan, right, for you and your family. uh help you with those required minimum distributions, those RMDs, right? How are they going to impact your taxes later? And more importantly, what’s going to happen when someone passes away and now you have that that joint tax return going to a single tax return, right? That individual tax return. What’s going to happen to your taxes? They go up generally. Um and just portfolio management. That’s kind of what we do. So we have now come to the end and I want to thank everybody for attending. So we’ve come to the part of the end of the presentation where we do some Q&A. So if you have any questions, go ahead and type those in the chat or in the Q&R. Um and while we’re doing that, I’m going to put up a poll as far as if you have any questions on your individual. Go ahead and click yes. We’ll schedule some time to talk about your individual. um plans, looking at what an income plan would look like for you. We can certainly help with that. Let me see what we have on questions.
You can chat.
Oh, so there was a question on Roth contributions, right? What if you make too much money? Uh one of the things that you can do is is Yes. So, there’s a couple of things regarding IAS. If you make too much money, you can’t contribute to a Roth. What you do is you contribute to it’s called a backdoor. You contribute to a regular IRA and then do an immediate conversion and then you just have to file a form. So, you don’t have to pay taxes on that. That part’s pretty easy. Uh, let’s see what other questions we have here. Can’t stay. Social Security. How much do I need to take? When do you take it? Um,
so and then, okay, so there’s a few questions around social security. Let’s see if we can kind of answer them all in one.
Someone asked about the timing of social security. So, let me kind of give you the general. Let me give you the general on that. So, when you take your social security, when you’re trying to maximize, it’s going to be a little morbid here, but when you’re trying to maximize the amount of actual dollars that you’re taking from social security, the general rule of thumb is wait until 70, which is your maximum social security. For most people on this, your full retirement age is 66 or 67. I’m willing to bet most people are 67 at this point. Um, and for every year you wait, you get an 8% increase on that benefit. And that is simply because you’re taking over a shorter period of time, right? Um but but the key thing on that is is how does it apply to you? Right? So so if someone says look my family lived in like their 90s that break even age is like 81 82 that if you think you’re going to live that long delaying social security you will get more total dollars out of social security if you delay it. But the reality is life doesn’t always work that way and it’s not that clean and it’s not that simple. So some folks have said, “Hey, you know what? I wish I had taken it earlier because I would have liked to have taken that those extra dollars even though they were less. I would have liked to have taken those extra dollars to do those things while my health still allowed me to do that. I would like to have traveled um whatever that may be.” Right? Hike Machu Picchu. Um so that’s a very personal thing and I will tell you in our meetings that’s something that we talk about, right? So we can kind of maximize I don’t want to say maximize that’s probably not the best word we can optimize when you should really target on taking social security for you and your wife right we also look at what the assumption when someone passes how does that impact it um let’s talk a little bit about this with social security being a big part of retirement should I be concerned when I hear that social security may be reduced by 25% if the government doesn’t step it up and make it solvent all right so this is a trillion dollar question here. Um, this is what I would tell you. I’ve actually had people say, “Hey, look, I don’t want to plan for social security at all.” Right? That’s the extreme. I don’t know if I necessarily agree with it, but that’s okay. Um, I still plan for it for mine. So, this is what I would tell you. The whole concern with social security running out is it’s if nothing is done, and by nothing, I mean nothing. So there are a few tweaks from a practical side that could extend this and and shore up much of this. And the simple thing would be something like you know they talk about cutting 25%. I’m going to I’m going to I’m not going to be well I am going to be a little cynical on this but but if you are a politician jokingly right what is the first job of an elected politician? To make sure you get reelected right that’s the running joke. There is no politician that wants to be responsible for social security going going under, right? Or having to make a big 25% cut. So, that one is really really a less likely um scenario, right? Your more likely scenario would be a couple of different options or maybe even a combination of those two. Right now, we all pay into social security, right? That’s how it works. They’re not saving for you, but the people who are working now are paying for those who are on social security. And when we retire, the folks who are working now, that younger generation will pay for us. Well, you pay 7.65. When you look at your FICA, part of it is Medicare, part of it is Medicaid, part of Social Security, right? So, what they could do is they could up that 1%. So, that would be a half a percent to you, half a percent to to your employer. So, most likely most people probably wouldn’t even feel that impact. and that would make a huge difference. The other thing that they can do is ex extend you the age on full retirement, right? And they’ve already started doing they’re just not doing it aggressively enough, right? It was 65 before and then it became 66, 66 and 2 months, 66 and 4 months, etc., etc. And now where we’re at at age 67 is full retirement age for most. They could easily go to 68 or 69 as people live longer and they continue to work further. Um or they may simply not put a cap on the tax for social security. Right now that’s what they do. It’s aboutund I think it’s for this year it’s 178,000 or 180,000 or something like that. But those are some easy fixes that could be done and frankly most people wouldn’t even notice that. Um let’s go to the next question cuz we have a few more minutes. Uh what are the benefits of delaying social security payments till 73? There is no benefit on that. So um so the maximum delay that you would ever want to do is age 70. Your your benefits do not increase. You are just giving money back to the federal government. Uh the likely answer for politicians, hang on, let me read this to myself before I read this out loud in case it’s not politically correct. Likely to handle social security is inflation adjust the CPI. Ah could be. So there’s an argument on CPI versus PCE etc. That’s one of the things. Um, should we I would like to get the link for retirement budget worksheet. I mentioned that is on the website. That is I can also make a note to send that to you. Bear with me for a second. Let grab a pen.
I’ll send that out uh later today or first thing tomorrow when we hear back from marketing. Um let’s see what else. How do pensions get taxed? As a general rule, um they are taxed as regular income. Uh do they before they get to you or do we pay for it separately? Uh most of the time you can do a withholding on that. These are really good questions. Thank you for your participation today. Um,
say, all right, let’s look through some other things. Is it really a bad idea to keep
to keep your money in a regular savings account? I don’t think it’s a really bad idea. So, let me let me kind of give you we talk about the bucket strategy, right? Especially now. So, um I think keeping too much cash in there, I’m going to jokingly say that’s recklessly conservative. Um but look, you still want to have liquid money, right? For the just in case, there’s a reason for it. How much you keep, there’s some rules of thumb. Uh you know, if you have a question on that specifically, we can look at like your cash flow and say, “Hey, this is maybe how much you want to keep.” I can say on savings accounts, Alliance Credit uh the credit union savings account is like 3%. So that’s like much higher than most places out there. I know a lot of the big banks pay 0.0 and I and there is like I am not bashing the big banks. I have pretty much my whole life I’ve had big bank accounts as well as credit unions and I do what is best for my personal situation. Um so they’re not a bad idea. Keeping too much money, your money’s probably not working as hard as it could. out the CL spending withdrawals. Uh how early can someone claim social security? Uh early 62. Whether that’s a good idea, that’s a whole another animal in itself cuz there’s some uh what’s your opinion on taking social security early and investing on it on investing it? So, it’s actually not a bad idea. It depends on how you invest, right? Because if you take social security, it’s an 8%. But it depends if you take it early versus at full retirement age because there’s a couple things. If you take it early, there is an income limit where you get a reduction in your benefit. So it’s like a double whammy. Uh so it depends how early and it depends how you invest. Uh
see that was just a question mark. Let’s see if we can I think I got all of them. Sorry. Oh, wait. Hang on here. Um, Cody wants and I’ll go through if you’re asking for the worksheets. I’ll try and go through these questions again to see what I missed because I know there were a few who are asking for that worksheet. Um, and maybe I think one last question. Okay. Tax exempt city, state, federal, AAA bonds for income source. Okay. So, someone asked about MUN bonds. Um, and basically the way those work is they are federally taxexempt. um they can be state exempt if you are in a state that has a state income tax and it’s issued in the right place. Um as far as your local, right? Uh it kind of depends. My opinion on them is it depends on where your tax bracket is. Um and what we do is we look at a net. That’s one of the things that we actually look at. So we’ll look at a net and and I’ll give you an example. And I’m going to use a an example that’s so large it’s not even realistic, right? So, let’s say you make 10% for easy math on something and it’s taxable and you’re going to owe 30%, so you net seven, but you get a tax-free municipal that’s paying six, right? Well, you net six. So, is is a taxable that after tax you net seven better than a six? Yes, it is. Right? So, so there are some there are some other nuances, but but that depends. Uh
so yes, so it depends on how that is. We actually use some different strategies on the tax-free side of it’s actually pretty cool um that you get a much much higher distribution rate on that. But um but that’s that’s that would be something as part of the planning. So I am so sorry we ran a few minutes over. Thank you so much for all of your participation. Those were great. This is a great group. I hope to see you on future website or website webinars. Until then, take care and be safe. Bye now. Thanks again.