Retirement Answer Man

Choosing the right withdrawal strategy is a big part of rocking retirement. Knowing how you will withdraw your money each month will ease the pressure that comes with leaping into retirement and boost your confidence. The right retirement withdrawal strategy for you may not be the same as the one your friend uses, the one you just read about, or even the one your advisor recommends. 

On this episode of Retirement Answer Man, we are wrapping up our 4 part series on retirement withdrawal strategies by learning how to build a framework to find the strategy that fits your individual needs. Press play to hear how to piece together the information you have learned in the past 3 episodes to create your own income distribution plan so that you can gain the confidence to really rock retirement. 

Changing the language you use could change your mindset about retirement

Planning retirement can be like planning to have kids. You don’t often think of the sticker shock that comes with it. Learning that a comfortable retirement might cost you $5 million might give you heart palpitations. But just like with having kids, you don’t have to pay that amount all at once. This amount is spread out over the years and you have control over how much you may spend. This is why it is important to get into the right mindset. 

One way you can change your money mindset about retirement is to reframe the way you word things. Yes, you are choosing a retirement withdrawal strategy, but the word withdraw means to take away. That isn’t the most attractive thought. 

A better way to think about your financial capital is to realize that it is simply deferred income. You have been deferring this income for decades and the time has finally come to access the income that you have already earned. A simple change in wording can completely change your mindset and help you rock retirement.

To choose the right withdrawal strategy, first, consider your financial situation 

The first step to take to build your retirement withdrawal strategy is to consider your retirement situation. Think about whether your retirement is overfunded, constrained, or underfunded. To do this, compare your retirement liabilities to your resources. Consider all of your sources of income including your social capital, human capital, and financial capital. 

Next, you’ll want to consider the different withdrawal strategies that you have learned about over the past 3 episodes. If you consider each of those retirement withdrawal strategies as being on a dial from 0-10 you can then place your financial situation on that dial. Chances are you land somewhere in the middle of the dial rather than on either extreme. This means that you may want to take a moderate approach to income distribution. Listen in to hear where each withdrawal strategy lands on the dial and how that could affect your personal income distribution plan. 

Don’t ignore the qualitative aspects of retirement

Not everything in life is about numbers and this is true for retirement as well. This means that you’ll need to consider more than just your finances to create your retirement withdrawal strategy. You’ll want to consider your age, life expectancy, and health. Do you need to fit as much living as you possibly can in the next few years? Or do you need to make your money last on the chance that you live to be 100?

In addition, you’ll need to consider your family situation. Are you single or married? Do you have children? These external factors will also play a role in your income distribution plan. 

One last consideration is your personality profile. You may need more security even if you are overfunded. Every person has their own risk tolerance threshold. Whichever way you choose to distribute your income in retirement, you need to feel comfortable and confident so that you can rock retirement. Press play now so that you can learn what you need to know to develop your retirement withdrawal strategy. 

OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN

PRACTICAL PLANNING SEGMENT

  • [4:00] How do you find the strategy that fits for you
  • [7:31] The language you use to describe things really matters
  • [10:00] Think about this in an organized way
  • [17:55] What to take into account to help you evaluate all the aspects
  • [24:01] How does your social capital fit into the equation?

ANDY PANKO INTERVIEW

  • [30:21] Why do people have so many questions about this?
  • [34:20] How does Andy approach this question with his own clients?
  • [36:54] How does Andy deal with tax planning in retirement?
  • [44:46] Don’t let the internet scare you into doing something you don’t need

COACHES CORNER WITH BW

  • [48:38] Choosing the right strategy can give you the permission to spend
  • [52:08] How BW chose his withdrawal strategy

TODAY’S SMART SPRINT SEGMENT

  • [59:35] Map out how you think about your quantitative and qualitative aspects of retirement

Resources Mentioned In This Episode

Check out the Facebook Live in Andy’s Taxes in Retirement group 

Rock Retirement Club

Roger’s YouTube Channel - Roger That

BOOK - Rock Retirement  by Roger Whitney

Work with Roger

Roger’s Retirement Learning Center

Direct download: RAM388A.mp3
Category:general -- posted at: 5:00am CST

When it comes to creating your retirement withdrawal strategy there is no one-size-fits-all solution. You have to determine what is right for you. That’s why we have been exploring different withdrawal strategies this month on the Retirement Answer Man show. 

If you missed the last couple of episodes go back and listen to learn about the safety-first strategy and safe withdrawal rates. On this episode, we are digging into asset-liability matching. Press play to learn more about this hybrid approach to withdrawing your assets in retirement. 

What is asset-liability matching? 

Asset liability matching is a term that is used in the pension planning world, but you can use it to describe your own assets and liabilities. Your liabilities are your spending or the debts that you need to cover. Your assets are your financial capital. If you prefer, you can also think of your 401K as deferred income rather than as your investment assets if that helps you come to terms with spending it. 

Basically, asset-liability matching is when you match up your deferred assets with your consumption to make sure that you have your spending covered in retirement. 

Where does this strategy fall among the retirement withdrawal strategies?

On one end of the spectrum, the safe withdrawal rate strategy skims along the top of your investments. It only dips into them as needed. On the other side of the coin, the safety-first approach prefunds all or the majority of your retirement journey. 

Asset liability matching falls somewhere in between these two extremes. I may be biased towards this approach since I use this structure coupled with agile retirement management with my own clients. Since I value flexibility in retirement, this withdrawal strategy fits my ideology. 

Start thinking about which way you lean on this spectrum, so you can begin to build your retirement withdrawal strategy framework in the next episode.

What's your baseline?

To execute the asset-liability matching strategy, you’ll first need to establish a contingency fund or a standard emergency fund as a buffer. The next step is to plan your spending over the first 5 years of retirement including your tax estimates. 

Once you isolate how much you’ll need from your financial capital, then you can build an income floor. The rest of your assets can then go into a core, growth-based investment portfolio. With this strategy, you’ll get a mix of protection against sequence of return risks in the near term and a hedge against inflation in the long term. 

What are the benefits of asset-liability matching? 

This is a good strategy to use if you value optionality. Since retirement is such a big life change it is nice to have a lot of liquidity early on. Retirement does not simply mean that you stop working. Your entire life changes and it can be difficult to understand how it will change when you are in the planning stage. Having this liquidity in the income floor can give you confidence and flexibility as you navigate this momentous life change. 

Another benefit of asset-liability matching is that you mitigate the sequence of return risk. Having an income floor in place can give you many options if the world falls apart early on in retirement. 

You may want to pivot to a safety-first approach or safe withdrawal rate as you age, but asset-liability matching gives you plenty of room to adjust while you are figuring this whole retirement thing out. 

I am naturally biased towards matching assets to spending since this is the strategy that I use with my clients, but there is no single best withdrawal strategy to use in retirement. You’ll need to consider what is right for you. Make sure to listen to all 3 Retirement Withdrawal Strategies episodes to consider which strategy fits your needs and come back next week so that you can learn how to create a framework to navigate this crucial piece of retirement planning. 

OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN

WHAT DOES THAT MEAN?

  • [2:30] What is asset-liability matching?

PRACTICAL PLANNING SEGMENT

  • [6:39] Where does asset-liability matching fall in line with the other withdrawal strategies?
  • [9:20] What is a baseline?
  • [12:50] How will you find adjustments along the way?
  • [13:43] What are the benefits of this strategy?

LISTENER QUESTIONS WITH NICHOLE

  • [19:15] How to calm the worry about retirement
  • [25:21] Do I take the pension or the lump sum? 
  • [29:55] What happens if your money management platform gets hacked?

TODAY’S SMART SPRINT SEGMENT

  • [35:42] Do you know of a void in your first year of retirement?

Resources Mentioned In This Episode

Rock Retirement Club

Roger’s YouTube Channel - Roger That

BOOK - Rock Retirement  by Roger Whitney

Work with Roger

Roger’s Retirement Learning Center

Direct download: RAM387.mp3
Category:general -- posted at: 5:00am CST

One of the biggest questions of retirement is how to withdraw your money. You can’t have a successful retirement without first planning how to withdraw your money. That is why we are discussing different retirement withdrawal strategies this month. Last week we covered the infamous 4% rule and today you’ll learn about the safety-first approach. In our next episode, you’ll hear about a hybrid approach and in the last episode of this series, you’ll discover how to build a framework for your own retirement withdrawal strategy. Are you ready to educate yourself on the various ways that you can withdraw your money in retirement? Press play to get started. 

What is the safety-first strategy?

In the previous episode, you learned about a safe withdrawal strategy using the 4% rule. Whereas the 4% rule is a portfolio-based strategy, the safety-first strategy takes the opposite approach. Safety first ignores safe withdrawal rates and asset allocation. Instead, it focuses on creating income sources via various guaranteed income vehicles. The idea behind the safety-first approach is that retirement is too important to have variables like sequence of return risk that could ruin your retirement. 

How to implement the safety-first approach 

Since you only get one shot at retirement, the safety-first method secures a base income by using the assets you have. Prioritization is a key component to safety first. The first thing one must do to utilize the safety-first approach is to calculate your base needs over the span of your lifetime. Once you have this number, then you’ll subtract the income from your social capital so that you can see what’s left. With safety-first, you will secure your base needs by utilizing bond ladders or income annuities. After creating your income floor, then you can focus on building your contingency fund to help with life shocks. Once both of these bases are met then you can focus on any other retirement goals you may have. 

What are the advantages to safety-first?

The first advantage that comes to mind with safety-first is peace of mind. By using the safety-first approach you won’t have to worry about the markets because you know that no matter what happens your base needs will be met. Another advantage is that this approach is easy to manage. There is not much to do after you have the plan in place but collect your monthly paycheck which makes this plan ideal for later in life. One more advantage is that since your needs are met you can focus on being more growth-oriented with the rest of your portfolio. 

The disadvantages of this approach

The main disadvantage that I see with this approach is the lack of flexibility. If you have listened to the show before, you know that my methodology is all about staying agile. People change their minds a lot and life can completely change after retirement, so tying up your assets in an annuity can take away the power to change your mind. Another downfall to safety first is increased inflation risk. Most annuities do not adjust for inflation, so if there are any spikes in inflation you could be at risk. Listen in to discover if the safety-first approach is the right one for you. 

OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN

PRACTICAL PLANNING SEGMENT

  • [1:30] What is the safety-first strategy?
  • [4:35] What are secure assets?
  • [8:06] When to implement the safety-first strategy
  • [10:20] Advantages and disadvantages to the safety-first strategy

LISTENER QUESTIONS

  • [17:55] How should I incorporate an inherited IRA into my retirement plan?
  • [20:10] Taxes and Roth conversions
  • [23:45] Does the 4% rule take into account social capital? 
  • [24:54] How do bonds work?
  • [28:38] A pro-rata question

TODAY’S SMART SPRINT SEGMENT

  • [30:40] Do a basic calculation to figure how much of your base needs will be covered by guaranteed income sources

THE FEEDBACK BOOTH

  • [32:43] Women run the finances too
  • [34:35] My 3rd attempt to discuss financial planning fees

Resources Mentioned In This Episode

Wade Pfau

BOOK - Safety First Retirement Planning by Wade Pfau

Michael Kitces

Rock Retirement Club

Roger’s YouTube Channel - Roger That

BOOK - Rock Retirement  by Roger Whitney

Work with Roger

Roger’s Retirement Learning Center

Direct download: RAM386.mp3
Category:general -- posted at: 5:00am CST

Have you considered what kind of withdrawal strategy you plan to use in retirement? There are more to choose from than you may realize. Over the next 4 episodes, we will focus on different withdrawal strategies and how to choose one that fits your needs. 

On this episode of Retirement Answer Man, we’ll cover the most notorious retirement withdrawal strategy: the 4% rule. In week 2 of this series, we’ll discuss the safety-first strategy. In the 3rd episode of the Retirement Withdrawal Strategies series, we’ll learn how to utilize matching liabilities to spending, and finally, in the last week of July, you will learn how to create a framework to help you decide which retirement withdrawal strategy will work best for you. 

This episode is packed with information and even includes an interview with Jamie Hopkins, author of Rewirement. Get ready to buckle down and learn what you need to start the decumulation phase of life. 

There are 3 big rocks in retirement planning

It can be easy to get sidetracked when planning for retirement. There are so many different areas that you need to consider. You don’t want to focus on the wrong thing, but how are you supposed to know what the right thing is when there is so much information out there. I believe that you need to focus on the 3 rocks of retirement planning.

  1. Feasibility - This means what is possible given your resources. You’ll want to figure out how to squeeze the most life out of the assets that you have to create the best life that you can. 
  2. Resiliency - You don’t want to get thrown off course by inflation, bad markets, or life. This is where choosing the best withdrawal strategy comes into play.
  3. Optionality - This covers the tools you can use to enhance the journey - tax planning asset allocation etc

What is the 4% rule?

The 4% rule was created by William Bengen in 1994 in a landmark academic article. Mr. Bengen wanted to know if there was a fixed amount of money that you could pull from your assets safely each year and never run out of money. To investigate, Bengen looked at historical data and ran models to search for a percentage rate that one could withdraw safely over a typical lifetime. He learned that 4% is the amount that you could withdraw from a portfolio to stay ahead of inflation yet never run out of money. Over the years the paper has gained momentum until it eventually became a rule of thumb.

What are the advantages and disadvantages of the 4% rule?

As with any withdrawal strategy or general rule, there will be advantages and disadvantages. One advantage of the 4% rule is that it provides you with a safe withdrawal rate. You can be confident that your portfolio is secure and you won’t run out of money. Another advantage is that this rule is simple. 

Simplicity is nice because it is easy to follow, however, everyone is different and what works for everyone may not work for you. The 4% rule may be too simplistic and too unbending. The 4% rule also doesn't account for changing market conditions, inflation, and life surprises. Another disadvantage is that you are likely to die with more money than you would like to. This could lead to regret. 

Please leave a review!

If you have been enjoying the show, make sure to leave an honest review on your favorite podcast app. Reviews help to ensure that those who are walking the same path of life can find this podcast easily. If you’d like the resources that go along with this episode and future episodes, make sure to sign up for the 6 Shot Saturday newsletter.

OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN

WHAT DOES THAT MEAN?

  • [2:40] There are 3 big rocks in retirement planning

INTERVIEW WITH JAMIE HOPKINS

  • [7:40] Going from accumulation to decumulation can be a challenge
  • [13:30] How to get in the right mind frame to spend in retirement
  • [19:53] Set boundaries at work to create balance
  • [22:45] What can you do to feel better about a decreasing balance sheet

PRACTICAL PLANNING SEGMENT

  • [29:48] The 4% rule is a safe withdrawal rate
  • [32:31] Advantages of a safe withdrawal rate

LISTENER QUESTIONS

  • [38:15] Mountain bike questions
  • [42:22] Assumed portfolio investment returns
  • [51:24] Can you do Roth conversions if you plan to retire early?
  • [54:44] Does home equity help when considering net worth?

TODAY’S SMART SPRINT SEGMENT

Resources Mentioned In This Episode

BOOK - Rewirement by Jamie Hopkins

Rock Retirement Club

Roger’s YouTube Channel - Roger That

BOOK - Rock Retirement  by Roger Whitney

Work with Roger

Roger’s Retirement Learning Center

Direct download: RAM385.mp3
Category:general -- posted at: 5:00am CST

Welcome back to the last episode in this Listener Questions series. From time to time I step away from our usual monthly themes and dedicate an entire month to answering your questions. This week I have requested help from friends to answer your burning retirement questions. Press play to learn more about the rule of 55, Social Security, using HSAs before Medicare, and more. 

Will I regret not paying off my mortgage?

Mark and his wife are planners. Most of their life has gone according to the plans they made; including their timeline for retirement. However, recently their retirement plans changed. Instead of paying off their house in preparation for retirement, they decided to buy a new home by the beach with a mortgage. After careful assessment, they realized that they have enough money to live comfortably on their pensions with this mortgage payment, but Mark wonders if he will eventually regret the decision to keep the mortgage and not pay off the house. 

Have you grappled with the decision of whether to pay off your mortgage or not in retirement? Listen in to hear Chad Smith from the Financial Symmetry podcast answer this question. He may provide some insight that you hadn’t considered. 

Should you use a 3-4% increase in Social Security benefits when planning your retirement?

You may have noticed that many financial planning tools default to increasing Social Security benefits 3-4% per year in their projections. While a 3-4% increase is the average cost of living adjustment for the program, it does not increase at the same rate each year. As a matter of fact, There have been many years in recent history when Social Security hasn’t risen at all. 

Taylor Schulte from the Stay Wealthy podcast prefers to be more conservative in his predictions. He uses a 1% average increase in projected Social Security benefits when helping his clients create their retirement plans. He has found that it is better to be conservative when making assumptions so that his clients are prepared for extreme, unpredictable situations. In retirement, you don’t want to be caught off guard. 

Meaning and purpose in retirement

To have a successful retirement, you must have meaning and purpose in your life. You may agree with this statement, but have you ever defined these terms? 

Meaning is an internal concept that is important to you and gives you pleasure. Meaning allows you to use your unique gifts and talents to feel useful. Since meaning is internal, it doesn’t matter whether society thinks something is meaningful, meaning can only be defined by you. 

Purpose is an external concept that involves looking outside yourself to make a difference in the world. It doesn’t matter if that difference is earth-shattering or whether it is as simple as bringing joy to your grandkids. 

The key to a successful retirement is to find activities that provide both meaning and purpose. Decide which activities are meaningful to you. Look around to see how you can make a difference in your world so that you can attain a sense of fulfillment.

What will you do to find meaning and purpose in your retirement? 

OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN

LISTENER QUESTIONS

  • [1:30] A rule of 55 question
  • [4:10] The ramifications of the decision to not pay off the mortgage
  • [8:38] A Social Security question
  • [11:27] Using health savings accounts vs. health reimbursement accounts before age 65

COACHES CORNER WITH BW

  • [14:04] Defining meaning and purpose in retirement

Resources Mentioned In This Episode

Andy Panko, Tenon Financial Group

Andy Panko’s Taxes in Retirement Facebook group

Chad Smith from Financial Symmetry

Taylor Schulte Stay Wealthy podcast

Tanya Nichols, Align Financial

Rock Retirement Club

Roger’s YouTube Channel - Roger That

BOOK - Rock Retirement  by Roger Whitney

Work with Roger

Roger’s Retirement Learning Center

Direct download: RAM384_1.mp3
Category:general -- posted at: 6:38am CST

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