Retirement Withdrawal Strategy

Everyone, the lesson here about the evolution of money in today's video. I'm going to help you put together your

retirement

strategy

for

retirement

, so if you're someone who's actively planning for retirement, maybe you're getting a little bit closer and really trying to figure out how you're going to make that leap from work and life. cash flow that you bring in while you have a job to maybe those cash flow gaps when you don't bring that money in, where are you going to take the money, what's the best way to do it, that's what we're going to delve into here in today's video, but in this today's video, although we're going to talk about where to get that money, remember that the first step in this is to understand what those retirement gaps are and to do that you really need to go through a process to figure out what you are going to do during retirement;

In other words, create your retirement vision, if you haven't already. Be sure to check out my video series found in our Resource Center. It's called How to Create Your Retirement Vision. There are four videos that guide you step by step on what you should do or consider during retirement. There are some worksheets. that go along with that, it will also give you an idea of ​​what those gaps are for your retirement and then you'll come back to this video and then we'll start talking about now that you've identified those gaps, where are you going to get the money, what's going to be the best way to do it, so let's jump right in.

What I have here on the screen are five common sources that you could have available for your retirement, probably almost everyone watching this video will probably have Social Security. for you, maybe also for your spouse, if you are married, you may have a pension; fortunately there are still many people who still have a pension, although obviously the younger generations that is largely disappearing and you may also have what we often call the three main tax brackets for different savings accounts, the non-retirement assets that are not held in any Roth or traditional retirement account and then you have your traditional account and your Roth account, so let's get started.

To come up with this plan we want to think about a couple of things, number one is we want to think about taxes and that's something we've talked a lot about. I think taxes are probably one of the biggest areas that we can a lot of times. add improvements for people as we're helping them do some planning there and a lot of times people just don't understand how these different groups are taxed so we want to do that and we also want to try to minimize some of the uncertainty with the markets financials and what we call this return sequence, so let's talk a little bit about that and then you'll also want to make some decisions here, if you have an option with your pension, maybe you can, you know, take a lump sum maybe. you can deliver that pension sooner or later, that kind of thing and then Social Security obviously has some options there as well.

You can activate Social Security benefits for most of us starting at age 62 for most of you looking at this, your full retirement. the age is probably 67, it could be 66 or between 66 and 67, you can also delay receiving Social Security benefits until age 70, so that's something else to think about too, so there's a lot of parts cell phones, the other thing that I think we want. You also have to think especially about whether you are willing to leave some money for your children or your grandchildren and leave them as beneficiaries of some of these assets, which we want to think about a little bit if you don't spend all that . money in your life, how will you pass this money on to your children?

So I think that's something that also goes into this and also for those of you who are married, how you are protecting your spouse and your ability to maintain that standard. that alleviate those lifestyle expenses for them if something happens to you prematurely in retirement. Well, first of all, let's start by talking about how these different groups are taxed. Now, this is something we've talked about in other videos, but I think it's definitely worth digging into this a little bit, so your Social Security benefits for most of us will probably be taxable up to 85%. of our Social Security benefits in 2019, in my opinion, I think that's something that starts.

Working out some details about how to make Social Security work for future generations it wouldn't be unusual to see that maybe one hundred percent of those Social Security benefits could be taxable, so your pension is also taxable and that will be taxed at your ordinary income tax rate and I think that's something that's an important definition to make sure you understand, but your ordinary income tax rate is the highest margin tax rate that you pay, so for Every additional dollar you earn is You will be taxed at that ordinary income tax rate and, by the way, your Social Security will also be taxed at that ordinary income tax rate, but again, only at this point until 85% of that is taxed at that level.

Now is where you get a little more. Complicated, your non-retirement accounts have a couple different types of income that could be applied there. We have a couple of preferred items that will be ordinary qualified dividends for most of us and will be taxed at a top tax rate of 15%. If you are in the highest tax bracket, which could be 20 percent, you could also be affected by the Medicare surcharge, which could increase it. I think I'd like twenty-three point seven two percent if I'm right on that and then also to long-term capital gains that are also taxed for most of us at that fifteen percent tax bracket, so there's some preferred items there, you could also have short-term capital gains and you could also have interest, and that's taxed again at your ordinary income tax rate, that's the least desirable type of income you can have now, bills, That is, money you probably invested through a 401k plan or IRA account, you probably took a tax deduction when that money came in. to the traditional account, but that money will now be taxed as it comes out and again it will be taxed at your ordinary income tax rate and that is your highest marginal tax rate and then the Roth will be the money that you deposit after taxes and So, as long as there is a qualified distribution, the money that goes out is tax-free.

Another thing I want to point out here is that when we talk about how this money is transferred to your next generation, to those beneficiaries, everything they have here. In this non-retirement segment, at this point you get what's called a cost-plus basis, which means you know if you were lucky enough to buy Apple stock at the equivalent of $20 per share in current Apple stock. Apple at the moment it happens. away is over $200 per share that goes to their children and they don't pay any capital gains tax on that gain, so what could be an eighty dollar per share gain is completely eliminated and they inherit the shares as if they were bought at the price at which it was valued at the time of your death, you know, that's an advantage, while we're looking at it, you know which assets will be best to pass on to the next generation's non-retirement accounts , actually more or less. works pretty well with that, what I don't like about non-retirement accounts in general is that unless we do some things preemptively, we'll address that here in this video, a lot of times we don't have a lot of control over the taxes we pay .

We are paying year after year and that can sometimes alter other aspects of our retirement because if we have mutual funds or portfolios that are managed, we often have no control over the capital dividends. profits, whether long-term or short-term, the interest that might arise from those accounts, we don't have a lot of control over them, so in traditional accounts, one thing we want to think about here is obviously taxes, but I also want Think about what they call the 70 and a half or RMD rules, which means required minimum distribution and if you don't already know, at 70 and a half you must start taking minimum distributions from your retirement accounts, essentially the IRS.

He said: Hey, you've gone long enough without paying taxes on this money, when you turn 70 and a half you have to start withdrawing some money. This is something that I still have a lot of misunderstandings about with our clients and people think that they have to take it all out at 70 and a half now that's not true, they just have to start taking minimum distributions, the amount is actually a divisor and there are a table, but it starts at about 4% in the first year and then goes up a little each year as you get older, as your life expectancy gets a little shorter, you have to withdraw that money when it goes to your kids and the account tradition that they are going to inherit, generally as a beneficiary.

IRA and there are some advantages to that, if there is a non-spouse beneficiary, they can inherit that and they can continue to defer taxes on that account, but regardless of how old they are as non-spouse beneficiaries, they will have to take our doctor , so if they are 40 years old when they inherit, they will make a life expectancy table for a 40 year old and basically tell them that the IRS will tell them how much money they have. take out of that account, but the good news is that they can continue to defer those taxes over time and although I have to say that over time and defer taxes, those assets can be in their own retirement, so that's one of the advantages of that. type of account now you can withdraw the money faster if you want, so although there is a minimum amount, there is no maximum amount, so they could literally liquidate the entire account almost immediately if they wanted to, but that will be something that will be subject to taxing Roth IRAs now, there is no RMD while you are alive or if it passes to your spouse, so if you die your spouse inherits a Roth IRA, there is no RMD, so you can leave that money there for all his life and continue to grow. completely tax free when that goes to your beneficiaries, your beneficiaries, just like the regular IRA, will be forced to take RMDs, which will be a pretty similar schedule, the difference will be that as those beneficiaries inherit your money, then they won't I don't have to pay any taxes since they are eliminating those distributions, so those are some of the differences.

The other thing we want to think about is going back here to Social Security again. I mentioned before, you can take your Social Security. Security benefits starting at age 62, your full retirement age, we'll just say for most of us it's age 67 and then you can push back to age 70 so you know we're not going to get too deep into the issues of the Social Security. In this video we have a lot of other videos where I go into a lot more depth on this, but one thing you definitely want to think about when deciding when to take Social Security is maxing out and for most of our clients we recommend that they at least go full retirement age just because they take a pretty substantial hit, about 35%, to withdraw that money early at six years 62, but they also have to think about the benefits that their spouse may have, so if let's say the spouse who earns a higher salary and you have, say, a pretty full benefit, maybe you're entitled to 3,000 per month at your full retirement age, but your spouse only has $1,200 per month at full retirement age by delaying full retirement if If something happens to you, they will be entitled to a much larger benefit, so that's something that not only helps smooth out some of the return sequences that we just talked about, but also ensures that if something happens to you. you have a little bit more protection and then for some of you, you know you could even delay that until age 70 and get that even bigger benefit, as you know as you go up to the maximum age that you can delay your Social Security benefits. and between the ages of 67 and 70 they will increase 8% annually, so it's a pretty healthy increase.

Now let's briefly talk about pensions again. You know, we could talk about the balloon payment. sum versus monthly amount is generally my rule of thumb and this is something you know, you should definitely do a lot more research on whether you should get a lump sum or a pension, but if let's say you retire and you were planning on delaying receiving income from anyway or you didn't need the income for your cash flow, a lump sum is something that might make sense in that case, you know or for some of you who maybe left a job that had a pension that you're still in your 50s and maybe you have 10 more years before you retire, you are often offered a lump sum because you are delaying being able to grow that lump sum again, there is no guarantee that you will still have to deal with the ups and downs of the market, but it could increase that lump sum andthen potentially knowing how to withdraw, knowing a higher

withdrawal

amount, knowing, let's say, monthly or annually, for yourself in the future, so you want, you want to think. about that, but again, one of the other things, you know, we talked about creating sustainable income, which is one of the key things we want to look at for this

strategy

.

Here we want to see, can you sustain this for a long period of time? for many of us having that regular monthly pension is going to be one of those predictable sources of income that could make a lot of sense to fit into this overall strategy, okay, now let's dive in, let's really put it together, let's talk about what you really want to see in this video and that's how we create. the retirement

withdrawal

strategy and thank you for joining me on that, but it's definitely something that I think is very important to understand how that all works, not only for your tax situation right now, but also for your children's tax situation because As we know, many times we do financial planning, while we are forecasting, we see that for most of our clients there is some money that will hopefully be left for the next generation, so what do we want to do?

First of all, we want to identify the cash flow and we refer to this a lot of times as the gap again, that's something I'm not going to get into here in this video, but it's something we do with our financial planning. for individual clients, where we plot this out literally year after year and we can see what those cash flow gaps are if you go back to our Resource Center and attend that workshop that will give you an idea of ​​what those gaps are. Basically, that's what we're figuring out and as we do this, maybe we have a year after year and you know you could retire, you know, at sixty, so you might find that you have some gaps that you might need. forty thousand and you're one, maybe it's forty-five thousand, you know, whatever, 50 thousand, we're going to go up a little bit every year, so that's essentially what we have to figure out and we have a couple of different options , you know again if Go back here to our sources, we could say we could activate the pension, okay, and again, one of the things to think about is whether there is any benefit to delaying that pension benefit, you know, for some people we have a lot of clients who work in the auto industry here locally and they can retire as early as age 58 and they really don't see any difference in the amount of pension benefit they will get by collecting at age 58 versus waiting until age 62 or 65, you know, if that's the In your case, maybe that's something if you have a pension of $20,000 a year, obviously, that's going to cover a lot of that, so that's going to leave your gap at maybe $20,000 a year. , so it's something to think about a lot, I think it's common. mistake that we see people make a lot and hopefully we'll get to them before they make this mistake, but by activating Social Security benefits at age 62, they'll say, hey, I've got a gap here, maybe I've got $20,000. to be able to It's very easy to fill that gap by activating a social security benefit and let's say you're getting $25,000 a year and now you're in a $5,000 positive cash flow situation, so you think you've done something really good because you can leave these investment accounts in peace, they don't have to take money out of that and they have solved their gap problem 100% by activating that social security benefit and everything seems to make sense and it could be a little scary taking money out of those investment accounts that You know because for 30 or 40 years or more they have put money in those accounts every paycheck, you know, many of you watched the video and so reverse that and start taking that money.

Going out can be a very scary thing, so a lot of times people want to delay it, so one of the things we've talked about in other videos is that that happens well, first of all, if you don't spend it, that $5,000 just they go. go to the non-retirement account, so that will increase that account there, which will mean more taxes that you will have to pay each year because that $5,000 will generate some interest or dividends or capital gains and that goes to build that account as well you're going to do it because you're not taking money out of this traditional account, the traditional and Roth accounts are going to go up in value, so one thing you might want to think about here again is that Kind of a double act is to delay taking social security until , maybe, at least full retirement age, which means you're still going to have these gaps that you're going to have to work around, but you're going to be taking the money primarily what we would recommend to most of you is to take it out of the traditional bucket now, why do I say that?

Well, for one reason it's because they're going to have to take the money out of that bucket when they turn 70 and a half anyway. So let's say you have a million dollars in your traditional deposit and you don't take any money out of it, let's say you retire at 60 and you get a seven percent rate of return, just doing some simple calculations means that account is going to be two million dollars when he turns 70, so calculating a 4% withdrawal for a RM d if the account was one million dollars there would obviously be forty thousand dollars, but with two million dollars that number could double to eighty thousand dollars . per year, so when you add that eighty thousand dollars and by then seventy you will definitely be taking Social Security, if you have a pension, you will be taking it and then that non-retirement account will have gotten bigger as well. so it means there's more taxes, that's what explains in a nutshell how people end up in a higher tax bracket in retirement than when they were working, so what we often recommend is taking the first set of distributions from that traditional account and by doing that for a couple of reasons, but number one is to reduce the value of that account and number two is to hopefully allow yourself the opportunity to see the social security benefit increase in value to give you a source of income predictable in the future higher, not only for you but also for you. for your spouse too, if something ever happens to you, okay, I hope that makes sense, okay, let's talk about a couple more things, okay, so what do we do with the Roth cube so that, in my opinion Should Roth money really be the last money? that you ever spent well because anything that grows in that Roth account will be completely tax-free, so if you had a million dollars in a Roth bucket and it grew to two million dollars, well, there will only be two million more dollars tax free. money that you could potentially take out or, if you end up passing it on to your kids, they take it out at that tax-free amount, they can take out the two million dollars completely tax-free, well, now, the last thing I want to talk about Here's the guy of investments we should focus on in each of these accounts.

Well, to make it easier, I'm going to rewrite our columns here. Here we have the non-retirements, we have the traditional ones and We have the Roth bucket right, so again we said that for most of us we probably want to focus on this column right here, the traditional bucket to withdraw our withdrawals initially during retirement because we want to reduce those required minimum distributions in the future. I didn't mention here, very importantly, the 2018 tax cuts that went into effect, so the tax cuts in the Jobs Act started in 2018 and last until the end of 2025, so we have a pretty big reduction in tax rates for most of us here. during that time frame in 2026, however, they will go back to the old rules unless Congress does something, so that's another reason to preemptively take more money out of this traditional bucket and what we want to do there is what we want to see .

Number one is how do we solve that gap. Okay, so how much do you need to get out of that? But we might also want to extend it a little further and see where you fall in the tax bracket, for example, twenty-two. I think the percentage tax bracket comes out to about a hundred and sixty-eight thousand dollars a year for a married couple filing a joint tax return and if you maybe eliminate your gap, let's say you need $50,000 to cover your gap and that's still going to happen. I know that with one hundred and thirty thousand dollars of income you could take another thirty-eight thousand dollars from the traditional account and still be in the twenty-two percent tax bracket, so that's something that we do a lot of planning with the clients to help them map Take that out and see where they can take that money and what you can do is take that money out or what we recommend is do a Roth conversion and convert that money from a traditional account to a Roth account, but you are taking advantage of the lower tax rates and the gap that's in that particular tax bracket, so what types of investments do we want to have in the traditional account if we're going to build an asset allocation that we're not going to get? with a lot of detail, but let's say you're doing your traditional 60/40 split.

I would recommend as much as possible that as much of that interest generate investment income in that traditional account. Remember if you have it here it will be taxable. at your ordinary income tax rate, okay, so that's the highest tax rate, traditional deposits are taxed at the ordinary income tax rate anyway, so it doesn't really matter and in the Roth deposit we really want to have more of our aggressive investments in the Roth deposit. So if you think about it, you know that everything that this Roth bucket generates is tax free, the more money that is generated, the more tax free income we will have, so if we hope to get a better rate of return on some of those investments aggressive.

It makes sense to put more aggressive stuff into the Roth, we could still build the same asset allocation overall, but by allocating things a little more wisely, I think we could definitely benefit from that in the non-retirement account we want to see. on things like maybe dividends because they're taxed at a slightly lower income tax rate than the 15 percent tax bracket, if there are qualified dividends, we also want to look at long-term capital gains, so there are some changes that could potentially be made there and maybe I've talked about it in other videos, but maybe reduce the amount of active mutual fund investments that you have that are constantly buying and selling things that you don't have much control over and maybe transfer that towards publicly traded ETFs. funds that tend to have a slightly better tax structure than a regular mutual fund, so again, that's something to think about.

Do you know again how to balance those different investments? We can still reach the same result with that asset allocation. but paying attention to the different types of investments that each of them are so that we can take advantage of the tax advantages in each of those different groups, so anyway there was a lot of information here in this video and instead, get it all in the screen and wow, doing something crazy there, but I hope you got some valuable information from the video here today, just thinking about retirement withdrawals, the strategy you might want to implement, the tax considerations, how you're going to fill your gap, how you're going . structure it over a long period of time so that you have the money available when you need it, anyway, if you haven't already, make sure to check out our Resource Center, that's where we have some of those bonus videos, some worksheets downloadables that you can You can get access and it's very easy to sign up and sign up, it's absolutely free for you.

We also stream our events live from that page and then don't forget to hit the subscribe button or the like button to share today's video. and I'll see you here soon in one of our next videos. Thank you, have a great day.