Smaller IRA Required Withdrawals Coming Up. Changes to Required Minimum Distributions and Retirement.

When you reach age 72, you’re required to withdraw money from your tax-deferred accounts, whether you want to or not. 

These accounts include your IRA, your 401k, and any other tax-deferred accounts you may have.

The reason why we have RMDs (required minimum distributions) is because the government is basically saying that you got all these years of tax-deferred growth in your IRA accounts and now we want you to start taking out that money so that you have to pay tax on the withdrawals. 

Thankfully, the required withdrawal amount will go down in 2022, which means that you can pay less tax at that point, too. But currently, if you have a $1,000,000 IRA, your required RMD at age 72 is around $39,000. With new RMD tables in 2022, you’re going to be expected to take out about $36,000. A difference of $3k to 4k in withdrawals means saving about $500 to $1,000 on taxes, depending on your tax bracket.

Those of you who are under age 72 still have some time to design your tax plan and withdrawal plan. Now you can start to control your taxes in retirement by planning ahead. 

Here is a list of videos to help you make that plan:

Remember to always review these tips with your wealth manager or your tax advisor. If you don’t have someone you can talk to, then click here and I’ll either point you to a tax person, or have a free meeting to talk about your retirement plan.

Three Keys To Earning The Maximum Social Security Benefits Each Month

If you file for Social Security in 2021, the maximum monthly benefit you can receive is $3,895. In this post, I’m going to go over three things that you can do to get the maximum Social Security amount. 

The first step to earning the maximum social security benefit is to work at least 35 years.

The size of your Social Security check is based on your average wage in your 35 highest earning years. If you’ve worked less than that, then you’ll have some $0-earning years that really drag down the average. You won’t get the maximum in this scenario. 

The second thing you can do is earn the maximum taxable earnings each year.

The maximum wage base limit is around $142,000 this year, in 2021. The amount changes almost every year, but that’s what it is currently. If your Social Security benefit is based on your average wage over 35 years, and if your wages meet or exceed that taxable maximum over that 35 year period, then you should be eligible for the maximum social security benefit. 

The final thing to do to get that maximum amount is claim your benefits at age 70.

If you’re able to accomplish the first two requirements, then waiting until 70 is the final thing that you need to do to get the maximum. You’re typically able to start your benefits at age 62, if that’s what you want to do. But that would mean that you’d be reducing your monthly benefit by quite a lot. For example, the maximum benefit for someone in 2021 at age 62 is about $2,300 per month. That’s about $1,600 less than the maximum at age 70. There are also a few other negatives to starting early. Click here to watch a video that explains these negative aspects.  

If you want to go over your specific Social Security-maximization strategy, or if you have questions about maximizing your retirement income, then visit and schedule a time to talk with me. I can help you walk through some of those different strategies. 

I’ve also included some free resources to help you plan for retirement in the links here: 

When Is It Time To Retire? Answer YES To These Four Questions

You’ll know that you are prepared for retirement when you can answer yes to these four questions:  

Question 1) Do I have enough? 

This is the most obvious concern, but not everyone is 100 percent sure that their financial assets are going to last the rest of their lifetime. There is a way to get to a level-10 confidence with this question of “do I have enough?”

It starts with the creation of your perfect retirement plan. This perfect plan will take into account five keys and then make sure they’re working together.

  1. The income plan,
  2. the investment plan,
  3. the tax plan,
  4. the healthcare plan, and
  5. the legacy plan. 

It’s important to consider these five keys so that you can see the impact of your financial decisions on the future. Watch the video above to see an example of one plan with the expenses, assets, and withdrawal rates considered. 

Question 2) Have I had enough? 

You may have had a successful career, but now it might not provide you with that same drive. You may have other interests and things that you’d like to pursue instead.

Question 3) Do I have enough to do? 

It’s crucial that you continue to feel purpose and fulfillment in retirement. Those who retire without having a plan, an idea of what they’re going to do in retirement, or how they’re going to spend their time, end up having a harder time feeling fulfilled. For instance, there’s a common stage of retirement that is a depression-like stage.

Watch out for a future post on the five stages of retirement, which will address this issue of a lack of fulfillment and depression. Or, if you’d like more information now, click here for a guide called How To Find Your Purpose in Retirement

Question 4) Does my partner want me home all day? 

It is really important to make sure you’re on the same page with your spouse with this question. You’ve probably heard the quote that says: “I married you for better or for worse, but not for lunch.” So, as you’re having conversations around retirement, make sure to talk about how you might be spending your time in these years, or what you want to do together. 

If you need help with planning your retirement, reach out to me for a free planning session; I do a couple of those every week with people who are not clients. 

I want to thank Larry Swedroe for these questions and his writings, because they were the inspiration for this post. 

Retirement Investing In Your 50s and 60s. How To Invest When Retirement Planning?

There are so many retirement investing strategies out there. It can quickly become overwhelming. So how do you pick the perfect retirement investing strategy for you? 

Here are a couple of common strategies that you may have heard

Take your age and subtract that number from 110. The result is the percentage you should be invested in stocks or stock funds. For example, if you’re 60, then take 110 minus 60. And according to this popular strategy, 50% of your portfolio should be invested in stocks. 

Another style that a lot of advisors recommend is based on risk tolerance; how much risk can you handle? To help illustrate this point, here’s an anecdote I recently heard from Ron Bullis:

A man is sitting with his doctor who has just told the man that, unfortunately, he has cancer. Then the doctor holds up an iPad with a questionnaire on it and says, “hey, can you fill this out so that we could find out how much chemotherapy you’d become comfortable with?” And the man looks at the doctor, confused, and says, “well, obviously, I want the least amount of chemo that I need to get rid of the problem that I have.” 

And that’s kind of how we look at risk, too. Why would you want to take more risk than you need to, even if you’re comfortable with it. It would be better to have a successful retirement plan and sustainable retirement plan with the least amount of risk possible. And, actually, a lot of clients come to us who are invested more aggressively than they need to be, because of how they filled out this risk-tolerance questionnaire with a previous advisor. 

So how should I be invested in retirement? 

This is not solely based on an age rule of thumb or your risk tolerance. The way we’ve seen retirees do it right is to create an investment plan based off of their income plan. This is how we plan for our clients at Streamline, too. So, the income plan comes first, and once you know how much you need and when you need it, then you see how you should be invested and how risky you should be. For many clients, after we’ve designed this income plan, we can clearly see that they don’t need a high level of risk in their portfolio for them to accomplish their goals in retirement.

A great retirement withdrawal strategy that we’ve seen work is the three-bucket strategy. This method helps clients rest easier in crazy markets or bear markets. One of the keys to this withdrawal strategy is making sure that you have enough in conservative assets to cover a few years of expenses. That way you don’t have to worry about bear markets dragging down your portfolio assets when you need to withdraw money. Click here to see a video that more fully explains this strategy.  

And as always, just make sure that you check with your accountant or financial advisor when planning retirement investment strategies. It’s so important to get a second opinion before you do anything. If you’d like help developing your best investment strategy, reach out to me for a free planning meeting to see what makes the most sense for your specific situation. 

Important Financial Steps To Take After The Death Of A Spouse

Nothing can quite upend your world like the passing of a spouse. It leaves many at a loss for what to do next. If you have lost a spouse, this post is going to be helpful because I’m going to give you a step-by-step plan of what you should be doing in the coming months. It’ll help you feel like you have a little bit more control over the finances. 

If you’ve recently lost your spouse, I’m so, so sorry for your loss. Since people come to me for the financial part of their life, I’ve helped quite a few recent widows and widowers go through this process of getting their financial life organized. And, as a side note, your financial planner should be able to take a lot of the burden off of your shoulders. The financial companies don’t make it easy, but your advisor can help. If you don’t have an advisor or you just don’t feel a hundred percent comfortable reaching out to them, then please reach out to me. We’ve helped a lot of spouses during this difficult time. 

Here are the recommended steps. You don’t have to go exactly in this order, but this is a natural way to get things organized and move forward. 

Check With The Funeral Director

Step one, especially if the loss is very recent, check to make sure that the funeral director has

  • contacted social security, and
  • ordered 10 to 15 death certificates.

You’re going to need these for retitling accounts and talking to some of the financial institutions. 

Email Your Financial Team

Step two, send an email to your financial team letting them know, including your accountant, attorney, and financial advisor. You can tell them that you’re not ready to talk yet, or do anything, but ask them to reach out in a couple of weeks to give you a reminder. As with all parts of life, financial isn’t the most important, but it does affect a lot of things. If you let them know, then it will be on them to reach out to you at a later date. Remember, your financial planner should be able to do a lot of the heavy lifting when you are ready to start moving forward with the financial side of things. 

Keep A Dedicated Financial Notebook

The third thing I recommend is to have a notebook to log all the financial conversations that you’ll have in the coming weeks and months. It’s better than taking notes on random pieces of paper, and then trying to find them later. Also, having a folder or binder to keep the actual paper and the death certificates or statements is a good idea too, just so it’s all in one spot. 

Gather All Documents Into One Place

Step four is to start to gather all the documents into one place. Include recent statements, bills, and all of the things that come in. It’s a good idea to look through the checkbook and the online bank accounts, or bank statements to look for recurring bills. The main purpose is to make sure that those are being paid. And in your notebook, keep a page with the list of monthly or annual payments, to make sure that you know all of the monthly expenses. 

Find A Support Group

By now, as you’re getting the documents collected and organized, hopefully you’re feeling a little bit more in control and organized. So the next thing I’d recommend has nothing to do with finances. If you haven’t already, find a support group of people who have gone through the same thing that you have. This has been very helpful to some of our clients. If you’re looking for recommendations, feel free to reach out to me and I can share what others have done. 

Contact Financial Institutions

Then the next step is to contact the financial institutions. (By the way, this is where your financial advisor should step in and start to do a lot of the work for you.) 

  • First, contact any life insurance companies and notify them of your spouse’s passing. They’ll end up sending you some claim forms and your advisor should be able to fill those out. 
  • Then, contact social security. If you were both collecting social security and your spouse’s was higher, then you might be eligible to collect the higher amount. And also, if you have minor children, you may be eligible for survivor benefits. 
    • This social security income strategy is a big, big part of your future income plan. So I’d recommend really evaluating all the options and talking to your advisor or calling me and talking about it. 
  • Next, start notifying some of the other financial institutions that were under your spouse’s name, but don’t feel pressured to change the names on the accounts too soon, though, especially if they might be receiving money in your spouse’s name, still for a couple of weeks or months.
    • And just a warning here: when you do begin to update the accounts to your name, this can be a very emotionally difficult process. Every financial decision is actually part financial and part emotional. This can be a difficult process for many. 
    • And another warning: be careful of scammers. We’ve heard more than once about shady characters who will contact recent widowers and widows to make fake claims about debt owed. If this happens, don’t feel pressured by it, just tell them, I’m still getting stuff organized and I’ll reach out to you later. And then contact your attorney.

Update Your Financial Plan

Hopefully the things that we’ve gone over here give you an action plan on what to do next. And after that, and when you’re ready, begin the process of updating your own financial plan. This isn’t urgent, and it can be done later, but it is important for your future and the future of your family.

You may have questions about the required minimum distributions, taxes, estate planning. If you’re not familiar with these things, have a more in-depth conversation with your planner, tax person, or attorneys. And when you do talk to them, make sure that you’re aware of how they’re getting paid.

And again, I’ll offer myself up. If you want to have a conversation, I always keep 30 minutes free to talk to people who are going through a loss like this. If you want to talk to me for free and ask questions, I’d be happy to do that. 

Create Your Own Retirement Plan

Then finally, when you’re ready, look at creating your own sustainable spending or retirement plan, look to understand the investment risk that you now have in these multiple accounts and then start planning for your future and the future of your family. 

Again, if you have any questions, please feel free to contact me, and I’m so, so sorry for your loss. If you know someone who might find this information helpful, feel free to share it with them.

How Much Do I Need To Retire? Dave Ramsey Answers … But Be Careful!

How Much Do I Need To Retire? Dave Ramsey Answers … But Be Careful!

How much do I need to retire? is a common question that I hear, and it’s a really important one. 

Recently, I was reading a blog from popular financial person Dave Ramsey, and he was weighing in on the subject of retirement. I think Dave helps so many people when it comes to debt elimination and figuring out the baby steps in saving. He does great work there, but when it comes to retirement planning, in my opinion, you might want to think twice about implementing some of the advice that he gives. I’m going to go over it with you today and why you might want to be careful and what you can do instead to put yourself in a better position

First of all, realistically, you don’t want to implement anybody’s advice without meeting with them and considering your specific situation. I would much prefer doing that versus listening to someone on YouTube, or somewhere else, on what you should be doing with your money. So, talk to someone that you trust. 

Anyway, as I was looking at Dave’s blog and what he thought about this, he says that if you’re able to live on 8% of your nest egg, and if your mutual funds can do 12%, you’ll have 4% to cover inflation. Okay; that makes sense – if you want to live on 40K, he says, you need $500,000 in the bank. So, take your total nest egg and divide it by 0.08 to get that number you’ll need to live on each month.

This is, in my opinion, a little bit risky. And here’s why: 

The Sequence of Return Risk

What this means is that someone who retires in 2007 and someone who retires in 2010 are going to have drastically different outcomes of their retirement. If they were taking the same amount and their investments did the same thing, the outcomes, because of the withdrawal rates, have a big difference. 

Applying this to our example: if you’ve got 500K and you’re taking out 40K, an 8% withdrawal, and you’re averaging 12% somehow, but let’s say it’s 2007 and then the financial crisis happens. What if the investments, because you’re invested aggressively, get cut in half but you still need 40K to live? Now you’re taking out 16% and that could really crash a plan, so that’s something to be careful about. 

Aggressive Investments

Regarding this idea of the 12% rate of return on mutual funds, if you’re achieving that sort of return, my thought is that you’d have to be invested pretty aggressively. Many people who are in retirement don’t feel comfortable taking that sort of risk and going along with the rollercoaster that comes with investing in equities – especially looking at 2020 and what happened in March – because there’s fluctuations that happen. 

People in retirement don’t always want to do that, so a lot of times we’ll bring up the three-bucket strategy as a possible retirement withdrawal strategy. 

Unexpected Expenses

Let’s look at an example of a 500K nest egg to start that first year in 2020. And in this scenario, achieving a 12% return and taking out 8%, that plan looks successful and you’re actually growing your assets in retirement; fantastic.

But what if you were off by 5K of expenses; what if you really needed 45K per year instead of 40? That’s a big difference that drastically impacts your plan. And what if you were right: you needed 40K a year. But what if instead of 12% you only got 10%, how does that impact the plan? Those are just a couple of reasons why you might want to be careful when planning and make sure that you talk with a professional to map it out and think of all the different scenarios. 

And if this isn’t the best way, then what is a good way to go?

  1. Decide how much you need each month
  2. Estimate how much you might be having come in from social security and other pensions, other guaranteed income sources, and then subtract that from the monthly amount in step one
  3. Take the number from step one and minus the number from step two, and then divide that number by 0.04, which is a more reasonable 4% withdrawal rate

But again, this is still basic. The 4% withdrawal rate isn’t bulletproof, it’s an opinion, it’s a financial withdrawal strategy out there. I recommend meeting with someone and specifically looking over your scenarios, just yours and not anybody else’s. A lot really depends on the money that you have invested and the withdrawal rate that you’re using. 

As advisors, we’ve helped hundreds of people plan retirement, and we know that the more specific you can get in your plan, the more peace of mind you’ll have in retirement. If you’re interested in more peace of mind, reach out to me and I can help create your streamlined retirement blueprint, or I can give you The Perfect Retirement Plan that can help walk you through steps to take for your own retirement plan.