Retirement Answer Man

Do you own any cryptocurrency? First introduced in 2009, Bitcoin and other cryptocurrencies have exploded in popularity over the past few years. 

On this episode of Retirement Answer Man, we’ll discuss what cryptocurrency is, how it is revolutionizing the banking system and the drawbacks of this new type of currency. Listen in to learn whether you should add a bit of crypto to your retirement portfolio and you’ll also hear the answers to listener questions about IRA contributions and IRMAA surcharges.

What is cryptocurrency?

Nan is curious about whether Bitcoin or other cryptocurrencies would be good investments to add to her retirement portfolio to hedge against inflation. Before we get into the answer to that question, we need to understand exactly what cryptocurrency is. 

Stemming from the word cryptography, the word cryptocurrency means it is a currency that is encoded. This digital currency is secured by cryptography technology which prevents it from getting hacked. 

Why is cryptocurrency such a big deal?

Cryptocurrency is separated into denominations called coins or tokens which are actually cryptographically protected codes. These new currencies are atypical in that they are issued by non-centralized networks or entities and not issued by any government. 

The value of a cryptocurrency coin or token is stored digitally and managed by a blockchain network that facilitates transactions. Blockchain is basically a digital bank replacement that is virtually frictionless. Transactions are instantaneous and can be confirmed quickly. 

The promise of cryptocurrency could revolutionize currency transfers and remove the need for a banking system. With encrypted digital currency there is no need for a bank. Transactions bypass the third-party gatekeepers that are typical of traditional banking transactions, so there is no need for any extra fees. 

How could cryptocurrency help combat inflation?

Inflation occurs when a currency loses value over time. We have seen the inflation rate spike over the past year and the more money that comes into the system the less value the dollar will have. Since the US government is printing currency faster than ever, many people are worried that the dollar will continue to lose its value.

New crypto coins or tokens can only be released by mining, so the value of the currency is based on a degree of scarcity. The finite supply of the currency’s structure is designed to retain its value over time.

What are some concerns over cryptocurrencies?

With all the benefits that come with this revolutionary financial technology come some drawbacks. Since it is so new, cryptocurrency has become a craze with new currencies being released each day. Much like the internet craze of the early 2000s, no one knows which currencies will come out on top. 

The novelty of this new trend has also created volatility in the values of different cryptocurrencies. Currency values can spike up or down 10%-20% in one day.

Investing in cryptocurrency is a bit like heading out to the wild west to pan for gold. Since it is so new, there is little to no government regulation which, paired with the anonymity that these currencies provide, can attract bad actors and lead to money laundering and tax evasion.

Listen in to hear whether I recommend adding cryptocurrency to a retirement portfolio to hedge against inflation. 

OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN

LISTENER QUESTIONS

  • [5:05] Is investing in cryptocurrency a good way to combat inflation in retirement?
  • [11:51] Why is cryptocurrency such a big deal?
  • [17:01] What are some concerns over cryptocurrencies?
  • [22:10] Contribution limitations in the year that you retire
  • [24:41] Appealing the IRMAA surcharge
  • [26:27] What counts as income when calculating ACA credits?

TODAY’S SMART SPRINT SEGMENT

  • [28:16] Finalize your 2021 net worth statement

Resources Mentioned In This Episode

Episode 300 - Medicare and IRMAA

Form SSA-44 - Medicare Income-Related Monthly Adjustment Amount - Life-Changing Event

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: RAM415.mp3
Category:general -- posted at: 2:00am CST

Do you have a system for estimating what your future RMDs will be? Should you keep a mortgage or pay off the balance of your house in retirement? What should you do with the money that you withdraw to fill up your tax bracket? These are just a few of the questions that will be answered on this episode of Retirement Answer Man. Press play to check it out!

My word of the year

The end of the year is always a good time to think about beginning anew in the next year. I’m not big on celebrating New Year, but I enjoy the renewal process that comes with the start of the new year. 

If you have listened to the show in the past, you have heard me discuss my word of the year. I choose a word each year as part of my own process of renewal. I try to use my word of the year as my guiding light to help me stay focused on my goals for the year ahead. Have you ever chosen a word of the year to help you focus on your goals? Listen to this episode to hear what my word is this year. 

How do you calculate what your future RMDs will be?

You know RMDs are coming at age 72, but how can you estimate what they will be? To calculate your RMDs you can create your own spreadsheet to get an estimation. Once you have a feasible retirement plan in place and you know how you will fund your retirement you can use this fantastic exercise to help you optimize your retirement plan. 

To estimate future RMDs, I set up a simple spreadsheet with these columns: your age, the year, the RMD ratio, the end of the year account value for the prior year, estimated withdrawals, and the year-end value. Once you have these values in place you can take the total and divide it by the value provided by the IRS uniform lifetime table to estimate your future RMD. 

How estimating your RMDs could benefit your retirement plan

One way that this exercise can benefit you is by allowing you to project the risks that you might encounter in retirement. You may realize that you won’t need this much money to live on and decide that it is a good idea to fill up your tax bracket by withdrawing from your IRA sooner so that you can lower your RMD in the future. 

What to do with the money that you withdraw from your IRA to fill up your tax bracket 

If you do decide to withdraw from your IRA or 401K to fill up your tax bracket you will have the benefit that you know what your tax rate will be, but what should you do with the money? The way I see it you have 5 options. You can spend it, save it, give it away, invest it in after-tax vehicles, or convert it to a Roth IRA. The most important thing to do when making these arrangements is to think through your process in an organized way. What would you do if you decided to fill up your tax bracket?

OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN

WHAT DOES THAT MEAN?

  • [1:30] My word of the year

LISTENER QUESTIONS

  • [6:55] How do you calculate what your future RMDs will be?
  • [15:33] Is it a good idea to keep a mortgage in retirement?
  • [21:34] What do you do with the money that you withdraw from your 401K?
  • [26:20] A suggestion from Mike
  • [28:21] The efficacy of using balanced funds

TODAY’S SMART SPRINT SEGMENT

  • [36:18] What will be your word of the year next year?

Resources Mentioned In This Episode

LTCI Partners 

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: RAM414.mp3
Category:general -- posted at: 2:00am CST

Do you have a net worth statement that you update regularly? Whether or not you do, you’ll want to learn about the psychological benefits that this exercise can create. In this episode of The Retirement Answer Man show, we’ll discuss what a net worth statement is and how you can gain from creating one regularly. 

You’ll also hear several listener questions that range from inherited IRAs to I-bonds, to SPIA annuities. If you are interested in rocking retirement, you’ll need to arm yourself with the knowledge to help you navigate this change in life. Listen in to get started on your retirement education journey. 

A Rock Retirement Club announcement

If you are looking to join the Rock Retirement Club you can sign up for the waiting list until we open enrollment again in late January. We closed enrollment in early December to restructure the club a bit and introduce periodic enrollment so that new members can be a part of a cohort. This will help freshmen members to take full advantage of their membership as they work their way through all the benefits that the club provides. If you are interested in checking out the Rock Retirement Club, head on over to the website and join the waiting list to receive the latest email updates. 

What is a net worth statement?

If you have listened to the Retirement Answer Man show in the past, then you already know that a net worth statement is a statement of the resources you have accumulated with your wealth. 

Your net worth statement lists all of your assets and their values and your debts and their values. Assets like your retirement accounts, investment accounts, or property are listed on the left side of the net worth statement. These assets can be categorized by whether they are tax-deferred, after-tax, or tax-free accounts. On the right side is the debt column. Total each column up to see the value of each. Once you do that you’ll subtract the debts from your assets and have your net worth. 

Creating this valuable financial tool is a way to understand the cumulative impact of the financial decisions you have earned. Do you have a net worth statement that you update regularly? 

The 5 ways you can use your income

Since there are only 5 things that you can do with your income, your net worth statement reflects those financial decisions that you have made. These are the 5 ways that you can use your money:

  1. Spend it. 
  2. Pay down debt
  3. Give it away.
  4. Save it as cash in an emergency fund.
  5. Invest for the future.

For every dollar you have earned you have made a decision (whether consciously or unconsciously) to do one of these 5 things, so your net worth statement is a reflection of these choices. 

Creating a net worth statement provides a psychological impact

By updating your net worth statement periodically you’ll be able to compare how your finances reflect your values and whether you are using your finances to stay in line with your goals. If you identify any incongruencies then you can address the behavior before it gets out of hand. 

Have you ever put together a net worth statement? When was the last time you updated it? As a rule of thumb try revisiting it every 6 months.

Make sure to listen to the next episode to hear my word of the year!

OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN

PRACTICAL PLANNING SEGMENT

  • [1:56] What is a net worth statement?
  • [4:50] Creating a net worth statement provides a psychological impact

LISTENER QUESTIONS

  • [11:21] You can work with LTCI Partners directly
  • [14:45] Mike asks if I-bonds are a no-brainer
  • [20:12] Examples of how people have blended retirement with meaningful work
  • [24:28] A comment about SPIA annuities
  • [32:25] Alternatives for the fixed income portion of assets in retirement 
  • [35:27] Navigating the changes to the inherited IRA RMD rules

TODAY’S SMART SPRINT SEGMENT

  • [37:51] Consider creating experiences rather than giving gifts for the holidays

Resources Mentioned In This Episode

BOOK - Retirement Planning Guidebook by Wade Pfau

Wade Pfau - Retirement Researcher

TreasuryDirect.gov

LTCI Partners

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: RAM413.mp3
Category:general -- posted at: 2:00am CST

You have probably heard me refer to a retirement plan of record in the past few episodes, but you may be wondering what exactly this is. I have had several listeners reach out and ask me to define this term, so in addition to hearing listener questions, today you’ll learn exactly what a retirement plan of record is and how it can help you plan your retirement. Press play to check it out.

What is a plan of record?

The retirement plan of record is something that I work on with my clients and I am in the process of developing a template that will be available in the Rock Retirement Club masterclass. This plan of record will help you create a current representation of your decision-making framework so that you can walk through a decision-making process in an organized way. 

Why is it important to have a plan of record

There is so much to consider in retirement planning--asset allocations, withdrawal rates, Roth conversions, IRMAA, taxes, not to mention who your friends will be and what you’re going to do all day. With all of these considerations, it is easy to become overwhelmed by the choices if you don’t have an organized way to make decisions. Without a clear direction, your decision-making process could have you bouncing around like crazy. 

The 3 pillars of the agile process

When creating a retirement plan of record, it is important to organize your financial goals into 3 pillars so that your plan can remain agile. First, develop a feasible plan, then, make it resilient, and lastly, optimize your plan. If you can arrange your decisions under these 3 pillars, then you can think through the process in an organized way. 

A retirement plan of record can ensure that your decisions reflect your values and goals. You’ll be able to create feasible spending goals based on your resources. Your plan needs to be resilient so that you can manage risks. 

Once you have your plan of record in place then you can work through each decision while referring to your plan. You’ll be able to see the changes you are considering within your organized process and create a what-if scenario by making a copy of your plan of record and adjust accordingly. This way you’ll be able to flush out the implications of this new variable so that you can examine the decision in a thoughtful way. 

The plan of record is a useful tool to accomplish organized thinking that you can execute in a consistent rhythm so that you can stay agile and make the most of your life regardless of what happens. Your plan of record allows you to focus on what you can control.

OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN

WHAT DOES THAT MEAN?

  • [3:50] What is a plan of record?

OUR SPONSOR

  • [12:22] Check out LTCI Partners for your long-term care insurance needs

LISTENER QUESTIONS

  • [13:31] Lee is worried about inflation--should she work longer?
  • [22:05] Thinking about Social Security claiming strategies
  • [28:18] How IRMAA surcharges work each year
  • [33:26] How to deal with switching from an HSA to Medicare
  • [35:32] Filling up tax bracket buckets

TODAY’S SMART SPRINT SEGMENT

  • [39:03] Review your retirement contributions to make sure you are hitting the numbers you want

Resources Mentioned In This Episode

Episode 385 - The 4% Rule

Episode 395 - Retirement Risk Basics

Check out LTCI Partners for your long-term care insurance needs

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: RAM412.mp3
Category:general -- posted at: 2:00am CST

Rocking retirement doesn’t mean getting your Roth conversions right, it means minimizing your regrets. At the end of your life, you don’t want to think “yay, I paid fewer taxes!” you want to think “wow, my life was awesome!” Overcoming the frugality that stems from a lifetime of saving is one way to live a life free of regret in retirement.

To ensure that you can live life to the fullest, create a retirement plan that can iterate as life unfolds. When you have a feasible, resilient retirement plan that utilizes the resources you have you’ll be able to build the life you want. You’re already well on your way to rocking retirement by listening to the Retirement Answer Man show. 

On dialing back

Recently I committed publicly to publishing 2 episodes per week in an effort to improve the show. However, very shortly after making this change, I realized that it wasn’t a good change for me. For this reason, I decided to pivot back to one episode per week. I realized that it is important to live my life true to myself rather than base my choices on the expectations of others. Have you ever made a decision that you quickly had to undo? 

Should Gene pay off his house from a pretax retirement account?

Gene is considering paying off his house from his 401K account. He owes $200,000 at 2.5% on a 25-year loan. He would like to know what the best course of action would be in his situation. 

As with any major retirement planning question, my recommendation is to refer to your retirement plan of record. (To get a more detailed understanding of the retirement plan of record, make sure to listen to the next episode!) After walking through that plan with the mortgage in place, then you can create a what-if scenario in which you pay off the mortgage. This way you can compare each choice side by side to see which one would best serve your overall goals.

Listen in to hear why I wouldn’t take the funds from my 401K to pay off my house and hear what I would do instead. 

How to move from accumulation to distribution phase of life

You have saved for decades, so when the time comes to start spending that savings it can be a challenge to loosen the purse strings. Retirement is not simply about spending money: it’s about living your life to the fullest. 

Think about why you chose to save your money and act frugally for so many years. Chances are, you did so to achieve financial security and to pay for the best retirement lifestyle that you could afford. Achieving financial security means that you feel comfortable with your retirement plan. If you don’t have faith in your plan, consider having a professional look over your plan to bolster your confidence so that you can rock retirement. 

How to improve your life and overcome frugality

If you are a naturally frugal person, you may think that you have everything you need at this point in life, so there is no reason to spend more than you do. However, there are many ways that you can improve your life by spending money. Consider whether these activities would enhance your life.

  • Eating out with friends more frequently
  • Attending physical therapy
  • Getting regular massages
  • Hiring a personal trainer to improve fitness
  • Hiring a nutritionist to help you plan meals

Overcoming frugality can help you live your life to the fullest and rock retirement. Think about how you could increase your spending to maximize your life. 

OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN

LISTENER QUESTIONS

  • [4:00] A correction on QLACs
  • [5:05] Social Security and Cola
  • [9:25] An urgent inherited IRA question
  • [12:30] On dialing back
  • [15:08] Whether or not to pay off the house from a 401K
  • [20:48] One listener appreciated learning about Roth conversions 

COACH’S CORNER WITH KEVIN LYLES

  • [26:18] On overcoming frugality
  • [29:42] Spending guaranteed income is much easier
  • [31:26] How you can improve your life by spending
  • [34:25] 3 tips to incorporate to spend your money

TODAY’S SMART SPRINT SEGMENT

  • [42:55] Look for ways to enhance your life today

Resources Mentioned In This Episode

Start here to listen to the Retirement Tax Management series with Andy Panko

Brian Johnson’s Optimize.me

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: RAM411.mp3
Category:general -- posted at: 7:05am CST

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