You spend decades building your nest egg.
Then, when you retire, you need a plan to stop saving and start spending, but not too much that you risk running out of money.
It's a delicate balance.
In this video, we'll discuss 5 variables that are important to consider:
- Plan for Longevity
- Make the Right Decision about Social Security Benefits
- Choose the Right Pension Payout
- Balance Guaranteed Income and Long-Term Growth
- A Plan to Minimize Taxes
Accounting for each of these variables is different for everyone.
If you'd like to speak with an advisor about creating your unique drawdown strategy that considers these 5 variables and many more, please reach out.
Full Transcript:
Erin (00:06):
Ryan, very good to see you. We're starting with a question. What is a retirement drawdown strategy? I know you have five tips to help us make sure our money lasts. We spend decades building our nest egg. Then when we retire, we need a plan to stop saving and start spending, but not spending so much that we risk running out of money. So again, I know you have these five tips we need to consider, and the first is that we need to have a plan for longevity.
Ryan (00:31):
Yeah, absolutely. The thing is now if you take a couple, let's say that's both 65 years old, there's a 50% chance that at least one of them is going to live to be 92 years old. So that's a 27 year retirement, right? I mean, that's a long time. So today we really need to plan for living perhaps 15 years, 20 years, maybe even 30 years or more in retirement. So we need to make sure that our plan is built to be able to provide the income that we're going to need for a much longer period of time than we would've had to have done just a couple of generations ago for sure.
Erin (01:09):
Right. Speaking of income, we need to make the right decision about claiming Social Security. And this can be complicated.
Ryan (01:16):
It can. There's really a lot to it. And you need to think through when and how you're going to take your Social Security within the context of your overall retirement plan. So you're going to have Social Security, but you're also going to have savings and investments that are going to be available to you, maybe a pension or whatever else. And so thinking through when is the right time to collect your Social Security and if you're married, when should you take it? When should your spouse take it? You can take it anytime between 62 and 70, but it's a matter of what makes most sense. Certainly the longer you wait until you claim your benefits, the more you're going to receive. But that's not always the best decision for everybody. Not to mention some people are entitled to divorce spouse benefits. Some people are entitled to survivor spouse benefits. And it's important to understand how this works and how you may be able to coordinate those benefits with your own so that you're getting the most in benefits that you're entitled to.
Erin (02:20):
Speaking of, as you mentioned a second ago, pensions, right? For those of us who are lucky enough to have a pension, you need to choose the right pension payout.
Ryan (02:30):
For sure. If you're a government employee, then chances are you have a pension. Most people in the private sector don't have pensions these days. It's much more common that you'll have a 401(k) plan or some other what's called a defined contribution plan. But for the folks that do have access to a pension plan, it's so important that you thoroughly understand what your options are before you elect what payout option or whatever it is that you're going to take, whether that's a life only or a life and survivor with a husband and a wife, perhaps some pensions also have the option that if you pass away, maybe your spouse gets a hundred percent, but others have an option where maybe they get 50%, but you get a different amount while you're alive. So you want to think through that. And there's also what's called pension maximization opportunities that you may want to consider as well. So if you have a pension, there's some additional things you're really going to want to consider.
Erin (03:30):
Right? And it should be more of a conversation with a professional like you versus an equation. Number four, the delicate balance between guaranteed income and long-term growth
Ryan (03:41):
For sure. So there's only three things that provide guaranteed income. You have Social Security, pensions and annuities, and Social Security is great because it does provide that guaranteed income that will continue on for the rest of your life. For most people though, it doesn't provide the amount of income that you're going to need in retirement just to meet your living expenses. And so what some folks opt to do is to take a portion of their retirement savings and put that into an annuity where they can then get a guaranteed income stream for life from that money as well. So then you have Social Security, then also the guaranteed income maybe from the annuity, and then maybe perhaps that provides the amount of money that you need just to meet your basic living expenses. And then you have your other money that can be invested, perhaps even invested more aggressively because you get your living expenses here. And then you can at least potentially help keep up with inflation more over time. The cost of living will continue to increase. And again, as we talked about with longevity, many people are spending 20 or 30 or more years in retirement. So we have to make sure that that money is working for us,
Erin (05:03):
Of course. And number five, you have to have a plan to minimize taxes.
Ryan (05:08):
Absolutely. And here's the thing when it comes to tax planning and retirement, is that chances are taxes are going to increase in the future. And we already know that in 2025, the Tax Cuts and Jobs Act is going to sunset. So tax rates will go back up unless of course our friends in Congress do something between now and then to change that. But tax rates we do know are going to start going back up. We're hugely underfunded as a country. We're approximately 34 trillion in debt right now. And so there's a lot of reasons why taxes could climb in the future. And so having a good thought out plan as to how you're going to minimize those taxes and thinking through when you're going to withdraw money from different income sources based upon how they're taxed. So for example, your IRAs and 401(k)'s are going to be subject to ordinary income. You may have a Roth IRA, which could be tax free. You may have taxable accounts. Social Security is taxed differently, and you need to understand how the provisional income formula works to determine how much your Social Security is subject to tax. So it's important to understand how all that works in order to properly develop a withdrawal strategy that will help minimize your taxes all throughout retirement.
Erin (06:38):
Right? And finding that drawdown strategy is unique to everyone. So Ryan, if somebody wants to have this conversation with you, what's the best way to reach you?
Ryan (06:46):
I can call 714-462-9155 or it could go to the website. It's CravitzFinancial.com. Go to the contact page there and we'll get back with you.
Erin (06:59):
Great, Ryan. Thank you.
Ryan (07:01):
Thank you.