Working on Your Own Terms: A Guide to Semi-Retirement Video from Savant Wealth Management

Download our complimentary guide books, checklists, and other useful financial resources at savantwealth.com/guides. My name is Libby Muldowney, and I’m a financial adviser in our Rockford, Illinois headquarter office. I’ve worked for Savant since 2008. Since 2014, I have been meeting with individuals, households, and families to help them plan for their ideal financial futures. Joining me today is Isabelle Lance. Hi everyone. My name is Isabelle Lance and I’ve been with Savant for about four years now and I’m excited to talk with you all today about our webinar on semi-retirement. Thank you, Belle. We have to start out with a little housekeeping. I want to share with you some disclosures and make sure that you know by attending today’s webinar. It is for education and informational purposes only. This is not meant to be individualized financial advice. If you do want individual advice, you’ll want to meet one-on-one with a financial adviser to discuss your unique set of circumstances. Now that we got that out of the way, Belle, I think you have the agenda for us to go through. Do you want to get us started? I’ll go through our road map here quickly today. We’re going to start by envisioning the future. And something you’ll hear me refer to again is that a lot of people know exactly what they would like to retire from, but they aren’t exactly sure what they would like to retire to. And then having a vision is all nice and well, but without knowing how to replace your paycheck, that brings a lot of questions into how we are going to bring this new vision of yours to life. So, we’ll talk a bit about different ways to supplement your cash flow in retirement. As well. We’ll also talk about health insurance. Health insurance is a topic that comes up a lot when we’re talking about entering into a semi-retirement or retirement type of lifestyle because if you retire before age 65, you will have to enter the private health insurance market. And then we’ll go through everybody’s favorite topic. We’ll talk about how to mimic taxes or minimize taxes not only today but also throughout the rest of your lifetime. So, to start, we’ll start by envisioning your retirement future and what does that look like? So, if you have a pen and paper and you want to start jotting down some answers to each of these questions, it will really help pull together what are you going to be doing to fill in your free time in your semi-retirement or retirement lifestyle. So, some of those questions are what are you doing, who are you with, what are you implementing more of in your life, what are you doing less of, things that you aren’t enjoying. Like I mentioned on that agenda slide, a lot of people know exactly what they want to be done with. They want to be done with their 9-to-f5 grind Monday through Friday. They want to be done with their weekends that feel like 30 minute lunch breaks. And so once you have this vision in place, it will really be the north star of your financial plan and will help us guide you through all of your finance questions, your career questions, and eventually be the goal we strive to achieve through your long-term retirement plan. The retirement environment that we’re in today also does not look very similar to what it did generations ago. For previous generations, you were promised that if you go to school for four years, you get your degree, maybe you get a part-time job while you’re working to pay off your education expenses, you’ll be able to build a career, build a family, and eventually retire around age 65 and have a small leisurely retirement, typically around 10 to 15 years. But that’s not the environment that we find ourselves in today. Today, the retirement timeline looks a little bit more like this. You would still go to school. Maybe your education’s a little bit longer if you’re getting a specialization of some kind. And you go to work. You work to build your career. You build your family. You buy a home. Create that life for yourself. But because of the medical advancements, how people are just generally taking more care of how they treat their bodies and are more conscious of the things that are really important to them. Retirement is no longer a finish line that people are reaching to stretch across. It’s more of a start of a new phase of life. If you’re lucky enough, retirement could last you 20, 30, or even 40 years. And it could start in that semi-retirement phase either in your late 50s in your early 60s before that traditional age of 65. So, that’s the lens that we really want to be looking at retirement through. And when we’re talking about our vision, we’re not talking about something that could only last for the next 10 years. You potentially have an entire lifetime ahead of you again in retirement going forward.

So, now we want to talk a little bit more about what your goals for this semi-retirement is. Do you want to travel or have you been traveling throughout your career? So, often you’re really looking forward to staying home. Some of the benefits of just the time and the error that we are living through right now is that remote work is a much more reasonable request for a lot of employees looking to transition into that semi-retirement phase. So, maybe you can accomplish some of your travel goals while still succeeding in your roles in your career as well. Or maybe you’re tired of that 9-to-f5 every day, Monday through Friday. You want to transition to some part-time work to focus on things that are more important to you, more fulfilling to you, but you still enjoy your job, right? You have that community there, and you want to continue in that work. Or maybe, like I mentioned earlier, your job is extremely physically taxing. If you’re working in a manual labor type of environment and you don’t want to keep putting your body through those stresses, maybe you’re looking to make a complete change into something that you’re really passionate about. Maybe part-time work for you looks like getting a job on the golf course or some of our clients, they enjoy arts and crafts. Maybe you’re working at the quilt store or somewhere in customer service, something that will continue to give you that satisfaction but is completely different from what you’ve been doing for the last 20 to 30 years. For others, they look at stepping back just simply to spend time with family. Maybe you still have children in the home and they’re getting ready to sort of flock the nest. And spending those last couple of years with everybody close by. You really want to soak that in and take a step back from work. Or you can look at the other side of that. Maybe you have to enter into a caregiving role for an older family member who’s not doing so well and you really want to make the most of the time that you have left with them. And then we can also certainly find fulfillment and satisfaction in a volunteer work or a community work role. So, really take the time to think about, you know, what is the most important to you when you retire from whatever it is that you’re currently doing today. What are the next 10, 20, 30, 40 years going to look like for you in retirement? And this is sort of the journey that we’re going to follow as we go through that vision, right? We’re going to map out what does it look like? You’re going to create the goals that you have for yourself and then create actionable next steps to complete those goals and fulfill your vision. Now, you may have noticed that we have not talked a whole lot about what is all of this going to cost, right? I never said there’s a certain number you have to have in your bank account before you look into semi-retirement. But obviously, we know that, you know, this vision and these goals, they aren’t free. So, recreating that paycheck that you’re used to getting is a big part of entering into a retirement or semi-retirement type environment. So, Libby will go ahead and take us through that next. Thank you, Belle. I like the way you’ve laid out a path, create that vision, set some goals, and then start to take action. It really helps us feel like we have some structure around this process instead of just thinking about someday. If all we do is think about it vaguely, we really aren’t motivated to move forward. And I hear you have a very inspiring story about how going through this visioning exercise and setting goals can really help you to structure things. I do. I’d love to share it with you all today. So, for the purposes of this story, let’s say we have an individual named Susy and she loves her job. She’s worked in the same career for the past 30 years and she’s getting into the age where it does make sense to start thinking about retirement. But every time that conversation comes up, we get the same feedback. It’s like, I’ve built my relationships with my co-workers over the last 30 years. My social circle revolves around them. I just don’t know what I would do if I stepped back from that. I don’t know what I would do to fill my time. I don’t know what would drive me or give me purpose if I didn’t wake up and go to work at my 9:00 am meeting every day. Right? And that’s a problem that we see a lot of people run into is they aren’t able to fully envision what their retirement looks like and it does delay their retirement schedule. So, what happened with Susie was one year for Christmas, all of her children had come home and they were sitting down almost creating a vision type exercise for themselves. They were planning out their next 5, 10, 15 years, where they’re going to settle down, what they’re going to do, if there’s grandkids on the way, all of that sort of type of talk that you usually have with family around the holidays. And Susie was listening to this and it was like a light bulb had popped off in her head and she was like, “I’m not close enough to my family. I live too far away to enjoy this new phase of life that all of them are moving into. I’m getting almost left behind.” And it was just like that she had her vision of moving closer to her family, reducing work, being there to help and be around for her family’s next phase of life together. And as advisers when our clients come in and they have sort of switched this mindset and there really is something there that they’re working towards it makes it a lot of fun for us as well because we really get to work with them sit by side on the same side of the table and help them map out where they’re going and how they’re going to get there. So, once you’ve gone through that exercise and you have a good vision and you have some goals that you want to start setting, we’re going to come in and start to implement that and take action with you. Certainly, you’re going to have to consider if you’re going to be part-time retiring or retiring from your main career role, your paycheck is going to be reduced or eliminated depending on how you’re approaching this. There are different sources that you can use in retirement to replace that paycheck. Certainly your savings, social security, there could be employee benefits like a pension and maybe even part-time work. So, tying all of that together to de develop a plan is something we want to certainly help you with. Now the first step that you’re going to want to take is to determine how much you need each month or each year to maintain your current lifestyle. Many people are actually surprised that you don’t necessarily have to replace your earnings. So, for example, while you’re in that career phase of life, let’s just say you’re earning $100,000 gross from your employer, but you’re saving. You’re saving 20% in a 401k plan. You’re saving money in 529 plans for your kids. You’re still working on paying down that mortgage. And perhaps you have two car payments. Well, later in life, things might look a little different. If you’re retired and you’ve front-loaded your retirement account and you’re going to start working part-time, you may not have to continue to make contributions to that account in this phase. You’ve loaded it up. You’re going to leave it alone and you’re going to let it grow. So, you don’t have to necessarily earn $100,000 or replace $100,000 because you weren’t living on $100,000, right? You were putting 20% in a 401k. So, that’s $20,000 that you don’t need to replace because you don’t have that savings line item anymore. Same with kids. If they’re no longer needing to be funded through their tuition, that makes things a little bit lighter for you. And you could even go down to two car or from two cars to one. Or if you’re in a walkable city, maybe you’ve downsized and found an apartment, maybe you don’t need a car anymore and you can rely on public transportation. A good estimate is to look at what you’re earning today and start with something around 80% of that as what you will want to generate for cash for your retirement spending. Now, we are talking about long periods of time. We’re talking about leaving that prime career workforce phase in your 50s perhaps, but we’re also planning for life expectancies into your early 90s. That’s 40 years of time that we want to plan for. The longer the time we have, the more uncertainty is going to be a part of this. And there’s certain things that we know we want to account for so they don’t surprise us later. Things like inflation, again, planning to live a long time because we want to make sure that we’re able to keep up with the cost of living and keep up with all the goods and services that we’re used to getting and we’re comfortable with in our life. Then finally, we can work with financial advisors with software that will start to stress test this idea. And what I mean by that is we can put it into software that starts to model this over long periods of time with variable market conditions. So, we can start to see if the plan is headed in the right direction or where we need to make room for improvement. And that could be a very powerful exercise and answer a lot of questions for you. Now, I mentioned in your budget, you may have some line items go away if you’re no longer saving for retirement or funding the college tuition. That can be removed from your budget and expenses. However, if you are retiring prior to age 65, so you’re not yet eligible for Medicare and you’re leaving your employer sponsored health care plan, you may be buying a private health care plan all on your own. And that’s going to be a bigger expense than what you had in your budget before perhaps.

And now that we figured out how much that we want to spend in our retirement, we need to start saving. For many of us, our 401ks through our employers or 403b or other employer sponsored retirement plan can turn into the main bucket for retirement spending. It’s very easy and very common for that to grow into your largest source. It’s payroll deducted. It happens automatically. You click on a model and your employer matches it. Not only that, you get a sweet tax deduction for putting money into the 401k if you’re doing so on a traditional basis. The IRS incentivizes us to save for retirement. They give us these special retirement accounts, IAS, qualified plans through employers, or Roth IAS, and they put special tax treatment on those account types so we’re motivated to start to fund them. So, for example, if you have a traditional IRA or excuse me, a traditional 401k through your employer and you’re contributing on a pre-tax basis, if you earn $100,000 in the year, but you fund $20,000 into that 401k, you only have to pay tax on the $80,000 remaining, which means you’re paying tax on fewer dollars. And at fewer dollars, you may even be paying at a lower marginal tax rate. So, it’s very incentivizing to put money into that tax deferred 401k. But along with that special tax treatment comes some terms and conditions. And that is that since these are earmarked for retirement, there are certain ages that limit your access to these funds. It’s also worth noting that there’s certain limits of how much you can put into these types of funds. So, when you are planning for retirement and you’re thinking of this happening sometime in your 50s, it’s important to recognize these age limitations and maybe you’ll want to create a bucket that is not just through your 401k and invest in a taxable investment account. There’s no age limitations on this account and there’s also no limitations to how much you can fund. It can be a joint account. It can be an individual account. And the taxation on this type of account is going to be such that the money you contribute, you’ll never pay tax on again. But the earnings, the dividends, the growth, and the interest, you will pay portfolio income rates on that. That’s generally more favorable than income rates. Now, I mentioned putting money into a traditional 401k or traditional IRA pre-tax is motivating today. It’s tax deferred though, not tax-free. Meaning, you’ve elected to pay the tax later rather than during your working years. So, when you start to take money out of a traditional IRA, every dollar, both your contributions and the growth on that dollar is going to come out at your income tax rates, and that’s going to be your highest tax rate. So, you’re really choosing pay tax now or pay tax later. Now, with a Roth account, it’s exactly the opposite. When you put money into a Roth, if you earn $100,000 and you put $20,000 into a Wroth, you’re going to pay tax on all $100,000 that year. However, money that’s put into the Roth is going to grow completely tax-free. And when you take distributions, it’s all tax-free, both your contributions, the earnings, and the growth. So, it’s a really powerful way to access funds and blend your tax rate. So, keep in mind if you’re wanting to retire sometime in your 50s, consider building a taxable bucket and maybe even a Wroth. A Roth IRA you can take the contributions out at any time without a penalty. If you’re working still and let’s say you get severed from employment unexpectedly at age 55, the IRS has a rule called the rule of 55. They will allow you plan specifics must apply, but you should be able to take distributions out of your most recent employer sponsored 401k starting as early as age 55 if you are unexpectedly severed from service without having to pay a penalty. Once you reach age 59 and a half, now you can roll that money into an IRA or you can take money out of an IRA penalty-free. Certainly, again, income tax will apply if you funded on a tax deferred basis. But what we’re looking at is how to avoid paying unnecessary tax and certainly a penalty is something we want to avoid. You can also start taking that full Roth flow stream at 59 and a half without a penalty. Both the contributions and the earnings can start to come out at that point without paying any penalties. So, this is about saving and building your own bucket. But there’s another source that we want to consider for retirees and of course that’s social security. Now social security can be claimed as early as age 62. However, if you claim at age 62, they call that early drawing social security. Another milestone is full retirement age, which for most people is going to be age 66, age 67, around that point. And the reason you might want to defer and not take at age 62 is when you draw early from social security, you are going to be getting your lowest monthly benefit amount and it’s going to be locked in for the rest of your life expectancy. If you wait a year and then another year and another year, each year you delay taking that benefit, the benefit increases so that you’ll get a monthly amount that is bigger by delaying your claiming strategy. However, that only works to age 70. Once you reach age 70, deferring does not increase your monthly benefit. So, there’s not an advantage to not pull at that point. Another thing that I have to point out is as we’re talking about retiring early and potentially working part-time, we want to be aware of the Social Security earnings test. What this is if you claim Social Security at age 62, prior to that full retirement age of 66 or 67, the IRS puts a limit on the amount of wages that you can earn. If you earn above that threshold, they will start to claw back some of your social security benefit, another way of saying a penalty. But if you wait to that full retirement age, you can work as much as you want in retirement without having to worry about that earnings test limit. So, again, there’s a couple different things to consider. And of course, one of those is life expectancy. We never know exactly how long we’re going to live. However, if you know your health status or some family history and you feel that longevity might be a part of your future, delaying to age 70 usually adds up to more dollars out of the program in aggregate. However, if you think perhaps you don’t have that longevity going on, you may want to claim early. Now, you can get all your information on social security.gov. You create a personal account and you’ll be able to see what your monthly amounts are going to be at various ages. If you were previously married and maybe previously divorced or perhaps previously widowed, there are also benefits that you can access via the spousal benefits, ex-spouse benefits, or even survivor benefits. You won’t be able to see this on the Social Security website, though. You’re going to have to make an appointment at the Social Security office. Bring the appropriate documentation like a death certificate or a divorce certificate and you’ll be able to get all the information right there meeting with them. All right, so we’ve got these different sources. I’ve got my savings account. I know I’m going to get social security and I’m thinking about working part-time. So, let’s start to tie this together and see what this might look like. In this example, I have John and Jane, age 65, pretty traditional retirement age, but we’re planning for their life expectancy to be through age 95. So, a 30-year time period is what we’re going to plan for. They have thoughtfully saved and contributed to various accounts and have accumulated a million dollar towards their retirement funding. They’ve also gone through the exercise of budgeting and they know that they’re going to spend about $120,000 a year. Now, for simplicity purposes, I’m going to say this is tax-free, $120,000 a year. So, on the first day of each month, $10,000 hits their checking account, and that’s what they’re going to use to meet their lifestyle goals. We also want to keep in mind that in the future that $10,000 may require $12,000 to buy the same goods and services or even $15,000 to maintain the exact same lifestyle. That’s due to inflation. And that doesn’t necessarily mean you’re going to get a raise. The goal is just to keep your standard of living the same and keep up with the increased cost of living. And that’s going to be assumption we’re going to want to factor in behind the scenes. John and Jane have both gone to social security.gov. They have looked at their claiming options and they have quantified that as a household they will be able to collect $68,000 from the Social Security program throughout their retirement. And finally, one of them is going to work part-time. They’re going to work earn about $1,000 a month. So $12,000 a year is what they’re projecting or expecting throughout this phase. Now, we can see that if we combine the social security and the part-time wages, we are short in order to meet our $120,000 goal. This is where they’re going to pull from their portfolio and their savings in order to meet the rest of their needs. Now, if you’ve gone through this exercise and perhaps you haven’t saved a million and your portfolio won’t be able to produce $40,000, this gives you the opportunity to reset expectations. Maybe it’s not going to be $120,000 a year. Maybe we need to cut that back a little bit. Or perhaps this will help set the expectation that you’re going to have to rely a little bit more on your earnings in retirement and work more part-time either for longer or earning more money to some extent. So, just backing into these different sources can help you pick and choose which levers you want to pull. Do I want to reduce spending? Do I need to increase my savings? Or do I want to work more or less in my retirement? I consider this savings bucket your supplemental sources and that’s because you have control over it. And what we want to look at is what percentage is an appropriate amount to pull from that supplemental source. On the previous page, I illustrated a million-doll portfolio with a $40,000 annual distribution. $40,000 is 4% of a million. So, you may have heard of the 4% draw rule, and that’s something that we’re going to start with as a good rule of thumb. Now, that’s not the end-all be-all answer for retirement funding. Things are going to fluctuate and change over time, and there’s no right answer for everyone. There’s going to be a range of draw rates that we’ll want to consider. Additionally, you will want to consider your temperament as an investor and how you feel with the volatility of the market. Inevitably the market is going to go up and down and we want to make sure we’ve built a plan and a portfolio that’s able to tolerate that roller coaster ride. That way when it inevitably happens, you don’t have to panic and think now what because you know you already have a plan in place. That’s going to help you determine how the investments are going to be structured so that you aren’t losing too much sleep. So, ultimately when we’re talking about a sustainable draw rate and again that rule of thumb of 4%. What we’re trying to accomplish here is spending only the earnings interest dividends and growth of the portfolio and never touching that million dollars. The idea is that million dollar stays there as the engine that continues to keep the portfolio growing and producing income without having to deplete the principle. So, that’s what we mean by a sustainable draw rate. And 4% was a number that came out of studies that time and time again when they trialed various performance of the market, no matter what if it was in a bad market condition, if the draw rate was 4% or less, there were very few outcomes that weren’t successful. However, there’s going to be a range, and that’s because the market’s going to go up and down, and your portfolio value is going to go up and down. So, it depends on a couple different variables. Your time frame is something that we want to know when we’re making this decision, how much you’re going to be spending, and of course, what your investment mix or asset allocation looks like. For example, your time horizon. The longer the time frame, that creates additional risk because of uncertainty. So, when you have risk on that end, you might want to consider reducing your draw rate to one of the one, two, or 3% draws to be more conservative on that side. Or if you recognize that you can handle the ups and downs of the market, perhaps you want to invest more aggressively. This is going to give you more growth in the long term and may give you the opportunity to increase your draw rate. We also don’t want to forget about expenses of investing. So, if you’re thinking of netting $40,000 out of a million-doll portfolio, we have to consider that some of that will create tax and we’ll have to pay that. We’ll also want to consider any costs or expenses from portfolio management. So, you may end up drawing closer to 5% and netting four. So, we want to be aware of the expenses and the costs of investing and recognize that anywhere in this range is going to be a reasonable expectation for sustainability. It’s going to change. If you’re always taking $40,000 out in one year, your portfolio goes up to 1.5 million. Now you’re taking less than 4% if you keep drawing 40,000. Conversely, if the market goes down and you keep taking 40,000, you might be drawing 5% of the portfolio that year. So, it doesn’t have to be perfect. It’s something that we will review consistently and keep our eye on and make sure we’re on track. Another way to maintain on track is to do some long-term big picture modeling. Financial advisers use sophisticated software and we use what is called a Monte Carlo simulation. What we’re doing here is stress testing the portfolio to give us an idea if we’re headed in the right direction. We certainly know we don’t have everything under our control in retirement, but things we can control, we’re going to want to put into the software. The date you want to retire, the amount you want to spend, how this mix is going to be invested. We want to pick an assumed life expectancy so we know how long this is going to last and an investment mix that we want to use throughout our retirement. Now, you can pick an investment mix, but it’s going to go up and down as the market fluctuates. It’s going to vary quite a bit, and that’s okay. When we’re looking at success, what we’re looking at is that we are in the confidence zone of this analysis. Being in the confident zone would mean that we’re somewhere between 75 and 90% successful. We don’t need to be 100% successful. And again, that’s because we meet with you periodically and make adjustments if things aren’t going according to plan. Or if you’re above 90% successful, that means you have a big cushion, a buffer, or that you may be leaving some money behind as a legacy. Now, if you’re below 75% in the confident zone, that means that the plan is going to be strained and it’s going to have some weaknesses. And we’re going to want to identify what those weaknesses are and see where we can make changes to increase that confidence zone. Then finally we take all those variables that we know again the start date of we retire a presumed life expectancy how much we have invested how much we’re going to draw every year and what that investment strategy looks like and then this portfolio software models a thousand different market scenarios. All these green and red squiggly lines are different outcomes over the same period of time taking the same amount out of the portfolio. And what you’ll notice is that there is a wide range of outcomes over this time period. There can be situations where the money actually doubles and triples if the market is just on fire. Then you’ll see some red lines where we’re headed in a trajectory to run out of money before the end of your life expectancy. Now, this is the type of modeling that you will revisit periodically throughout retirement. We’ll look and see what we thought was going to happen, what has actually happened, and if we’re off track, what we need to do to get back on track. So, that’s why we don’t need 90% for the whole time period. Because if we catch you on one of these red lines for one reason or another, we want to step back and readjust and see what we need to do to make sure that we’re not going to stay on that trajectory to run out of money. Now, success is defined as having as little as $1 left in your portfolio at the end of your life expectancy. So, there’s a wide range of what this could look like throughout retirement. Our goal with this is to make sure that your spending and your needs are realistic and that they can be met. It doesn’t mean that you’ll have millions of dollars left over and it doesn’t mean that you’ll run out of money. You’ll be somewhere in between and that is what we identify as success. Have we met your goals and objectives throughout this time period? So, it is expected that the market’s going to go up and down during your retirement, but you just have to step back and zoom out, take a deep breath and realize in the big picture, a simple down market here or there does not necessarily mean that the plan is broken. Thanks, Libby. Those are all great points. And the Monte Carlo analysis also does a really great job of estimating expenses in retirement. One of those being health insurance. Did you want to touch a little bit on what entering the private health insurance market may look like and what people considering a semi-retirement lifestyle may expect? Absolutely. Everyone gets so excited about retiring in their 50s and they start to build up their savings aggressively so that they can make that happen thinking they’ll cut down on expenses or downsize their home and they’ll be able to make it work on a tighter budget. And then we have to introduce private healthcare. If you’re retiring prior to age 65 before you’re eligible for Medicare and you’re no longer getting employer sponsored healthcare benefits, you may end up having to go and buy a private policy. Now, there’s a couple different options that we can look at to make this work to bridge that period between leaving your employer and starting Medicare. One of the options is COBRA. COBRA gives you the opportunity to continue with your employer sponsored health care. However, when you’re employed, as a benefit of your employment, your employer is paying a portion of the premium for your healthcare. Once you go on COBRA, you are responsible for the entire amount of that premium payment, but at least it’s the same plan. You got the same network, the same doctors. So, there’s some reliability and predictability to being able to take advantage of a COBRA plan. Furthermore, if maybe only one of the spouses is retiring and one is going to remain in the workforce, maybe as easy as joining your spouse’s health care plan if that’s something that you’re eligible for. But if not, we now have the Affordable Care Act that allows us to go online to the marketplace and shop for private health care. The premiums that you’re going to pay in some cases can be subsidized with tax credits. The lower your income in retirement, the more the government will help subsidize premium payments from the Affordable Care Act marketplace. Another thing that you might want to consider is does your employer offer benefits of health care for retirees? This is something that we see often in unions or with individuals that have pensions as a part of their retirement plan. They’re not as common as we saw at one point in time, but if it’s there, it’s certainly something that you want to consider so that you know it’s covered. Finally, there are part-time jobs that could have health care. I know in our area there’s grocery stores that offer health care insurance for part-time workers. Now, I know working at a grocery store probably isn’t what you had in mind for being fulfilled. However, it does give you the opportunity to bridge the gap of health care prior to age 65 and can give you flexibility and hopefully allow a more balanced, you know, work life balance. You could also fund a health savings account. If we know we’re going to have a big line item of health care when we are in retirement, a health savings account, if you’re eligible to contribute, you can get a tax deduction for the money you put into the health savings account. It will grow tax-free. And if you take money out for qualified medical expenses, those distributions, the contributions, the earnings, and the growth all come out tax-free for qualified medical expenses. So, building up a separate source just to fund health care with a very tax efficient way is also a good structure when you’re moving to retirement. So, what is this going to cost me and how am I going to provide for this? Well, as you can see, there’s different plans and different periods of time that are going to have corresponding different expectations of what it’s going to cost. Cobra could be $4 to $700 a month per person. And you can see when you’re buying health care on the marketplace, depending on your age, your premiums could go up or down, also depending on your health. You’ll want to also factor that in when picking a health care plan. Are there specialists that you need? Is there prescriptions that you need? Because there’s different plans that are going to have different premiums. And depending on your unique health situation, you may be able to get a plan that’s more affordable or you’ll want to focus on one that’s going to help make sure you get prescriptions covered. One of the most important things I see on this screen is that most people while they’re under an employer sponsored plan are only paying for about 22% of their costs of health care. The remainder is carried by their employer. So, going from a 22% to a 100% expense can have quite the sticker shock. Anywhere from 5 to $12,000 a year per person. So, this absolutely is something that we want to make sure we’ve built into our plan so we’re not surprised when those bills start coming due. But making it work is part of the fun. I love these slides because I love the guy in the middle teaching that music class. I picture him as a corporate desk executive who worked his grind nine to-five but always had a passion for music. Well, now he’s transitioning to retirement and he’s going to move to the education side of music. He’s working in a school district. He’s working part-time. He gets summers off. He has holidays off. But as an employee of the school district, he could be eligible for health care or other benefits. But he still has flexibility in his life and he has the opportunity to do what he loves. I love the librarian as well. Working for a municipality may also come with some certain benefits that you’ll want to take advantage of. And my hope is that working part-time as a librarian, you’ll be lowering your stress from what it might have been in your previous career. I’ve seen endless creativity with people in this phase. I’ve seen people say they’re going to open a food truck on a beach town. They want to retire in the beach town. They can’t quite make it happen yet, but they’re going to buy a food truck and earn money during the busy season living in the town in the area where they want to be. And then they will take time off in the off season and relax and enjoy without the crowds. We’re not here to tell you how to make that vision come true, but we’re going to work with you to make sure all the pieces are in place. The other thing we’re going to do is make sure this is tax efficient. We haven’t touched on that too much, but that certainly can be a leaky hole in your plan. If you haven’t accounted for taxes or we haven’t designed this in a tax efficient way, you can end up having some money that’s not going to be a part of your plan that otherwise could have been. Belle, thanks Libby. Next, I want to touch on a couple of things that Libby had previously just mentioned for us. Taxes look a lot different during different parts of our lives in different parts of our financial plans. So, what strategies can you use to minimize taxes over your lifetime? Well, right now, a lot of us are either working and we’re considering retirement or we’re considering semi-retirement. So, what is the transition of my tax picture going to look like? Right now, when you’re going to file, you’re probably getting your W2, your 1099. If you’re self-employed, maybe you’re filling out your schedule C, getting a K1. All of those things paired with how much should I defer to my 401k to reduce income this year? Should I defer to an HSA? Should I be taking should I be itemizing? Should I take the standard? What credits are available to me? That sort of encompasses a lot of the questions that we ask ourselves on a year-to-year basis pre-retirement. When we’re thinking of switching to that long-term tax planning that you enter when you do retire or semi-retire, things get a little bit more complex. Instead of focusing on how I can reduce my taxes today and this year, I want to focus more on how can I reduce my taxes over my lifetime. So, I’ll paint this picture for you. Eventually, this is typically how we see a normal tax timeline go. You graduate from college, you enter your entry-level job, and then you grow and grow your career until you get to your highest marginal tax rate. And then you’re looking to retire. You’ve had your good career. And once you retire, we typically see your tax rate start to fall as you continue to have more and more control over that income. And right when we start to hit social security age and required minimum distribution age, when you reach age 73 or 75, we see them start forcing more income into your pocket. And occasionally, depending on how much you have deferred into that tax type of account, that tax deferred traditional IRA or used to be your 401k, those RMDs can be pretty big and they can bump you up into pretty significant tax brackets. So, the conversation quickly switches from what can I do to minimize my taxes this year to how can I reduce that tax liability that I’m going to be hit with later in my retirement? And part of those answers are maybe recognizing some income while you’re in that lull and you can control filling up the 12 or the 22% tax bracket. Couple other things to be cognizant of as you’re entering that semi-retirement is your Medicare premiums. And all of us know that you typically are eligible for Medicare once you reach age 65. But did you know that Medicare has a two-year look back and your premiums will actually be based on your income at age 63 and if your premium at age 66 will be based on your premium at age 64. So, even though you won’t you have 2year lag time between when that affects your premiums, those premiums can increase pretty quickly. So, you want to be make sure that you’re planning ahead to control those variables as well.

There are also investment decisions you can make to make your portfolio more tax efficient. One of these strategies that we tend to use is called asset location. Now earlier in our presentation, Libby did a really great description of the different kinds of tax buckets that you have available to you to contribute to. You have your traditional IRA which is tax deferred. You have your Roth IRA which is grows tax-free and you have your non-retirement taxable account which you pay taxes at preferential capital gains rates. And the idea of an asset location strategy is to pick securities to invest in those different types of accounts that complement the tax treatment of those accounts. For some people, this is a hard idea to wrap your head around because the tax savings don’t come in the form of a deduction on your tax return. They don’t show up in the return percentage on your statements every month. You don’t get an additional refund. It’s more of a tax avoidance strategy than anything. But we also like to do tax loss harvesting if we can when we find ourselves in a market correction, which we all know we will eventually. If you have that non If you have that non-retirement taxable account and you say you bought something for $100 and now it’s worth 50, you can sell that position at a loss. Book that $50 loss and carry it forward on your tax return so that when the market does recover and you eventually have gains coming from that account, you can use those losses to offset that tax and make it a tax neutral event. You can also use up to $3,000 of losses annually if you don’t have any capital gains to offset against your ordinary income.

So, when should you be talking with your advisor or your tax preparer about tax strategies? The biggest and nastiest tax bills that we tend to see are not because there was new legislation that was passed and they’re increasing tax rates. It’s because there was an unusual event in your life that wasn’t planned for properly and now it’s April 15th and you have a large tax bill that you just got hit with and you’re not sure how you’re going to pay for it or where that additional cash flow is going to come from. So, watching out for surprises is a huge part of tax planning in retirement. If you’re moving and you’re selling your home, if you’re selling a business, if you have a deferred compensation plan that’s set to start paying out, if you have a large inheritance that has come due and suddenly you need to take these beneficiary IRA RMDs, those are all things that you need to be bringing up with your advisor ahead of time to go over the strategies on how to minimize that lifetime tax. Now, when should you be doing this? One of the best pieces of advice that I can give to you is don’t wait for March or April to talk about taxes that occurred in the prior year. You should schedule time with your advisor or CPA in the second half of the year when you have a good idea of what your income is going to be and you can talk about potential tax strategies. We typically in our office like to say that we want to have most of our tax strategies done by Thanksgiving. That way we have the entire month of December to come up with anything, make sure everything gets processed correctly and if there’s any last minute items, we still have some time. Unless you are really a big fan of talking about taxes at the Thanksgiving and Christmas table with your family. You also want to make sure that your advisor or your CPA is keeping you the most up to-date on changes in the tax code. For example, the new senior deduction that is available subject to income limits taking advantage of that. There are new charitable deductions in addition to the standard deduction available without itemizing and many more things that I’m sure will change over the course of your retirement. So, you want to be sure that you’re taking advantage of each of these strategies as they come up.

This wraps up most of the content that we have for you today, but we wanted to leave you with a couple parting next steps and actionable items. I want to take you back to the first part of our presentation today about the vision. Planning for your future is one of the greatest gifts that you can give to yourself. And it’s not something that people typically take time to sit down and map out. We all get busy. We all have our jobs. We’re going some of us are working our 9 to5 5 days a week. Some are working it three days a week if you’re in that semi-retirement phase. And we all have families that maybe you’re raising kids in the house still. You have obligations outside of work. Maybe you’re a caregiver for an elder parent and it’s taking up a lot of your time. So, when we think about taking a break, it usually comes in the form of a spring break vacation or a big European cruise over the summer. And it’s not surprising to hear that more people spend time planning those small vacations than they do their retirement. So, we really want to challenge you to start thinking about what you want your retirement to look like. What you plan for the next 5, 10, 15 years. Whether that’s sitting down at the table and actually writing some things out or just continuing to envision it in your mind. And if you find yourself struggling with that, you can try this thought exercise of starting with the end. Imagine yourself in your rocking chair 30, 40 years from now. You’re 85, you’re in your early 90s, and you’re looking back at where you are in your life today. What would you be remiss if you did not jump at the opportunity to do? Is it retiring a few years earlier because maybe your health wasn’t as good as you anticipated it? Is it spending more time with grandkids or children before they have flocked the nests and started their own lives? Is it volunteering? Giving back to your community? Are there passion projects that you’ve left on the table because you just haven’t been able to find the time? So, taking this exercise, looking back at the end and saying, “What would make my life successful at this point?” I think is a really great exercise. And as advisors, one of our greatest nightmares would be to be sitting across the table from you in an end of retirement type of phase and hear one of our clients say, “I wish.” Do you have any closing remarks, Libby? Yeah. One time I ask a client or I’ve just heard about in general, right, when people are talking about retirement, I’ll say, “What’s your big plans and what bucket list items are you going to cross off?” And I expect people to come forward with really grand vacations. But one of the favorite responses I ever got from was from someone was she looked at me and said, “I’m just happy to control my own time. I’m just happy that I won’t have to watch the clock and rush from appointment to appointment and I will have complete freedom every day to do what I want when I want. And to me, that was the best definition of a successful retirement rather than checking off a bucket list. Now, you can click a link in the chat if you would like to schedule a 15minute consultation with somebody from our office. I have to go over the disclosures again and just remind everyone that this is for information only and is not intended to be advice. If you do want specific advice, we encourage you to seek out a one-on-one meeting with a financial professional. Now, we do have some time for a few questions and answers here before we get to the end of the hour. And we have quite a few coming in. I’m going to I’m going to defer this one to you, Belle. How do I know if I need a financial advisor or can I just use Claude online to build my retirement plan? Thanks, Libby. And this is a question that we’ve gotten increasingly more often, right? Can AI build my financial plan for me? And the short answer is that it probably can, but AI is only as smart and only uses the information that you give it, right? It’s not looking beyond the questions that you’re asking. The benefits of working with an advisor is that we can lean on each other in our years of experience with other clients going through the same situations that you have and taking their experiences and applying them to yours. Now, can Mont can Claude run a Monte Carlo analysis? I’m sure that it could try, but really getting that personalized advice, talking with somebody that you know, somebody that you trust, somebody that’s looking out for your best interest. Here’s another one, Libby. How do I know that I have enough money saved to move into a semi-retirement or retirement? And how do I know if I need to contribute more to my retirement plans? Sure. I love when people say, I how do I know if I’m ready for retirement? And it’s not just one question. There’s a series of questions that we need to ask and a series of data that we need to understand to know if you’re ready or not. But a great place to start, again, like you mentioned earlier, Belle, is kind of at the end and see what you want it to look like first. So, for example, before I was showing a million-doll portfolio producing about $40,000 a year. If you think that’s going to be enough, then you know you need to save a million dollar. If you think that’s not going to be enough of a source coming from your own savings, then of course you’re going to want to increase your savings while you’re still working. So, if we understand what your future goals look like and how much you want to spend in retirement and we can fill in some of those gaps with social security, but we know there’s a target that perhaps we might want to achieve as a balance of a portfolio, we can start to back into that and throughout your working career guide you to save this amount, this many years or this many months and invest it in this way. Now, if we’re developing that plan and you find that you’re not able to meet that spending go, that savings goal and you may not be able to save that million dollars. Well, now you have the opportunity to adjust your expectations. That may mean that you have to work a little bit longer or it may mean that you have to earn a little bit more and pick up more hours during retirement. But you’ll be able to plan for that and decide what’s more important to you. Is it more important to you to sacrifice early in your life and put that money towards your future? Or is it more important to you to get out of the workforce as quickly as possible, even if that means that you might have to spend a little bit less? But when you put this all together, you’re able to see these tradeoffs and understand what it’s going to take to make things work. And you can pick and choose what’s most important to you. So, you still have control over how things come together without necessarily controlling everything that’s happening around you. Belle, talking about ways to fund your retirement, how do I know if my employer has a pension or a 401k? Yeah, knowing your employee benefits can be a little bit tricky because all employers offer their own type of plan. The pension is really the one that a lot of people are missing. Typically, a pension will only be offered if you are in some sort of public service role these days. It’s not as popular of a plan item as it used to be. So, if you’re a teacher, if you’re in the union, if you’re a police officer, those are the roles where we typically would see a pension being offered today. Otherwise, we typically see 403bs, we see 401ks. If you’re an individual worker, you work for yourself, you can have a SE IRA or solo 401k. To get a really good idea of what exactly is available to you, I would recommend reaching out to your HR professionals at work and provide asking them for a summary of all of your employee benefits. Great, Belle. Well, that about wraps up the time we have for today. I still see there’s a lot of questions. A lot of questions are very specific to your unique situation. And if your question has not been answered, after this presentation, there will be a survey that pops up and you can enter your question there and we’ll make sure that somebody will reach out to you and speak to you about your specific situation. Again, that’s all we have. Thank you for joining us today and have a great afternoon. 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