There are five steps to achieve a successful and secure retirement. It’s like climbing a mountain up to its peak – which is that retirement date – and there are five base camps to get to in order to reach that final peak. I know that’s a bit corny, but we don’t want to skip any of these. You may actually already be in between a couple of these, but you don’t want to skip any because each one is important.
Step One: Monthly Expenses
We’re starting at the bottom – you’re starting to think more about retirement and hopefully you’re feeling excited about your future. If you’re not, you should be. After helping a lot of people get to this point or get to retirement, we’ve seen that this could be the most fulfilling and life-giving part of your life.
Step one is to guess at your monthly expenses. What amount of money do you want coming into the bank after you’re done working? What about expenses? You don’t have to even look at mint.com or any of the other budgeting things, just take a guess.
Let’s pretend that the number is $10,000 a month coming into the bank for spending money. You might be thinking, “Who in the world needs $10,000 a month?” Or if you’re like some of our clients, you might be thinking, “I’m going to need more than that.” Don’t dwell on the amount – you’re different from everyone else, and comparison is the enemy of contentment.
Step Two: The 4% Rule
Step two on the mountain is the simple 4% rule. If you’ve seen other videos I’ve done, then you know that I don’t love that rule because if you only base your plan on that and don’t consider anything else, it could really put your plan or your retirement in danger. However, this is step two, so it’s just a quick pit stop. Let’s take that $10,000 a month x 12 months a year – that’s 120K a year. I’m not factoring in things like inflation. Then let’s take other income like social security, and this gives you the amount you’ll have to start taking from your investments. Divide it by 0.04 and that’s the 4% rule.
In this hypothetical, you’ll need about $2 million bucks just according to the 4% rule. Again, using your own numbers that’s how much you want multiplied by 12, minus your social security in the future or other income, divided by 0.04.
Step Three: Online Retirement Planner
The third step is where things get more interesting and secure. If one of your goals is to increase peace of mind around retirement, a great way to do that is to have a more specific plan and to look at a few what-if scenarios. I’d recommend finding an online retirement planner that allows you to explore these various what-if scenarios.
One piece of advice as you’re putting in numbers and looking at the result in the online planner is to write down the questions that are coming to mind or the things you don’t yet understand. This is very important, and you’ll see why in the next step.
Step Four: Meet With Specialists
Onto step four: take that plan that you got from the online retirement planner and then meet with two CFP professionals who specialize in retirement planning. You don’t need to hire that person to become your ongoing financial planner, but getting a second pair of eyes to get some validation for what you already found out could be a really good idea. Specialization is important when deciding with whom to seek counsel. If you had a really important surgery, would you go to the doctor who’s done eight of those surgeries before, or the doctor who’s done 3,000 of the exact surgery that you need?
Have them create a plan for you and then compare your findings with them. This is where you can ask those questions that were coming to mind as you were creating your own plan in step three.
At the end of those meetings with the retirement planners, you should have a pretty good game plan to follow that gets you to that successful and secure retirement you’re looking for. And hopefully they can help you think about the next steps you should be taking. If anything needs to be improved or changed, that’s when you hopefully get that good advice.
Step 5: Retirement Is Not an Event
Now, there’s one more step as we’re looking at this mountain, and it’s a really important one. If you continue to run your retirement plan by yourself, it’s important to recognize something. Retirement is a big thing you need to plan and prepare for, but when you get here with that level 10 confidence, remember that this is not an event, it’s a process. The practice of having regular monthly or quarterly check-ins is important.
What you wouldn’t want to have happen is to create the plan, you’re feeling good, and then you get into retirement and stop checking to make sure you’re still on course. I think it was Dwight Eisenhower who said, “Plans are worthless, but planning is essential.” To that, I would say, “Plans are actually good, but the continual process of planning is even better.”
Disclaimer: Since we don’t know your specific situation, none of this information should be construed as tax, legal, financial, insurance, financial advice, or other advice and may be outdated or inaccurate. It is your responsibility to verify all information yourself. This content is prepared for entertainment purposes only. If you need advice, please contact a qualified CPA, attorney, insurance agent, financial advisor, or the appropriate professional for the subject you would like help with. Streamline Financial Services, LLC or its members cannot be held liable for any use or misuse of this content.
Affiliate Disclaimer: This post may include affiliate links where we may earn a payment when you click on the links at no additional cost to you.
Disclosures: Securities offered through LaSalle St. Securities LLC (LSS), member FINRA/SIPC. Advisory services offered through LaSalle St. Investment Advisors LLC (LSIA), a Registered Investment Advisor. Streamline Financial Services is not affiliated with LSS or LSIA. LSS is affiliated with LSIA.
If you’re like a lot of our clients, you are trying to achieve a 10 out of 10 confidence level about your ability to retire – anything less than that isn’t ideal, right? Well, if that’s true, then you can’t ignore this one important piece of your retirement plan: your retirement income withdrawal strategy.
Consider this hypothetical situation:
Let’s go back to January 1, 2022, and let’s assume you were targeting a retirement date of January 1, 2024 – just two years out. If you were starting to think about retirement at the beginning of 2022, but were still a couple of years away, then it’s not uncommon for you to have a fairly aggressive investment allocation in your 401(k). Sometimes we see clients that have 80% or sometimes even more of those dollars in stock-based funds. If that were the case for you at the start of 2022, then the last 16 months or so would have been pretty scary for you. You would have seen that account balance drop pretty aggressively as you grew closer to your retirement date, and maybe you’d be starting to wonder if you’re actually still going to be okay to retire.
One thing is for sure: if this is reflective of your experience over the last year or so, you’re likely not at a 10 out of 10 confidence level about your ability to retire. You’re now stuck hoping and praying that the market recovers within the next year or you may not be able to retire on your originally intended timeline.
What can we learn from this hypothetical example? We need to have a retirement income withdrawal strategy.
Create an Income Plan
The first step in creating your retirement income withdrawal strategy is to define how much retirement income you’ll actually want or need. We find it’s easiest to think of this income in a monthly dollar amount by asking a simple question: how much income do you need or want on a monthly basis in retirement?
Make sure you think about expenses that you may not have today like additional medical expenses, travel, dining out, playing more golf, and anything that you hope to be able to do more of when you’re not working full time.
Once you have that plan set, you can actually define what you need in retirement, and how much risk you need – or don’t need – to take in order to accomplish that goal.
Build a Conservative Bucket
Now that you have your income plan, it’s wise to consider putting a few years – maybe even 4-5 years – of the annual income needed in a conservative investment “bucket.” For example, if you decided you needed $5,000/month of income in retirement, then that is $60,000 annually. That means you would want about $300,000 ($60,000 x 5 Years) in your conservative bucket. You should talk with a financial advisor, preferably a Certified Financial Planner™ (CFP®) with retirement planning experience, to determine that exact strategy.
Think back to the above hypothetical situation. If you had invested the equivalent of a few years of retirement income in a conservative investment bucket, you would have had a lot less of your dollars exposed to the market crash we’ve recently experienced, and therefore feel a lot more confident about still retiring by your original targeted date.
Now, that can work for a lot of people, but sometimes it doesn’t.
Build Your Overall Investment Strategy
With that conservative “bucket” of money now in place, you can begin to think about how to invest the rest of your assets. A common best practice is to think about creating two more buckets of money – a moderate one and an aggressive one. In order to determine how much to put in each, you want to go back to that Income Plan and decide what you need. The reality is that if you’ve saved well and you don’t need a tremendous amount of retirement income, you likely don’t need to take on much risk to achieve your goals, and can likely increase your overall retirement confidence level just by investing a bit more conservatively.
If you’re playing a little bit of catch-up or need a higher income in retirement, then you may need to take a little more risk than others. To know the answer to this, you really need to meet with a professional that can run the numbers on your plan, but to get you started, you can also use our favorite retirement planning software.
Disclaimer: Since we don’t know your specific situation, none of this information should be construed as tax, legal, financial, insurance, financial advice, or other advice and may be outdated or inaccurate. It is your responsibility to verify all information yourself. This content is prepared for entertainment purposes only. If you need advice, please contact a qualified CPA, attorney, insurance agent, financial advisor, or the appropriate professional for the subject you would like help with. Streamline Financial Services, LLC or its members cannot be held liable for any use or misuse of this content.
Affiliate Disclaimer: This post may include affiliate links where we may earn a payment when you click on the links at no additional cost to you.
Disclosures: Securities offered through LaSalle St. Securities LLC (LSS), member FINRA/SIPC. Advisory services offered through LaSalle St. Investment Advisors LLC (LSIA), a Registered Investment Advisor. Streamline Financial Services is not affiliated with LSS or LSIA. LSS is affiliated with LSIA.
Spending just a few minutes on these journal prompts might be one of the best non-financial investments you can make in or before retirement. Clients who spend time in reflection and introspection find the transition into retirement easier and more fulfilling.
You might have heard that there are five stages in retirement, the third one being a letdown stage that leaves you wondering, “Is this all there is?” But that can be avoided.
Many of these journal prompts are based on the three essentials of a successful retirement – creativity, curiosity, and contribution. Get out your journal or a piece of paper to write down your answers as we go.
Prompt #1
If you’re not retired yet, the prompt is: what can you do in retirement that you can’t do now? If you’re already retired: what do you wish you could do more of right now? If you’ve got the time and the space, what do you wish you could do more of? It might have been a while since you’ve had time to explore the things you find interesting. In retirement now, you don’t want to just sit around all day and do nothing. You want to stay engaged and continue to grow and explore new curiosities.
A few questions under this first prompt to get the wheels turning.
What do you desire to learn more about? When you walk into a bookstore, where’s the first place that you go? Is it the self-help section? Or maybe it’s history, biography, or maybe cooking? What are the topics that you find interesting or even fascinating? What do you look forward to doing? It could be as simple as grabbing a cup of coffee with a new connection or an old friend. Next, when was the last time that you felt truly excited about something? What do you love to do?
What did you do in your youth? Was there a hobby or an interest that you really enjoyed? Spend time exploring those curiosities that you had and get reacquainted with your early passions.
Prompt #2
Prompt two is all about connection: who do I desire to build stronger connections with? Maybe it’s friends, family, God, or whoever it might be. We have this client in his fifties, and in his first few months into retirement, he got reacquainted with a close friend from college. Like many of us, they lost touch once they started having families and working, but it’s like they picked up from where they left off.
Prompt #3
The next prompt is: what am I going to miss from my current employment? If you’re already retired: what do you miss about employment? One of the benefits of having your own business or being employed is that you’ve got these built-in deadlines and challenges you’re striving for each week, and those things actually promote healthy brain activity and development in retirement.
Think about what else you might miss about employment. It could be the social connections. That’s a big one because there are built-in social connections at work, and in retirement, that group kind of disappears. It might be that feeling of not having forward progress. If that’s the case, a good question to ask is, what did you make progress on today that made today better than yesterday? I really like answering that at the end of the day. The second question to that is, what could make tomorrow better than today? This can make sure that your future is always bigger than your past.
Something clients bring up under this prompt is missing the feeling of helping others in their work; contributing to a team or to the lives of others. Think about the causes in the world now that are really doing good, or think about the things that are happening in the world that break your heart. Are there any causes or charities that are helping alleviate that pain?
Prompt #4
The next journal prompt is: who have you seen retire in your life? This is using the idea of modeling success. If we want to be successful, find someone who’s already achieved the results that we want and emulate what they did. If you can’t think of anyone specific, ask yourself: if I saw someone else living their ideal retirement in an ideal way, what would they be doing? What about someone who has not retired well? What are they doing that is making it not great? What should you avoid? I created a whole video on this about creating your anti-vision for retirement, which most people do not do, but it can be really helpful as another exercise in association with these journal prompts.
Disclaimer: Since we don’t know your specific situation, none of this information should be construed as tax, legal, financial, insurance, financial advice, or other advice and may be outdated or inaccurate. It is your responsibility to verify all information yourself. This content is prepared for entertainment purposes only. If you need advice, please contact a qualified CPA, attorney, insurance agent, financial advisor, or the appropriate professional for the subject you would like help with. Streamline Financial Services, LLC or its members cannot be held liable for any use or misuse of this content.
Affiliate Disclaimer: This post may include affiliate links where we may earn a payment when you click on the links at no additional cost to you.
Disclosures: Securities offered through LaSalle St. Securities LLC (LSS), member FINRA/SIPC. Advisory services offered through LaSalle St. Investment Advisors LLC (LSIA), a Registered Investment Advisor. Streamline Financial Services is not affiliated with LSS or LSIA. LSS is affiliated with LSIA.
Something important disappears when you get to this new stage of life that we call retirement, financial independence, financial freedom – whatever you want to call it. Unless you do something about it, you may never get this thing back.
One of the big reasons that people retire is because there’s a certain part of their career or their work that’s quite stressful. Of course there are parts of your work that you really like, but as you get older, the stressful part seems to outweigh the good parts. You might wonder, “Why am I still doing this? Maybe there’s other things I could be doing that are a better use of my time.”
Then you stop working and that stress goes away, which is great, but that stress gives us something we don’t always think about as we’re getting to retirement, and it’s related to keeping our brain healthy.
I’m going to share a simple tip to have the best of both worlds; to still keep a healthy body and mind, have a little healthy dose of stress, or more time to spend on things that you really want to spend your time on.
In order to continue to grow and reach new levels of fulfillment in retirement, for this next stage of life, we first have to adopt a mindset, and then we have to put it into practice.
A Beginner’s Mindset
At this stage of life, retirement can feel like starting over, which is never easy but especially not as you get older. That’s why you need to have the beginner’s mind in retirement. Even though you’re an expert in your field, and even though you have more wisdom than you’ve ever had before, you still want to be able to approach new things. That’s partly why you’re letting yourself retire in the first place.
As a reminder, the Alzheimer’s Association says challenging and activating your mind by learning new things is one of the top ways to actually love your brain, and having the beginner’s mind will help increase our fulfillment and our happiness. When you stay curious, when you challenge yourself and learn new things, your future is going to continue to be bigger than your past. You might have heard before that curiosity is the fountain of youth. There’s also studies in positive psychology that state that looking forward in anticipation to the future is very, very healthy for the brain and body.
Curiosity: The Fountain of Youth
Let’s move on to the challenge for you; something for you to practice. Think of something that seems interesting to you, something you think would be cool to learn and try. Maybe it’s a sport, a new hobby, or maybe a language. Then set aside time to learn. Whether you’re in retirement now or you’re going to be, set time aside to be a complete beginner again.
This is so important because it’s that curiosity piece that is going to keep you young. There’s a Harvard study that shows how learning new things is one of the best ways that you can keep your brain healthy as you age.
I’d love to hear from you. What do you want to learn more about at this current stage or this next stage coming up in life? What do you want to do more of now, if you’re already retired? Leave a comment on the YouTube video and let me know!
Disclaimer: Since we don’t know your specific situation, none of this information should be construed as tax, legal, financial, insurance, financial advice, or other advice and may be outdated or inaccurate. It is your responsibility to verify all information yourself. This content is prepared for entertainment purposes only. If you need advice, please contact a qualified CPA, attorney, insurance agent, financial advisor, or the appropriate professional for the subject you would like help with. Streamline Financial Services, LLC or its members cannot be held liable for any use or misuse of this content.
Affiliate Disclaimer: This post may include affiliate links where we may earn a payment when you click on the links at no additional cost to you.
Disclosures: Securities offered through LaSalle St. Securities LLC (LSS), member FINRA/SIPC. Advisory services offered through LaSalle St. Investment Advisors LLC (LSIA), a Registered Investment Advisor. Streamline Financial Services is not affiliated with LSS or LSIA. LSS is affiliated with LSIA.
A lot of people can overlook these two things related to social security, and doing so can negatively impact your retirement and cause unwanted surprises. A lot of clients aren’t too worried about running out of money, but they do realize there are a few optimizations that they can make to their investment plan, their income plan, and their tax plan that can add up to make a big difference in dollar terms for them.
If it would be helpful to have a planning session on your retirement, reach out to us.
Planning Accordingly for Tax Expenses
The first surprise, which is everyone’s favorite thing to talk about: taxes. Most states don’t tax social security. When it comes to federal taxes, you’ll most likely be expected to pay on average about 85% of the social security benefit you receive. These are the 2020 numbers just to give you an idea if you have to pay tax where some people may be caught off guard if they’re assuming that social security won’t be taxed. If you have more than $44,000 of taxable income, you’ll most likely pay tax on 85% of your social security. If you’re filing as a single person, that amount is around $34,000. You’re most likely to hit those income thresholds because of taxable distributions from your IRAs or 401(k), but even executing strategies like Roth Conversions or having some part-time consulting income can bump that income number up.
As you’re planning out your retirement income, sometimes called your “withdrawal strategy”, make sure you take these income thresholds and the taxes assessed on social security income into account so you don’t end up surprised.
Taking Social Security Too Soon
The second surprise happens when people don’t think through the best age to take their benefit. The common thought is, “If I’m not working, let’s start social security.” That might be the best thing to do, it might not be. You can start as early as 62 and you can wait till as late as 70. Your full retirement age is likely either 66 or 67, or you might be one of those special ones in between 66 and 67 and you got 66 and four months is your full retirement age. It’s called the FRA.
If you start income before your FRA, you could be reducing your total benefit by up to 30%. If you do this, there’s a chance the government might withhold some of your social security income that you thought you would get..
If you start collecting benefits at age 62, your benefits will be reduced by about 30%. If you wait until age 63, your full retirement age benefits will be reduced by 25%. 64, it’s 20%. 65, it’s 13.3%. 66 is about 6.7%. At 67, your full retirement age, there’s no reduction of benefits compared to the full retirement age benefit. And when you wait till 68, 69, 70, it grows by 8% simple interest each year.
Withheld Social Security Benefits
Here’s another risk of starting your social security before full retirement age, and that’s getting some of your benefits withheld by social security because you earn a wage while taking it. If you make more than $21,240, they will take $1 for every $2 above that amount (these are the 2023 numbers). Everything above that will be cut in half.
If you make $31,000 – let’s call it $31,240 to stick really exactly to our example – that’ll be an extra 10,000 above the limit. Again, this is before full retirement age. That $10,000 is going to be cut in half and you will only receive 5,000 of that. So it’s very important to consider your timeline.
We made another video on the specifics of this rule so you can make sure that you don’t get penalized. Because of this, sometimes we recommend waiting until at least full retirement age, and we even look at other income sources before starting at full retirement age if that’s 67.
One of those sources could be your IRA. I recommend modeling out a scenario of delaying social security and using your IRAs in the meantime and comparing that with starting social security and delaying your IRAs. What you’ll most likely find right now is that your taxes at age 72 and beyond will be a lot higher the longer you delay taking from your IRA or other tax-deferred accounts. Talk to your advisor about the withdrawal strategy and possibly using IRAs in your 60s, or even doing Roth conversions to minimize how much you’ll need to take out of your IRA later on. If your advisor is only talking about investments and not talking about modeling retirement income planning and tax planning, reach out to us, we’d love to have a call with you. And don’t forget to check out the DIY retirement planner.
Disclaimer: Since we don’t know your specific situation, none of this information should be construed as tax, legal, financial, insurance, financial advice, or other advice and may be outdated or inaccurate. It is your responsibility to verify all information yourself. This content is prepared for entertainment purposes only. If you need advice, please contact a qualified CPA, attorney, insurance agent, financial advisor, or the appropriate professional for the subject you would like help with. Streamline Financial Services, LLC or its members cannot be held liable for any use or misuse of this content.
Affiliate Disclaimer: This post may include affiliate links where we may earn a payment when you click on the links at no additional cost to you.
Disclosures: Securities offered through LaSalle St. Securities LLC (LSS), member FINRA/SIPC. Advisory services offered through LaSalle St. Investment Advisors LLC (LSIA), a Registered Investment Advisor. Streamline Financial Services is not affiliated with LSS or LSIA. LSS is affiliated with LSIA.
Recent Comments