Our topic on this episode of the Ready for Retirement podcast is a case study on how to make the right decision for you with all of the various retirement options.
Questions answered: What are the best investment strategies throughout retirement? What strategies can I implement to improve my financial future? What is the best approach for my individual situation?
Are you ready to start focusing on the things that truly matter when it comes to your financial future?
Episodes mentioned:
Episode 4: Lump Sum vs. Annuity – Which Pension Option Should You Choose?
Episode 39: Where Should I Pull Funds From First in Retirement?
Episode 43: Understanding Social Security and How You Can Maximize Your Benefit
Episode 50: How to Use Roth Conversions to Save Huge Amounts in Taxes
Episode 51 – The Ultimate Tax Planning Strategy – Combining Roth Conversions with Other Deductions
Key Points
- How do I make the right decision in retirement?
- Assumptions:
- $8,700/month of income in retirement ($104,000/year) before taxes.
- If desired expenses in retirement are $180,000/year, $76,000/year needs to be generated from your portfolio ($180,000 – $104,000).
- $3,400,000 are in tax-deferred retirement accounts (401ks, IRAs, etc.)
- $1,300 in taxable account (likely $1,300,000, but let’s use $1,300 for example purposes).
- Withdrawal rates
- $76,000 / $3,400,000 is ~2.2%, which means the withdrawal rate from your portfolio is 2.2%.
- Let’s assume taxes are 50% (we always plan conservatively)!
- If we increase your withdrawal rate from 2.2% to 4.4% by taking into account taxes, you’re still in a strong position to live off of $180,000/year adjusted for inflation throughout retirement.
- $76,000 / $3,400,000 is ~2.2%, which means the withdrawal rate from your portfolio is 2.2%.
- Assumptions:
- Expenses in retirement are not linear
- Expenses in the first year of retirement are likely going to be very different than in year 15 of retirement.
- Retirement expenses are likely higher in the beginning while you travel and are in good health, whereas the latter years of retirement include more healthcare costs or funding grandchildren’s education.
- It’s helpful to think through how you view retirement and if you envision retirement expenses fluctuating throughout retirement so you have a clear picture of where you are and what you want your finances to do for you.
- Expenses in the first year of retirement are likely going to be very different than in year 15 of retirement.
- Pension: Lump-Sum v. Annuity
- For more details on this, check out Episode 4: Lump Sum vs. Annuity – Which Pension Option Should You Choose?
- Annuities are a guaranteed level of income and last forever and create peace of mind.
- Annuity Cons:
- Annuities aren’t generally indexed for inflation.
- Annuities don’t offer opportunities for tax planning.
- Annuity Cons:
- Annuities are a guaranteed level of income and last forever and create peace of mind.
- Lump-Sum Option: Rollover $1,027,000 into an IRA and invest to maintain purchasing power.
- Single-Life Annuity gives you income for as long as you are living.
- This option gives the listener $4,886/month for the rest of his life.
- 100% Joint and Survivor Benefit
- $4,553/month would be the income for the listener and would remain for his partner upon the listener’s passing.
- For more details on this, check out Episode 4: Lump Sum vs. Annuity – Which Pension Option Should You Choose?
- Future Taxes & RMDs
- For more on this, check out: Episode 39: Where Should I Pull Funds From First in Retirement?
- For more on Roth Conversions, check out: Episode 50: How to Use Roth Conversions to Save Huge Amounts in Taxes
- Charitable Giving
- For more on this, check out: Episode 51 – The Ultimate Tax Planning Strategy – Combining Roth Conversions with Other Deductions
- Tax Planning
- Annuities are a fixed amount you will pay taxes on every year.
- Taking a lump-sum allows you more flexibility to take advantage of tax planning.
- Social Security Benefits
- For more on this, check out: Episode 43: Understanding Social Security and How You Can Maximize Your Benefit
- Social Security growth is determined by actuarial tables and not a true real rate of return by delaying each year.
- Social Security is tax-advantaged.
- (i.e. CA does not tax Social Security)
- It often makes sense for one spouse to collect early and one spouse to delay.
- Social Security is a two-person decision, as a surviving spouse has an option to continue taking their benefit or take advantage of the alternative benefit.
- If one spouse delays collecting, the surviving spouse is guaranteed that level of income throughout their lifetime.
- Social Security is a two-person decision, as a surviving spouse has an option to continue taking their benefit or take advantage of the alternative benefit.
- For more on this, check out: Episode 43: Understanding Social Security and How You Can Maximize Your Benefit
- Overview
- Financial planning is comprehensive and taking into consideration investments, Social Security, Tax Planning, Pensions, Annuities, RMDs, Estate Planning, Roth Conversions, etc. is crucial to bringing you clarity and peace of mind throughout retirement.
Timestamps
1:44 – Introduction
3:50 – How Do I Make The Right Decision In Retirement?
4:22 – Assumptions
6:08 – Withdrawal Rates
14:41 – Lump-Sum v. Annuity
16:27 – Purchasing Power Risk
20:36 – Future Taxes & RMDs
23:32 – Charitable Giving
25:54 – Social Security Maximization
32:05 – Aligning Your Investments With Your Financial Goals
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