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How to Turn Your Retirement Savings into a Reliable Monthly Paycheck · Retire and Thrive

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  Deferring Social Security from 62 to 67, roughly those five
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  years, every year that you delay it, it increases almost 7% or
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  approximately 7%. Portfolio based income then what
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  is that? You work at a company, you have
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  a four O 1K, you roll it to an IRA, you now have a diversified
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  portfolio. We do build in life expectancy
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  and that definitely makes a different when we're building
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  out these financial plans. Anything else you'd like to add?
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  Any clients stories that you can think of that there's some maybe
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  popped into your head after talking about some of these
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  different situations? Welcome back to another edition
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  of Retire and Thrive, where we help you live your life with
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  purpose, wealth, and confidence. I'm Tammy.
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  This is Dan. Thanks so much for joining us.
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  This week. We are talking about creating a
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  paycheck during retirement. It is possible.
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  And today we have three ways that you can do so.
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  It's all about making you thrive in retirement and learning a
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  little bit more about your options because there are so
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  many money streams for folks in retirement.
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  There's so much going on. So how can we kind of create a
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  paycheck? Dan, let's start with you have
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  three different ways to do so here today.
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  So let's start with number. One, yeah.
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  And I think this was kind of fun that we're talking about income.
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  I know the last few episodes have been taxes, taxes, taxes,
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  income. More exciting than taxes?
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  And I know that gets a little boring after a while or
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  overwhelming, whatever you want to say.
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  So yeah. So let's let's focus on income.
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  So I think one of the things that we when we build out these
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  plans, we kind of break things down and the first thing we look
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  at is guaranteed income sources. So let's just start with
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  guaranteed income sources and how or why that is really
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  important for retirees. And so when we refer to
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  guaranteed income sources, what we're really referring to their
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  Cammy is income that's coming in the door like a paycheck every
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  single month. Regardless of what's happening
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  in the economy and the markets and everything else, that income
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  just consistently keeps coming in.
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  So with that being said, let's turn the table.
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  What guaranteed income sources might be one of them?
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  Give me one. Oh well, Social Security.
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  Social Security? Exactly.
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  A pension. Perhaps a pension's another
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  guaranteed income source? Any type of I guess 401K or your
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  Roth component? Yeah, that would not be quite
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  the guarantee. Let me rephrase how I phrased
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  that to you. That's a good thought, but
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  that's not necessarily. OK, not guaranteed.
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  OK, OK. What else?
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  Guarantee is it comes in no matter what happens.
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  Sure. We'll touch on here in this
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  episode a little bit about the portfolio, but those are your
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  two main ones as you've got your Social Security that's going to
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  keep coming in regardless and also any type of.
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  And remind me again the Social Security what are the ages?
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  Yeah, great question. And I know that you're a couple
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  years out from getting Social Security.
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  And I suppose it changes. Has it changed recently?
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  Not that I'm aware of. OK, So yes, guaranteed income,
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  Social Security, the first eligible outside of a disability
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  or a death of a spouse. But based on your contributions
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  you've made to Social Security, the earliest you can start
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  taking it is at 6262. Yes.
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  And then people that are my age, they have something called full
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  retirement. And the full retirement age for
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  me was born in 1966. So you could do the math.
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  We won't make you do the math or publicly display that my full
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  retirement age would be 67. So deferring Social Security
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  from 62 to 67, roughly those five years, every year that you
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  delay it, it increases almost 7% or approximately 7%.
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  OK. And then there's one other
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  caveat. If you choose to delay it past
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  your full retirement, you can go up to age 70 and for every year
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  you delay it past 67 it grows by 8% per year.
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  So to answer your question, 62 to 70 is basically the the
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  ranges of taking Social Security and if you delay the past
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  seventy you don't get an increase.
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  So it would make no sense regardless attack scenario.
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  So that those agents haven't changed.
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  OK, OK. No.
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  All right, so those are your guaranteed incomes.
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  Guaranteed incomes. And you did I, I didn't even say
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  it. You're the one.
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  Well, I got some wrong, but I'm hoping that we have some other
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  income we didn't. It's not guaranteed I.
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  Guess yeah, we didn't. We didn't give you a failing
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  grade. You just threw something else in
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  there. It's not wrong.
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  But it can change. But it's not technically
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  guaranteed. Sure, sure.
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  All right. So portfolio based income then,
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  what is that? So portfolio based income is, as
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  the name implies, if you have a portfolio.
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  And what's a portfolio? You work at a company, you have
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  a four O 1K, you roll it to an IRA, you now have a diversified
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  portfolio. That's it.
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  You got some, you know, stocks, bonds, mutual funds, all kinds
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  of things. That's really what we refer to
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  as a portfolio. So how do you get portfolio
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  income? Well, it depends what we
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  typically do as we look at a portfolio, we first breakdown
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  the guaranteed income sources. So this isn't really where I
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  thought this episode was going to go, but I'm going to just
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  touch on this for a minute because I think it's relevant
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  for retirees when we build out a financial plan.
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  One of the things that we really hone in on, and you and I kind
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  of off camera talked last week on that episode about life
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  expectancy. And you were talking
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  specifically around Social Security and life expectancy.
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  But we do build in life expectancy and that definitely
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  makes a different when we're building out these financial
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  plans. But second to that, which I
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  think is probably the second most important thing in these
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  plans, is really honing in on people's budget.
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  And so we always ask people, what do you spend?
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  And it's interesting when you ask that question because we had
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  a lot of clients that we start building out a financial plan
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  and they're like, yeah, we probably spend, I would guess
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  3000 bucks a month. And we build out a plan around
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  that. And then they come back and
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  like, oh, we were wrong. I guess it's 4500.
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  And oftentimes when people retire, they don't actually dive
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  into their budget because they spend what was deposited into
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  their bank account from their job and people tend to spend
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  what they make typically regardless, as your income goes
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  up, you tend to spend more. It's just kind of the law of of
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  spending, I guess. So back to your question,
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  portfolio income. So if we build out a plan and
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  somebody's budget is or spending is $3000 a month and that may
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  not include, you know, we may have some additional things in
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  there like travel or Medicare supplements or some additional
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  expenses. But if they say their basic
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  expenses is $3000 a month and we look at the guaranteed income
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  and between Social Security and pension, maybe they're
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  generating $2000 a month. So we need to generate, if
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  they're spending $3000 a month, we need to generate an
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  additional $1000 a month from that portfolio.
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  So that's where the portfolio based income comes from.
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  And so we kind of back into the equation first by looking at
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  what is their budget. And this is what I would ask all
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  the audiences to do. If you don't have a financial
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  advisor, take a look at your budget, see what you're spending
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  or what you anticipate spending if you're not retired and
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  whatever that number is, then look at all your guaranteed
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  income sources. Take that amount, subtract it,
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  and what's left over is the amount that you're going to tap
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  your portfolio for. And in our software, for
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  example, one of the things that we look at is what percentage of
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  guaranteed income covers your basic expenses?
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  So it might be 65%, it might be 75%, or it could be 50%.
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  But I think that's just a basic exercise that everybody who's
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  who's watching this podcast can do.
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  Figure out your budget. And I mean, we're talking
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  everything. We're talking cable, cell phone,
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  gas in your car, clothing, travel, all of those things.
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  And sometimes that's a little bit hard, Cammy, because you
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  know, my insurance I only pay once every six months.
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  I don't pay it on a monthly basis or my property taxes are
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  twice a year. But factor all that stuff in and
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  then figure out how much your income that's going to come in
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  the door, that guaranteed income that you refer to Social
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  Security and pension. And then whatever's leftover,
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  that gap, if you will, is the amount you'll have to pull out
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  of your portfolio. And I don't know if you have
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  time or not, but I, you know, my head gets going here and I just
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  want to keep talking about this stuff because I think it's
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  relevant. And I try to put myself in the
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  retiree shoes. But the final step that I would
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  do, again, if you don't have a financial advisor, is I would
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  take that dollar amount that you need on a monthly basis to cover
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  your cover the shortfall multiply times 12 because that's
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  how much you're talking about a monthly basis.
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  And then take that dollar amount and divide it by your portfolio.
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  And that's something referred to as the withdrawal rate.
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  So think of it this way. If I'm pulling out $1000 a month
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  from My Portfolio, that's $12,000 per year, and I take
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  that $12,000 and I divide it by My Portfolio value.
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  Let's say that number is 5%. If I'm averaging 6 or 7%, guess
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  what, I'm good, right? I mean, portfolios don't return
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  a straight symmetrical five, 7% every year.
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  Obviously, there's some fluctuations.
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  But if all of sudden I do the math and I'm pulling out 9% and
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  I look back historically over the last five years and my
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  return has only been 5%, it's not going to end well.
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  Problem. So it's just one additional
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  step. I was thinking of it.
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  I thought, you know, again, it's very basic, but at least it'll
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  get you kind of down the path to say, am I on track or am I?
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  Yeah. And you can do that on your own
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  flexible income layers. Why is this so important?
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  Yeah. So once you're retired it it's
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  we talked a little bit about the different tax types between the
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  pre tax, the non retirement and the Roth account.
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  But you know, we can put together these budgets, we can
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  look at guaranteed income, we can look at shortfalls and pull
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  them from portfolios. But you and I both know whether
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  you're working or whether you're retired, we all have these
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  unexpected expenses. And it could be something to do
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  with a new furnace for the house.
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  You know, I need to put a new transmission in and my car,
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  whatever it might be. And basically having these
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  income layers, if you will, or the ability to tap these
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  different sources is absolutely critical.
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  And so having having access to different tax statuses, again, I
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  don't want to go too deep into the tax side because the
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  previous three episodes were all about taxes.
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  But having income from different sources and then having control
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  over those or as it applied, kind of layering these so that
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  you don't get pushed into the next bracket specifically when
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  you're retired is very, very important.
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  Sure. Yeah, absolutely.
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  Anything else you'd like to add? Any clients stories that you can
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  think of that this maybe popped into your head after talking
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  about some of these different situations?
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  Yeah. I think probably the one that I
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  might touch on going back to the the portfolio income is I was
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  thinking about a client of mine and recently retired and him,
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  his wife retired from a local company here.
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  They both got their pensions, both got social securities and
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  so they were flush with income you know north of a six figure
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  income. Their budget was substantially
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  less than that and we had the discussion about portfolio
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  income and at that time they were in their mid 606566 years
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  old. So we started having the
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  discussions like we've talked about in the past with the
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  required minimum distributions. And so we encouraged them to
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  start taking money out. And I don't know if this was
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  really a, a, a big mistake, but it was something that, that I
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  had caught after a couple of years.
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  As I said to them, I said, I think, you know, we need to
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  start spending some of this retirement money.
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  We want to get your retirement accounts down to a little bit so
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  you're not forced at age 73. And they agreed.
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  And so we were kicking out. It was kind of a like a $2000 a
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  month. It wasn't a big deal on their
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  $900,000. And so as we started pulling
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  this money out, what was happening was because it was
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  such a small percentage, you know, it was a small percentage
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  of the portfolio, and the portfolio was growing bigger and
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  bigger and bigger. But one of the mistakes that
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  they made is they didn't spend the $2000.
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  So it just kept compounding in their bank account.
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  And after a couple of years, they had like maybe it was three
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  years, they had like $60,000. And I said, So what did you do
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  with that monthly income? And they said, well, we just let
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  us sit in the bank account. And I said, well, the bank
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  account earned you less than half of what you were getting in
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  your portfolio. So if you're not going to spend
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  it, let's keep it in the portfolio.
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  But more importantly, let's figure out a way to spend that
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  money because even with the $2000 withdrawal, you can see
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  your portfolio's growing at a much faster rate than that
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  withdrawal rate. So that was just kind of a fun
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  story. And you know, they did end up
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  taking very expensive trip and they brought kids and grandkids
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  and everything but. Yeah, a little mistake, but you
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  know, a mistake that some people be like, yeah, that's fine with
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  me, I'll find a way to spend the money.
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  Right. And we, we, we, we refer to that
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  as the opportunity cost, right. So their opportunity cost was
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  had they just left it in the portfolio over that three-year
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  period would have grown at, at quite a bit more.
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  But they just felt like I kind of forced them to pull out the
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  $2000 a month. And I'm like, well, I might, I
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  might have encouraged it, but the end of the day I kind of
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  assumed you were. Spending it absolutely.
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  Anything else you'd like to add? I think that's about it.
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  Thanks so much for joining us this week.
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  We really appreciate it. You can follow us along.
• 13:39
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• 13:41
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• 13:45
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• 13:48
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• 13:50
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• 13:55
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• 13:57
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• 14:00
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