Gearing Up for Retirement – Narrative Transcript

Download our complimentary guide books, checklists, and other useful financial resources at savantwealth.com/guides. Welcome to today’s Savant live webinar.

 

Thank you for joining us. today we’re discussing gearing up for a successful retirement. My name is Dahn into parenthesis you’ll see the name Moore. I am a newlywed, so Danielle Moore now. I’m a financial advisor in Naperville, Illinois. I’ve been in the industry give or take about 23 years now. It’s just my life’s work, my passion. I love everything about this.

And then someone equally as tenured and even more fun is joining us today. my fellow financial adviser and partner, Maldani. , you want to say hi? Yeah, good afternoon everyone. Thank you, , and congratulations on your new marital status.

Very exciting for you. like said, I’m Libby Muldowney. I’m a financial adviser in our Rockford, Illinois office. I’ve been in the financial services industry since 2002. And I’ve always lived in Rockford.

My husband and I have a blended family, and together we have four kids, and looking forward to going through this with everyone today. Okay, fantastic. So, you get and I today. I think we’re a pretty great team and you get two female financial adviserss which is pretty great. So with that said, today we’re discussing gearing up for successful retirement.

You can see here on the heading, you know, some individuals may just try to catch most of these webinars, but I imagine most of the audience is those of you that are very close to retirement or starting to consider what those mean so that you’re on the right path to make good decisions to set yourself up for success. So that’s our goal for today and hopefully you found this really helpful in getting ready for that big adventure. Okay. All right. So we have several items on the agenda that are important for us to cover.

And first of all the overarching theme creating your vision. So this may be more subjective. It’s unique to each individual, but this is the most important piece, a very qualitative spot of what does your retirement look like for you? And then from there, we’ll move on to the more technical pieces of well with that vision, what are the pieces that need to be outflows from the portfolio? How are they going to be met for fixed and variable spending?

Then if you’ve joined us for in any regards at Savant for these webinars, you’ll know that our vernacular is very focused on asset location buckets. That is such a big thing that we do here. And what I mean by that is do you have your assets in the right type of accounts to give yourself flexibility to minimize not only taxes today but tax liabilities in the future and how do you control that tax benefit? So that’s what we’re talking about there. Then projections early and often.

So are you on track? What do you have enough? And then from there, how do you deploy the assets in the most efficient manner? So check it early and often. And then finally, when you’re ready to go, you got to actually pull that trigger.

And all along the way, you’ll see a link in the chat where we have a link to our ideal futures health assessment. So, we think about that from a financial standpoint. Just like you go or you should be going to an annual physical with your physician where they’re checking on your overall well-being and your physical health, this is the same type of tool for your I shouldn’t say similar tool that’s used to assess 10 key areas of financial health and it’s going to give you a score of what are some areas that are strengths for you and identify some opportunities for improvement or weaknesses within your plan. So, there’s a link in there that can get more specific to your situation because and I are going to do our very best to give you a lot of information and tidbits, but this is all educational. If you are not yet a Savant client, you can follow up with the link in the chat to get a time to chat about your particular situation.

For those of you who are clients, what and I hope is that this sparks some discussion or dialogue that you can take back for your particular situation with your adviser and then we would deem this very much a success. So with that said, I’ll hand this over to . Great. Thank you, . I’m going to start by zooming out a little bit and backing up and looking at retirement planning from a very big picture point of view.

In our industry, things have evolved, and I’m not sure that everyone is quite caught up. A lot of people are still using this template of what retirement planning looks like from previous generations and trying to apply it to today’s world. And unfortunately, we kind of need to restructure that and we need to take things that are present now and start to integrate those and let things that were used previously go. So, one of the things that I’m talking about there is pensions. Pensions used to be a primary piece of retirement planning and there was a lot of really great things that came with having a pension.

There was a lot of certainty. One, you kind of knew when you were going to retire. You got to pick the date and then you got to know exactly the corresponding amount you were going to receive in retirement. So having that pension eliminated a lot of uncertainty and it also eliminated the need for you to do a great deal of planning. You had that pension, it was a fixed amount, you knew it was going to start.

You also knew you were going to have social security and with those two pieces, things were kind of set for you. So, you didn’t have a lot of flexibility and you didn’t have a lot of choices. You had it all laid out for you. Well, now things have shifted and pensions are much more uncommon and in place of that, employers have provided other types of retirement planning. But the great thing is it opens up a whole new world of possibilities and flexibility.

You get to choose when you retire. If you want to retire early now, hey, you can. You don’t have to wait for that pension to kick in. You control how much you save so that you can build up a nest egg early. So, if you want to retire early, you have control over that.

So, there’s a lot of really great opportunities that have opened with this, but it also opens up the opportunity for a lot more planning. So, on the next slide, we’re going to look at all the different pieces that you need to start to build in now because you are really in control. So this kind of diagram here is looking at the 10 key areas of your financial world. So the first piece is really identifying that vision. Do you want to retire early?

Okay, great. Let’s build a plan to make that happen. We need to structure a savings plan. We need to understand what that’s going to look like in the future and then how that’s going to play out down the road when we start to do a distribution from that. So building that big picture and that vision is now something that you have a lot more control over than previous generations.

Retirement planning and doing projections is something I’m going to spend some time on later in the presentation today. But that’s going to really look at again are you on track? Are your expectations a reality? You say you want to retire at a certain age, but based on your savings rate and the amount of assets that you’ve accumulated, is that expectation realistic? Yes or no?

and then we can start to look at that plan and figure out if adjustments need to be made. Now, risk and management, what we’re talking about here is insurance. Certainly, while you’re working, you’re going to have life insurance and disability insurance, but when you retire, things start to change. You may or may not keep those policies, but you want to start maybe considering something like long-term care planning. Again, when you had a pension, you didn’t necessarily have this big bucket of assets that would be used on the ledger when you were applying for a nursing home that would maybe qualify you were not into that care facility.

Well, if you’ve saved up this big bucket of assets, but you need long-term care, all that money might have to be consumed by that facility. So, buying a long-term care policy might be a way to help protect you from something like that. That’s the type of consideration a lot of people didn’t have to worry about before because they didn’t have their 401k or their savings assets. It was all in that pension that would have gone towards paying for that facility. So, different types of insuranceances, we want to see how that plays into the environment today.

Debt management, a lot of people ask the question, should I go into my retirement debtree? Should I pay off my mortgage? There’s different ways of looking at this. There’s not a right or wrong. The question is what is your interest rate?

What is your cash flow look like in retirement? What does your cash flow look right now? Are you better off diverting extra dollars to aggressively pay down that mortgage or should we be aggressively saving and putting more money into a savings strategy to build up your retirement nest egg? And we’ve got to evaluate what that looks like for you as well as what’s most important to you. For a lot of people being debtree means more than what it means on that piece of paper.

It means that they feel that burden is free and that’s something that even no matter what the numbers say might be very important to you. So we again want to make sure that we understand what’s important to you when we start to build out the vision and we can include that into the plan by making sure your goals are met if being debtree is something that’s important to you. Another issue, education planning creates a conflict of priorities. You’re trying to save for retirement, but you’re also trying to save for your kids’s college education or just make tuition payments for your kids schools. Now, that’s going to create, you know, how do I prioritize?

Where should I be saving this money? And building out projections and looking at it in the big picture will help answer that question. Are you on path to meet your goals and expectations with retirement? Yes or no? that’s going to help determine, well, maybe you should be doubling down or maybe you do have room to start saving for that education.

And then when we’re talking about where we’re going to be saving for education, we want to look at different types of accounts and tax benefits from other accounts and make sure that we’ve maximized that savings piece as well. Income tax planning is very different in retirement. And ‘s going to talk about this in a little bit, so I don’t want to spend too much time or we’ll bore you to death with taxes. But I can tell you that tax planning in your retirement phase is remarkably different than what it looks like while you’re working. Typically during your working years, you have your income, you have your withholdings, you’re going to take some maybe some credits and some deductions, and then you’re going to end up filing at the end of the year, and you might get a little bit back or you might have to pay in.

And you’re typically doing that on a 12-month basis. In retirement, we’re looking at a whole time frame, a whole series of years and understanding all of the different pieces that are going to come into play throughout that series of years, pulling from your retirement plan. Maybe it’s stock options for a year or two. Maybe it’s when do I turn on social security. Have you considered RMDs?

RMDs are a forced distribution out of retirement accounts that can create additional income whether you like it or not. So looking at the time period of retirement as one big phase and building out a plan that integrates a per period of years is very different than what it looks like when you’re in your working years and just doing a 12 month at a time tax planning strategy. And for investment planning, many times when you meet with a financial professional, you might be working with a portfolio manager and that’s their focus. They’re there to say, “Buy this mutual fund, get into this annuity. You need to have this product and here’s the return of this asset class.” And many times that is what your meetings are surrounded around when you’re meeting with a financial professional.

And while that is very critical and very important, you can see in our illustration, it is not any more or less important than these other key areas as well. And we want to make sure that we’re not just focusing on that one area because typically that’s not what’s most important to people as individuals. Most people aren’t so worried about their asset class performance in a certain sector so much as they’re worried about whether or not their wife is going to be okay if they pass away early. Right? So, it’s important to have the right investments, but it’s more important to recognize how it fits into the big picture.

Estate planning and administration is also something we want to incorporate. I look at financial planning in different phases while you’re working and accumulating and saving. You know, that’s one phase, accumulation phase. Then there’s this transition to retirement phase, getting ready to retire and really making adjustments as you get closer to make sure your expectations are right where you want them to be. Then there’s the spendown phase of your financial plan while you’re in retirement and withdrawing assets.

And then finally, if your assets outlive you and there’s money left behind when you pass away, is there a plan for that? Do you have legacy goals? Do you have errors that you want to make sure that you have directed some of these assets to go to? Understanding what your retirement plan looks like and whether or not there may be money left over and whether or not that money may be significant will be very informative to building out your estate plan. So again, there’s integration in these other areas that we want to layer in and build into this that necessar not necessarily wasn’t around in previous generations.

We also have tools and resource for business succession planning in particular. If there’s going to be capital gains from selling a business, want to make sure we get you in touch with consultants and individuals that can help structure a deal so that all facets have been considered. That’s a resource that we can leverage for you. And then finally, charitable planning. It’s up to you.

You decide how much you want to gift. You decide who you want to give to, what charities are important to you, right? But we’re looking at all these different pieces. Do you have a 401k? Do you have a Roth IRA?

Do you have a stock option plan? Do you have these other pieces that we can use to make charitable gifts to make sure that we have maximized the benefit to the charity while making sure that your taxes are as low as possible. So, it’s our job to do the technical piece of that charitable gifting and your job to, you know, pick out who you’re going to give it to. But when we’re building your vision, we want to make sure that we’ve touched on all of these pieces because they all overlap and they all come together. And previously, this wasn’t all a part of that conversation, but it’s something that we have really incorporated into our system.

Now, on the next slide, I’m going to talk a little bit more about those visions, this vision, and how they translate into your values. So, there’s a box on the screen there with a little orange heading that says values. These are going to be through conversations or we can go through an exercise and help identify what your values are and what’s important to you. Why we want to do that is then from those values we’re going to create very specific goals using t technical financial resources to make sure that those values are satisfied via these goals and then we put them into the big picture. So, I’ll walk through a few examples here.

You’ve identified that supporting and protecting your loved ones is a value. That’s something that you want to make sure is no matter what happens with this financial plan, that is something that gives you comfort and is a priority to you. Dedicate more time to loved ones. Certainly, when we’re in our working years, in our careers, our focus is very often in the office or in building our businesses. And we want to make sure in retirement that we are going to dedicate more time.

and that’s going to be our priority with our loved ones. And we might want to say, okay, our goal is two nights a week, we’re going to have a joint hobby that we’re going to do together. Why is that important to me as your financial adviser? Well, if you tell me you guys like to golf, maybe we’re talking about a country club membership, we’re talking about golf dues, we’re talking about traveling to cool golf courses, or maybe you like to line dance and it’s really just a cover charge to a local venue that’s only a couple bucks. So knowing that’s important to you and then identifying a goal to make sure that we have satisfied that value and then we build it into your budget so that we make sure that we have built a budget and a plan based on your values.

These are the steps we’re going to go through to make sure we get there. Avoid becoming a burden on my family. If you’ve ever settled the affairs of a loved one, maybe your parents, maybe a relative, and their affairs weren’t in good order, meaning they didn’t have a clear-cut will or a trust, or maybe they didn’t even have bank statements laying around, you can recognize that is a very burdensome process layered on top of somebody who is grieving. And that’s a lot for somebody to go through. And if you’ve ever gone through that, you may have this value of I want to make sure that is not going to happen to my loved ones.

That is important to me. So then we set a goal of creating an estate plan and make sure that it’s updated based on what’s going on in your life. And then our job as financial adviserss is to bring in current law and legislation and understand what tools in trusts and other things we need to incorporate into that plan. And that way you know that you won’t have to worry and everything will be taken care of upon your passing and you won’t be a burden to anyone else. Spending money without guilt.

Who doesn’t want to do that? I know that absolutely should be a goal on everybody’s plan, right? ‘s going to talk a little bit about identifying needs, wants, wishes, and different types of priorities and how we’re going to do our spending. Certainly, we want to know what we need in order to meet your lifestyle goals. But then if we have a line item that can have some discretion in it, identify a limit in my budget that I can be carefree about, that’s a wonderful thing.

So you don’t necessarily have to have everything identified, but knowing you have freedom so that when things come up or when there’s opportunities that are presented, you can take advantage of them without having to feel guilty, that can be a really good mindset shift in retirement. And finally, making work optional. Many of us find a great deal of satisfaction in our careers and a lot of purpose can come from that. When opened up, she referenced how energized she is in her role and how she loves all facets of this. So when you retire, it’s hard to let go of those things.

But during the phase of your career where you’re so focused on this, you’re in a grind. You’re on a schedule. Everything has to be satisfied and it’s not always on your terms. Though there’s two sides of that. Well, the goal would be when we’re structuring this into a retirement plan is how much money do you need to save now so that you don’t have to work so that if you choose to work in retirement, you can really focus on the piece of it that brings you satisfaction and joy and less focus on how much money that money the hourly rage wage might bring in from that job.

So, it gives you the opportunity to really enjoy that piece of your work if that’s something that you want to incorporate. And then of course that cash flow comes in and we include it in the budget. we include it in the tax picture. So, we’ve gone through identifying your values, setting up a clearly defined goal, using financial tools and resources to satisfy that goal, and then fitting it all into the big picture. So, that’s how we want to step back and start to build out a vision of retirement planning for you and recognize that it’s so much more than just we’re going to golf a lot or we want to take a trip to Europe.

, when you’re doing retirement planning for your clients, are you having these conversations? yes, all the time. Well, let’s move on to the next slide and I think will step over to some of the more technical pieces of bringing these together. Yes, I love that, . and we chuckle a little because there’s some messaging that’s consistent, but there’s always unique important values to each family and each relationship that just makes all of this really special.

So, what just talked to, let’s call it like the umbrella, the overarching framework of having a vision. What values do I have? What does retirement look like for me? And that’s going to shape really you only have so many levers in terms of making this next egg last, right? talked about years ago, you only had a pension and that was your number.

That was the number that you worked with. Well, now it’s a matter of when am I going to retire, right? The longer that runway is, the sooner I pull the lever, the less flexibility I have because I need more payments, more distribution support for my portfolio. And the opposite is true for the longer I work. And then the other lever that’s really big is how much do I have in outflows, right?

So, if I’m holding this forward and I’m putting I’m moving forward and saying, “Let’s spend this money.” Sometimes and I really have to focus on encouraging people to spend their money. Like she joked about st spending without guilt. That’s a real thing, especially in the first few years of retirement. probably one of the biggest things is this fear of, oh, I don’t have this paycheck coming in even more. Well, we’ve recreated a paycheck here from your portfolio, but until you’re a couple of years in, you don’t really have that sense of relief, the emotional relief of saying, “Look, here’s the proof points.

I’ve sent myself x amount of money to live off of and I’ve barely touched my portfolio, or maybe my portfolio’s even grown during that time period.” Then you have your own personal proof point and can move forward from there. where and I and our colleagues have retired individuals many times over many years. We’ve seen so many different scenarios. We have all the confidence in this and we just want to encourage you that you’ll be on a good path and I feel very strongly that a couple of years in you’re going to feel even more secure than from the beginning. So you have your fixed and your variable pieces.

These fixed pieces they’re coming no matter what. The variable are probably the more fun, the joy part in terms of what do I like to do? Where are my hobbies? Where are my interests? Do I want a second home?

Do I want to travel extensively with maybe my extended family and I want to treat them? These are all different things that can move the dial up and down in terms of success and how much legacy is left over. And there’s always these trade-offs. So that’s why each plan is crafted individually and tailored to you. And I should also say when and I have these discussions, they’re ongoing.

Two, three, five years from now, your answers could be drastically different because life happens because you happen, because your family happens. And we’ll talk through all these things and with a good solid plan, you can pivot where needed. So here we’re listing fixed and variable expenses. When we think about planning, it’s the needs. What are the things you absolutely have to have?

those retirement living expenses, the day-to-day needs. So, you really need to shape your budget and understand what those needs are before you do pull the trigger. , one of the biggest mistakes is believing that you’re going to cut costs in retirement. May you possibly, we all think that, oh, I no longer have the commute. I no longer have the wardrobe that I need for work.

I’m no longer traveling as much for work. Although that should be reimbured, depends on the type of employment you have. But those types of things although they fall away, every day becomes a Saturday. So how you shape it, what that looks like is completely defined by you and what you enjoy and what your purpose is. So the want is what are the things that you ideally want to do and that’s spending time on travel, car, truck, you know, getting a new car every 5, 10 years, whatever that looks like for you.

And then finally, the wishes are those aspirational things that if you could do it, you’d have a second home for the family to gather in or maybe a third home. Okay. And now when we talked about these fixed and variable spending and levers you can pull about spending more or spending less, we’ve listed some of them here. The differences that might be pre and postretirement. So the first one listed is a mortgage.

And as spoke about before, the mortgage very much could be something that doesn’t exist. We have a lot of retirees and pre-retirees that desire to have that mortgage paid off before retirement, but there can be reasons to keep it. Maybe a very low interest rate or an anticipated future cash flow to pay it off at a future date. there’s a lot of reasons that the situation may be different, but that’s a fixed exper expense that’s going to continue no matter what unless you pay it off, right? Then we have children.

Children exist in the sense that sometimes parents have adult children living with them and your retiring doesn’t necessarily correspond with their becoming financially independent. So what sort of support are you going to continue? How does that factor into your retirement? U there’s a lot of factors to consider there. Just make sure that continues to be part of the discussion and part of the planning pieces.

car payments and maybe you’re paying cash for a car, but do we want to replace it every five, ten years? What does that look like for you? Each family is different in terms of their expectations and their values and what they desire in a vehicle. College costs, student loans. It’s more and more common for college to bump up at the same time as retirement.

So you may plan your retirement around those college spending years or it may come together all at once. Those types of things should very much be factored into plan for consideration. Life insurance premiums. Life insurance generally is for bucket purposes. Paying off the home, meeting education goals, replacing retirement income, maybe some other debt that needs to be replaced.

these if something were to happen to your income sources. That’s an importance of life insurance. So, generally those premiums may exist pre-retirement and go away postretirement. Now, and I, we’re sitting in Illinois and Illinois has a pretty ownorous state estate tax situation. And several taxes or excuse me, several states throughout the country have similar circumstances.

If so, there may be reason or maybe liquidity in a business sale. There’s different reasons that you would continue in addition to estate taxes for maintaining life insurance. So that’s something that’s absolutely considered for planning. Saving for retirement. The whole point of saving for retirement is once you reach that critical mass and you’re ready to deploy your assets.

We’re done with the saving piece. That piece can go away. And finally, taxes on wages. So, while you’re working, you have significantly less control over your tax situation, especially if you’re a W2 employee. There’s only so many places we can put tax deferred assets.

A business owners, significantly more flexibility, 1099 flexibility, but still you’re tied to these wages, self-employment taxes. When you are a retiree, all of a sudden you have control over your tax situation because you have control over when and where the income’s coming in. So you need to make decisions about when does social security come, when do I take distributions from retirement accounts, if I have a pension, when at what date does it begin? All these different pieces to come together to define the buckets for you. And as we talk about these bucket strategies, the more flexibility the types of taxes treatments that you have for these accounts, the more they vary, the more flexibility you have.

So you can limit your taxes not only today but over your lifetime and control it. So that’s why we talk about a lot of these key factors because you want to give yourself flexibility to put yourself in the best position possible because you may have a plan today and how it exists you feel fairly confident in. Three, five years from now, this could look very different because your family’s going to change, your circumstances are going to change. Life just happens. Now, that last piece, the benefit of buckets.

So, the tax planning, this here is talking about just like we do regularly on these webinars, the benefits of asset location. So, when you look at this slide, you’ve got, call them buckets. If you’re throwing a ball into each of these buckets, that first bucket on your left, I’m p my generation, right? It’s called bozo buckets, right? On channel 9.

So, you’re throwing the ball as far as you can into the blue bucket, the dark blue. That is looking at all your tax deferred accounts. So, those are the monies that are in your 401k, your 403b, your 457s, your SE IRA, your traditional IAS that are pre-tax. All of these different buckets you’re working and ideally you’re in your high peak earning years in a higher tax bracket and you’re deferring the tax on this money. You’re not paying the tax.

You’re sheltering it in a retirement vehicle. The reason you shelter is because you’re in a higher tax bracket and then you retire you fall to a lower tax bracket, right? So you may be retiring and down the road social security eventually comes, maybe a pension kicks in possibly require minimum distributions when you’re 73 or 75. Income starts no matter what. If you’re in this sweet spot in the early years, you’ve deferred all that tax, you can start taking some income from these accounts, maybe some Roth conversions or things like that once in your retired.

So, we talk a lot in these webinars about Roth conversions. You’ll see this on a subsequent slide and we’ll talk about it today, but you as the pre-retire and getting ready for it, you’re the perfect candidate more than likely for this discussion. So the next bucket that we have there is this minty green color that is the taxable brokerage account. So that bucket is the piece that’s outside of your retirement accounts. It’s taxed at capital gains rates.

It’s not subject to the rules of retirement accounts. It’s very flexible. Capital gains rates are lower than long-term capital gain rates, I should say, are lower than ordinary income rates. The money that comes out of the first blue bucket. There’s a lot of rules and nuances to this.

All you need to know is that if you have a little bit of both and you have some variety, now you have more levers to deploy when you’re creating that paycheck in retirement. If you come to us with just the first category of that dark blue pre-tax retirement, I mean, we’re happy to help you and we’ll take you as far as we can, but your flexibility is so limited compared to if you have the dark blue, the light blue, or that teal greenish color. And then we go into these other categories that ideally you have too. Health savings account. Love that.

Please keep your receipts along the way. It’s triple tax exempt. You’re not paying tax upfront. You’re not paying tax along the way and as long as it comes out for qualified expenses. It’s taxfree, so you never have tax on this vehicle.

We like that you can keep receipts and reimburse yourself in future years, which means it can act like an emergency fund, but ideally, we’re not even treating it like an emergency fund. I love for younger individuals instead of using long-term care insurance if that’s not the right solution using this HSA bucket and let it grow up over time into a much larger amount that can be deployed for long-term care expenses. And then the last bucket here is looking at the Roth 401k, the Roth IRA. You’re paying tax on this money up front, but it’s forever coming out taxfree as long as they’re qualified distributions. All of these alphabet soups and types of accounts have different rules.

I’m keeping this educational, high level. Just know that each bucket is different and distinct. The more buckets you have, the more I like for you. The more variety, the greater flexibility you have in terms of picking from which bucket makes most sense in what year to create your specific retirement paycheck. And you can control the taxes.

It’s wonderful. All right. So, this here is saying, okay, let’s talk about those buckets and the fact that they have some rules around them. So, to the left is the pre-tax bucket. That was that dark blue that we talked about on the previous slide.

It has the most distribution limitations because most of those categories are inside employer plans. You generally have to be 59 and a half to tap the money. You can do 55 if you separate from service. There’s also rules for separate and equal periodic payments. There’s there’s a lot of rules to get around this, but as a whole, they’re constrained.

There are rules and you need to you need to work within the confines of those for these retirement accounts. The second category is the Roth. It’s a little bit more flexible. It’s all of your after tax money that’s growing in a tax-free account. Your earnings have to be in there for 5 years.

you can grab the earnings in anytime. There’s there’s multiple rules, but it’s a little bit more flexible. And the last account is the taxable. That’s that brokerage account that you’re building up, possibly titled in your trust that you’re using to supplement all their retirement accounts that doesn’t have any restrictions like their retirement accounts. And we’ve listed here, it’s the least amount of distribution limitations.

And here we have the planning strategies for buckets. And when I think about this, I’m thinking about social security timing. So here I have actually written down the actual numbers that I want to read off to you. But social security for most individuals on this call because you’re pre-retirement, you’re getting ready for it. Your social security full retirement age is 67.

That’s for those born in 1960 or later. If you’re before that, look for your exact benefit. year and month, but as a whole, just know that before your full retirement age, if you begin collecting social security and you’re still working, you’re subjects to the earnings test. So, you want to be careful about that. For social security, if you earn more than $23,400 before full retirement age, you can be impacted and some of your social security benefits can be withheld.

Same thing for the year you reach full retirement age, you get a nicer boost. You can have up to $62,160 of income before this becomes an impact. All you need to know is that taking social security early while you’re working can become problematic. So you need to plan around this. All right?

So keep it in a mind. The other thing on social security I wanted to share that’s a new piece of information is that at the beginning of this year we had the social security fairness act that was passed. And the Social Security Fairness Act basically said for those individuals and maybe you or someone that you love or care about, a family member or friend that is a government pension employee. So they have a pension usually through police, fire, teaching, and they may in the past been subject to what’s called a windfall elimination provision. What this fairness act did is it eliminated that.

The beauty of that is that if you’re eligible for a payment from last year that was made, you were made whole and then also you receive ongoing payments now. But that’s all based on your individual benefit. If you are someone who has an even higher spousal benefit that you’re eligible for, or you’re a widow or a widowerer and you have a survivor’s benefit that you’re eligible for. and either of these numbers are higher than your own personal benefit, you need to proactively reach out to Social Security so they connect the two. So the Social Security Fairness Act makes you eligible, but you have to let them know to take this additional benefit for you.

So that’s just a little food for thought on the Social Security information that’s changed this year that we found to be very important for the people that fall in that category. So if that’s you, please ask your adviser about this. they can help you navigate these questions. the second piece being here qualifying for lowerc cost health insurance via the affordable care act subsidy. So we discussed this and we’ll discuss it in greater detail but that essentially means a very small me segment of our population will have a near zero income tax bracket.

And if that’s you, you have the ability. If you’re before Medicare age, you’re probably shopping on the Affordable Care Act. Qualify for a policy on the exchange at a subsidy rate. This can be complex. You need to work with your tax advisor, your CPA, and also your financial adviser to look at some tax planning to see if you qualify.

That would get you the subsidy. The trade-off is if you’re in the low bracket, you also instead of looking at something like that could be creating income from that really low bracket. Right? If we’re in a low bracket, that’s the ideal time. We went from high income to low income.

That’s the perfect target for a retiree is to say, I’ve deferred this money for all this years. Now it’s time to convert it and bring it into current day income so that all of my future growth in these accounts is tax-free. That’s what the Roth conversion is. And we’re going to discuss this in greater details as well throughout this presentation. All right.

So this here is talking about oh and here I have the actual limits listed for the income to be tax-free for this second bullet, the taxable bucket. So 96,700 of taxable income for married filing jointly. Single is half of that, 48,350. But this strategy is if you’re going to qualify for a subsidy, you’ve got to have really low income. And this is going to be very small population, but we want to let you know that it exists.

And if it’s a possibility for you, you can weigh the pros and benefits of the subsidy versus accelerating income in other places. If you’re going for the subsidy, you want to keep your income as low as possible. Live off of cash, HSAs, because that’s not going to create income when you cover the medical expenses. , and then the last piece is possibly using some of that tax-free bucket of money that we talked about. Now, here Roth conversions.

Okay. So, the Roth conversion is essentially voluntarily prepaying tax today to move it into a Roth account now. So, there’s no income limitations. I’ve discussed several times higher income, lower income, and eventually it’s going to creep back up again. So, how do you take advantage of the sweet spot, the early years of retirement of being in a lower bracket?

Well, you prepay taxes and you move that pre-tax money into a Roth account today. Why would you do that? And you’ll see at the bottom under this maroon heading, future taxfree growth because from that point in time, all the future growth is tax-free. I mean, who doesn’t want that? Income taxree, I should say.

That’s wonderful. Then we have no taxes on future distributions. all of your pre-tax monies and your 403bs, your 401ks, your traditional IAS, that pre-tax money is eventually going to be subject to required minimum distributions. So, even if you let this money defer as long as possible and grow as much as possible, age 73, 75, depending on your age, you’re going to have to start taking a required minimum distribution. That’s going to create more income later years and maybe later in life there’s only one of two people in a partnership in a marriage surviving.

Then you’re paying you have all this income at a much higher tax rate. It can become very expensive. Well, if you convert that money now at a lower tax rate, it’s not subject to those future distributions. So, you’re making that future forced income smaller. We like that.

, great investment for legacy planning. If you’re going to be the recipient of a retirement account, you want the Roth account. The Roth account comes to you tax-free and you have the ability to defer it for 10 years if you’re not a spouse. Spouse can just roll it into their own. But anybody else in the in regards for the qualified beneficiaries with a few exceptions, you’ve got 10 years.

So you’ve got another 10 years of growth. It’s a really powerful and awesome legacy tool. And reducing future taxes and past tax free to errors. I mean, those are things we just talked through. They’re so important that we put them on there twice.

It’s just saying the same thing in a different way. All right. What this page is showing you here is when should I take my Social Security benefit? Again, most individuals on this call are likely birth year 1960 or later, not necessarily all of you. So, you can look at the table for your actual benefit.

And you would have to look based on your birth year to the actual month of your benefit if it’s less than 67 is your your year, the age when you began. So, assume most people begin at 67. We’ve got 66 highlighted on this page. This is just making decisions about where, when, and how to take social security. This is going to be based on a lot of different factors.

And we have a really great tool, work with your advisor, ask about this to do the break even analysis based on how long you’re going to live. It also matters if you’re a couple, married, filing jointly. Do you have a significant discrepancy between the two benefits in the terms of we need to make one of them larger and definitely defer it where possible so that the survivor benefit is high as possible because if something happens to either one of you only one benefit is paid. So let’s get the higher of the two as big as possible so in all scenarios everybody’s protected. Do you have one of the spouses that’s required to participate in a spousal benefit?

that’s the most advant advantageous to them. Well, then based on what year you’re born, who’s older, and the timing of filing, that can very much impact the decision to file. So, those things should be factored in. We very much like the fact that from your full retirement age, in this example, 67 all the way till 70, you get an 8% raise each year. That’s really hard to make up in the portfolio.

And that exists in such a way that it gives you flexibility too. What I mean by that, it’s called dry powder. So if you wait for many years to take it, yes, you have fewer years of drying, but your payments are larger. So your break even is around your early 80s, 80 82 depending on what scenario we’re doing. We can run all these specific numbers for you.

But essentially, if you’re deferring and the market pulls back considerably and you no longer want to draw as much from your portfolio and you’re not yet 70, but your plan was to delay till 70. Well, you can weigh the weigh the pros and cons. Say, just turn on my social security now. That’s what I mean by dry powder. It’s ready ignite.

It’s ready to go. You can just enter the system. So, you have a lot of flexibility. If we all knew how long we’re going to be here and when our last day on Earth was, I could do the exact math for you. We don’t know that.

So, we take all the inputs and the different variabilities on your health, expected longevity, the family dynamics, your other sources of income and tax situation to come up with the best strategy for planning. All right. And now I’m going to head it back hand it back over to my partner who’s going to discuss our projection process. Thank you . That was all a lot of technical stuff.

That’s why you need an adviser. Most people aren’t doing that type of planning on their own. Even if you say I can do my retirement planning on my own. I can pick out a mutual fund and I can put this information into a calculator. You can see that there’s layers to this and there’s ways of really maximizing the resources that you have and that’s where we’re going to come in and bring those technical pieces.

So here talking about projections let’s go to the next screen. We really want to sit down and make sure that your expectations at this point are realistic. So we want to establish a realistic financial plan. Meaning gather all the information of what you have, where you have it, and then what your expectations are. and then we can run these scenarios and put it into a software to play it out and see if your expectations are going to be met.

That’s where we want to start. If they’re not going to be met, certainly adjustments can be made depending on where we’re at in the financial planning process. But then once we have this base plan, then we want to stress that because things don’t always go according to plan, right? Things like taxes can change, inflation can change, the markets might not perform the way you expect them to. So, we want to put some stress on the plan and find the weaknesses or find the limitations of the plan.

And then finally, we want to leave wiggle room and have space to make adjustments as necessary. So, when you’re building this plan and we’re wanting to put projections out there, what we’re not trying to do is predict the future and what we’re not trying to do is get it perfect because certainly that’s just not possible. But what we really want to focus on is recognizing that there are pieces of this plan over which you have full control. Pieces over which you don’t have control. There’s pieces and decisions and choices that you make that are going to have an impact.

And then there’s things that you might have control over that have very little impact. And there’s also things that are unknowns that you might be worried about that really don’t play into it at all as much as you might fear that they may. So on the next screen, we’ll look a little bit further into how you can start to explore this and decide right how can I afford to retire early and maintain my current lifestyle. Maintaining your current lifestyle is a really good place to start with retirement budget planning. A lot of times when I talk to retirees or soon to be retirees and we say, “What’s your budget for retirement?” They don’t know.

Well, they’ve never been retired. They’re not sure what their lifestyle is going to look like and there is an adjustment phase of things that you used to spend money on and now things that you’re going to spend money on differently. So, we don’t always know. But what we want to do is at least try and match your current standard of living. And then from there, there’s only two other options.

Either increase that or decrease that. So, some people know when I retire, I’m going to downsize. I’m going to simplify and I’m going to be, you know, pretty chill and laid-back. That’s going to be spending less from your base of your existing lifestyle. And on the other side of that, it’s now we want to travel.

Now we want a vacation home. So now we’re going to be increasing our spending in our budget from what it is. So making sure that we have all the pieces in place to at least meet your expectation and then understand the adjustments we need to make based on what your goals are if you tend to increase or if you’re find decreasing your lifestyle or your expenses in retirement. And then you want to look at well I want to retire early. I’m going to say 60 is retiring early.

Just a lot of people work to age 65 to be eligible for Medicare benefits. So if you want to say I want to retire at age 60, but will I be able to do these home improvement projects that I’ve been waiting to do? And then you’ve got that value kind of evaluation. What’s more important to you? Is it more important to you that we retire early or is it more important to you that you get those projects done?

because you may not be able to have both of those things, but we want to make sure we understand what those objectives are so that we can put them into the scenario planning. Or again, I want to retire tomorrow, but I want to buy a vacation home. Well, what if the projections tell us that in order to buy that vacation home, you’re going to have to work an additional five years. You got to reflect back on that value system and which one of those tradeoffs you’re willing to deal with and which is more important to you. or retire in three years and travel extensively.

Perhaps there’s lumpy spending, right? Early in our retirement, we have all these projects we want to get done around the house. We have all these vacation spots that we want to get to. We have family that we’re going to go visit. And once you’ve checked those things off, perhaps in future years, the spending pattern may go down.

So, it’s not all going to be consistent. And we want to understand how these different decisions and these different tradeoffs are going to impact the plan. So what we can do is put all of this into a software where we put in fixed variables. Fixed variables being this is the amount of money you have right now. This is the date you’re going to retire.

This is the amount you’re going to spend. And then behind the scenes, the software want runs other variables such as taxes, inflation, and market conditions. And we can play with those inputs and play with those variables. And that’s where we can see the impact that those choices are going to have. So, we can put it in there that I’m going to retire and I’m going to maintain my standard of living.

, but I’m going to retire at age 65 and I’ll be able to maintain my standard of living. But then right next to that, we can run a scenario where you say, but I want to retire at age 60. How does that change impact the plan versus what if inflation is a little bit higher? How does that impact the plan? Again, those choices or those variables that you may have control over and may not have control over and you can see how they play out.

So on the next screen there’s an illustration of how these go side by side. So in our software each column here is a different set of scenarios. So the base retire at age 60 scenario that’s going to be where we set okay this is how we’re going to meet your standard of living. And then you’ll see a dial in the middle of the screen there. It’s kind of like a rainbow a different series of colors than a rainbow.

, but the purple section means that we have not met the confidence zone, meaning we still have some work to do to improve this plan. Our goal is to get you in that green section. That green section is going to be in the confidence zone and in the blue section where you’re above that, above the confidence zone. So, we don’t have to strive for 100%. As mentioned, we like to visit frequently and we re-evaluate.

And if things are not going according to plan, we can make adjustments. But what this tells us is if you have a 95% success rate is that you’re likely to have money left over. You have wiggle room in the plan. So right above that, you’ll see current and future dollars in align items there. And you’ll see that’s kind of like a buffer from an average scenario in this plan.

But the 95% is illustrating thousand different trials. So the software takes all the inputs that we gave it and runs a thousand different market scenarios. So there could be 20 years of good markets, 20 years of bad markets and everything in between. But out of those a thousand scenarios, 95% of them met your goals. Now the outcomes can be remarkably different.

If it’s good markets, you could retire with significant money left over. If it’s bad markets, you might retire with no money left over, but you’ve still met all of your spending goals throughout your retirement. That’s what we define as a successful trial, and that’s going to fall in that 95%. Now, this is where we can change the variables and see how it impacts the plan. So, the very next column says retire at age 57.

You’re going to retire a little bit earlier, but everything else is staying the same. And you can see the impact that has on the results. The good news, still a successful plan. you’re able to retire with confidence. There’s some smaller margin of error, some smaller monies left over at the end of the plan, but it’s still considered a successful plan.

So now you have that choice you can make. Do I want to retire at 57 or do I want to have a bigger cushion in my plan? What feels better to me? What’s more important to me? And you can understand the impact that choice is going to have in the big picture, whether it’s make it or break it or not.

And in this case, it’s not a make or break it decision. So that’s great. It takes some of the pressure off of making that decision that you have some personal preference. Now, in the next scenario, we start to add in some of those more lofty goals. I want to get that vacation home and I want to make sure that I meet that goal.

And we can see the impact that’s going to have on the plan. It’s still a successful plan. We’re still just slightly above the confidence zone there. So at 85% you’d absolutely be having a positive conversation with your adviser that these things are going to work. But if you look right above that again in the current dollars, future dollars, you can see that our buffer is shrinking.

So there’s not a lot of wiggle room in this plan, meaning you’re not able to absorb a lot of unexpected expenses if you’re pushing it to buy that retirement home. But it still is something that you can consider. You just want to understand the trade-off and the impact of making that choice. And the final column, this one is showing them retiring at 57 and still buying the vacation home, but the chances of success have increased in this scenario. Logically, you would think if I’m retiring sooner, meaning I’m saving for a few years less and I’m actually depleting my portfolio a few years sooner, , that your success rate would go down.

But there’s changes somewhere in these assumptions that are saying that you can still make some of these adjustments, but you can still be successful. So some of the changes in the assumptions that we might not be able to see might be that they’ve increased their savings rate prior to retirement. Maybe they changed their portfolio strategy, so it was more growth oriented. And there’s different things that you can put into the software to see the impact of different variables and see how it’s going to play into making the choices that you make. So, all of that being said, what I love about this exercise is I think when we’re faced with the future and a lot of unknowns and a lot of uncertainty, understanding the pieces that we have control over and the impact that those pieces are going to have can help direct your energy to those areas.

And then also acknowledging that there are certain things you don’t have control over and they may or may not have a big impact on the plan. But if they do, by having a plan, when things veer off course, we can easily redirect and get back on course because we know what it takes to get you back on course because we know what it looks like in the first place. So, you don’t have to get a score of 100%. You don’t have to move forward with 100% confidence. We want you to get comfortable making choices in the unknown and making choices with uncertainty.

And that can feel challenging, but I feel like this exercise is a really good illustration in a really good way to give that some perspective. So the next slide, we’re just talking a little bit about Oh, now time to pull the trigger. Right? We’ve talked about these various pieces that we want to consider. Now it’s time to execute.

All right, here we go. We’ve talked about the different account types. We’ve talked about the different buckets. Now you sit down with your adviser and we decide we’re pulling from this bucket and we’re pulling from this account type and we’re going to have this type of tax and we are making it happen. How am I going to handle those unexpected expenditures?

Did we leave a buffer in the plan? Do you have wiggle room? We want to make sure we account for the unknown. Have I saved enough? Depending on where in your retirement path, you might need to adjust your expectations.

Might need to save a little more. Might need to work a year or two longer. So long as you’ve kind of sat down and understood what that all looks like and then going to revisit the investment strategy as well. And then making sure that you have that plan and those professionals in place that are going to help you tie all of these pieces together and then you’ll be ready to pull the trigger and actually go forward and make this happen. So, the last thing is going back to that illustration we had at the beginning with the 10 key areas of your financial health.

In the chat, there’s a link to our ideal futures health assessment. And it looks like the graphic we showed up front, but it’s a series of questions revolving each one of these categories and asking you, do you have a plan around this? Are you confident in your plan? When’s the last time you visited your plan? And then you get scored and you get a report that tells you these are the things you need to address right away.

These are the things that are good and you don’t need to worry about and these are the things that you need to put on the list to do in the future. And going through this exercise is a really good starting point for you to understand what your comprehensive picture looks like and it’ll be a good baseline to start to build a plan and have a conversation with a financial professional. All right. Thank you, . I’ll hop in here and we’re coming right up on an hour.

So, if you have questions about your specific situation and you’re not a current client, please click on the link in the chat. For those of you who do work with an adviser at Savant, please take these questions, anything that prompted dialogue back to your team and follow up. and I would greatly appreciate that. And now we have just a minute or two for Q&A because we literally are at an hour. So maybe , each and of us can take one.

I’ve been keeping track of what came in. So the first one I’m going to send to you. It says, “Is a 6040 portfolio still appropriate?” Oh, good question. Thank you for asking. A 60/40 portfolio is a very common mix of investments for retirees.

What it’s referencing is 60% growth oriented positions, which is most often stocks, and 40% conservationbased assets like bonds, maybe some cash. So, you are looking at a pretty balanced portfolio there. Just tilt it a little bit more towards growth. That’s great for retirees because when we’re planning for long time frames, we still want to have growth in your portfolio, but we also want to have some preservation based assets so that we always have access to money that’s not going to be quite as volatile. Stocks grow, but they come with the trade-off of volatility.

So, they’re going to be on a roller coaster of their ups and downs. Now, bonds, they don’t grow as much, but they’re a lot more stable. So by having a balanced portfolio like that, you’re allowed to let the stocks grow and then if they go in a downturn, now you have the bonds that you can pull off of. So that mix is a very traditional good mix for retirees. Whether or not it’s appropriate for everyone plays into many different things, different things to consider about your your appetite for risk, your demand for growth, and you know, how soon you’re going to be drawing on that money.

just because you retire, you might not be drawing on that portfolio immediately depending on your other resources. So, there’s not a one-sizefits-all, but that’s a good place to start. , another question that I think is really timely is, I heard that we don’t have to pay tax on social security anymore. Is that true? , you want to take that one?

You have me smiling, . Yes, this is timely because we had the one big beautiful bill act passed, right? And there is language out there that makes you feel as if social security is not taxable anymore. It is taxable and it’s based on your income. But what you do get as a senior is now a bonus deduction and this is going to be based on your income.

You’re going to get up to $6,000 before it’s phased out. And there’ll be $12,000 for a couple filing mar married filing jointly. And this is really from 2025 to 2028. So there’s part of the provisions that are permanent and there are part that are temporary. That’s this piece is one of them that’s temporary.

And it’s been tied to social security, but it’s really based on your age. So if you’re 65 and not taking social security, guess what? You still get the deduction if you meet the income limitations and qualifications. And if you’ve delayed social security and you’re older and you still fit in the income brackets, you get the benefit. So social security is still taxed, but you have a nice deduction now that can offset that tax.

So that’s the way I would think about it to answer that fully. But thank you so much everybody for joining us today. I know we went through a lot of material. We have to keep this very high level to educate everybody, right? But and I could go really deep on the particular circumstances.

So, please follow up with your adviser to get your own specific situation addressed. And thank you for joining us. Thank you. Have a good one. If you enjoyed this webinar, visit savantwealth.com/guides and download our complimentary guide books, checklists, and other useful financial resources.