Life After Work Webinar

Transcript:

Speaker 1: (00:00)
Very good. Okay, sorry everybody. All right. Well, I appreciate that, John. And I also wanna welcome everyone to our presentation today. Um, you know, again, as John mentioned, our, our topic today is life after work. And so it's our pleasure to share with you some insights and information surrounding retirement, income planning, uh, a topic that we certainly are both very passionate about. So if you're on the call today, it could be very likely mean that you may be in your retirement, thinking ahead to retirement and wondering how are you gonna replace that income that you need to meet your expenses after your paycheck stops coming. Now you spent years saving and scrimping and you probably have accumulated a good size piggy bank or multiple piggy banks, and that yet there is still possibly some worry that your savings and investments are, are not enough to support you through your, uh, golden years.

Speaker 1: (00:50)
So over the next 45 minutes or so, let's talk about how you can manage your piggy banks to generate the retirement income you'll need. We'll walk you through some of the basic guidelines to building your retirement income plan. This presentation is titled Life After Work because retirement income planning really is all about creating a good life for yourself after you leave your primary job. And it doesn't mean you won't necessarily work. In fact, many boomers 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, like actual work. Work is a thing you're getting away from. Life is what you are moving towards. Now, like anything else you buy or invest in, you, you need to figure out how to fund your life after work. You need a budget and a plan.

Speaker 1: (01:35)
So for many of us, we are talking 30 years here where you're responsible for your own paycheck. Or for someone like my, uh, late grandfather, uh, Adrian, he needed his money to last for 42 years following his early retirement in his, uh, mid 50s, making it essential to have a solid retirement income plan. So if there ever was a time to plan, retirement is the time because once you leave your career and start depending on your multiple sources of income in retirement, you wanna make sure that income lasts. Now the reality is no one wants to go back to work at age 80 because they didn't plan well enough, which should be motivation in itself to prioritize proper planning. Now, retirement income plan helps you determine how much income you will need, where that income will come from, when you will start social security, whether or not you will work, and how to manage withdrawals from retirement and investment accounts in order to have a sustainable lifestyle through retirement.

Speaker 1: (02:33)
Above all, we want to be sure that your income outlasts your last breath of air per se. So we need to plan to manage your retirement savings over a 30 year period of time or, or more if you end up living as long as my grandfather, for instance, realizing that income, excuse me, realizing that more and more people are now living until past age 100, so making sure you have enough money is, is certainly critical. So after many years of generally strong returns in the market, some research has shown that people are more confident that they will experience a comfortable retirement. The research indicates that if you play your cards right, you'll be able to retire with confidence and not worry about your income sources drying up. So in this 2021 retirement confidence survey, you can see what pre-retirees expect in terms of major and minor income sources compared to the actual income sources in retirement, which is interesting.

Speaker 1: (03:25)
Uh, these income sources include social security, employment earnings, investments and pension plans. For example, defined contribution retirement plans, and again, examples of defined contribution plans are things like 401 s and 403Bs are an expected major source of income for 83% of workers who haven't reached retirement yet, but it ends up being an actual major source of income for just over 46% of retirees, which is a major difference. Ultimately, this means that defined contribution retirement plans end up playing a smaller role in retirement income than what most people think will be the case before they retire. Now, with retirement income expectations not necessarily matching the reality of finance post-retirement, it's especially crucial to create and follow a detailed retirement strategy that leaves little up to chance. Many times this exercise is done with the help of fi - of financial advisors like John or myself who have the resources, the knowledge and technology to analyze your financial situation and model your, what we call financial roadmap, which includes an ongoing review of your year by year cash flow throughout retirement.

Speaker 1: (04:30)
Now, despite the fact that most people will need to rely on retirement accounts in retirement, one third of American workers unfortunately do not have any retirement savings. For any of you who may be in this boat, we strongly urge you to start saving for retirement as soon as possible. And for those who are already saving for retirement, we urge you to consider increasing your contribution levels and/or to start maxing out. So trust us. If you take our advice, you will definitely thank us later. And what about a regular Roth IRAs? Keeping in mind, most people in this country do not own an IRA, which is an, which is really an essential retirement planning tool. Now, one item worth noting around IRAs is that as you age, you're able to con- contribute more via what they call a catch-up contribution, which becomes effective in the year you turn age 50.

Speaker 1: (05:22)
Now, currently only 15% of IRA holders make catch-up contributions in taking advantage of that extra thousand dollars a year that can be funded into an IRA. For those few that are taking advantage of the catch-up contributions, they are funding $7,000 into their IRAs this year, which includes the thousand dollar 2022 catch-up contribution amount. Now, even though $1,000 extra this year doesn't really maybe sound like a lot, over time, this extra can really add up. All right. Do you think your retirement savings are on track? Surprisingly, less than half of those age 60 plus perceive the retirement savings as being on track.

Speaker 1: (06:03)
Also, just 30% of American households have $250,000 or more safe for retirement, which in many cases will certainly not be enough. So given all these stats, are you feeling more or maybe less prepared for retirement? Well, the good news is that that's what we're here for today, to make you feel more prepared and to show you what you need to do to get ready for retirement. Now to that end, one of the first things to do, which will help guide most of your others, other deci, other decisions rather, is to imagine your life in retirement. Now you'll need to step back for a moment and visualize how you'll want to live your new life, including how things will be different after you leave your career, where you will live, how much home you will need, what you will do, how long you'll live, what surprises might life hold, and lastly, how much income you need, may need.

Speaker 1: (06:55)
For some pre-retirees, the first constra - consideration is where they will live. And not everyone changes their residence or retirement, but a lot of people do. If you're not tied to a job, you can feel free to really live anywhere. Perhaps you'd like to live close to your children or grandchildren, or maybe you want to move somewhere warmer like Florida, where you no longer have any state income tax, for instance. Maybe you'd like to downsize if affordability is a key consideration, or if you plan to work or maybe run a business, making sure you're in an area with the right employment and/or business opportunities could also be important. And if you plan to travel extensively in retirement, maybe living near an airport makes sense. And then there are the usual general preferences such as things like climates, uh, culture, recreational opportunities. Now, since where you live will have such a profound impact on your retirement budget, this should be one of the first questions you'll want to consider.

Speaker 1: (07:49)
To give you additional information on the where to live in retirement question, we've included some information from a poll from the Transamerica Center for Retirement Studies released back in 2018, so a few years back. Now we figured by, by providing you with the most common criteria other folks use to determine where they live in retirement, it could help you more easily sort through this question.

Speaker 1: (08:12)
So as a pre-retiree, are you considering down? Are you thinking about downsizing? Now, most Americans net worth is tied up in their home equity. This home equity is generally non-income producing and illiquid. Now you can unlock some of this home equity with financial instruments such as things like a reverse mortgage, but that can kind of also hamstring your flexibility later in life. Making the decision to downsize or even to potentially rent, it may unlock a substantial portion of your net worth to really help support your standard of living and retirement. Now, studies have shown that home values since 19, excuse me, since 1900 have grown on average just over 3%, 3.1% per year. So for some folks, it may be better to invest your money elsewhere. Also, consider how much of your savings are tied up in the house and the resulting maintenance, the taxes, the insurance and, and the other expenses.

Speaker 1: (09:03)
Now, if you continue to own, you should consider call right sizing your home, which may mean potentially downsizing the four bedroom, three bathroom home you currently live in to maybe a two bedroom, two bathroom home that may be more appropriate and less costly to maintain for your current and future needs. Or maybe you need a bigger house. I don't know. We have talked through that. So ultimately though, you and your spouse and family need to think through some of the issues, those issues, and really determine what the best housing situation will be for you in retirement. If you're not working anymore, how will you fill your time? From a financial perspective, daily activities fall into one of two categories, either income generating activities and expense generated activities, or, or I should say. If you work or run a profitable business, you'll be generating income from your daily activities.

Speaker 1: (09:55)
But on the other hand, if you are not working and you'll need to fill your time with something. So unless you plan to take walks and, and read library books all day long, you may end up spending money on travel, hobbies, entertainment instead. So there's nothing wrong with this, but you'll just have to factor these expenses into your budget. And of course, if you plan to start a new business, don't forget that it may not be profitable at first. So count your business startup costs or activities as expense generating activities until it becomes profitable and also be sure to factor these into your budget. Now, people can spend almost as much money in retirement as when they worked. An industry rule of thumb is to expect to spend around 70% as much per year in retirement as you did while working. And the more free time you have, the more you can expect to spend.

Speaker 1: (10:44)
You want to travel? Remember, vacations and long weekend getaways do cost money. Are you gonna play more golf, build a boat, um, do model airplanes? I mean, in general, it's always a good idea to have us help you run a customized analysis of your cash flow and helping you look at your financial roadmap, which includes expected monthly retirement expenses such as those.

Speaker 1: (11:06)
So how long will you live? Heck, if we knew the answer to the question, retirement planning could be easy because we would then know exactly how long your money will last. But since we don't know, we have to plan for the worst case scenario. Like, uh, back one slide, John, on that. So we wanna plan for the worst case scenario, which means assuming you live to age 95, 100 or beyond. So with that said, if you are curious as to what your estimated life expectancy is based on a questionnaire that takes into account various aspects of your life, feel free to go to, it's called www.living2100.com. Sorry, Kevin, I'm not able to go back. It's not letting me. Oh, no worries. Um, but that website is certainly very interesting and, and we would suggest checking that out. Again, it's www.living2100.com. Now, the average life expectancy in North America is age 81, but for a female, if you have to, if you have made it to age 65, there's then a 53% chance you will live to age 85 and a 32% chance you will live to age 90.

Speaker 1: (12:16)
Now for a couple, there is a 72% chance one of the spouses will live to age 85 and a 45% chance one of the spouses will live to age 90. So of course, if we die before then, it means we could have lived it up a little more, but what if we don't? Having some money l - having some life left rather at the end of your money means your retirement plan failed. We wanna avoid that. But you won't know that until it's too late. So don't rely on the average life expectancy for your retirement income plan. Be safe and assume you'll live to age 100 like the late American comedian, uh, actor, singer and writer, uh, George Burns. All right. So, oh, now we're match up on slides. All right. So unexpected events can derail best late plans for a successful retirement. Of course, if you knew what surprises life held in store for you, then they wouldn't be surprises.

Speaker 1: (13:11)
But part of the retirement income planning is taking a look at your life and the world around you and considering the unexpected. Health is a big issue for retirees. If you have Medicare and a supplemental policy, many of your healthcare expenses will be covered, except for premiums and some co-payments, of course. But the biggest concern is long-term care. Ironically, it's the healthiest people who are most likely to need it. If you live so long that natural aging prohibits you from performing activities of daily living, you'll need some kind of nursing care in your older age. According to an annual study done last in 2021, which is by Fidelity Investments, it's entitled the study, the Fidelity Retiree Healthcare Cost Estimate, which they do every year, a retiring couple can expect that through the course of their retirement, they will incur expenses of $300,000 for healthcare, excluding long-term care expenses, which is a significant amount of money, and that just continues to increase, but $300,000 in healthcare for a retiring couple at 65, um, again, not including, uh, long-term care expenses.

Speaker 1: (14:19)
Surprises can also come from family members. Whether it's caring for aging parents or taking boomerang children back into the home, you may need to be prepared for unexpected expenditures of time and/or, or money. Additionally, the economy always seems to be full of surprises. Stock market fluctuations, as we've seen so far this year, as an example, could cause your investment portfolios to decline in value, which can be especially challenging while taking ongoing distributions for your portfolio. Along with this, interest rate changes could decrease the value of your bonds, which has been the case for most bonds as of late, stemming from interest rates starting to rise as, as John talked about earlier. And inflation is always a looming threat to retirees with this threat being at the forefront of retirees' mind, especially over the past year or two. Now, since the direction of these economic variables cannot be predicted in advance, we make a point of spending ample time with our clients and helping them prepare for any and all possible scenarios through our e-wealth planning process.

Speaker 1: (15:18)
Lastly, when we talked about surprises from a standpoint of major disasters, we're referring to events, for instance, such as floods, earthquakes, tsunamis, forest fires, which we remind clients to adequately, adequately, uh, insure against those risks. How much income will you need in retirement? Do you want the lazy answer or the right answer? The lazy answer is 70 to 80% of your current living expenses, uh, which assumes you'll no longer be funding your retirement plans, and that you will save on the expenses associated with working such as transportation and meals out because you won't need, you know, those, you won't have those expen- expenditures anymore or less so of them. However, consider how you will spend all that free time, and it will probably cost you money that you weren't spending while working. So with that said, the most accurate way to estimate your income needs is to set up a budget as if you were already retired, which is where the answers to those questions come into play.

Speaker 1: (16:11)
For instance, if you know where you'll be living and whether or not your mortgage will be paid off, you can more accurately estimate your housing costs in retirement. You want to do this for every category using today's dollars. Then once you have an idea on how much you will spend in retirement, in your retirement years, especially your expenses in those earlier initial retirement years, it's really then time to figure out, identify how you're gonna pay for it all, figure that out. It's, it's time to start combining all those piggy banks you accumulated in, in an effort to pay for retirement. Now, one important piggy bank or income source for many people is social security. If you and/or your spouse are eligible for social security, you will need to consider how to claim social security to help maximize your expected benefits. Another piggy bank is pensions.

Speaker 1: (16:57)
If you have one, you may need to make some elections like whether or not there will be s- spousal or survivor benefits for your heirs in the event of your passing. If you have an annuity contract, maybe it has a living benefit guarantees that will be able to provide you with guaranteed income withdrawals for life. Perhaps you'll work part-time in retirement or own investment property or have an interest in a business as those could continue to generate income after your retirement. Although it might not sound like a big adjustment, the switch over from working full-time in your career to retiring and having to manage all your income sources can be really overwhelming. Again, rather than seeing your paycheck hit every pay period as a direct deposit, you are now in charge of orchestrating your retirement income streams, which is an area that John or myself can help you navigate as there are a plethora of considerations surrounding what piggy banks to pull from, including in what order based on a number of characteristics and factors, uh, that we help you consider.

Speaker 1: (17:58)
As for specific characteristics, social security keeps up with inflation and is guaranteed for life. Once it starts, you don't have to think about it very much, but deciding when to start it is a major decision for pre-retaries. We'll talk more about this in a minute. Now, if you're one of the few lucky people still entitled to a pension, that income will also be guaranteed for life, but pensions generally are not adjusted for inflation. So as your expenses go up, you have to fill in from somewhere else. So to use my grandfather again as an example, when he retired at age 55, he received a standard oil pension for around $500 a month, which when he died at age 97, was still paying him the same $500 a month, which by then in purchasing terms, there's really not much money from, uh, that standpoint. Now, maybe you plan to work during retirement.

Speaker 1: (18:50)
Depending on what kind of work you'll be doing, or if you own your own business, your income will either be fixed or variable. As part of this, be sure to keep in mind that this income will not last forever. Also, at some point, you'll want to stop working for good, so you might want to stash some of your earnings into savings for when that day ultimately comes. And lastly, there's investment income. This includes the withdrawals you take from your investment accounts, from retirement, from your retirement accounts, savings accounts, rental properties, or any other assets that you own. This is really the trickiest part of retirement income planning. The income may be fixed or variable, and it's often taxed, and then you must actually manage it to make sure it lasts for your lifetime. Now, even though investment income sources can be quite tricky, John and I, along with our tax per - your tax professionals, are here to help you discuss your options using, uh, various tools.

Speaker 1: (19:41)
All right, to give you a better idea of what the average retirement income sources are, we've included a helpful chart. Keeping in mind the average retiree has about $48,000 a year in total income. Of that, about $17,000 comes from social security, around $7,000 from pension, and about $3,300 coming from savings, dividends, and then also income from properties. Now, in a survey done by Transamerica Center for Retirement Studies, they found that 61% of retirees rely mainly on Social Security, and the next step are pensions, which 14% rely on, and then followed by 10% that rely on 401Ks and IRAs and 403bs, for instance. Now, let's take a look at each of these, uh, sources of income. All right. In looking at your retirement income, most people like to start with Social Security because it's a predefined amount of income. Once you turn age 62, your Social Security benefit is calculated based on your earnings history.

Speaker 1: (20:36)
Before you turn 62, the Social Security Administration estimates your benefit, assuming your present earnings will continue. Now, to find out your benefit estimate, you can refer to your latest annual statement from the Social Security Administration or go online to their retirement estimator, which taps into the Social Security Administration's earnings database to estimate your benefits based on your, on your past earnings. All right. Then we take a look at pensions, which is another common source of income in retirement. Now, the big question here is whether or not you'll get one. Most employers have abandoned their com - have abandoned, rather, their company pen - spon - company-sponsored pensions because they're costing too much. But if you're one of the lucky ones, and you have, if you do have a pension, then you do have some homework to do. You wanna find out when you're entitled to your pension, how much it will be for, what your distribution option, and what your distribution options are.

Speaker 1: (21:30)
Sometimes it's better to take it a- as an annuity, but then other times, it's better to take it as a lump sum and then roll that into an IRA so you can manage the investments. Now, if you need help analyzing your pension distribution options, uh, we, we're certainly happy to help. Now, just to be clear, we are not counting 401 plans as pensions. Strictly speaking, pensions generate monthly income for life with a company assuming the longevity risk, okay? And 401 plans are investment accounts because you're putting your own money into them and you are responsible for choosing the investments, you know, with our help and, and managing the withdrawals when the time comes. If you have access to a pension from your employer or a former employer, you should consult with your financial professional before making any election. You'll often have options such as a lump sum payment or a single life annuity, a joint life annuity, uh, partial survivor benefits, or a period certain option.

Speaker 1: (22:24)
Also, your selection is genera- generally irrevocable when made, so it's really important to thoroughly review and consider all your options. For example, while selecting a single life annuity, although it may provide the highest benefit, it will not provide income to your spouse or beneficiaries when you, when you die. So the rules are tricky, so be sure to review the fine print and discuss your options with a professional before making a decision. All right, how about work? So now more and more people are planning to work during retirement. I suppose you could then question the word retirement for this time of life, but often the, the work takes on some, some sort of different form. If you plan to keep working at your present job, you aren't really retiring then, you're just delaying retirement, and that is a very good decision for many people. A few more years of work now will certainly add to your financial security, it'll boost your, uh, your savings and it'll also shorten your drawdown period.

Speaker 1: (23:21)
So if your work isn't too terrible and it brings in a good paycheck, heck, you know, keep at it. Now, once you leave your main job, there are several work options available to you. Some retirees become consultants, they, they convert their former employers into clients and they work according to their own schedules in some cases. Others launch a whole new career or business and they throw themselves into their work even more, more than before. So others start slowing down, working a little less in their primary occupation or finding an easy job with, uh, lower stress. Now, it's always better if work decisions can be made without regard to finances. After all, this is your chance to switch careers and do something you really enjoy. But after looking at your piggy banks, you may find that there's not enough income from other sources. This means you may be basing your work decisions on how much income it will generate.

Speaker 1: (24:12)
And remember what I mentioned earlier, you probably won't want to work all the way to the end of life. At some point, you'll want to stop, all right? Maybe you'll want to work a few year, fewer years at higher income, even if it's work you don't, you know, really enjoy that much, or you may find, you know, work that you really enjoy that doesn't pay very much. If it's, if it's not too physically demanding, you'll be able to continue that for many years. So these are a few of the things to think about when putting together a retirement income plan. All right. Another potential income source in retirement is an annuity. An annuity is similar to a pension in that it can provide guaranteed income. However, it is funded through your own personal investments and not by your employer. Do you have an existing annuity or have you been considering an annuity as a potential investment for income replacement?

Speaker 1: (24:59)
An existing annuity may have living benefit riders or an annuitization option, which may be able to provide you with a guaranteed income stream or withdrawal benefit for the rest of your life. Annuities are generally complicated, can be expensive, and they're often penalties or withdrawal charges associated with contracts. While they offer tax deferral, withdrawals are often taxed at ordinary income tax rates, okay? And then if you're considering an annuity as part of your retirement plan, we need to make sure you're looking closely at the perspectives and working with an advisor to explore all of your options, as there are many, and, and also knowing the potential cost of each option. All right. Now through our lives, we acquire a lot of different piggy banks that we stuff with money for different reasons. Some of these are retirement accounts like IRAs, Roth IRAs and 401 s. Some are non-retirement accounts like your checking, savings and CDs.

Speaker 1: (25:52)
So regardless of all these types of accounts, it's important because they represent piggy banks stuffed with your savings that will eventually fund your retirement. And finally, we have a small percentage of retirees who earn income from other sources, such as investments in an income producing property or interest in a business that will continue making income after you retire. Often this type of income is variable, but needs to be considered along with your other income sources. Now, once you've identified all the sources of income you can tap into in retirement, you have a very challenging question in front of you. To help address this question, I will go ahead and turn these things, the presentation back over to John. Thanks, John.

Speaker 2: (26:34)
Thank you, Kevin. All right, we only have about four more hours left, so feel free to go and get dinner and bring it back to your computer if you want. I'm just kidding. I'm not gonna take that long, but you'd like that. Okay, so to determine a withdrawal strategy, what are all the different options? You, you're probably familiar with some of these, maybe you read about some of them, maybe some of them are new to you. Uh, but the first thing that probably most of our country thinks o- o - thinks about is live off the interest, whatever my investments make, that's what I get to spend every year. Uh, it's not really a, uh, a retirement strategy that would be very consistent, especially during years like this year. Uh, so don't typically see that, but, uh, that's, uh, one option. Another option that's talked about a lot is the 4% rule.

Speaker 2: (27:26)
What that means is you've accumulated a certain amount of money, uh, you withdraw 4% a year from that, increase it with inflation every year, but there, there's definitely a lot of issues with that. Main issues is you don't necessarily need the exact same amount of money from an investment account every single year because income sources don't work like that. Sometimes you get social security a few years after you retire and then you maybe need a little bit less from your investments. So it just doesn't all flow in a straight line. Uh, other times, if you think about the history of the 4% rule, uh, that was the worst scenario that allowed you to have money after a 30-year period, but there was a lot of scenarios where you would've gotten, uh, you would had a huge amount of money left, and that's typically not our client's goal to, to retire with a, a vast investment account.

Speaker 2: (28:23)
So sometimes the 4% rule ends up being too small in terms of you could have taken out more, but you just followed a arbitrary rule, so we don't necessarily like that. Uh, you've got a total return approach. Uh, so total return approach is when you have just one investment account, you diversify that investment account, and you take money on an ongoing basis from that investment account. And ultimately, you just kind of take probability, uh, that stock market is gonna do well over time. There'll be ups, there'll be downs, but over time, uh, that will work itself out. You have a positive rate of return and your money will, uh, outlast you. But the total return account is kind of just one portfolio that you're withdrawing from. Now, another option, um, is we have what we call bucket strategies or time segmentation. Uh, the other one there would be what we call income protection, and the last one was risk wrap.

Speaker 2: (29:22)
So I'll, I'll, I'll come back to some of those a- as I go along here, but those are really the, the main areas of how to withdraw money from investment accounts. And a lot of times people wanna sit down and they wanna talk about the investments, the rate of return, but the big thing that I would just say is don't put the cart before the horse. H- how you withdraw money is not necessarily an investing question, uh, it's more about your desires, your goals, your, uh, feelings on the money and what's important to you.

Speaker 2: (29:57)
So, uh, one of the tools that we have access to, to use for, for people that wanna go through this strategy is, uh, basically a questionnaire that helps us to have discussions with you to say, where do your specific, uh, answers to a questionnaire fall in, in the way of you maybe desiring a total return approach or a risk wrap approach or an income protection approach or a time segmentation approach? So we can go through this process with you. Again, not that it's set in stone based on how you answer the questions, but, uh, everyone's different in how they, uh, feel about investments. Um, Kevin was talking about his, his family member. I had a, a grandmother that lived 103 years old, uh, probably something with more protection and annuity would have turned out much better for her than a total return approach, just because she lived a very long time.

Speaker 2: (30:57)
But mathematically, there, there's not necessarily a right or wrong answer because you have to give us two answers to questions that you can't answer. Number one, what's the market gonna do every year over the next 30 years? If you did have that answer, I would hire you immediately. Um, number two is how long you're gonna live. And, and we don't know those answers, but based on what is important to you and how you answer specific questions in this retirement income style questionnaire that we can provide to you, it can be a basis to, to really start a conversation as to, um, what type of approach might resonate with you.

Speaker 2: (31:39)
So for instance, um, how would you, how would you like to draw retirement income? Uh, you've got probability based on the left, you've got safety first on the right. So safety first would mean you want more of a contract, you want more of an annuity, you want more of a guarantee that somebody's gonna sign on the dotted line and give you a certain amount of money every single year the rest of your life, whether you live till you're 400 years old or not. On the flip side, you've got probability based where you're saying, "I don't necessarily need that guarantee because I believe in the markets, I believe that they will average a, a positive rate of return over time like they've always done. And I don't necessarily need the contract, uh, the contractual obligation of an insurance company for an annuity for me to sleep at night." Uh, so that's just one kind of basic question.

Speaker 2: (32:32)
Another we, we call optionality versus commitment. Uh, if you get into like an insurance based contract with an annuity, you're committing to it. It is a contract, you've got to follow certain rules. Um, so you lose a little bit of variety, you lose a little bit of your options versus some people would prefer, "No, I'd rather keep more of my options open. I don't want to sign a contract. I don't want to have different surrender fees. I want access, more access to the money, more liquidity." Uh, so everybody's different there in, in what they, they, uh, would prefer. But if you kind of look at four main boxes here, that, that total return approach would be in the upper right. Um, the all annuity type of approach would be in the lower left, the safety first, the being, um, comfortable with making a commitment, a contract.

Speaker 2: (33:25)
The, uh, bucketing, uh, or time segmentation, which I'll explain in a second, would be kind of top left here. And risk wrap is, uh, lower right here. Risk wrap is really where you're taking, uh, an insurance company's guarantee that they're gonna pay you forever, but you're willing to have some fluctuation in those payments, uh, by investing it in stocks or bonds. And depending on how those stocks and bonds do, your payments will go up and down, but the insurance company will be on the hook to guarantee you a certain amount for the rest of your life.

Speaker 2: (34:02)
And the, I mean, the way we look at things, I mean, beyond just these four simple squares is each of these squares could be broken down into four other areas because there's so many different retirement income products out there, ways to structure retirement income that i- if an approach like this or going through this type of questionnaire would be of help or of interest to you, we'd be happy to, um, do that and, and go through this process with you. Uh, I mentioned a second ago the bucketing strategy. So this would kind of be the, the upper left of that quadrant that I was just showing you on the slide before. So bucketing is where, uh, you're, you don't want an annuity, you don't want contracts or specific rules, you wanna keep your options open, but on the flip side, you wanna have different pockets of money to help you sleep at night.

Speaker 2: (34:57)
So what do I mean by that? Well, if you look at these different buckets here, um, on the right, you've got a zero to five year bucket, you've got a five to 10 year bucket, you've got a 10 plus. So the 10 plus would be money you don't need for 10 years or more. That would be more of your aggressive investments, that would be more volatile, that would be more growth oriented. And the thought process there is if you know that you don't need that money for at least 10 years, you might not care as much if the market goes down 40 or 50%. And it just, it allows you to segment that money in your mind to say, "Let's not worry about how that did because that's our 10 plus money. We don't need that for a long time." Versus the total return approach where you really can't segment that in your mind because it's kind of one portfolio and you see one value.

Speaker 2: (35:50)
On the flip side, the zero to five year would be the money you're withdrawing right now. And that would be, uh, obviously in conservative investments, investments that aren't gonna have a lot of growth potential, but they don't have a lot of volatility. And it really all comes down to how much money you need on a yearly basis. If you need, um, $100,000 a year, you'd have to have 500,000 in that bucket. If you need $50,000 a year, you need 250,000 in that bucket. That's just quick math. Um, the, the five to 10 year would just kind of be right in the middle there. You don't necessarily need the money for five years, but we're not as aggressive with those dollars because that's kind of the, the middle bucket. And ultimately that middle bucket base, if you think about just kind of spilling over, it spills over into that zero to five year bucket because all your dividends and interest flow into that zero to five year bucket to kind of replace it over time.

Speaker 2: (36:45)
And then every once in a while during a good year of investments, we'll take more of these green and pink buckets and fill up the red buckets so you always have five years. Now, why five years? Well, if you think about the second biggest drop in stock market history back in 2008, uh, it took five years to recover from it. So just the thought process is make sure you have enough money in that conservative bucket to, to last. So that would be the, the bucket strategy approach. Um, if you look at kind of more of the annuity approach, uh, the lower left of those quadrants I was talking about, we kind of think about mandatory versus discretionary expenses. So the mandatory expenses is where you break down your budget in your h- head and you think, what do I want to make sure is covered every single year?

Speaker 2: (37:37)
And know that that's there forever. So what are your mandatory expenses? Housing, whether that's rent or mortgage, utilities, food, just expenses that will always be there. And you would take that amount of money, like let's say out of, uh, $100,000 a year, your mandatory, uh, expenses are 60,000. You would make sure that $60,000 a year is covered by some sort of guaranteed income stream. And what are guaranteed income streams? Sorry, I'm

Speaker 3: (38:11)
Having trouble hearing you. Sorry, could you say -

Speaker 2: (38:14)
My watch is talking to me. Um, so guaranteed income streams would be things like social security, would be things like pensions, would be things like a personal annuity. And a personal annuity simply means that you can take any portion of your investment assets and you can turn on a guaranteed income stream from it. So like for instance, if a client said, "John, what, what does it take to have $10,000 guaranteed for the rest of my life?" We can tell them, uh, because it's just a, a simple process to, to figure out and work backwards on what would the insurance company require to give you $10,000 that you cannot live. That's a, a personalized annuity. On the flip side, discretionary expenses, things like travel, things like hobbies that, that aren't necessarily needed to have a fulfilling life but desired, those would be dollars that aren't covered by a guaranteed income source and just more of that total return approach that I was going through earlier.

Speaker 2: (39:14)
So that's, that, that's a stylist that resonates with some.

Speaker 2: (39:20)
Um, ultimately when we're thinking about retirement income, we do not wanna forget about taxes because it is one of your major expenses the rest of your life. And if you look at how retirement income is taxed, uh, social security is, uh, potentially up to 85% of your social security will be taxable. Now, not at an 85% tax rate, but 85% of the money you're making. So if social security provides you, uh, $2,000, uh, a month, then $1,700 of that 2,000 would be taxable or 85% of it would be taxable at your ordinary income tax. And that will vary depending on how much other income on top of Social Security that you have. So as you take more income from other sources, it can, uh, increase your Social Security taxation, but that's just the way the Social Security system is set up. Pensions, typically that's fully taxable.

Speaker 2: (40:22)
The IRS gets to tax all of the money you get from your pension. There are some instances where some of the money would not be taxable, but for the most part, uh, 99% of the time your pension payments are gonna be fully taxable as you withdraw. Earnings from work, like you're used to in your accumulation years, that would be fully taxable. Investment income depends whether it comes from a non-retirement account or an IRA investment account. For an IRA, uh, that would be fully taxable. For a Roth IRA, it would be fully tax-free. And from a non-retirement account, you pay taxes along the way every year. Uh, and that's taxed at what we call capital gains tax, which I'm not gonna get too much into the weeds with tax, that would be for a different webinar topic, but, uh, different ways to plan with that type of income when it's taxed every year.

Speaker 2: (41:15)
You've got annuities. Again, depending on whether it's an annuity IRA or a non - IRA type of annuity, uh, will affect how those are taxed. But typically, uh, in a, a non - IRA annuity, uh, just your gains are, are taxed and the amount of money you put into it will not be taxed because it's already, it has been taxed when you put it in.

Speaker 2: (41:39)
And then other assets, again, depending on what those are, will have different taxation. But we're happy to, to have discussions with you in your specific situation. Uh, but taxes is something that we're constantly thinking about, thinking about strategies for retirement. Don't necessarily wait until 72 when the IRS will force required minimum distributions off of your IRA assets. Uh, potentially you might wanna withdraw from those IRAs earlier. You might wanna convert some of those IRAs to a Roth. And some people will say, "I can't convert to a Roth because I'm retired." And what you're thinking of is you can't contribute to a Roth because you're retired, but you can always convert money from an IRA pot to a Roth pot that is available for the rest of your life because the IRS wants to get their tax dollars as soon as they possibly can. So Roth conversions is a strategy we'll talk about a lot over time because we know taxes are going up.

Speaker 2: (42:36)
In fact, in the year 2026, that we, all the tax brackets revert back to what they were in 2017. So we gotta be thinking about that. We gotta be thinking about how taxes change over time because taxes will always be changing. They'll always be having some type of new legislation. Right now they're talking about changing required distributions from 72 to 75. It just was 70 and a half a few years ago. So stay tuned, but you can count on us for all that information, but they're always changing something. But just to have a tax plan to sit down to think about how this money should be withdrawn, um, happy to, to discuss that with you. Um, which accounts to tap first? I mean, you've got taxable, you got tax deferred, you got tax free accounts if it's an investments like a Roth. The rule of thumb is you leave the, the tax free assets until the very end because tax free growth is the best growth in town.

Speaker 2: (43:35)
Um, you start withdrawing from your taxable at the beginning. But it doesn't always work that way from a tax efficiency standpoint because of those things I talked about earlier, like required distributions. Sometimes it is better to take money from a tax deferred account before a taxable account because taxes are going up. So that's all part of this conversation to map out your financial roadmap, to map out how much money you need based on the, where you have the money and the types of accounts those are in and create a efficient plan for you. And that efficient plan would be around your risk tolerance, around your time horizon and the amount of money you need.

Speaker 2: (44:16)
Now it's 50, 501. Uh, there's just a general case study that, that we had here, but just for time purposes, I wanna respect everyone's time and, uh, I'll probably just, uh, uh, skip over that for now and stop sharing here. But just in general, appreciate your, your time today. Thank you for your attention. If you want the recording or you wanna pass this recording on to anyone you know, happy to, to provide that to you. But, uh, yeah, uh, we're always here to help. We, we wanna be a resource for you. We want to answer questions you have as they come up and just look forward to future conversations about this topic, whether you're in your accumulation, uh, years now, eventually you'll get to those distribution years. And, uh, we're, we're always, uh, honored to be a resource for you for that. So Kevin, any last words?

Speaker 1: (45:03)
Nope. Appreciate your time, everyone. And then John, I don't know if you wanna throw up that last compliance slide real quick, or maybe you flash that up there, but, um, don't wanna forget, forget about, uh, compliance. But no, appreciate your time, everyone. Uh, this is an area that John and I work in real regularly, helping clients through retirement, and we're happy to answer any questions you have, and please use us as a resource. And, um, we look forward to continue helping many of you and, and let others know too who might be at or near retirement that, you know, it's an area that we certainly spend a lot of time in and provide a lot of value. So keep that in mind for referrals.

Speaker 2: (45:39)
Thank you, everybody.