Turn $1M+ Savings into Retirement Income Video from Savant Wealth Management

Download our complimentary guide books, checklists, and other useful financial resources at savantwealth.com/guides. Hello everyone, and welcome to today’s Savant webinar. today you’ll be joined by myself, Jeff Lewis, financial adviser here in Rockford, Illinois, alongside a colleague of mine, Teryn Fitzgerald. Teryn, you want to say hello? Yeah, hi Jeff. glad to be here today to discuss this important topic. I think we’re talking today about how to turn your savings into retirement income. So, I think we can share some pretty good insights today. Yeah, I think there’s a lot of general principles that we’ll be talking about today that can apply to everybody. But, the focus of, you know, today’s webinar will be on turning a million dollars worth of savings into retirement income and how you replace that paycheck once you fully separate from your job or you retire or whatever it may be. And so we’re going to be going through a handful of different topics today that we’ve kind of segmented into three different sections. , but obviously I think, you know, talking about this ahead of time with you, Teryn, we felt like it was really noteworthy to at least talk about some of the challenges that people face when they’re trying to transition into replacing their paycheck. So let’s go ahead. Let’s start there and then we’ll obviously get to the other agenda topics as well. So thinking about, you know, challenges, how to manage them early on in retirement. there’s going to be challenges that every retiree faces and some of them are going to be more unique to a specific individual like yourself or some may be just generally across the board that it applies to everybody. when I think about inflation, inflation tends to be a key risk or a headwind for a lot of retirees. you’ve transitioned into a life where you are now living on a fixed income and you are you know kind of being forced to you know plan for your future in a world where you’re not receiving a paycheck from somebody where you’re not guaranteed maybe a raise every year based on your job performance or things of that nature. obviously another risk that people are worried about these days is longevity risk. people are living a lot longer. advancements in technology and medicine continue to allow for people to not only recover faster from illnesses and injuries, but it’s also quite significantly expanding people’s time horizons via the way of just living longer. So, that’s a big one as well. , for others there could be a savings gap that they’re looking to maybe close, you know, based on however many years they have left in, you know, before they retire. , but then obviously there’s things that are outside of all of our controls, right? Market volatility. , everybody’s withdrawal rate, personal withdrawal rate, the percentage you take out of your portfolio is going to look a little bit differently, right? It’s not going to be the same for everyone because everybody lives a different lifestyle. But I think all of these variables that are out there, as I mentioned, some are in your control, some are not in your control. And so, how do you face these, you know, proactively and being thoughtful and strategic around these, knowing that, hey, if I live for another 30 to 40 years, right? And I think people who are retiring today at age 60, I think there is a realistic expectation with the advancements in medicine today that they could easily be living till age 90 or 100. I don’t think we’re that far away from what the world will look like. And so just making sure you plan properly and you’re taking conservative assumptions into your retirement plan and you’re not just kind of you know trimming hairs or cutting by the edges and not being as conservative in some of those assumptions I think is really important in terms of how do you assess your current situation, right? Like how do you kind of sit down and say where do I stand? there’s two ways I think you can go about it. I think for today’s presentation, we’re first start talking about spending, right? One of the most important levers or determinants of how long money is going to last is going to be based on how much money you are spending either on a monthly or an annual basis. if you’re anything like me, and this is sounds a little weird to say as a as a financial adviser, but I’ve always really struggled with like budget worksheets. That’s just not how my brain works. , so many expense items, you know, come in either on a semi or a semiannual basis or maybe they’re annually. It’s hard to account for everything. I think one day, you know, in today’s day and age, what we’ve noticed with just the general use of credit cards has in some ways made it easier for people to track their monthly spending because so many people are just utilizing their credit cards to track their current monthly expenses. Now, if that’s not you, that’s okay, right? You can still utilize the budget worksheet spread spreadsheet that we have and you can kind of go line item by line item and identify how much you’re spending on a monthly basis. But for those who really struggle with that exercise, I always say, you know, a good rule of thumb is, you know, take your average credit card balance, add your mortgage payment, any car payments you have to that, any ancillary one-off payments that you may have like homeowners insurance or car insurance, and hopefully that gets you to a general idea of what you may be spending on a monthly basis. the other most simplistic method is to take your take your net paycheck that you’re getting from your job today and multiply it by 26 pay periods and just assume you’re spending all of it. Right? Those are some conservative ways to arrive to a monthly spending number because I can tell you and just speaking with individuals, it sometimes can be very burdensome to go through kind of the general transaction ledger and figure out what exactly am I spending? , and how do I arrive at some of these numbers? That can sometimes be an exercise that actually turns people away from the exercise of going through and looking at their personal savings. And so when I talk to, you know, individuals, let’s just say, hey, let’s try to let’s try to plan for the 90%, right? Like let’s get directionally correct on some of this so it helps you start making some decisions. Ultimately, I think that’s better than nothing. So don’t get too paralyzed by trying to create a budget for yourself. Try to get something directionally correct and then you can always refine your assumptions and your budget from there. So I said you can kind of look that you can kind of look at this from two different angles. You know either budgeting or in this case you can look at it from okay what assets or retirement income am I going to have once I am retired. so this is kind of the other lever of this right the sources of retirement income you’re going to have. some people tend to keep a lot of cash you know in the bank. others obviously have been contributing to a 401k or an IRA or a Roth IRA over their working years. Those are generally going to be considered what are called your qualified retirement accounts. some, you know, individuals may have brokerage accounts that they’ve been saving to. So these are generally just individual or joint accounts that you may own with a spouse. You contribute to them kind of on an ad hoc basis. There’s no tax deduction for making these contributions, but it’s more of a longerterm investment account that’s not being used for short-term needs in that manner. In addition to that, you’ve got obviously, you know, income sources, social security, pension, part-time income. some people may have a second or a third property where they are renting that property out. you’ve got all of these different moving pieces and it’s like how does all of this come together? How do I, you know, effectively make the right strategic decision on something like social security while also managing kind of the other assets or other income sources that I may have. So when we put all this together in like a financial plan, really what this allows you to do is look at all of these different income sources and put it all together, right? So identifying goals and when I say goals generally we mean things like spending right so what are you going to be spending money on in retirement obviously if you’re going to be spending money you also have a good documentation or ledger of assets of okay what are all of the assets that I have that are either income producing that provide me income or maybe doesn’t provide me income today but I know if I live in my house today I have a primary residence if I have to sell that home in the future and then live off the proceeds of that home while I move into like a nursing home or something of that nature. Well, that’s still an asset. You want to account for that in your financial plan, but it’s not an income producing asset today. Whereas maybe potentially 20 to 30 years from now, you want to include it as an asset that could be turned into cash, but you don’t have any plans to sell it today. And then I think kind of taking a step back and thinking about this more at just like a higher level, you know, open-ended questions, you know, how much can I spend? How much do I want to spend? I mean, those are important questions to identify early on. particularly hopefully you’re identifying the answers to those hopefully before you retire just so you’ve got a good idea around cash flow needs once you’re retired. But then kind of what gets in related to that is how much risk can I take when I’m retired? And then in addition to that, how much risk should you take? Right? So there’s kind of two questions there that can be hard to identify. And I think obviously taking a step back, understanding what assets, what liabilities do you have today? What different income sources are you going to have here in future years going forward? And then really how does this all get built into a financial plan, right? Like that can be very daunting for some for others it could be a really thrilling process that gives them a lot of energy. But generally what we find a lot of people are looking for a soundboard. They’re looking for a second piece of wisdom or words of encouragement around like hey am I thinking about this correctly? Is this generally how I should be thinking about it? And I think that’s where obviously having a having someone like a planner to help you go through a financial planning process can be very fruitful and be additive as you start this next chapter of your life. So I talked a lot about putting together a financial plan. but how do you interpret the results of that? Like what does that actually mean for me? What does it mean for me my spouse? maybe kids if you have kids if you don’t have kids charity you know other heirs what does all this actually mean because I think what you find when you go through that planning process is there’s a lot of assumptions that end up needing to be made and if you don’t understand the assumptions I think it is could leave you feeling either kind of like a little confused on like how does all of this come together or like how do these variables all play and impact kind of what I’m looking for the next 20 to 30 years. And so we kind of identify when we stress test plans, when we run a Monte Carlo analysis, we look at really kind of three key areas of like I don’t want to say pass fail, but it’s like needs a lot of improvement, on the right track, or potentially you’ve got room to do more with your retirement, right? And I kind of categorize it into those three. , you’ll see here on the screen it’s like below confidence, in the confident zone, or above the confidence zone, right? So, generally speaking, you’re going to fall in one of these three categories by default once you go through your retirement plan. And then I think assessing from there, okay, you’re either on the right path or you need adjustments. And sometimes those adjustments aren’t always you need to save more or you need to spend less, right? Sometimes those adjustments are you need to spend more because if you don’t spend more this could be a later this could be a bigger problem later on in life for you potentially for heirs if you have them and if you’re worried about them inheriting a large sum of money and that’s not something that’s important to you. if you don’t spend the money well then by default the money could likely continue to grow and that may not be what’s most important to you. And I think identifying that and working with somebody who understands putting together a financial plan that isn’t just about continuing to grow the assets I think is really important. And I think that’s where a lot of people’s job or our job comes in. It says like what are the things that are really most important to you because if growing the assets from this point on is considered a failure, we should not be putting together a financial plan that continues to grow the assets, right? like we should be hearing that from you as an individual or a person. So, this is kind of the fun part of our of our job is really getting to know people and seeing what the next 20 to 30 years of their life looks like. And if you haven’t gone through this process with an adviser before, generally I would say you should do this as soon as possible, especially if you’re thinking in the next, you know, two to five years I’m going to be considering retiring. that is the time to start having these types of conversations and these types of like statistical modeling. So when we think about challenges how to manage them you know one of the things is obviously investments you know your investment portfolio is what’s going to drive your future income you know the potential income you can take from the portfolio it’s going to drive the dollars and the cents in terms of what the values will be worth in a future state and so I always say you know appropriate investment allocation is needed that needs to be solidified verse that asset allocation should be managed based to a you know obviously a risk profile that you’re comfortable with. But also as part of that process there’s discipline rebalancing that needs to take place to ensure the assets maintain the asset allocation that you’re comfortable with. When you think about rebalancing that’s the old adage of buy low sell high or buy high sell higher. maybe not the latter but buy low sell high. keep the overall mix of the investments together based on the risk tolerance you said that you were comfortable with. because if you fail to rebalance and stocks continue to perform well and you never address the issue, well then your 60% stock portfolio could you know over the course of time turn into 70% 75 80% stocks and you may not be comfortable with that right and so having a disciplined process to revisit those things. I think about asset location, tax location, those terms can be used interchangeably. Kind of managing your overall investment portfolio from an overall tax management perspective is really important. Obviously, having a structured plan in place for withdrawals, making sure that your withdrawals are not only within reason, but they’re meeting kind of your monthly or quarterly or annual income needs. that’s really important. And then obviously I think when it comes back to investment management or portfolio composition or construction, I think one of the most important determining factors is just making sure that you’re well diversified. when you think about stocks, when you think about bonds, all of these different things perform differently over time. These investments are not meant to act the same. And I think Teryn if we go ahead and go to the next slide you know I think the test of time is really you know this is probably not news to anybody but stocks you know stocks are going to be the engine that makes the portfolio grow right so given enough time stocks will tend to outperform other assets like bonds or cash. And so you’re going to want to make sure that if you’re retiring in your 50s or your 60s or even your 70s, you’re going to want to make sure that you still maintain an allocation to stocks likely just because they’re going to be your best hedge against inflation. They’re going to provide you the most protection that your dollar today is still worth a dollar tomorrow or maybe even a little bit more than that. So you don’t have to necessarily sacrifice the lifestyle that you’ve grown accustomed to. Now, does that say you should be 100% stocks? probably not, right? Like that’s that’s a different conversation for a different day. But having that mix, having a mix of both stocks and bonds and cash and how that all works together in terms of actually distributing the money to make to replicate your paycheck is obviously very important in that regard. So, you know, we talk about this term buckets gets thrown around a lot u in financial services and as financial advisors and so we talk about different buckets from time to time and so when we think about buckets generally there’s kind of three buckets at a very high level generally there’s like a short-term cash bucket this is going to be money that generally is kept pretty liquid cash in the bank you’re you know probably it’s money markets checking accounts, savings accounts, CDs, high yield online savings accounts. That’s kind of like your safety net or your nest egg. And then thinking about this a little bit further out, you know, there’s probably a bucket of money somewhere between 3 to seven years, maybe 5 to seven years. It’s going to be more intermediate. , you’re going to think about this bucket as like, hey, I don’t need the money now, but I’d like to have money set aside for this maybe in a handful of years. , and then there’s that longer term bucket, right? So 7 10 years down the road, I don’t need this money. I don’t need any of this money right now, but I want, you know, something there that’s going to provide me future income later on in life. And when we look at these three buckets, each of these three buckets really takes on a whole different risk profile in terms of how they’re going to be allocated, right? Your longer term monies can take a little bit more risk because you don’t need the money right away. So that’s generally going to be invested in things like more things like a diversified stock portfolio. Your intermediate term bucket, well, there’s a trade-off, right? There’s an opportunity cost to holding money in cash. It feels really good, but the opportunity cost is that it could be earning a higher yield by placing it in a different type of investment account. And so generally speaking, when you’re talking about expenses or an investment being made three, four, five, seven years from now, that’s where you start getting into this intermediate inter intermediary bucket where it’s probably going to be invested in things like bonds. you know, maybe have some exposure to REITs as well. but that’s going to be it’s not going to be a diversified stock portfolio, but it’s also not going to be cash. It’s generally going to be made up of bonds. , and then as I already mentioned, your short-term bucket. This is going to be cash, right? This is where you generally are going to pay your monthly expenses from, maybe your property taxes that come up, you know, once or twice a year. Generally, that’s going to be your short-term bucket. I think of this as up to a year’s worth of expenses. You know, some people like having a little bit more, some people like having a little bit less depending on what their job situation is. , so there’s a lot of things to be thinking about there. but in terms of how we put all of this together, how we actually replicate a paycheck, right? So we’ve got an example for you guys here today. So visualizing your buckets, right? So you know in this example, there’s an individual who has a cash flow need of, you know, roughly $6,200 a month, right? And a portfolio balance of a million dollar. Where does that money come from to eventually replace the paycheck? Right? So you’ve got three buckets. Savings, you’ve got bonds, and then you’ve got a diversified stock portfolio. Well, not, you know, most people like having a certain level of savings, right? Like generally they don’t want to see their savings or their cash in the bank dip below a certain amount. So for this example, we use 75,000. So, we say, “Okay, you know, every month we know $6,200 a month needs to come out of the portfolio, and we’re going to replicate the paycheck that they were earning while they were working.” Well, depending, you know, during different times of where the market’s at, what cycle the market is, you may either rely more heavily on bonds to replicate that paycheck, or you may more heavily rely upon your stocks to replace that paycheck, right? So I think about, you know, the last 12 to 18 months in the market, what’s been doing really well? It’s been stocks. So when stocks are doing really, really well, that natural rebalancing process from selling from your assets that are generally doing much better to create cash flow for you is generally the more prudent way to go about replacing your paycheck. So during times of stock market doing really well, you’re probably selling from the stocks, taking those winnings off the table, putting that money in your bank account to replace your paycheck. But what if you retire in February of 2020, right before the pandemic, or if you retire in September of 2007, right before the 0789 crash, where should you be going for your where should you be going to re replicate your paycheck then? it’s generally probably going to be bonds, right? Bonds tend to be more stable. they tend to be more capital preservation in nature and they don’t come with nearly as much volatility as stocks. Now, does that mean that they’re completely risk-f free? No, it does not. but they generally hold up much better during times of stock market volatility, which is why they play a role in your portfolio for generating cash flow. And so when you think about the different buckets that you have, this is one way to think about it as you start thinking about replacing your paycheck. So when I think about this and I Teryn, I know you’ve got a lot of good thoughts on this as well. You know, there’s kind of two components to this, both psychological and practical. You know, the psychological piece is when you, you know, start replacing your paycheck on a monthly basis, you know, you’re kind of dollar cost averaging out of the market, right? So every month you get a distribution from your portfolio. it doesn’t really matter what the market’s doing at that time because you know on the 15th of every month you’re getting a paycheck for 6,200 bucks roughly. Right? So it takes the psychological aspect out of like oo you know is this a good time to be taking a distribution for my portfolio? Should I wait a couple months? Generally you want to take you don’t want to be thinking about it that way because that generally means your emotions are getting in front of you know making a good you know financial decision. So generally we see a monthly distribution tends to work really well for a lot of individuals. It’s not for everybody but generally most people like the monthly distribution. Sometimes you can stagger your monthly distribution to be either towards the beginning of the month or the end of the month maybe depending on when you get a social security paycheck as well. So that way you’re kind of replicating almost two types of paychecks once you’re fully retired. but then there’s always the more kind of practical nature when you think about income and safety. You know the buckets they provide protection for many years. Teryn, what’s the you know what’s the rule of thumb that you use in terms of like having that income bucket solved to kind of replace their paychecks? How many years do you typically advise as a like general rule of thumb for you know having that money in things like cash and bonds for cash flow needs? Yeah, for cash I’d say I mean what you put on the slide is pretty accurate. One to two years is a good period of time to have. some people are going to be more aggressive and less aggressive on that. So we do hear from time to time, you know what, I feel comfortable or I have this pension that’s really paying me income so I don’t need that much cash available to me. , and that’s a, you know, that’s perfectly fine. It’s a flexible amount. This just kind of gives you a rule of thumb or something to start thinking about. What I’d add to all those excellent points that you said earlier, Jeff, is that in my experience, the bucket strategy just helps organize and prioritize your spending and , it gets your mindset right for retirement, right? So, a lot of times this change for retirees is kind of one of the biggest risks that they face is, hey, I went from save, save, save all my life. I keep hearing save, save, save and now I have to switch it to I’m spending these assets and you don’t take that lightly. It actually is a really big change in your mindset. And so when you look at pairing things like preparing with a , you know, budget worksheet or, you know, Jeff mentioned some simpler ways to put that together, preparing with that and financial projections, but then also having something that’s like logical that, hey, how do I pay myself? Oh, this bucket analysis isn’t just addressing my short-term needs. It’s also here for my long-term needs as well. I think that gives you a lot of u you know money in the bank as far as your mindset goes as well as saying like hey I am prepared on all these different fronts. I’ I’ve done the work. I’m here. I have a logical way to get the money to me and it just makes a little bit of a smoother transition to retirement I’d say. , so we’ll give Jeff a little bit of break and he wanted me to talk about the most exciting topic of today, which is taxes. So everyone, you know, get excited for it. , so with that, we’ll move on to the taxes piece because that’s a very important piece of retirement as well. Unfortunately, retiring doesn’t save you from what we all suffer from is having to pay the taxes and it is a very important part of financial planning. what’s scarier about it I think to some degree for retirees is there is a little bit more of I have to actually be engaged in planning for my taxes at least a lot of times we have our employer you know withhold our income taxes for us maybe we’ll have to make some estimated tax payments may maybe not maybe just wait until we file our tax return but there’s not too much a lot of times people are really thinking about as far as taxes go when they’re in retirement or prior to retirement and so that switch is a little bit different than when you have an employer taking care of that for you. So, first we’ll talk about how much you actually get to keep. So, we talked about that withdrawal strategy, the bucket analysis, and you know, we start to think, hey, we did this budget worksheet. How much am I spending? And then you have to think, well, how much do I actually need to withdraw because I don’t get to keep all of it, right? And so, it’s going to be important, I’ll probably say this a lot of times, to work with a tax professional because there’s a lot of things that need to be planned for. , but it is very important for us to plan for those income taxes. So, some important questions I would say to ask yourself and it kind of goes through this here on the slide is what is your gross pay from the accounts. So, this is how much you’re actually withdrawing. Like I said before, the part you keep and then there’s also a part that you won’t see or you might be making estimated tax payments, but a part that’s going to the IRS that you’re actually giving a check to the IRS instead. It’s still a withdrawal. It’s still income coming from your portfolio. So we need to plan for that tax piece as well. And then what taxes are you paying? So depending on where you are withdrawing from and what state you reside, you might have different taxes to account for. Some states don’t tax retirement income. Some states do or partially. So you really have to start thinking about, hey, how do I how do I plan for taxes now that I’m retired? And we’ll get into kind of the different types of accounts as well because that’s going to make a difference as well. And then there are the other expenses that might need to come out. So, one common thing that sometimes people are surprised by is, you know, your social security check, you’re you’re getting a statement from the social security office or you log on, you see this, you know, dollar amount and then all of a sudden it’s not the amount that you receive. Well, that’s because Medicare is typically coming out of it at 65, it will definitely come out of it. And so, you’re not getting that net amount that you, you know, you thought you were because there’s a portion that’s going somewhere else. And then there’s what other strategies are available to help you reduce your taxes. So you know one thing is and this is part of the financial planning process. Are you charitably inclined? Are there other options that are in your portfolio that can reduce taxes? You know Jeff went through some of the things that we think about when we talk about taxes like rebalancing and tax location. Well, there are strategies out there that can reduce your overall taxes just within your portfolio by you know shifting bonds for instance into your IRA might be something that makes sense for you or you know having things like stocks be in your brokerage account instead. All those things are going to add to your bottom line and your bottom line is ultimately what your net worth is ultimately what your assets are. So these are really important things to consider I’d say. Now again make sure you’re working with a tax professional. So that’s that’s a two. I said it twice now, but because it’s really important. We see some unintended consequences when some people are trying to do this on their own. , there’s a lot of things that I, let’s just face it, doesn’t make sense when it comes to taxes. So, we want to be really thorough and we’re planning. So, that kind of leads me to tax planning. This is going to be a little bit different than a lot different than when we would call, you know, preparing a tax return. So, you know, a lot of times people are like, “I have an accountant. I have a CPA. They prepare my tax return. I’m fine.” Well, that’s fine and that’s great and that’s an important thing to make sure it’s accurately, you know, prepared for you. But at that point, the work has actually been done. There’s not much you can do at this point in time because the year’s over by the time you file your tax return. , you know, right now we’re filing for 2025 and it’s 2026 and the year’s over. There’s not much you can do there. So a good tax plan is going to be actually doing a work proactively. You know, we’re going to review tax brackets now. We’re going to review it for years to come and look for strategies that are adding to your bottom line. A good tax plan also means paying a little bit can mean I should say paying a little bit more tax upfront with the goal of paying less taxes over your lifetime. So sometimes that can be a little scary of hey this is this is actually adding tax to me right now. Well, that’s okay. you know, we want to look long term and say if we do something now that actually could really benefit us and set us up long term. And so we need to pay attention to that because again that’s adding to your bottom line at the end of the day. So starting with a review of your account types, there are three main account types or buckets. I might say either one of those things because as Jeff pointed out, we love as financial adviserss just use the word buckets. , just a nice visualization, I think, is why that’s out there. But there are three different types or buckets of accounts that we’re looking at. And they all do actually have different tax consequences. So, we need to start paying attention to that. , prior to retirement, it’s important, but definitely in retirement where we start to think about smart withdrawal strategies. So, let’s start with the taxable account. So, this is going to be your brokerage or after tax dollars. A lot of times we’re saving into this as an investment account outside of our retirement accounts. , so I have extra savings every month. Where am I going to put it? I’m funding my 401k. You’re probably putting it into a taxable account. That can be something like a brokerage or an individual or a joint trust. These are these are there’s no tax benefit for putting it into it like a reduction in your income today or you know later down the road there. But it does help save into that taxable bucket and it offers a lot of flexibility in retirement too. So sometimes people don’t fill this one out quite so much. And you know, as you get into retirement, you’re going to see that it’s it’s setting you up for a lot of success to be able to have different levers to pull when it comes to different types of retirement accounts. , and then there’s also the tax deferred account. So that’s going to be probably a lot of times, you know, honestly, it’s the biggest bucket that we see retirees have. So they’re saving into this because this is their 401k, their 403b, their IRA, , could even be a pension. And what typically is happening is they’re putting contributions in these types of accounts. They’re getting a deduction for the amount that they’re putting in there and then it grows tax deferred. So in other words, all the earnings as we invest, all that growth, we’re not getting taxed on it yeartoear, but at some point in time, there was no taxation to this account. When you pull money out of it, there is going to be so that’s a big key to the tax deferred account is when we’ve a dollar out is a dollar taxed, so to speak. So, , it’s a it’s a good bucket to be in. It’s usually the largest bucket that we see retirees have. It’s something that’s advertised, sign up for your employ, , 401k, is there employer match, all those great things that come with a DAX tax deferred account, but it’s not the only account out there. So, just keep that in mind if you’re still planning for your retirement. , and then there’s finally the tax-free bucket. So, that’s going to be your Roth 401ks, 403bs, and Roth IAS. I know we’re not really talking per se about starting to think about retirement, but if I was someone just starting fresh, I’d really want to fill up this tax bracket or tax bucket because it’s really going to give you a powerful upside to it all because you put money in it and while you don’t receive a tax deduction for putting money into it, all that growth grows taxfree, but unlike with the tax deferred accounts, when you withdraw, there is no taxation. So it’s why we call it a tax-free account because all the all the growth original contributions that you put in there if you go to withdraw in retirement you’re seeing absolutely no tax consequence to it. So you can imagine that can be very powerful especially over the long term. So when you look at these different accounts and if you’re fortunate to have a mix of these different accounts it can be a little overwhelming to decide how to start a withdrawal. So, as you as we’ve kind of gone through this today, you know, there’s a lot of steps to this and it can be overwhelming to just think about this, you know, on your own. So, working with a financial professional is going to help you. but I will say this is kind of a confusing part because taxes are not anyone’s friend when it comes to making it clean and simple, but we’ll try today. So, this next slide here is actually showing you, you know, a couple different withdrawal strategies. So, I mentioned earlier a good tax plan is important and this is kind of why. So, most people make the mistake of looking for the account that they think is going to have the least tax consequence. Hey, I’ll just take from this account. I won’t have to pay that much taxes. That’s that’s where I’ll start. But in this chart, we see an example of a person with an IRA and a brokerage account. So, a tax aable account and a tax deferred account, right? The amount distributed from an IRA is going to be taxed at that person’s marginal tax bracket. So often times we’ll hear someone say, “I’m in the 22% tax bracket. I’m the 24.” That’s what this is going to be taxed at if we withdraw from the IRA. And the that can be kind of the least attractive account to withdraw from in retirement. So people say, “Hey, okay, I’ll just spend from the brokerage account. There’s not going to be as much tax, you know, there’s preferred tax rates. There’s not going to be as much taxation to that. Why don’t I withdraw from my brokerage account first and I’ll save some taxes?” And that do that could be true, but it doesn’t necessarily mean that’s good long term. So in this case example, you’ll see there’s a 30-year span. And in the different highlighted colors, there is a split withdrawal strategy. spend the brokerage account first and spend it the IRA account first to meet that withdrawal that you need. And if we can if we see the biggest advantage would be to take it from a little bit of both of accounts. You know, this is just kind of highlevel overview of this the situation. some tax planning and projections all go into this, but really, you know, splitting the withdraw from the different accounts really at long term added up to having the most after tax wealth when we looked at this withdrawal strategy. So, if you’re starting to plan for taxes, you might want to know you want to know what the first step is. I would say look at your tax bracket. And I don’t think it’s a fun thing to do is stare at tax brackets, but it’s important to know because it gives you some insights of what you can accomplish within it, right? So work with your accountant, financial advisor and say and you come up with some projections together and say, you know, what tax bracket I am I in? Is there any room for opportunities within that bracket? Because a good withdrawal strategy is going to say, hey, where am I today? And then start to look for opportunities within that tax bracket or even maybe beyond it if it makes sense for you. So, one common opportunity that may add value over time is Roth conversions. , we wanted to give you some things to think about as well as when you get into retirement outside of just a withdrawal strategy, what could make sense if we’re looking at a good long-term, you know, tax plan. And Roth conversions a lot of times can make sense, but we need to do tax planning along with it. And I’ll I’ll give you some, you know, cautionary tale in a moment. but it is deciding to pay taxes now, right? So it is deciding, hey, I could just let this account on IRA grow tax deferred and you know, if I don’t take money out of it or if I just take it from my withdrawal, I’m not adding to that taxation. But you’re taking the IRA money and you’re deciding to pay tax on whatever you’re converting and you’re putting it into this Roth bucket. Well, I mentioned earlier that Roth bucket grows taxfree. So, you’re going to have a lot of hopefully a lot of time on your on your side to grow and compound over time to build up a really nice tax-free bucket. And so, what this does is give you a couple different opportunities. It’s and they’re on the screen here. You’re not paying taxes on the withdrawals from the Roth. So, that’s a huge thing. You know, yes, right now you’re paying taxes to put the money into the Roth by converting it from the IRA, but as that grows, you’re not going to be taking paying taxes on those withdrawals from that Roth. A huge thing a lot of times as we’re looking at this, especially as a long-term tax plan, is that it’s reducing your future required distribution. So, at age 73 or 75, and yes, it’s two different numbers because it depends on when you were born, you are going to have to take money out of that tax deferred account. Whether it’s a 401k or 403b or an IRA, money is forced out of it by the IRS. They said, you know what, you’ve had enough time with this account that we’re not taxing it. It’s time to tax it. So every year after you turn that required minimum age, you will have to take a little bit out every year and that will be ongoing until you pass away. So if we think ahead of time, if we’re not just planning for now, we’re planning for the future, we can say, well, if I start to take money out of that IRA or that tax deferred account now and put it in something like a Roth bucket, then I’m getting it away from that and I’m getting it away from that forced distribution. because when that happens, a lot of times we’ll see stacking of income and you’re in a higher tax bracket than you plan to be in. So, if we can start to peel that away earlier, you might be in a really good spot because of it. And then I would also say that if you’re looking long-term outside of just your own financial planning, they’re really great accounts for beneficiaries to inherit. So, they are still allowed to have that tax-free. they will have to distribute it typically within 10 years but in that meantime it’s taxfree to them where those other accounts are not going to be. So Roth conversions can really make sense and I’m going to kind of give you an example of that. So on this slide here we do see a chart where it looks very similar to that earlier chart but we layered in a Roth conversion strategy. So on the top that yellow goldish line that’s pairing your withdraw strategy with also some Roth conversions as well. We don’t have a dollar amount here. Again, that’s going to go into, you know, actually planning in your own tax bracket. But if we look at that pairing of the Roth conversion as well as a good withdrawal strategy, it added the most and a big difference here after tax wealth over their lifetime. So, you can see that power of planning not just for today, but over your long term. And you can see the advantages that Roth conversions in particular can have. But it does involve careful planning. And here’s my cautionary tale of that. , it’s it’s a it’s not a fun word. , Irma, it’s not someone’s grandma’s name. It’s actually a real thing within the t Medicare. It is a kind of hidden tax. I would call it is it’s based on it’s your Medicare brackets that are based on what your two-year prior income was. So what happens is when you are, you know, going through filing for Medicare, if you were doing that in 2026, let’s say, they’re going to look at your 2024 tax return and they’re going to look at all the income. That means, you know, your dividend income, your if you were working, your wages, your social security, whatever is in that adjusted gross income line. They’re going to look at that and they’re going to say, “Okay, well, you know, sir, you made 137,000 as a single person. Your premium this year is going to be $284 for part B.” So when we look at Roth conversion planning or even the withdrawal strategy, it’s really important for us to be aware of this because it’s not on your tax return, you know, and in fact it’s two years later. So that is, you know, it’s hard to remember what you do each morning and then you got two years later and you’re like, hey, what happened there? , and so it’s something important that we plan for when we’re looking at Roth conversions, when we’re looking at withdrawal strategies. But that’s why I keep saying, you know, plan with your professionals. we definitely need your help when you’re we’re planning so we have insights of what’s going on with you but it’ll be really important because there’s hidden taxes like I said for that you might not be aware of and you could see there’s quite a big difference so like the baseline is $22 if you got all the way to the top tier you’re at $689 just for part B and then they’ll adjust also for part D as well and that’s per month so and if you’re a married couple that’s going to be times two if you’re both on Medicare so substantial amount they will readjust it every single year. So, they keep looking at that two-year prior. If there’s a big reason why it happened, like you retired or something like that, there are things you can do to re reduce it ahead of time. But all in all, just think about, you know, planning with your professionals because otherwise you might be in for a big surprise when you go to see what your Medicare premiums are in a few years. Okay. So with that, we kind of have come to the end of our presentation about, you know, turning your savings into retirement income. Jeeoff and I wanted to leave you with some final thoughts and then I think we have some a little bit of time for some questions as well. So putting it all together, Jeff kind of went through all these this first half is assess your current situation. Start with a plan. Start with a budget. work by stress testing your plan by doing financial projections and then kind of put together your own roadmap of what those what retirement is going to look like for you. How are we going to withdraw and then start to view your investments as buckets to get you in the right mindset for retirement and plan with your professionals and your CPA and your accountants to take care of your tax situation and plan around that. and work with your adviser by regularly reviewing this and monitoring and adapting for changes. If I had to give any advice, I think the adapt for changes is probably a big thing. Jeeoff, I’m sure you agree with that as well is we don’t there’s no such thing as a perfect plan. there is going to be speed light bumps in life. We all know this. So being flexible is really a key to it to retirement. It’s incredibly important to say, “Okay, I know this isn’t exactly what I set it up to be, but hey, things change and I can change, too.” Yeah, perfect. Thank you, Teryn, , for wrapping that up. , we did have a handful of questions that came through , during a lot of different parts of our conversation today. So, , I’ll I’ll start with some of the questions that came in , early on and then we’ll , we’ll kind of go from there in that regard. , one of the questions that came through was basically, you know, how do I protect my paycheck or my retirement paycheck essentially like a distribution from the portfolio during times of market uncertainty or market downturns. And , so I think this goes back to kind of what we talked about when we segueed , from my part of the presentation to yours, Teryn. you know, making sure that you do have a comfortable amount of your investments in more safer capital preservation types of investments. Generally, a good rule of thumb, right? It’s not it’s going to be different for everybody, but a good general rule of thumb is somewhere between 3 to 5 years of general living expenses. , when I think about what took place back in 0708, the market high point was late 2007. The low point was March of 2009 and it actually took the market almost five full years to recover back to where it was in 2007. So during that time of extreme market volatility where we saw a lot of downside in investing in so in stocks you would have want you would have ideally liked to have you know roughly five years worth of your portfolio in bonds knowing that you would not have had to sell any of your stocks during that fiveyear period to generate your cash flow right and so when I think about that you know in hindsight right like you don’t always know what it’s going to be when you’re living in the moment but in hindsight you can use the information of what took place in the past to help inform the decisions that you make going forward. And so that’s one area where you know that when you know reaching out to individuals and talking them through different things that’s generally a good rule of thumb somewhere between 3 to 5 years worth of safer type of investments within your portfolio to help replicate that paycheck. next question how will taxes impact the income I actually get to spend? so Teryn, you had touched on this, but at a really high level. So think about like those pre-tax buckets, your 401ks, your IAS. those are going to become come out pre-tax. So you’re going to owe ordinary income tax on that. Your Roth accounts generally speaking, you know, are not going to come with any income tax issues. and then the last bucket that Teryn had talked about, like that taxable bucket, basically you’re only paying taxes on the gains, right? So you’re getting that tax on the gains. If you can wait at least a year, it’s going to be taxed at more general preferential tax rates. so those are kind of the three different buckets in terms of you know and how the taxes will impact you. Now, if you have a very large IRA and you don’t have a lot of other buckets of money, well then you’re going to you’re going to probably run in to a scenario where you’re going to have, you know, quite a bit of income tax needing to be withheld from your distributions. So just be mindful of that. Be mindful of potential future planning opportunities like Teryn had mentioned with Roth conversions. those could, you know, be potential avenues that you could pursue. Teryn, was there did you had seen any questions that came through on your end that you wanted to address specifically? I’ve got a couple of more, but wanted to give you the opportunity if you had saw some that you wanted to address. Yeah, I see a couple that I think make sense for me to answer. So, one would be how do I know if Roth conversions make sense for myself. , so yeah, it takes a lot of planning like I mentioned. I think I stressed that a lot. , but it really is a what we would say a green flag opportunity would be is, hey, I’m not working anymore and my retire my income has dropped, right? My tax bracket is not as high as it was. , and it might be higher in the future. So, why don’t I take advantage of this low rate I’m in right now? and start to think about filling it up with converting to the Roth. So, I would say that’s probably on a high level a good indicator that this might make sense. You know, sometimes people do Roth conversions when while they’re still working. Sometimes even when that required distribution age is upon us, you know, that 73 or 75 where they force that IRA to have some taxation to it. , sometimes it still makes sense, right? It just kind of depends on what we’re looking at and also what your goal of it is. You know, a lot of times it’s, hey, it’s might be reducing your taxes over your lifetime, maybe. , but also maybe I’m doing it because I want my kids to have an account that they’re not going to have to pay taxes on in the future. So, we talk a lot before we start to entertain Roth conversions of not just income tax planning, but also kind of value discussions, I would say, of hey, what does this money mean to you? And ultimately, what’s it what’s its purpose long term? because hey, if its purpose was to go to charity, then maybe you don’t do Roth conversions even if there’s that opportunity in a lower tax bracket. or if hey, I might not see the effects, but my kids will. So then I’d really like to do Roth conversions, maybe it will still make sense to you. So I would say it definitely depends on the opportun or the opportunities and your values that you’re looking for. And there can be a lot of different reasons why you’re doing Roth conversions, but tax planning goes into it. low tax rates is probably a good indicator that might make sense for you. , and then this one I didn’t I touched on it briefly about the Irma that income adjustment when it comes to Medicare, but it says hey, what if I retire before Medicare? You know, what is that expense? How do I plan around that a little bit? While that wasn’t the topic of today, I do think it’s important to think through that a little bit as well because you might be looking at things like credits in the marketplace. There has been some changes with that recently, but th there are still credits within the marketplace for health care. So, healthcare.gov is typically where you’ll find, you know, private insurance. You’re not working anymore. Maybe you don’t have COBRA anymore. , and you want to get some insurance. There’s that’s usually people’s first line of, hey, I need insurance. I’ll go to the healthcare.gov. And depending on your income, there can be planning around that as well because there sometimes are credits available and those credits are based on your income. So, you know, sometimes people will say, I’ll put some cash aside and that way my income will look a little bit lower and I’ll qualify for credits because the health care costs can be a reason why people work later is just because it can be very expensive to have private insurance. or people will plan around that, like I said, is say, “Hey, maybe I should plan around my bracket a little bit before Medicare so that my income’s not so high so that maybe I’ll qualify for some of those credits, reduce some of the premiums that are associated with the premium tax credits and healthcare insurance premiums to the marketplace.” And there is just one last question that I feel like we should address because I think it’s a good question. , how do I build flexibility into my retirement plan with things like oneoff or surprise expenses or just one-off expenses that come up unexpectedly? , this happens. It’s real. , it’s going to happen. This goes back to Terren’s point earlier about being flexible and being able to adapt on the fly. You’re going to have one-time expenses that come up and you’re they’re going to come out of left field and it’s going to feel like a lot. I’ I’d say the important piece of this is knowing like, hey, that’s part of life. So don’t get too down in the dumps about it. but also just understanding, you know, okay, you know, what’s the expense? What is it relative to the assets that I have? And is this a reoccurring issue or is this truly a one-time expense where it’s like, hey, this happened, it wasn’t anticipated, a storm came through, blew off the roof. Like that’s a very unfortunate scenario. things like stuff happens, right? The on the flip side, it’s like, hey, you know, is this reoccurring, you know, travel expense that is more discretionary, you know, that isn’t necessarily maybe a need. It’s more of a want. If that is something that keeps coming up that’s causing an issue, well then yeah, there’s probably you have to go back and relook at some of the numbers and identify like are you are you spending within your means or are you spending outside of your means? And so I think that’s where a lot of this, you know, kind of comes in with an accountability partner and working with someone and helping them kind of guide you to like, you know, what are the things that are important to you and what’s the life that you’re trying to live? And so, , but dude, yeah, one-time expenses, they do come up. , they come up probably more frequently than people hope and they always seem to come up at the worst possible time, right? So, , that’s the way that life throws curveballs at us. But, , don’t be don’t get too caught down in the dumps on that. It’s part of the plan. Just know that like, hey, try, you know, if it’s a reoccurring issue and these, you know, one-time expenses are now becoming more annual expenses, at that point, it’s probably not it’s probably not a surprise anymore. It’s probably just part of your lifestyle. So, just be real with yourself when you’re when you’re thinking about some of those things. Well, good. Well, Teryn, I think that’s all the questions and time we have for today. I just wanted to say thank you Teryn for co-presenting today and being part of being part of the presentation. I certainly enjoyed the time we had together and hopefully everybody who joined the call also got something out of this and found it really useful and helpful. So if you have questions, please don’t hesitate to reach out. You can always schedule a phone call with us. Go to our website at savantwealth.com. you can get in contact with us either through our website or reaching out to us and we are looking forward to seeing you guys again hopefully on a future webinar. So take care and have a good rest of your day. Thank you. If you enjoyed this webinar, visit savantwealth.com/guides and download our complimentary guide books, checklists, and other useful financial resources