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What is a Retirement Drawdown Strategy? 6 Tips to Make Your Money Last

Planning Matters Radio / Peter Richon
The Truth Network Radio
January 27, 2024 10:00 am

What is a Retirement Drawdown Strategy? 6 Tips to Make Your Money Last

Planning Matters Radio / Peter Richon

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January 27, 2024 10:00 am

You've spent decades building your nest egg. Then, when you retire, you need a plan to stop saving and start spending, but not too much that you risk running out of money. As Peter with Richon Planning explains to Erin Kennedy, it's a delicate balance that requires you to consider these 6 variables:   1. A Plan to Minimize Taxes 2. Make the Right Decision about Social Security Benefits 3. Choose the Right Pension Payout 4. Balance Guaranteed Income and Long-Term Growth 5. Plan for Longevity 6. Account for Inflation   Accounting for each of these variables will be different for everyone. If you'd like to speak with a fiduciary advisor about creating your unique drawdown strategy that considers these 6 variables and many more, please reach out to Peter by calling xxx or visit www.RichonPlanning.com   #WealthManagement #Retirement #DrawdownStrategy #Taxes #SocialSecurity #Inflation #Pension #GuaranteedIncome

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Peter, good to see you. We are starting with a question. What is a retirement drawdown strategy? Because I know you have six tips to help make your money last.

You, of course, everybody spends decades building up their nest egg, but then when we retire, we need a plan to stop saving and start spending, but not too much that we risk running out of money. So it's a delicate balance that requires that we consider these six variables. First, we need a plan to minimize taxes. Yeah, and I'll get to the taxes in a second because the six variables here are things that can impact the plan even when we've got it laid out, but in formulating the plan, we really need to consider probably six or seven other additional items. Our marital status, our savings amount, how much we have saved, what our budget is, our life expectancy, the kinds of accounts that we have. I see people who come in and say, well, you know, mom and dad only made it to eighty two, so I only need to make it to eighty five. I don't want to be wrong about that, especially wrong in underestimating life expectancy. So those are really important kind of just precursors to these six variables that we are going to consider.

But yeah, absolutely. Taxes is a big one because they don't go away in retirement. They don't automatically get reduced or dropped in retirement.

Only a portion of Social Security is exempt from taxation. And that could change into the future, quite frankly. So we need to think about what kinds of dollars we have.

What are our different buckets? We have the non-qualified, non-retirement. We've got the tax deferred bucket that most people have been saving in, hopefully over the last 10 years or so. We've been really kind of focusing on and taking advantage of the Roth to build tax free dollars. We need to think about Roth contributions, conversions. We need to consider RMDs. All of this is going to go into the tax variable and considering your retirement drawdown and income plan and then really strategizing on the order of operations, which account to tap into and when and how to coordinate those to give you a minimal tax bill and an optimal net income. Yeah. I think we might need to do a part like two, three, four, five on this whole segment, Peter.

You're bringing up so many good points. Next, of course, though, you need to determine when is the most financially optimal time to claim Social Security. This is a very financially important equation.

Yeah, it sure is. And Social Security doesn't account for all of what most people live off of in retirement. But boy, is it a good foundational piece for retirement that you can build off of. Now, all of the tools and online calculators are going to tell you just wait until 70. Wait until you get that maximum benefit, because if you live to life expectancy, that's going to be the most profitable way. But there are really two sides to this equation that we need to look out is how to optimize Social Security. And we can't say maximize because nobody knows when they are they are going to live to. So we don't know the exact day to claim Social Security, but we can look at strategies to try to optimize it. But we also need to balance that with optimizing and protecting our personal assets, because we could wait and get the most out of Social Security. But if that involves spending down our personal assets, we need to work that into the equation, which most of those online tools and calculators don't. They sort of look at Social Security like it's alone in a vacuum on an island all by itself.

It's not like an isolated variable science experiment here. It is coordinated with the rest of your financial picture and your personal assets pass on to beneficiaries, your personal assets you can reach into and pull out of in case of emergency or desired additional spending or health care expenses. Social Security doesn't allow for those things.

It is what it is. And you can't reach out and pull out extra. It doesn't pass on to next generation beneficiaries. So we really have to coordinate this. And that's part of that optimized retirement planning strategy session is looking at the Social Security, but then also coordinating it with the drawdown plan that we're going to have to formulate from the personal assets. All right. Number three, for those who are lucky enough, you have to pick the right pension payout.

Yeah. And those that are lucky enough are very few and getting fewer all the time. But it is a very important decision. I mean, a pension really does account for an additional foundational piece like Social Security that can add a lot of confidence and minimize the amount that we're going to have to draw down from our personal assets. And there's typically several different choices and options for the timing and the coordination of benefits. But if you do the equivalent portfolio value and say even if a pension is only, you know, 10 or 20 or 30 thousand dollars, what would that mean? I would have had to have saved to generate that same kind of income that lump sum number, the equivalent portfolio you would need to generate a pension. It makes those pensions really makes us realize that those pensions are very valuable.

All right. Number four, this one is the delicate balance of long term growth and guaranteed income. Yeah, the key term, the key here is the balance, right, is that we need both of those. But generally, dollars are not great at doing both of those.

So what we need to do is segment and segregate. And we'll use the bucket term again here, bucket off dollars that are geared toward aiming and achieving that specific purpose. So we've got our income bucket of dollars. And maybe we could follow that age old four percent rule with that and try to figure out what that is going to be able to generate for us as far as cash flow. And when we get to the point where that bucket is sufficient to meet our retirement expenses, going back to what does lifestyle cost us?

Well, then hopefully we've got a second bucket there that is over and above that amount and is more discretionary. And that really then can be continued to be thought of as investment dollars where we are geared for long term growth and may be comfortable taking some risk. But when you combined the the need for income and the desire for growth, but the potential for market volatility, all with the same bucket of dollars, generally, you know, the more variables you add into the equation, the more needs that you have from one thing, the more can go wrong.

Or when one thing does go wrong, the more it affects the totality of the plan. And what we're talking about here is your retirement confidence and lifestyle. And the one thing that can compound all of your mistakes if you do not have a plan for longevity.

Yeah, it is the risk multiplier. If we only live five years in retirement, you know, how much did a down market or tax law changes or inflation really affect or impact us? Probably not a whole lot, but retirement is law.

And for most people, it could be 30, 35 years. And we need to plan for that because if we do live 30 or 35 years, well, then tax law changes. We're going to see that it could affect our retirement situation. Inflation is going to impact and affect us.

Think back 15, 20, 30 years and what things cost then versus what they cost now. Longevity and inflation compound on each other in retirement. And we're likely to see that we are likely to see several different rounds of market volatility. So all of these things need to be worked into a plan. And and, you know, I say that a plan is only as good as the assumptions and the variables that it is based on.

So you really need to examine this these six critical variables that can affect your retirement drawdown and retirement income producing strategies. And you did touch on this, but because it's so important, we have to make it its own breakout. You have to have a plan for inflation, have to have a plan for inflation. Yeah. I mean, think back to what things cost again 20 years ago or so. But it's not just the things. Yeah, groceries, one of the biggest ones there.

It seems like hitting us in the face right now. But it's not just the things that we bought 20 years ago are costing more now. Think about all the things that were not in your budget 20 years ago that now must be included.

I didn't have identity theft protection or a cell phone bill or an Internet bill. And television was over the air, free antenna, you know, 20, 25 years ago. There are so many things that have been added to our line item budgets, our necessities, and that's going to continue into the future. There will be new additional expenses in addition to the the increase in the cost of the things that are already current requirements in our budget. So, yeah, inflation is a real force and factor. And I see way too many plans that sort of assume that somebody is going to be spending the thing in year one, year 10, year 20, 25 out of the future. And again, your plan, your outcome is only as good as the assumptions that the plan is based on. And that is not an assumption that I would feel comfortable with for my financial future that I'm going to continue spending the same thing because it's not going to be the way it is.

Right. I feel like we could have spent hours on this, Peter. There's so much to learn here and so many, again, personalized equations. So if somebody wants to talk this through with you, how can they reach you? Well, give me a call at Roshan Planning 919-300-5886. That's 919-300-5886, 919-300-5886. We do offer to put together the optimized retirement plan, income, investments, taxes, health care and legacy. All five of those items are part of and included in that optimized retirement plan. And there's no cost for that, no obligation, but it is a plan in writing.

It's about 10 pages summarizing where you're at, looking at these different variables, including them in kind of your projections, where may you want to pay attention or address some of the assumptions that your financial future, your confidence in retirement is based on. So give us call if you'd like to get that optimized retirement plan, 919-300-5886, or you can go online, RoshanPlanning.com, that it looks like richonplanning.com. It's my last name, Roshan, RoshanPlanning.com. All right, Peter, thank you very much. Always a pleasure, Erin. Thank you. Hey, everyone.

Peter Roshan here. Hope you enjoy the content. As always, make sure that you like, subscribe, share the videos with others that may find this information helpful. And as always, you're welcome to be in touch or to submit questions or comments. You can comment below the video anything that you'd like to see or hear shared on our YouTube channel and in future videos. If you've got a topic that you've been thinking about or is of concern for you financially, be sure to let us know. We'd love to help you by discussing it on the channel. So appreciate the continued views and the likes and the subscribes, the shares, the comments, always helpful. We look forward to getting you the information that you need.

This has been Planning Matters Radio. The content of this radio show is provided for informational purposes only and is not a solicitation or recommendation of any investment strategy. You are encouraged to seek investment tax or legal advice from an independent professional advisor. Any investments and or investment strategies mentioned involve risk, including the possible loss principle. Advisory services offered through Brooks Own Capital Management, a registered investment advisor, fiduciary duty extends solely to investment advisory advice and does not extend to other activities such as insurance or broker dealer services. Advisory clients are charged a quarterly fee for assets under management, while insurance products pay a commission, which may result in a conflict of interest regarding compensation.
Whisper: medium.en / 2024-02-19 23:06:33 / 2024-02-19 23:11:39 / 5

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