How to Prioritize “Competing” Retirement Strategies

Our topic on this episode of the Ready for Retirement podcast is about how to prioritize competing retirement strategies.

Questions answered: What are the benefits of having one comprehensive strategy? What are the risks of having multiple strategies? What is the best strategy for your individual situation? 

Are you ready to start focusing on the things that truly matter when it comes to your financial future?

We’re on YouTube! 

Check us out here for more content to help you create a secure retirement: YouTube – Root Financial Partners

Key Points

• Competing Retirement Strategies
  • How can I prioritize implementing various strategies along the way? 
• Listener Question
  • $4.8M total
  • Expenses = $150,000/year (likely ~$180,000 pre-tax)
  • Withdrawal rate = 3.13% withdrawal rate ($150k/$4.8m)
    • This does not take into account taxes.
• Please do not compare yourself to others based on the amounts used, but view this as the strategies to consider implementing so you can live your ideal lifestyle in retirement.
  • I’ve seen couples/individuals who have a few hundred thousand dollars and enjoy a comfortable retirement as well as couples/individuals with millions of dollars who feel behind when it comes to reaching their financial goals.
• IRA Growth
  • The listener has $1.3M in his IRA.
    • If this IRA grows at 6% for 15 years, there will be ~ $3.1M at age 72.
      • This will be an RMD of ~$118,000.
    • We don’t want to intentionally limit growth to minimize RMDs.
      • Once you’ve determined your ideal asset allocation, only then may bonds make sense in your portfolio and you can implement asset location. 
    • If you limit your growth intentionally, you will have lower taxes, but also a lower amount as a whole.
• Diversification
  • Owning global companies allows you to take advantage of opportunities all around the world.
  • If you have too heavy of an allocation towards a particular investment or sector, it may severely impact your ability to create a secure retirement. 
• 72 (t) Distributions
  • If you want to retire before 59.5 and you have funds in an IRA, you can’t pull funds without a penalty.
    • You can elect to take 72(t) distributions, but you have to take it for the longer of:
      •  5 years OR when you turn 59.5
    • Example:
      • The listener is 57 years old and wants to retire in 9 months. I’m going to assume the listener is 58 when he retires.
        • This is a 1.5 year gap before you can begin withdrawing from your IRA without incurring any taxes or penalties.
      • If you elect the 72 (t) distribution option, this listener would be required to take distributions until age 63.
    • Example:
      • Let’s assume you have $1.3 million in your IRA and you pull $150,000/year for the first several years. 
        • I am ignoring taxes and assuming no growth.
        • You could spend these funds over ~ 9 years. 
  • What if you were to ignore the 72 (t) option and live on your brokerage account while allowing for the opportunity to implement Roth Conversions?
    • The goal is to increase your after-tax balance while minimizing taxes along the way.
    • The goal isn’t to fully convert the IRA all at once, but to convert along the way to ensure we don’t pay any more in taxes than we need to.
• Listener Question Summary:
  • Review your diversification preferences.
  • Review your asset allocation.
  • Review the concept behind minimizing IRA growth and determine if Roth Conversions make sense.
  • Consider whether a 72 (t) distribution makes sense.

Timestamps

3:57 – Sample Example

7:00 – Why You Shouldn’t Worry

12:52 – Required Minimum Distributions

15:45 – Where Should I Pull Funds From First?

19:12 – Diversification Benefits

23:56 – Benefits of Conversions

26:21 – Sample of Prioritizing

28:46 – Aligning Your Investments With Your Financial Goals

Resources:

Submit your question:

Subscribe to the show

Work with James