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Why the Surviving Spouse Carries More Risk · How to Retire on Time

• 0:00
  Mike: Hey. Thanks for joining. Here's a question I was recently asked on my show, how to retire on time. Take a look. Alright.
• 0:05
  Let's do this next one. We got we got time for two more questions.
• 0:09
  David: Yeah. Think so.
• 0:10
  Mike: Can you explain how you do your pension versus lump sum analysis? This is a multi layered one, and here's why. What people typically do is they say, okay, well here's the pension and here's the lump sum, and if I put the lump sum in the market based on the last five years of growth, what would it be different? Like that that's a very biased analysis. Not appropriate because the the pension is gonna be a structured payout.
• 0:37
  It's an annuity. Annuity is by definition structured payout.
• 0:40
  David: Okay.
• 0:41
  Mike: The lump sum puts all the responsibility on you to manage it correctly.
• 0:45
  David: Right.
• 0:46
  Mike: Wrong question. The first question is, how do you want your plan to look? Okay. And then, is the pension payout competitive to other categories? Do you want structured payout?
• 1:01
  Like if you got a pension, you've got savings, maybe you just want, you know, you got 60,000, let's say, from Social Security, and you want an extra $1,020,000 coming in, that like that lets you sleep better at night. Then, okay, it's not the pension, it's that you want structured payouts. Mhmm. You see the difference there? Mhmm.
• 1:18
  You're thinking more of a broad strategy as opposed to how do you get the most out of your money. Oh, yeah. Then, you explore your options. So let's say you want structured payout. Great.
• 1:30
  Look at your pension. So let's say that you're gonna get $6,000 of a year for pension, or a $100,000 lump sum. That's a 6 percent return on your investment. Well, what does the thirty year treasury offer? A little bit less?
• 1:44
  Okay. Maybe we maybe we consider that, maybe we don't. Because if you take it and you get the let's say 5% payout on a thirty year treasury, I'm making numbers up by the way
• 1:53
  David: Okay.
• 1:53
  Mike: For an example. You know, pays it out thirty years, if you died then at least the kids get the leftovers. Might pay out slightly less, but you get you keep your money. Mhmm. Maybe you look at an annuity.
• 2:07
  An index annuity is gonna pay out, let's say, six and a half, seven, even sometimes 8% on your money. That's a good deal. And if you died soon, there's a cash value left over. That might be a better deal. Or maybe you don't even need the income.
• 2:23
  Then you take the lump sum and you invest So, like there's different benefits and detriments here, but the one thing I don't like about pensions today, and annuities have really responded to this, is that if you take the pension option, and you and your spouse pass, everything's gone. If you take it, and you get a similar or better rate from an indexed annuity, from an insurance company, and you die the next day, there's a death benefit. So shop around, but first ask, what is it that you want? Do you want structured payments, or do you want to take on the responsibility and grow the assets and have that flexibility? Both are perfectly fine.
• 3:01
  Then you shop the best system to get you the strategy you want implemented.
• 3:07
  David: Mhmm. Yeah. And then the responsibility does lie with you. Right? What if you take the lump sum and you take that cash and you do some stock picking and you pick the wrong ones?
• 3:17
  Mike: Yeah. You have to be okay with the risk you're taking. Yeah. Doesn't make it wrong, everyone's just different.
• 3:21
  David: Yeah. I mean, if you didn't need the money and you lost it, okay. Right? Yeah. Maybe it was fun, but
• 3:27
  Mike: What's that?
• 3:28
  David: Alright. Yeah. Was fun.
• 3:30
  Mike: It's never fun losing money. Alright. Question five here. What happens to the plan if my spouse dies first? So, yeah, this is called the widow tax.
• 3:41
  And the idea is, if the one spouse passes, the surviving spouse typically has similar expenses.
• 3:54
  David: Oh, yeah.
• 3:54
  Mike: Like their income needs don't change drastically.
• 3:57
  David: Right. Homeowners insurance will stay the same, Netflix subscription will just go higher.
• 4:02
  Mike: It's just the same. Yeah. Or it'll go higher because
• 4:05
  David: they
• 4:05
  Mike: keep Right. Raising But the things that do change is you do lose a social security income stream Yep. And you are taxed at the single tax bracket. Yes. I'd love Congress to pass something that says, if you're 65 or older, or 60 years older, or 67 or 70 years and older Uh-huh.
• 4:21
  And you've been married for longer than ten years, and your spouse passes in retirement, that you get to keep the married finally jointly taxed. Like that'd a nice thing.
• 4:28
  David: That's brilliant, I love that.
• 4:30
  Mike: Yeah, but I'll never run for politics because
• 4:33
  David: That's a real classy group of people.
• 4:37
  Mike: Yeah. But that's not the case. Yeah. And we don't wanna live in a dream world, so yeah, you're gonna lose income streams, and you're gonna get taxed more. So this is why some people will front load their IRA to Roth conversions, because it's like, well, at least there's another five to ten years at least both in us, so let's get ahead of it, so that the RMD is the required minimum distribution, is something that could be absorbed by the single tax bracket and the surviving spouse.
• 5:06
  It's kinda playing it in multiple phases. And when we put a plan together, there's usually anywhere three to six phases that we're like, alright, here's phase one, here's the objectives, here's phase two, here are the objectives, here's phase three, here are the objectives. Mhmm. Because that's the kind of thing that helps you put a plan together. To explore the strategies based on the seasons of your plan.
• 5:28
  And then, the products, the investments, they just, they select themselves. It's a beautiful thing. Really beautiful thing. I mean, Dave, what do you think about that? Yeah.
• 5:38
  I mean, the widow tax. Have you ever Did you ever think about that?
• 5:43
  David: I did not. I have to admit, before I heard you say it recently, I didn't know that was That just wasn't even in the realm of possibility, deduction of, you know, married, filing joint, or single, that's just
• 5:58
  Mike: Oh, there's one other thing I forgot. Oh. Same income, not only is your standard deduction cut in half, not only are your tax brackets going down, not only does the social security go away, the Irma brackets are cut in half too.
• 6:10
  David: Oh, that's right. Yes.
• 6:11
  Mike: So, you're gonna get hit with healthcare too. Yeah. I mean, it is just mean what our system does to the surviving spouse.
• 6:20
  David: It's true. Yeah. I don't know why someone hasn't championed this cause. Maybe maybe AARP is and they're just maybe they're on Capitol Hill.
• 6:28
  Mike: Hopefully, they're I don't know what who knows what they do. Yeah. But, yeah, I
• 6:32
  David: I honestly had not thought of that and it's it's a good question to ask and start thinking about, and be prepared for it just And in
• 6:39
  Mike: if I were to distill our whole conversation today, it goes back to the same framework. This is the core retirement planning framework that so many people miss. Most people typically shop for products. You know, you go to the steak dinner and you get sold the annuity, and then you go over here to the library and you get sold a REIT, and then you go over here and there's an online webinar, and you're like, oh, that's a cool strategy, I'm do that. And you kind of end up with this pile of tools.
• 7:06
  And then from the tools, you start to figure out what strategies could you implement, and then you kind of call that a plan that you're gonna just kind of duct tape together. Mhmm. That's the wrong way to go about it. The right way is to start with your projections first. Just see what your money looks like.
• 7:22
  How does it flow moving forward? Then you explore the strategies. The fundamental question here is, how do you get more out of your money? Yeah. That's a fun question to answer.
• 7:34
  Right. And there's infinite ways that that could be done. So many variations. But notice, the plan was first, what do you want your life to look like? What does that cost?
• 7:46
  The strategies are second. We haven't talked about investments or products yet. No. So that third, they self select. That order is essential.
• 7:57
  I talk about it in the book, How to Retire On Time. The workbook, for those of you who have the workbook, it walks you through these checklists as well. The AI prompts help you pick the right tools for the right decisions. It's a very deliberate process that puts the correct sequence of retirement planning in order. And for for those of you who are on here, I see there's a lot of you on here, or anyone listening to the show, YouTube, podcast, if you're thinking, gosh, I know I'm getting close to retirement, if you're within five years of retirement, if you're not, if you've already retired, schedule a call today.
• 8:32
  Mhmm. The first call is free, thirty minutes, we're gonna ask you what do you want your retirement to look like, and what do you want from a professional, and tell us. I want a one time plan, and I wanna manage this on my own. I want a one time plan, and I want some sort of hybrid relationship. Maybe come in for an oil change once in a while, just checkups every now and then.
• 8:49
  Yeah. Or I want it just done for me. Whatever your option is, the plan comes first. And for those of you that schedule that thirty minute call, if it seems like it's a fit, we'll give you the first two appointments at no cost. Mhmm.
• 9:03
  Just so you can see what the planning looks like. Mhmm. And I'd encourage you to do this, markets are still at all time highs. Things are still pretty good. So it's a great time to put your plan together, even if you're five years out from retirement, because if the markets crash next year, and you delayed this, I know it's people wake up saying, I wanna do a financial plan this morning.
• 9:23
  I get that. Right. It's easy to procrastinate. Yeah. But it's one of those things that if you can just prioritize it and put it together first.
• 9:32
  Imagine how much better you'll be able to sleep at night. Imagine that if the markets do crash in two years, that you say, oh, I've already planned for this. Yeah. That's the purpose. Go to retireontime.com/call, schedule the call today, you'll work with one of our advisors, who will be able to help you create a plan that's designed to last longer than you.
• 9:53
  Appreciate you all being here. Again, that's retireontime.com/call. Schedule that call today. We'll see you all next week. Same time, same place.
• 10:02
  Hey everyone, one last note. We're in the final stages of launching publicly our model that's been only available to our private clients. If you wanna be a part of that launch, the public launch, subscribe to us. Subscribe to us, retireontime.com. You can get that and so much more.