When Can You Afford to Stop Working Video from Savant Wealth Management

Download our complimentary guide books, checklists, and other useful financial resources at savantwealth.com/guides. Welcome to today’s webinar. Thank you so much for joining us. Today we’re discussing the age-old question, the $1 million question if you will, of when can you afford to stop working? My name is Jake Loescher. I’m a financial adviser in our Rockford, Illinois office. And of course, this is a topic that we cover frequently. In case you’re wondering, of course, this question is so old, it actually dates back to the 1950s when there was a game show that referenced the $64,000 question. And of course, as the years carried on into the 2000s, we had the who wants to be a millionaire game show and you reached that $1 million question and there was such importance built into the question itself and it felt like such a high stakes decision. Well, of course, a lot of that relatability, those high stakes decisions are part of this topic as well as we get into a lot of the strategies and complexities that surround kind of that retirement decision. Not doing this alone today. Jeff Lewis, another financial adviser in our Rockford, Illinois office, is joining me. Welcome, Jeff. Thank you so much. Yeah, hi Jake. Thanks for having me. I’m a little disappointed that you didn’t mention my favorite game show, which is the Family Feud, but that’s okay. We’ll let that one go and we’ll look forward to having the conversation that we’ve got today. Well, that’s great. Well, I appreciate that and next time I’ll be sure to make sure that I consider that as we walk through this. But nevertheless, we’ve got a full agenda and a lot of topics that we want to address as part of this today. So, I think a lot of the retirement question gets built up in everyone’s mind because it’s always in front of us. It’s always in news media. It’s with our friends as we’re, you know, working through our friends circles with relationships and parties we might attend, family members. It’s always something that’s discussed at work. So, it’s always in front of us and it’s a really difficult decision because it’s hard to, I think, mentally make that shift from going from saving and working and having a purpose every day to transitioning into something which is the great unknown and not knowing exactly what you might face. So, today our goal is to hopefully help accomplish a number of different topics as we go through this. You know, the mistakes that people make, you know, strategies to kind of plan for those things, really giving a sense of what a strong versus a weak plan might ultimately look like. Scenario planning and evaluating the different tools that advisers will use to help, you know, counsel clients with some of these decisions. And then some of the real life risks to plan for those that you might face today or perhaps that you’re thinking about but also ones that maybe you hadn’t thought about that should be part of a planning process very early and very often so that you make sure that you’re addressing things proactively and have to be less reactive. Before we ultimately continue to move forward, I just wanted to mention that there will be a link to watch the replay that’ll be sent out via email. And if you have questions during the course of this, write them down or actually feel free to put them in the Q&A box at the bottom of the presentation window because we will be answering some questions live towards the end here.

So, we thought we’d have some fun and start with a poll about when you actually might think you can retire. And again, there’s a lot of thoughts and how old people ultimately may approach this, but there is this element of all right, when I think I might be retired versus when I’m ready to retire. And sometimes those are different answers. So, if you wouldn’t take just a few moments here to kind of answer that poll, it’ll be helpful for us to reflect upon it as we go through it. And it’s actually interesting to see the results coming in. There’s one that is definitely leading the pack and it’s actually been quite the change in mentality compared to what it was like you know 30 40 50 years ago. So 30 40 50 years ago that idea of retirement there was this line in the sand. It was before I start collecting social security I’m going to work until a certain date because that’s perhaps what their parents may have ultimately done. Well that threshold’s now changed completely and the results kind of speak for themselves. It’s really when I feel financially independent. So, it’s this idea of freedom to make decisions about when I want to work versus when I don’t. It’s having enough resources to make that decision, knowing that if you want to continue working, you can actually continue working. But if you don’t want to, well, you don’t have to any longer, right? So, this idea of independence and retirement are kind of blending and becoming one and the same, whereas it didn’t used to be that way before. It used to be that when my body physically gave out, I could no longer work. Well, today, of course, our environment, our economy is so different that the idea of feeling financially independent is kind of coming down generationally to all of us. So, thanks for completing the poll because it does give us some interesting context as we go through this conversation as well.

So, we think about kind of the biggest mistakes people make. There’s been again a shift in dynamics here over the last couple of decades. I think people often think about retirement and mistakes and one of the things they first think about is a major investment mistake. So, perhaps I pulled my money out of the market at the wrong time or I didn’t invest it at all because I was so worried about what risk of stock portfolios may produce for me in the future and the uncertainty that money actually might be there when I need it. It’s actually less of the investment mistakes people make that are more of the retirement issue and it actually is more planning related and the things you can actually control more regularly than the investment markets because as you’ve probably come to know when you invest your money in global markets the only parts you can really control is how much you invest in things like stocks or bonds or real estate or other investments besides that decision it’s kind of out of your control on a daily basis for the most part so this idea of avoiding mistakes and the biggest ones that people can make really surround three main topics and these we’re going to dive into great depth here today. So, one of those is taxes and withdrawal strategy. Right? Taxes is one of the only certainties in life beyond death. It will be here for as long as you live. All sorts of taxes, income taxes being a key one that you can control. And a lot of that is related to withdrawal strategy, right? Which money comes out of which buckets. And Jeff’s going to give that great attention here as we continue to move forward. Then there’s longevity risks, which is kind of aligned with that idea of feeling financially independent. Longevity can mean that you don’t have money well into your later years, but can it also mean that you delay retirement to such time that it feels right and then you don’t have much longevity. So, addressing that risk or at least being thoughtful about how you prepare for that is a mistake that people can make and we don’t want to ignore. And then of course spending needs. This is the age-old you know discussion of we kind of know what we make with a paycheck but it’s hard to exactly know what we spend until we give it a great deal of thought. So, identifying spending needs and kind of coming up with a budget and a plan for those spending needs relative to our investment portfolios or other sources of income are again things that people tend to ignore or not give much thought to and assume they have enough. But you know maybe more work there to be done. So, Jeeoff, I wanted to invite you into this discussion as we kind of think about the idea of spending and spending related to income and withdrawal strategies and kind of the complexity that gets built into this. Give us an example of, you know, where you had maybe a client that worked through this where maybe they were dealing with an issue of not having great certainty around their financial situation where guiding through this process kind of gave them some confidence and then using some of the tools that we go through here. Yeah. No. Yeah. Thanks, Jake. I think it’s for some people sometimes the conversation is easier to be had than others. They’re coming from either a different perspective a different career path, you know, very dependent on the individual. But I think the biggest thing that comes with, you know, organizing affairs is exactly that. It’s organization. It’s being able to see things clearly, whether it’s on one sheet of paper, one document that you have saved on your computer, and seeing that through a m much broader financial plan. And it, and really, it almost always starts with organization. You know, thinking about all the different accounts that have accumulated over your working career. You’ve got 401ks, 403bs in different places. Maybe you have IAS, brokerage accounts, Roth IAS. Maybe you inherited an account from your mom and dad. So, it can get pretty complex really quick if that organization’s not there. And so, I always first start by organizing the affairs like, hey, let’s start with what do you have? You know, what are the accounts? What are your income sources? Are you still working?, will you be eligible for social security? Do you have a pension?, do you have rental properties? Those are all things that we start with. And then from there, if you go ahead and turn towards the next slide, I think from there, that’s when you start thinking about, okay, let’s talk about consumption, right? Because you and I both know, Jake, that, you know, one of the biggest determinants of how successful a financial plan will look like is how much do you need and how much you plan to spend. And so, you know, it first starts with organizing, okay, what assets do you have? You know, what assets are income producing? Things like stocks, bonds, things of that nature, versus assets that are not necessarily income producing, but they produce you a lot of value and joy in your life, like the home that you live in or a second home, right? If you’re not choosing to rent that property out. And then from there, obviously, to your point earlier, Jake, you had mentioned some risks. You have to think about potential risks as well. How do you combat or plan for inflation or the cost of goods rising? Unfortunately, you know, more often than not over the last four to five years really, inflation has become a little bit more of an issue for those who are on fixed income. They’ve had to require upon their personal savings a bit more because maybe they have other fixed income sources like a pension that doesn’t have a cost of living adjustment on it. And it’s caused them to have to rethink, okay, you know, this is what I’m spending, you know, I’m going to need a little bit more going forward. And then so from there, it’s taking all that information. It’s running some probability analysis using a Monte Carlo simulation. And I think that’s the starting point, right? That’s not that’s not the end all beall. It doesn’t stop there, but that’s the starting point. And then from there you’re able to factor in other you know other items like health care and discretionary spending that one may have and that’s kind of you know where you go from there. Do you think about it differently at all Jake or how do you typically approach that? I think the only other thing that I’d include here is it comes back I always come back to values and priorities. So, you know, these are all of the dollars and fixed data points that are relatively easier to gather, right? Or assumptions that can be made around inflation or rate of return, but these are our assets. This is our income. This is maybe our tax burden. You know, we can use these different tools, but all of this matters only to the extent it’s aligned with what’s most important. So, thinking about what is most important with any kind of retirement decision and making sure that’s aligned with some of the decisions you might make or how you might actually use a probability analysis tool like Monte Carlo to vet different decisions of well if it’s very successful maybe it supports a value that was more important to me to have financial independence or maybe balance with my family. So, I think the values and priorities consideration almost has to be a box in front of you know will assets and income support me you know or my consumption long run because that can mean a whole lot different to different people right if one of the values is leaving a large legacy well that’s going to support a different level of consumption a different portfolio management strategy a different withdrawal strategy and perhaps being okay with you know maybe spending less meaning your family will inherit more or if it’s giving assets the charity right how you com you know combine that with the elements of the accounts you own or how much you might spend so I think that the piece of values and priorities we have to start there and an adviser counseling through this discussion and these decision points that’s got to be paramount as part of this process Jeff that would be the first thing that comes to my mind yep no it’s a great point certainly consideration that has to be taken into it if you’re if you’re trying to prioritize where somebody’s trying to go from point A to point

So, thinking ahead, going ahead, Jake. We kind of already touched on, you know, the different sources of retirement income, right? So, you may have personal savings, social security, a pension, you know, maybe you’re working part-time, you have a rental property. So, I think once you have identified what consumption is going to look like, you then back into, okay, well, what other income sources am I going to have? And then ultimately, if there’s a gap that needs to be filled, well, more likely than not, that’s going to come from personal savings, right? And so, if you turn to the next slide, Jake, thinking about that gap and closing that gap, and usually it’s not uncommon for there to be a gap until things like social security kick in or whatever that may be. And it’s those years leading up to when eventually your required minimum distributions are starting to come out of your IAS. For some people, that’s age 73. For some it’s age 75, but I always say like that age 65 to 75 year 10-year gap. You know, there’s potential opportunities to optimize your cash flow by taking distributions from certain accounts, whether it be your IAS, your Roth IAS, your brokerage accounts, you know, kind of optimizing what that looks like depending on your situation. And then from there, you’re able to get into a little bit more sophisticated tax planning strategies that can help you not only reduce your taxes today, but also potentially reduce taxes over your lifetime and then eventually for any errors that you may have if that’s something that is a priority for you. And so when you think about, you know, different things as it relates to, you know, where is the money going to come from, sometimes deferring income into the future, and I’ll use social security as the example because for those who on the call, you can start social security as early as age 62 on your own benefits record. But every year you delay until your full retirement age. You’re not penalized by basically taking a haircut on your social security and then in it every year from age 67 to 70 they give you a little bit of a bonus deferral. And so generally speaking the longer that you’re able to wait that provides you more flexibility in terms of how you manage your tax brackets you know during that five-year period but over the course of your lifetime. And I think there’s this really kind of this window of opportunity where you can either potentially recognize more income through something called like what’s a Roth conversion. So, say you have a lot of pre-tax IRA dollars that came from a 401k rollover from a previous employer. There’s an opportunity to potentially pursue Roth conversions. If you have a large brokerage account like an individual or a joint account with a spouse or a trust account, there could be an opportunity to recognize s significant gains at a lower tax rate depending on what other income sources you have. And so, you know, re replicating your paycheck isn’t always as simple as just setting up a monthly $10,000 a month distribution or whatever it might be and saying, “Okay, send that to me.” Right? There’s usually typically ways that you can optimize it a little bit further. And it all kind of depends on ultimately, you know, when you retire, the buckets of money that you have and whether those buckets of money are going to be subject to penalty or taxes. Jeeoff, how does that income probability like or how does that impact the probability side of things? Like if you’re accelerating income into those early years, you know, whether it’s a Roth conversion or you’re taking some gains, kind of give the audience a sense of all right, well, does that impact probability at all? Is that helpful or is it more just to, you know, play the game with taxes a bit of when I decide to pay taxes? Yeah, I think a little bit of both. You know, depending on the situation, I think the overall probability generally doesn’t tend to sway a whole lot. I think that’s more based on other factors such as your spending, how long you plan on living, things of that nature. I think more of those strategies can sometimes go into like what do you value in terms of what import what’s important to you? Like what you were talking about earlier, Jake. If leaving a legacy is something that’s important to you and making sure that legacy is as tax efficient as possible, that has more weight on it than maybe the probability of it does because you’re motivated from a values perspective to pass along a nice inheritance to your heirs. And I think that ultimately goes back to that conversation and question you were asking earlier. You know, there’s a lot of information on the internet these days and not all of it is necessarily the right information for your situation. And so the example I always give is you could read an article online and basically there’s a lot of articles online that are going to tell you that you should do a Roth conversion. Like I think that’s pretty well known in our world these days. It’s there’s just a lot of information out there. But I think when you really back into the power of what a Roth conversion is actually meant to be and used for, I think that actually dwindles down the population quite a bit from maybe what the internet would say 95% of people should be doing this. When you dwindle it down to the people who identify and say like these are the things that are most important to me, I would say maybe 20 to 30% of people should potentially be thinking aggressive Roth conversions. But it’s dependent on every individual, right? And it’s not necessarily a broad brush that you can paint for everybody. And so for me, it in my experience, it does not impact probability as much, but it does impact how you feel about your money and how you’re living today. Yeah, that’s great. Thanks. So, thinking about as I had mentioned you know different buckets of money whether it’s an IRA Roth IRA 401k Roth 401k accessing that money is comes at different time points in life right so typically speaking or generally speaking it’s harder to access Roth IRA traditional IRA 401k money prior to age 59 and a half. It is possible. I’m not saying it’s not possible. But it comes with a little bit more strings attached, right? So, if you’re under the age of 59 and a half, generally the easiest place to take money from is going to be a taxable brokerage account, as I mentioned earlier, like an individual, a joint, or a revocable trust investment account. Because there’s no penalties associated with that with touching that money prior to 59 and a half. You can always touch contributions that you have made to Roth IAS prior to 59 and a half, but if you touch in if you tap into any of the earnings, you’re going to be subject to potential penalties and taxes there. And then once you get, you know, a little bit further, you know, past 59 and a half, it gets much simpler. But there’s kind of this little sweet spot between 55 and 59 and a half where there’s special rules depending on the employer plan, the employer retirement plan that you’re in where you could potentially separate from service and take distributions out of your 401k penalty-free. So, there are options there and it’s probably, you know, when you get into the more intricate details of it, it’s probably best to speak with an accountant or an adviser to help you through that because there are some very fine details in there that I think the average person may miss. But when we’re talking about, you know, taking money from different accounts, 59 and a half still remains kind of the golden rule as it relates to retirement accounts. All right, Jeff, I’m I am going to get into some details here. So, let’s say there are no 401k plans and let’s say someone just has that rollover IRA and they’re 57 years old and that’s all they have. Yep. Are there still rules that allow for the ability to get money out of that IRA without a penalty? Yeah. Yeah, there are. It’s what’s called in our world, it’s a 72T distribution. It’s a legal I guess legal element within the tax code that allows you to access pre-tax IRA monies prior to 59 and a half. However the rule is basically the longer of five years or until you reach 59 and a half the monthly distribution that you take from that time period has to stay the same for the longer of five years or until you reach 59 and a half. So, while it is possible, yes, there is a lot of thoughtful planning that has to go into that because you’re essentially really you’re really fixing your fixed income at that point. If you have to, you know, if you have to adjust that distribution at any time, there are penalties associated with that. So, it’s usually best if you can if you have other resources or other accounts, you know, try to use those first. But it’s certainly an option and we’ve seen it happen before and you know people do use that as an option because you know sometimes they’re forced into that right sometimes you don’t have the choice of how long you’re able to work and so there that’s definitely an option but I would certainly advise anybody to at least talk to somebody about that because there are a lot of unique details associated with that. Thanks Jeeoff. Yeah, it’s one of those lesser known opportunities that could exist. So, if that idea of financial independence is reality for folks and they don’t have other options but 57 feels like independent enough well maybe there’s an opportunity to access some capital there. Yes. So, you know what does a strong plan look like?, I think if you asked a hundred different advisers this exact question, you might get a hundred different answers because I don’t think that there’s a there’s a correct answer to this. And there’s honestly more than one right answer. So, for me, starting with, you know, kind of what I was alluding to earlier, organization, right? Having an organized path to being able to view information, see it all in one spot, understand what are the assets that I have, what are my savings, what are my income sources. To me, that is the foundation of what eventually a strong plan looks like. And setting that foundation, I think, is primary importance for anybody. U because as I mentioned earlier, life has the way of getting in the way. And so over the course of a 30 40 working 30 40 year working career, it’s very easy that you could have ended up in a spot where you’ve kind of got accounts all over the place. You’re not really sure what’s what. You don’t know if it’s an IRA, a 401k, a 403b. Not really sure what to do or how to get it to one spot. And so I always start there, you know, kind of having one house for all that data to be. And then Jake, if you go ahead and turn towards the next slide, providing clarity on the most pressing questions of which we’ve already spoken a little bit about, right? How much can I spend or how much do I want to spend and how much risk do I take, right? And that eventually comes back to how much do you have in stocks? What percent do you have in bonds and cash and all of those different things? And then it really comes, you know, marrying all that together and putting together a sound plan based on the things that are most important to you and really what you’re trying to accomplish in this next chapter of life.

The next step of a, you know, strong plan is, you know, this idea behind tax efficiency, right?, and I’m going to put this out there for anybody who’s on the call. It’s I it’s almost it’s very rare. It almost never happens where somebody comes to us and they have an equal amount of money in a Roth IRA, a traditional IRA and a taxable account. That almost never happens. You know, for example, say you had $3 million, you had a million in a Roth, a million in a traditional IRA, and a million in a taxable account. Without getting too far into the nitty-gritty details, there are ways that you can tax engineer the portfolio where you can locate certain investments like bonds into your traditional IRA. So, the income that’s being paid out from those bonds is being deferred into the future so you don’t have to pay the income tax rate at your highest marginal tax rate. There would be room to put your highest potential growing stocks in your Roth IRA because your Roth IRA under today’s tax code will never be taxed for the rest of your life. And so you want to grow that bucket as exponentially as you can. And then there’s your taxable bucket which you know tends to be the best bucket of money for those kind of blue chip US based investments that don’t you know have a large dividend being paid from them. So, kind of think about that as your, you know, your tech stocks, your US large cap, maybe if you’re in a high income tax situation, maybe having MUN bonds in there makes sense. But it’s very rare that somebody comes to Savant and says, “Hey, I’ve got $3 million and they’re all equally spread across these three buckets.”, so, so how do you get to that, right? How do you optimize tax efficiency if you only have an IRA or if you only have a taxable account? How do you get there?, we’ve talked a little bit about Roth conversions. You know, taking money out of your IRA and converting that over into your Roth IRA. Depending on income tax situation, there’s the opportunity where you could accelerate distributions from your IRA and have them reinvested in a taxable account depending on what your tax rate is today versus what your future tax rate may be. And then really in the Roth IRA, there’s a lot of ways this can be viewed. I, you know, I hear that this is a great bucket for when you need a new car and you need 40, 50, 60, $70,000 for a new car. It’s a great bucket of money to take the money from because it doesn’t come with a tax liability. It’s also a great bucket of money to potentially leave to the next generation of heirs, right? Because of that tax-free nature. And so when I think about these three buckets, ultimately trying to have, you know, different monies in different buckets is important and it provides you flexibility as you start recreating that paycheck in retirement. And just because you don’t have all three today doesn’t mean you can’t get to a point where you have all three. And just because you don’t have all three means that you need all three, right? So, it goes back to that individual circumstance. But Jake, I’m curious, you know, do you have any specific thoughts on this, you know, in terms of how you discuss this? Yeah, I think it’s so much aligned with again kind of going back to what’s important because this idea of if you have just a traditional IRA if that’s all you own, you almost have to go into with the mentality on the forefront that about 20% of the value of that account is going to be used for taxes at some point during your lifetime or if assets are left over for the next generation, they’ll also be an inherited tax burden as part of that. But if during your lifetime giving money to charity is important, you can actually pull money out of that account tax-free once you turn age 70 and a half and give it to charitable institutions that you otherwise might donate out of your checkbook from your bank on a monthly or quarterly or annual basis. And Jeff, when you made the comment earlier about those required distributions that have to start at age 73 or 75, well, that all that is a math problem, right? Where we’re looking at the value of the total account value in a traditional IRA divided by someone’s life expectancy and we’re calculating what’s required to come out. Well, it’s required to come out because the government wants their tax money because they haven’t gotten a cut of it before because it is growing tax deferred from all those pre-tax contributions during a working career. But like charitable distributions, what are called QCDs, when they come out of a traditional IRA, they can actually be used to help satisfy that required minimum distribution. And so when I think about these buckets to your point, it was a great point. Just because there are three different primary kinds doesn’t mean you need all three. And if you’re only stuck with one, it doesn’t mean you’re in a bad situation because so much of this is just very unique. And you can have a strong plan whether you have all your assets in one bucket, one in two buckets, or all three buckets because strong plan to your point before is going to be a different answer for everybody. And from an advisory perspective, could be a different answer from every adviser. So, I think about this as it relates to legacy values, what’s important during someone’s lifetime of what their cash flow needs are going to look like and for where those monies are going to go because it can those levers can all be pulled different directions to be pulled from these different account buckets very easily and the goal would be least tax burden legally over time, right? With navigating these things inclusive of some of those investment characteristics that you described, right?

So, and then I think the last part of a strong plan and this is goes back to the age-old principle of basic math. How much do you make versus how much do you keep and what are you spending right? Don’t spend more than what you make. And more oftentimes than not you’ll end up in a better situation than you were a month ago, a year ago or 10 years ago. And it’s the same in retirement, right? You know, there’s a certain level of threshold that everybody has where they’re able to spend without significantly, you know, reducing or without the significant risk of running out of money at some point in the future. And that’s going to be different for everybody. But the adult principle of you know how much do you make what do you spend and then how do you know optimize it from a tax perspective to your point Jake where you’re legally paying the amount that’s required to be paid but you’re not leaving uncle Sam a tip at the end of the day and I think you know when it comes to that’s you know that’s what I think of when I think about optimizing cash flow optimizing you know tax strategies it’s you know we’re all legally required to pay our fair share at the end of the Okay. But at the end of the day, nobody is required to leave a tip. So, let’s try to reduce that tip amount if we can. And then from there, let’s devise the strategies that help align with what you said’s most important and helping you accomplish those important goals and traits from there.

So, now we’ll talk a little bit about scenario planning, timing. You know, you may have mentioned me here, you know, the Monte Carlo earlier. You know, scenario planning is important because it gives you kind of a bandwidth of what’s possible and maybe what’s not possible. And so we start there and then ultimately move into okay, you know, we’ve talked about vision and goals quite a bit today. But I can’t really underestimate the importance of that, right? Like if you have no if you have no direction or no foresight on where you’re trying to go, it’s hard to, you know, it’s hard to plan around that. And so having that conversation about what the next 20 years is going to look like. And you know, if we’re sitting in, you know, if you’re sitting in the room 10 years from now and you ask yourself the question, you know, what should I have done over the last 10 years that I didn’t do?, hopefully that’s nothing, right? Like to me, in a perfect world, that’s a perfect plan. If you look back over the last 10 years of your life and say like is there anything that I could have done that I should have done and the answer is no, that sounds pretty good to me. But there’s always this idea of setting goals and then mapping it out and taking action from there. So, I think it starts there.

From there, obviously, this is where you get into, you know, building the resources, having the resources to have a have an investment plan that supports the goals that’s married in with a strategic tax management to my point earlier where you’re not necessarily leaving a tip to Uncle Sam. How does this all fit in with a, you know, broad-based retirement plan over the course of 20 to 30 years?, and then ultimately, you know, the further and further you get into retirement, you know, the more important that estate plan becomes and, you know, how are assets going to pass and who do they pass to and what are the best assets to leave to charity if that’s something that’s important to me? You know, all of these resources end up getting put into a financial plan that gets put through different scenario testing of what we kind of call our Monte Carlo. And so what you’ll see here on the next page is, you know, the Monte Carlo. And for those who don’t know, you know, a Monte Carlo is essentially a statistical analysis that looks at a retirement plan over a thousand different scenarios and it looks at your personal savings, your personal income sources. It looks at various different investment rates of return over time. And then it projects back essentially a confidence level of the probability of success that you will have money left over at the end of your life. I heard something very wise from a colleague the other day who’s been doing this a long time and the way he communicated it to me was like what if you flipped that? What if instead of saying 87% probability of success, what if you said there’s only really a 13% chance or a probability that you’ll have to make a change at some point in your life, right? So, you kind of flip the table on the other side and say like, hey, instead of focusing on the 87% because in my experience, everybody wants this to be 99%. Or 100% and that’s just not reality because there’s always going to be something out there that is outside of our control. So, you know, Bill Gates and Warren Buffett themselves would not get 100% on a Monte Carlo, but focusing on, you know, what’s the chance of you’re going to have to make a change at some point in your life and then from there planning based around that. And it was just a really cool perspective that was shared with me that I never thought about it that way. But it kind of flips the script a little bit. It makes you think about it a little bit differently because I think if you told most people like, “Hey, there’s only really a 10% chance of X happening, right?” Well, for the risk loving people, they’re like, “Oh, great. I’m good. Like, I love that.” Whereas, if you’re a little bit more risk averse, you may not like hearing that. But at the end of the day, the Monte Carlo is meant to provide you a confidence interval that helps you think about your retirement and how strong of a retirement plan it is going forward. Jeeoff, I like that because it’s and before we walk into a couple of just sample scenarios that just I think when people read probability of success, well, what’s the opposite of success? It’s failure. So, I think it’s natural tendency for humans to look at, okay, 87% probability of success means 13% chance of failure. But I like the way you describe it of like it’s a 13% chance that you have to make a change because as we’ve talked about, it’s like plans, they’re good when they’re set up front. In fact, 25 years ago, even 20 years ago, we put together a plan and it’s a 3-inch thick binder and we give you the plan and the plan sits on your, you know, shelf in your bookcase at home and you never review it again. And we know now like that’s just not the reality with software and the market’s changing and obviously people change all the time. The moment you put together a plan, it changes the next day because something happened that you didn’t predict. So, that idea of like a 13% chance you have to change something is a much softer way and more realistic way of looking at a Monte Carlo analysis. So, I really appreciate that perspective. Yeah. And so I mean kind of building on you know we got different scenarios and testing it out. You know, you had made mention to this, Jake. The biggest downfall that I personally see when people are anchoring to a Monte Carlo score, right? Whether it’s 70%, 80%, 90%, like whatever the score is, is it’s a static snapshot at a point in time, right? So, like you walk out that door and at that point anything could change and that could change what this looks like, right? Like and that’s what the soft that’s what any software struggles taking into account is human behavior and human you know human nature. We as humans the only constant in life is change whereas in a Monte Carlo it’s a simulation but it’s a simulation based on static inputs that you’re telling it and so that’s really a significant drawback I think of any Monte Carlo. And while the Monte Carlo is a very useful tool and I would say it’s probably industry standard, you know, within our industry to, you know, as the best kind of tool to gauge somebody’s financial readiness to retire, there are certainly drawbacks to it that require human intervention. And I think, you know, in the world of AI now, I think there’s some drawbacks to AI because AI is also in some ways kind of like a Monte Carlo simulation where it’s using static broad-based data that was built by a human and it’s giving you information based on kind of how it’s coded. And so there’s certainly drawbacks to it, but I would still say it’s industry standard. It’s a great tool to use. It’s a guiding principle and it should be used to help answer some of the most basic questions. But I think there is more of a human element or a human intervention piece that still needs to be had. So, kind of walk us through this a bit. Right. So, we got a lot on the screen here. Break it down so that it’s easy for the audience to understand because obviously this is something that you and I look at pretty regularly. Yeah. So, what we got here is we got basically four different scenarios that have been modeled, right? And these four different scenarios are based on different goals or spending needs or whatever it may be. And so, you know, you can kind of see as inputs change what it does. So, the first, you know, basic scenario is they retire at age 60, right?, and it produces a 95%, you know, probability of success, right?, the second scenario is, okay, well, what if I stopped working a little earlier? What if I want to be done at 57, right? It doesn’t drastically change the overall results of the Monte Carlo score. And so in this particular example, you know, this is a pretty strong plan for somebody who’s looking for flexibility earlier, potentially earlier than age 60. And then from there, we kind of start building out some of those things that are important, right? You know, in that third scenario, it’s, hey, what if I want a second home? You know, in this case, the second home’s $750,000. You know, what does that look like in terms of my Monte Carlo and how that impacts things?, still overall a good probability of success Monte Carlos score. There’s still a good score there. However, as you can see there, there’s like an average return scenario and then a bad timing scenario. The bad timing scenario is essentially like, hey, if you retire during 0708 and you stop working and the markets go through a very difficult time period, what does that look like from a statistical probability perspective? Well, maybe potentially you’re introducing a larger margin of error during a bad timing scenario, right? Because that’s where you start seeing that bad timing column drop down to 88% and then 0% below. Doesn’t mean that this doesn’t work. Doesn’t mean that this individual can’t go buy that second home. It just means like, hey, you know, there’s because you’re spending more or because you’re depleting more from your personal assets, that’s introducing other risks longer term, right? And it doesn’t mean you’re going to run out of money because you could potentially always sell the house and put the money back in your personal savings, but it’s just things to be thinking about and seeing how the different scenarios change based on, you know, what’s important to the individual.

And I think it’s interesting because it’s like in that scenario if someone said, ‘Well, hey, I still want to have my cake and eat it, too. I want to retire early. I want the house, but I’m willing to decrease maybe my personal expenses just a hair. Like little small changes here and there really do have some impact on the score, but the reality still is, you know, to your point before, the worst case scenario in this particular, you know, relationship that would be looking at these details, only about a 15% chance you really have to make a change. Right. Right. So, still a very strong plan and kind of at that tailor end of like above even the confidence zone where we’d say hey financial independence is there you’ve made it. Yeah that’s great.

So, I think pivoting from some of the planning aspects of the tax nuance and how to best take cash flow out of a portfolio or you know what bucket should I have represented in my plan. Right? So, thinking about all of the planned aspects and then identifying the potential opportunities or risks that actually could be out there that we see people face every day. And some of these are going to be ones that oh yeah of course well this is not an uncommon risk. We talk about this all the time and one of those is healthcare planning. The number of times we face conversations and questions from folks that are looking to retire and most concerned about health care throughout retirement because this can look different for everyone based on obviously their own personal health. Family history has a big impact especially if they’ve seen a family member struggle or go through a substantial health care event either at the beginning of retirement or at some point throughout their retirement or maybe within you know their family and maybe a parent has gone through some things. It’s kind of planning for this idea of like health care and how we’re best going to fund that with the assets that we’ve saved you know maybe insurance Ances that we’ve previously bought. Thinking about government benefits like Medicare, but also in the worst case scenario, you know, what if I run out of money? Gosh, that would be horrible. And if that happened, am I still going to be okay? So, thinking, you know, how Medicaid planning gets into this process over time. And then looking at things like health savings accounts and how best to plan for saving up for health care related expenses once you do retire, right? How can health savings accounts be something to augment and help your plan as you move forward? And that level of care is really important as displayed on the slide. So, there’s going to be a topic I address here in just a moment. But what level of care you ultimately need based on what other health care circumstance you face can impact things based on again what’s important those values and priorities that drive your plan but then also the level of support you may need or the level of support you actually already have you know with family members or other trusted friends but this idea of like being proactive and thoughtful around how health care will impact you once you get into retirement and planning for those conversations. This is one of those things that I think people are afraid to talk about because it isn’t it’s very scary. They’re afraid to talk about it sometimes with their spouse and oftentimes they’re afraid to talk about it with their children. And if you don’t have some kind of expectation of either my kids or trusted friends that are going to care for me if I don’t have children, how you prefer to be taken care of in the event of a major health care scare or something that could prolong a very long healthcare event or significantly shorten your life. Having someone else know what your plans are and what your priorities are and going through that conversation. Well, an adviser can help kind of guide that conversation with you. So, you have, you know, a checklist of things that yes, I’d prefer to have, you know, a facility help me or I’d prefer to have family members help me or these are the accounts I have to help, you know, fund these different priorities. Healthcare planning well in advance of a potential healthcare issue paramount to this planning process. For those that, you know, want financial independence prior to 65, that can mean a lot of things. That could mean that I’m independent, but I still choose to work before 65. And there might be a Medicare related opportunity for me to sign up for part A, part B, and part D and maybe a Medi gap policy of some kind. But a part-time job could actually help bridge that gap. You know, perhaps you are done with your full-time work and you’re between jobs, but you know you want to work for a little bit just because you think that part-time job might offer you a health insurance benefit, which could be substantial. I mean, that could be a th000 or $1,500 a month per person benefit if you’re able to attain health care coverage to bridge that gap between, you know, when you want to be independent from a financial planning perspective, but ultimately you still want to cover that gap until Medicare is there. You know, seeking out part-time jobs with health insurance benefits is one way to solve this gap between, you know, now and age 65. Of course, there’s partners’ health insurance plans. So, if one spouse is, you know, maybe a little bit older than the other or perhaps wants to be done working full-time sooner than the other, you know, there’s pairing those COBRA options with maybe a spouse’s health insurance plan. Now, there’s ACA health insurance exchange, right? So, the old Obamacare, go to a healthcare.gov, there are opportunities that are, you know, really endless with the amount of options you can choose from in terms of the deductible or the premium you can afford to pay. And in some cases, depending on how you control your income and actually goes back to Jeff’s commentary before on the buckets that you own, it’s possible you can actually control your income to the point where you actually receive a little bit of an incentive and reduced premiums getting a bit of a tax credit. That’s something you have to be a little careful and delicate with. And so it takes a little bit of advanced planning with an adviser as well because you don’t want to be faced with a situation where you told the government that my income is going to be below a threshold that I then qualify for premium tax credits, but then it turns out my income was a lot higher than that. Now I have to pay all those premium tax credits back. That’s not really a fun trade-off and can be a bit deferred in its impact. So, thinking about that in advance is an important part of this process as well. And then the topic of the health savings account is important because building up a health savings account during a working career, it almost acts as like an extra retirement account. And while you’re working, you get a basically a tax deferred benefit. So, you get a pre-tax contribution to your health savings account. So, that reduces your income. You don’t pay taxes on it. You can invest the dollars inside of a health savings account. You know, a lot of times there’s a bank deposit you can put it in, but you can also oftentimes invest it in index funds or other, you know, low cost savings opportunities like stocks and bonds to help grow the health savings account over time. So, it grows tax deferred. And then if it’s used for health related expenses once you get into those retirement years and before age 65, it can’t reimburse you for premium payments on private health insurance, but you can use it for going to the doctor or a surgical expense or prescription drugs or new contacts or glasses. You can use those health savings account dollars for those types of expenses. And guess what? All of the funds that are inside of their which have never been taxed before that you actually got a tax benefit for contributing to it comes out tax free. So, they call that a triple tax-free benefit when you look at the health savings account as a plan to kind of augment those health care decisions. So, lots of good options here prior to age 65. But Jeff that’s got to be probably the most common question that we face with pre65 retirees, wouldn’t you say? Yeah, I would say so. It’s got Yeah, it’s up there. If it’s not number one, it’s certainly in the top three and rightfully so, right? I mean, it’s an it’s a large expense. A lot of people have, you know, grow accustomed to a large portion of their health insurance costs being covered as an employee benefit. So, it’s very common to have the sticker shock and for some people even think like, oh, well, I have to keep working now. So, it’s definitely it’s definitely a common question amongst those prior to age 65. Yeah. And I think related to that, it’s like this idea of housing options. So, I commented before trying to communicate in advance with family what you’d prefer to happen over the course of your retirement. There’s a lot of different options people will pursue that are particularly healthcare driven decisions. So, thinking about moving into a continuing care retirement community facility or CCRC more so that you have that continuum of care in the event you need to go from independent living to assisted living to 247 nursing care but then having the benefits of like social activities and other amenities can be quite costly. You also give up a fair amount of control because you’re moving from your home into a place where you’re essentially paying rent. But it’s a really good avenue that some people will choose to take. Living with family is kind of the European mode and a lot of times you see that in Latin America and even Canada as well where a lot of people will opt to live with their family because of the advantages of you know having family help take care of you. It reduces the overall cost but it does cause a lot of stress maybe modifications to your home. You have to build additions. So, there’s a lot that can be involved with living a family as well. The last 10 years has brought about this idea of aging in place right? So, it’s living in my current home, but that current home becomes adjusted to me. So, I have to perhaps pay for in-home care or I have to make adjustments perhaps to have more ADA accessible entrance to my home or a chairlift. Right? So, this idea of aging in place and for those that can afford it can be a really nice familiar environment, very comfortable and easy for family to come to you to help take care of you, but then you can use other services to help pay for care within the home. But thinking about these housing options, it’s kind of a real life, you know, thing to plan for as part of this overall planning process. And then there’s this idea of the paycheck dependency threshold. So, this is a tough one. I’d mentioned at the very beginning, you know, that $1 million question of can I retire? And a lot of the audience came back and said, well, I want to retire when I feel financially independent to do so. But there is this difference between working longer because you feel like you have to because you don’t really have that plan in place or you retire when you want because you feel like you’re financially independent but then you’re very concerned and fearful around decisions you’ll make from a spending perspective that you don’t actually realize what ideal retirement could ultimately be. So, all the things Jeff that you commented on before around all that planning that gets into this process as early as possible and even if you’re one year out from retirement that of whatever that date looks like it’s still good to start now. Even if you have missed the boat for the last five years but you want to avoid this emotional aspect of not knowing exactly when you can retire because how you feel or you’re worried about when you do retire, you know, whether you’ll actually be able to live the way you want. That’s kind of the point of the overall planning process and thinking about kind of the values and priorities as part of that. Well, and I’ll just add Jake, I’m so glad we have this slide because earlier in the presentation, you talked about the biggest mistakes that people make and we talk about the obvious ones, taxes, withdrawal strategy, longevity, spending, right? What wasn’t on that slide, but it’s on this slide is exactly the first bullet point. Working longer than you need to because you feel like you have to. That is a risk, right? Like that is a risk. And going back to the idea of a, you know, a strong plan or a poor plan, you know, some would say like, hey, maybe that wasn’t proper planning because you could have been done five years earlier than what you wanted to be or felt like you needed to be. And so I’m glad we highlight that here because that is definitely something that’s a risk, right? Like if you keep working and keep working, you could get to age 80, 85 and be like, man, why did I keep working? I have more money than I can actually spend on myself. So, there is some real risk in that. Yeah. Seen it too many times unfortunately where someone works longer than they need to because they feel like they have to and then unfortunate health care circumstance comes up and then retirement gets cut short. So, it’s important to kind of plan well in advance and then not knowing that I don’t think you have to worry about having a 100% probable plan or even a 90% probable plan. There’s got to be balance in life and some practical approaches to this, but that’s an adviser can help counsel through that because it’s it can be tough and they can use their wisdom and experience that they’ve had working with people to give you some advice on that front. So, the other kind of real life risks to plan for there’s a lot here. We could spend an entire presentation focusing on just these five bullet points and it all goes back to the comments before around being a little bit more proactive with how you manage taxes. And it’s not about necessarily paying the least amount of income taxes right now this year, but thinking about kind of the lifetime tax burden you might owe based upon the buckets that you own, how you’ll withdraw from those different buckets when you lump in things like social security or if you’re fortunate enough to have a pension. Thinking about kind of the state tax considerations that you might be in. Every state has a different state tax and sometimes states tax capital gains, sometimes they don’t. Sometimes they tax retirement income, sometimes they don’t. There’s many states that actually have zero state income tax. So, thinking about where you might live relative to that income tax planning consideration is important. Charitable giving strategies we’ve talked about a little bit here today, but they’re kind of thinking about how charity is related to the overall plan. You know, these real life risks on the tax front can really reduce how much you have the ability to spend and obviously the ability for your portfolio to continue to grow to support you. But being a little bit more proactive on the tax front and kind of working with the adviser on this topic is also you know very important. So, we think about kind of next steps you know I love this chart because this chart really helps to encapsulate the interrelation of all of the different elements of financial planning. So, when you go around the wheel and we focused a lot today on retirement planning but just in retirement planning how much did we talk about income tax planning? We talked a little bit about risk management. We talked about estate planning. We certainly hit on investment planning and charitable planning. At the end of the day, all of these planning topics, they fit together in one sort or another. And oftentimes a decision in one area affects a decision in the other area. So, thinking about today, the discussions that we’ve had, thinking about the strategies that have been laid out, ask yourself your questions around am I really taking advantage of strategies that could be available there? And knowing that not everything is an opportunity because if you had everything as an opportunity, nothing’s really a priority, right? So, looking at which ones would you absolutely prioritize relative to your personal situation really starts with that kind of vision and goals piece, right? Because then we can really tie together the opportunities that make the most sense. And then questioning whether of course a second opinion you know would be valuable or worthwhile as you’re kind of relating these different areas together because investment advisors unfortunately wealth management firms usually just focus only their efforts on the investment plan maybe they’ll talk about the retirement considerations as part of that but it’s really how the whole mix kind of fits together where this you know the ideal future you know really comes into play kind of that ideal retirement so thinking about kind of assessing your own financial situation as part of this is a really important part of that process. So, to that end, you know, if you’d like to discuss your individual situation, of course, we would love the opportunity to connect with you. So, if you went to the chat in the area of the chat right now, there’s a link to actually schedule a complimentary call for 15 minutes just to have a discussion around, you know, what those opportunities and priorities might ultimately be. But certainly take the opportunity to do so. We would love to connect directly with you.

Now, I think we want to answer some questions and we’ve gotten a couple of questions added to the Q&A box. So, we want to head towards those here in just a moment. Jeff, I think we’ll have good information here to share. Yeah, I’ve got I’ve got one here and I’ll take it while you know you get things organized on your end. So, one of the questions that came through was how often do you run a Monte Carlo simulation for client for individuals or people and you know just to really validate you know the original results and that’s a great question and it’s definitely different depending on where they’re at in their stage of retirement right but I would say as a rule of thumb you probably dust them off you know every 3 years or So, right around that retirement two to three years, but I’ve had situations where you know, you work with people or and you’re updating that maybe three to four times in a given calendar year, right? And so it becomes a little bit specific, but I would say a general rule of thumb is, you know, probably every three years or so. And then obviously as if there’s a large purchase or as life circumstances change that’s always going to maybe dictate a reason to go back to that. U but I would say every threeish years is a general rule of thumb especially if you are about to retire or have recently retired. That’s great Jeff. It’s those are you can’t let it be 10 years ago and then not have revised it again. That often happens with things like estate plans, you know, where we have someone that does one and it takes 15 years to go back to it, but so much changes to your point in a financial plan where revising and relooking at it regularly is an important consideration. I did get a really great question around, you know, thinking about financial advisors, engaging with financial advisors and paying them, right? So, like how much do you actually budget for a financial advisor service to help navigate some of these decisions? And I guess I would say that you know every adviser is going to have a cost and some you know the robo advisor route where it’s very limited engagement perhaps just investment council alone you know that might be really cheap that could be you know 2 or.3% per year of your overall portfolio value you ultimately engage just to get an investment plan set up but a comprehensive wealth management firm that’s looking at kind of a combination of both investments but also the other elements of financial planning typically an adviser will charge anywhere where, you know, from 1% to one and a half percent and it really just depends kind of on the service and the overall level of engagement and complexity that you need. But there’s been lots of independent studies done by companies like Vanguard or Morning Star or Russell that have tried to identify the value of financial advice over time when you consider all of the different elements of planning. So, again, you have a comprehensive wealth management adviser that’s working through all these different considerations for you over time. Jeff, one last question here. Here I wanted to address, you know, in our Q&A, which I thought would be important in light of the conversations around aging parents or, you know, supporting adult kids and thinking about, you know, some of those home considerations that I laid out before. How does that idea of retirement change when you have to consider both of the support of maybe adult children that haven’t quite launched yet or need some additional assistance, maybe a child with special needs or you know this idea of aging parents really in this Gen X category. It’s they call that kind of the sandwich generation, right? Yeah, it Yeah, it’s and I’ll be pretty, you know, blunt and honest. It does change it. It can potentially change it financially depending on the situations of those that you’re helping, right? You may need to financially pick up the tab for some of that. But where I always kind of, you know, start that conversation is the impact it has on you emotionally, right? Taking care of an elderly parent, is a lot from an emotional standpoint, from a physical standpoint, from a spiritual standpoint. There is a lot that goes into that most people don’t talk about usually because people don’t like talking about those things. And I think that’s where I see it most is the emotional toll it can take on people and the time that it takes away from their own personal retirement, right? Like they, you know, they retire and they say, “Okay, you know, I’m going to I’m going to fly across the world or I’m going to go spend, you know, weeks and months in the national parks.” And then all of a sudden, you’re in a situation where you have a loved one who needs your help and they need your care and what are you going to do? You’re not going to turn your back on them. So, you spend time with them, but you know, as everybody knows, time is a scarce asset. There’s only so much of it. And so if you’re spending time in one place, it takes away from time in other areas. And so I think finding the balance to where you’re still doing things for yourself. That’s important, right? Because you will burn out and you will I don’t want to use the term die on the vine because that’s not that’s not the right term, but you will burn out and you will you know suffer kind of some you know emotional setbacks because of that. And so I say take care of yourself. Obviously, take care of your loved ones. Do the things that align with what’s most important to you. But during that time period, find ways to step away, step back, and do things for yourself as well. Because if you’re not taking care of yourself, you’re not going to be able to take care of somebody else. Great. You’re right. We’ve seen that emotional toll firsthand. It’s very difficult to navigate. And you know, obviously there’s potential financial aspect to that, too, if there’s those that haven’t been in a fortunate position to be able to save enough for some of those considerations, too. So, there’s a lot there for sure. But, to our audience, wanted to say thank you for participating today in our webinar and holding in there with attention. I know we covered a lot of ground and a lot of details, but if you’re looking for even more information, please go to our website at savantwealth.com to learn more about our firm and what we do. And if you’d like, of course, there’s an availability on the website to schedule that 15-minute complimentary call. Thank you so much again. Have a great rest of your day. If you enjoyed this webinar, visit savantwealth.com/guides and download our complimentary guidebooks, checklists, and other useful financial resources.