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Insights Live: Retirement Income Planning | Fidelity Investments

JONATHAN LAMOTHE:
Hello, everyone, and welcome to the latest
Insights Live, retirement income planning, going
from saving to spending. Today's webinar is the first
of two webinars we have focused on retirement income. Part two is going to
take place on November 9, and it's going to focus on
strategies for RMDs, IRAs, and more. So please ensure you
register for this one as well by visiting
fidelity.com/webinars or keep an eye out for the
email invitation. My name is Jonathan Lamonthe,
vice president of webinars here at Fidelity. And today, we're
going to be talking about a transitional period
in life, the time when you go from earning
income and saving it to living on those wages. We do have a lot
to get to today.

But I truly want to thank
you for taking some time out of your day to join us. I also want to point out that
if you are watching on a laptop or desktop computer,
you're going to see a blue button at
the bottom right hand corner of your
screen to download a great document filled with
a lot of resources that are focused around today's topic.

As always, before
we begin, I would like to mention that Fidelity
does not give legal or tax advice, and nothing
we discussed today should be interpreted
as legal or tax advice. The information we
are providing is going to be general in
nature, and it may not apply to your situation. If you do have legal
or tax questions about your specific
situation, we do encourage that
you talk to your tax professional or your attorney. So with that, I'd like to
turn it over to our moderator today, Ms. Ally Donnelly. Ally, it's all yours. ALLY DONNELLY: Thanks, Jonathan. And thanks to you, our
viewers for tuning in. This is going to be
a great discussion. And we also appreciate
you sending your questions during registration. They help shape
today's discussion. And if we can, we'll pop in
a few more live as we go.

Like Jonathan
said, retirement is a time of transition, when
it comes to your money, especially. You might be wondering what
your spending will look like or whether your
savings will last. We're going to cover all
of that and so much more. So let's meet our panelists. Panelists, could you introduce
yourselves and also share the perspective you bring
to the conversation. Rita, why don't you kick us off. RITA ASSAF: Great. Well, first of all,
thank you for having me. So I'm Rita Assaf. I am responsible for Fidelity's
IRA products and small business retirement products. And what that means is we
help clients understand which product is best for them,
and then how to save on them, and then how to spend
through them once they transition to retirement. ALLY DONNELLY: Terrific. Michelle. MICHELLE HOWELL: Thank you. My name is Michel
Howell, and I'm a vice president,
financial consultant. I collaborate with
individuals and their families to discuss financial planning
topics such as retirement income planning, tax-efficient
investment strategies, navigating financial transitions
such as death and divorce, retirement cash flow
strategies, and also wealth transfer techniques.

I've worked in this
space for over 20 years. And I'm located in the Edina
Minnesota Investor Center. ALLY DONNELLY: Excellent. Jerry, fill us out. JERRY PATTERSON: Well,
greetings, everyone. Jerry Patterson,
excited to be here. I am responsible for Fidelity
Investments Life Insurance Company. We focus on fidelity.com
insurance and protection offerings, including things like
long-term care insurance, life insurance, and annuity
income solutions. Prior to that, I spent
30 years with a number of large financial
services company focused on helping people manage their
money, plan for retirement, build estate plans,
and prepare for and plan for the unexpected. ALLY DONNELLY: Great. All right. Let's get into it. Michelle, I'm going
to start with you. As someone who talks to
clients every day, and you've worked with so many
people on this transition, so help us understand,
what are some of the challenges your
clients talk about in going from
saving to spending? MICHELLE HOWELL: Yeah. There are really
two major challenges I think of in this space as
clients are transitioning from saving to spending. For individuals who have
saved their entire lives, often, there's just a
psychological adjustment that needs to be made
around spending, right? So the best way I can
bring that to color is just through a client
example, one of my clients who's definitely a saver.

I mean, he is at
his core a saver. He also is very passionate
about running and likes to jog. And for years, we'd met
and discussed the fact that he had a very
solid financial plan, but he really wasn't spending
enough in retirement. And his goal was to add to
his discretionary expense by doing some other
things he enjoyed and pursuing additional hobbies. So one time, he
comes into my office and he says, Michelle,
you'll be so proud of me. I actually spent some money. And I was excited. I thought, OK,
well, what property are we going to discuss? Are we looking at a new
vehicle out in the parking lot? Like how did you
spend the money? And he proceeds to tell
me a story about how he went to a local shoe store,
bought four pairs of running shoes at a negotiated price
because he was buying in bulk and spent $500. For most of us, we would
chuckle at that, right? But for him, that
was a huge hurdle. That was a milestone in his
ability to spend in retirement. And conversely for those who
would identify themselves as more of a spender, there's
some coaching conversations that need to take place to
make sure that when you retire, you're not just jumping in and
spending too much too soon.

Logistics and also
monetizing a portfolio is probably the
number one concern people have when they're
transitioning to retirement. Here we've saved this big
pot of money, this nest egg all of our lives. But how do we actually turn
on that spigot of cash flow? How do we get from this nest egg
to monthly cash flow and income streams to support ourselves? And really, that's a question
that has some simple solutions. So at Fidelity, we like
to work through a concept and go through an exercise
called salary and bonus structures.

And while in retirement,
we can actually construct and replicate
the same compensation structure that
many people enjoyed while they were still working. For those who prefer
their retiree income to function like a salary
because of its consistency and reliability, we aim to
cover their essential expenses through reliable income sources
like Social Security, pensions, or other predictable
income sources. The other category of expenses
are discretionary or some of the negotiable expenses. And while working,
these are expenses that are often funded through
savings accounts, from a bonus, or some other windfall
source of income. These expenses are often not
rigid and time-bound either. So in retirement, we like to
create a scenario where you've got some flexibility so that
you can incur the expenses when you're comfortable from a
psychological perspective or perhaps after we've had
a nice run up in the market and you're feeling comfortable
about taking a larger distribution out
of your portfolio, to fund the fun stuff
like the three-week trip to Italy, the kitchen renovation
you've been building up for, or perhaps to take a
huge trip to celebrate a milestone anniversary
across your family.

ALLY DONNELLY: OK. So I'm definitely putting Italy
and milestone anniversaries on my list. But where should
someone start when they're trying to estimate
those retirement expenses? MICHELLE HOWELL: Ally, this
is really the fun part. Retirement is what you make it. From how you choose to prepare
for retirement and also how you choose to spend
your money in retirement. An easy place to
start here is just to think about expenses that
are essential in your budget. These are non-negotiable
costs that everyone incurs. Perhaps it's property tax,
utilities, insurance costs. If these expenses aren't
readily known, that's OK. There's an easy
starting point, which is the fact that most bank
statements as well as credit card statements actually provide
a yearly spending summary.

And we can use that
as the foundation for how we build your budget. As for health care,
at Fidelity we also do research in
this space, and we can help you estimate expenses
that you might incur prior to Medicare eligibility
as well as when you're covered by Medicare. And then from here,
you get to dream. What do you want to
you in retirement? What does that look like to you? What other hobbies
or lifestyle choices do we need to incorporate
in the budget? Is there regular travel? Are there golf memberships? Did you always dream of becoming
that master gardener and there are some expenses that you
need to approach to get there? Those are all things we
can tack into the budget after all of those
building blocks. Lastly, I would say don't
worry about having everything precise. The markets are
definitely not static nor are any of our lives. So things change, and it's your
financial consultant's role to keep up with all of
those shifts taking place. And along the way, we'll share
our experiences and working with others. We'll also give you insights
around other retiree habits.

And in some cases, we'll
provide some transparency and some tough conversations
if the expenses start to compromise the sustainability
of your overall retirement plan. ALLY DONNELLY: OK. So Jerry, let me turn to you. You hear everything
that Michelle is saying about estimating your expenses. But then where do you
start to actually create a plan to make sure you
can cover all the costs? JERRY PATTERSON: Yeah. So for sort of very
first starters, we use a discussion framework
at Fidelity called EPG. It's very popular
with our clients. And it's a great way to begin
the overall planning journey. It's also a great framework
to revisit a plan that you may have done in the past. And through this framework,
we organize the discussion around retirement planning
into three broad categories. E for emergency, P for
protection, and G for growth. E for emergency, we need to
ask ourselves the questions, are we prepared for an
unexpected financial emergency? Do we have enough liquid
funds, for instance, to cover our bills
for six months, which is a rule of thumb
that many people use.

The P for protection,
we ask ourselves, do we have a plan to protect
the income we need to cover our essential expenses? Michelle referred to
predictable sources of income like Social Security,
like pensions. But what happens
if you have a gap between your essential
expenses and Social Security or pensions? Can things like
annuities play a role to close that gap to make sure
that you can fund your income needs as you go
forward in retirement? Do you need long-term
care protection, or are you comfortable
self-funding a long-term care benefit if it should
occur during retirement? And then G for growth,
the big question is, how are you going to invest
the rest of your nest egg after you've set aside
that money for emergencies and you've installed the
protection solutions that you think you need as well? How important are
things like maximizing the legacy you leave to your
heirs versus maintaining your current lifestyle? So G for growth is
really at the heart of the investment strategy
underneath your nest egg.

A good conversation
using this framework usually leads to the development
of very specific goals and investment and
protection strategies to ensure that you're
going to meet those goals. I'd encourage you
try it yourself. You take a piece of paper,
write E, P, G across the top. Write down the
questions that come to mind when you think
about emergency, protection, and growth. And even write down the answers. That's exactly the
kind of conversation we go through with
our clients when you meet with
people like Michelle at the beginning of
the planning process. And like I said, our
clients find the framework a really, really great
place to start the planning conversation. ALLY DONNELLY: Yeah. And I think that is. Like get the
conversation started.

Even if it's in your own
head, because when you really start to think about
it, that's where things come to take shape. But Rita, I have to
ask you, so Jerry's got this great framework. But how do you then
allocate your resources to fit those different
types of expenses? RITA ASSAF: It's
a great question. So in general, a
retirement income plan will cover different
income streams to cover different expenses.

And the reason for this is
it allows for flexibility, but it also reduces risk
that too concentrated on one income source. So in general, what we say
is to protect your income from market risk. Essential expenses– so
think of housing, utilities– these should be covered by
guaranteed income sources like Social Security,
like annuities. And the reason for that
is because they keep up with inflation. And actually, this
just in this morning, the Social Security
Administration just announced that they are
increasing 2024 Social Security benefits by 3.2% because
of cost of living. And this is a little
over from 2023, which was I believe around 8.7% But it has been higher
than the average that we've seen over
the last 20 years, which has been generally around 2.6%. But then when you look at
discretionary expenses, this is where you want these
covered by your savings or investment income so that
if there is a market downturn, you can cut back without hurting
your day-to-day expenses. And I also would echo
what Jerry just mentioned, which is an emergency fund.

So just like today the general
rule of thumb as you're working is if you happen
to lose your job, can you cover about six
months worth of expenses through your emergency fund? Well, we also want to consider
that in retirement as well. And can you tap into available
cash or short term investments should an emergency arise? ALLY DONNELLY: Yeah. Let's look out a bit
further because all of you here have mentioned change time
and again, that life is not static. So most of us don't keep
to a single spending plan year-after-year realistically.

And I mean, retirement
could be 30 years or more. So how does spending
during those years typically change over time
from what you see with clients? RITA ASSAF: So we've generally
seen sort of three stages that clients can experience. And they will vary, obviously. And they come with
different spending habits. So the three stages– and I'll try not
to trip over this– are the go-go years, the slow-go
years, and the no-go years. But by understanding
these stages and their different
spending habits, it can make you feel
much more confident that when you go to
your retirement plan, you're covered for all of these.

So I'll start with
the go-go years. These are generally at the very
beginning of your retirement. You're excited, you're active. You might be traveling, you
might be trying new hobbies. So you're generally
spending more because you're out and about. And then there are the slow-go
years, which is generally a period of transition. So you might be moving from an
active lifestyle to one that's a little bit more balanced. You might be spending more
time on relationships, friends, time with children and
your grandchildren. And it usually means
you're spending sort of comes down a little bit. And your priorities may shift. So you might be more concerned
about financial security and ensuring that
your savings last. And then finally, there
are the no-go years, which is generally
dependent on your health. This is the hardest to predict. It's also the most
emotional because it really does depend on your health.

And it generally
means that you're less active because of it and
that you have higher health care costs. It's also when you're
typically contemplating end of life plans or legacy plans. And this is where planning
does become critical because you want
to ensure you have sufficient savings to cover
these medical expenses and potentially long-term care. ALLY DONNELLY: Yeah. Yeah. I mean, of course, health
care spending is significant. But Jerry, once we hit
65, there's Medicare. So is that kind of a blanket,
so to speak, for our health care expenses? JERRY PATTERSON:
Great question, Ally. Medicare continues to be a
critical financial pillar in the US retirement system. Despite what you see
in the headlines, it's still an
important safety net for millions and
millions of Americans who are retiring and depend
on it for health care.

And for those of you who are
at that critical age of 65 or getting close, don't forget
that open enrollment starts in three days on October 15. So it's right before us. It's top of mind for a lot
of Americans right now. I think what's important
to note about health care and Medicare when you
retire is not everything is covered under Medicare. And even of those
items that are covered, it's not always covered 100%. And there's a lot
of costs we're going to face in our older years
that feel health-related that aren't covered. These include things like
certain prescription drugs, dental care, chiropractic
services, long-term care.

And even things like
foot care and acupuncture are not covered. And don't forget that we're
all responsible out-of-pocket to pay 20% of all
medical costs incurred and Medicare pays the rest. And this can add up to a lot
of money as we grow older. And the likelihood of
these costs emerging increases as we go grow older. In terms of how to address
those gaps and what gaps you may have is a really,
really, really important step in your overall planning. It's important to investigate
plans that are out there, whether that's things like
Medicare Advantage plans, whether it's Medigap or
med supplemental plans or standalone prescription
drugs or standalone dental plans or vision plans.

There's a whole host
of solutions out there that can help you
close those gaps and address things like
coinsurance and copays if those are things
you're uncomfortable with or to get you coverage
that for things that you're not going
to get under Medicare. So there are
solutions out there. And in the planning process,
it's really important as you hit 65 or you start to
creep up on 65 to investigate all those options
because they don't all work in perfect harmony.

So sometimes when
you choose one, it doesn't make sense
to choose another. And sometimes, one
perfectly covers the gap like let's
say you're looking for dental insurance
that's not covered through original Medicare. Well, Medicare Advantage
might provide you with that coverage
you're looking for. But this is an
important, important step in your planning process as
you transition into retirement for sure.

ALLY DONNELLY: Yeah. Yeah. I mean, clearly, health care
is a major expense for retirees that are on people's minds. But Rita, how can someone start
estimating what their cost might truly look like? RITA ASSAF: Yeah. So health care
expenses in retirement are also the biggest stressor. In our research,
that's what we've seen. It's how do you even
try to estimate that? So Fidelity has done some
research around this, and they found that a single
person aged 65 in 2023 would need almost $158,000 saved
after tax to cover health care expenses in retirement. And for a couple aged 65, they
would need almost $315,000. So that's just on average. It'll obviously vary for
your personal situation. But this is where Medicare
research will be important. And Fidelity has resources
that can help you, and our financial professionals
are great at walking you through this. But as Jerry just
mentioned, there are different Medicare options. There's also supplemental. So you want to do your
research to understand what different options
are appropriate for you and what the premiums
would be and what the out-of-pocket
costs would be.

And this includes
what prescription drug plans there are because that's
the biggest unknown as well. And out-of-pocket expenses can
vary by the different Medicare option you choose. And it can include monthly
deductibles, coinsurance, copays. So one way to estimate
these costs is once you settled on
an option, calculate your monthly premium based on
the type of coverage you have. And then keep cash for
out-of-pocket expenses. And out-of-pocket
expenses can vary, but you can also
look at expenses that you might have seen in the
past, how many times have you visited the doctor in the
last year, how many times have I gone for acupuncture,
those types of things to help come up
with that estimate. And Michelle said this earlier. It's not going to be
perfect, and that's OK.

But even getting to
this level of detail will just make you feel
a lot more comfortable. ALLY DONNELLY: Yeah. Yeah. Let me follow up there because
estimating costs are one thing. But how do you help
folks strategize how they're going
to manage the costs? RITA ASSAF: One
way to help manage the costs is through health
savings accounts or HSAs. So you might have
heard about these. They're often described
as triple tax-advantaged. And what that means is that
the contributions are tax-free. The investments grow tax-free. And your withdrawals on
qualified health care expenses are tax-free. But in order to
contribute to an HSA, you will need to be enrolled
in what you generally hear is an HSA-eligible health plan. These tend to be higher
deductible type health plans. But you know I would say,
even if you don't have access to an HSA, it's usually
prudent to set aside some cash specific for health care. But since we're on
the HSA kick, there are some interesting things how
you can use HSAs in retirement. I would say one watch out is
that once you're on Medicare, you cannot contribute
to your HSA.

Otherwise, you'd be
subject to tax penalties. But once you are on Medicare
and if you've had an HSA, you can actually use it to pay
certain expenses like premiums. And a real fun fact about the
HSA is that after you turn 65, you can use it on
whatever you want. It does not need to
be on health care. So you want to buy a boat? You can do that. But it won't allow you to
take full advantage of the tax savings because you are required
to pay state and federal taxes if applicable.

But this is similar then to a
401(k) when you're taking out a withdrawal, you do have to
pay state and federal taxes. So pretty much puts
it on par to that, but you do lose that
third tax advantage, which is being tax-free when
used on health care expenses. ALLY DONNELLY: Now, those are
great things to point out. I mean, clearly, the
cost of health care often exceeds what
we're estimating. So what other
spending curveballs tend to pop up that you
can think of, Jerry? JERRY PATTERSON:
Good question, Ally. And yeah, health care can be one
of those definitely curveball costs. You can have health care shots
deep in retirement that can have huge financial
consequences. . But there are
other things that I think are important
to think about that could come at you infrequently
or even as a one-time cost.

Think about the need to replace
your car during retirement. For me, I've always liked to
drive a car under warranty. And that requires me to go into
car-buying mode every three to five years. And I'm in that mode right now. And I bet there are
plenty of folks listening that share my sentiment that
that's not a fun mode to be in. But I'm there again right now. But given the likelihood
that I'm probably going to drive a lot less in
my retirement years, that's probably an approach
I need to rethink.

But I still need to
incorporate and anticipate that cost is going to come
whether it be 3, 5, or 10 years down the road. I think it's important
to incorporate that into your planning. Other big expenses
that can emerge are things like
paying for a wedding. Probably something people
don't plan for enough, but it happens a lot is
moving closer to your kids or moving somewhere else. And that can be a big cost. Or buying that RV to check
that trip to Glacier Park or to visit the largest
ball of twine in the world off your bucket list
might be another thing you need to plan for. And these are all things that
just need to be incorporated. I think it might
have been Michelle or maybe it was Rita was
talking about building a salary plan and a bonus plan. You almost have to
have this bonus plan with delayed frequency
to anticipate these big costs that could
emerge deep into retirement. Another one that's
really important to plan for is long-term care
because the way long term care emerges is it's usually
unexpected, it happens quickly, and you're suddenly required
to come up with liquidity.

So let's say you end up
going into a nursing home when you're 87. Those costs can range from
$9,000 to $13,000 a month. That is a huge unexpected cost. And most people when
they're deep into their 80s don't have $13,000 a month in
liquid funds easily reachable. So those are the kind of things
that when you talk about curve balls you got to incorporate
into your thinking and your planning for sure. ALLY DONNELLY: Yeah. I mean curveballs are
curveballs for a reason.

It's challenging. I want to follow up on one of
Jerry's comments, Michelle, about big purchases. So lots of clients
have asked us, is it OK to take on
debt in retirement? RITA ASSAF: Ally, the short
answer here is yes, right? Having come through the last
15 years of historically low interest rates, I
do often see clients carrying mortgage or auto
loan debt into retirement. Obviously, the compromise
that gets made, though, is if you're using a
number of cash flows to support debt paydown,
there's less cash flow to be spent on other
discretionary and lifestyle items that you might want to
incorporate in your retirement budget. The other thing I think
of here is actually just loan qualification. So often, lenders
are really focused on the recurring monthly
income sources like salary, pension, annuity income, any
automated payments coming from investments more
so than net worth or what you have on
your balance sheet during that
underwriting process.

And so when working, this
is less obvious to us because we have
compensation, we're maybe accustomed to
just looking at our W-2 and documenting
that compensation. In retirement, underwriting
can be more challenging because depending on
how much of your income is actually automated
versus being distributed on an ad-hoc basis,
the underwriting can look different. One other lending
consideration for those who actually have
non-IRA assets is something called a
collateralized line of credit.

And that's a mouthful. But really all it
is a line of credit that backs a brokerage account
in your investment portfolio. And this allows you
to actually borrow using the value of
your investments without having to sell
down your investments and incur capital gains. And it can be paid off any time. Since the brokerage account
collateralizes the loan, there's just less scrutiny
around where you're receiving your income
sources in retirement, and that can also be an option. ALLY DONNELLY: That's
really interesting. I didn't know that. OK. So once you have a
handle on your expenses, you need income, obviously,
to support the spending plan. So help us flesh out what
are some typical sources of retirement income. JERRY PATTERSON: Absolutely. So there are many typical
sources of retirement income. The obvious ones would be
Social Security, pensions, rental income,
dividends and interest from investments, and
also distributions from the investment portfolios.

Those are all the most common
sources of retiree income. And most retirement
income strategies incorporate several
of these sources just for diversification, as
Rita mentioned earlier. At Fidelity, we do believe
that essential expenses should be covered by guaranteed
sources of income. And again, those include
Social Security, pensions, and annuities, guarantees. Despite most employers no longer
offering traditional pensions, there are easy ways to convert
portions of our savings into monthly income streams
just like a pension. And those instruments
are called annuities. ALLY DONNELLY: Now, we get a lot
of questions about annuities. And Jerry, I know this is
the sweet spot for you. So help us understand how they
can fit into the overall plan. JERRY PATTERSON: Thanks. Well, first and foremost,
there are many different types of annuities.

I happen to be in a meeting with
an annuity provider this week. And this single company
features 23 different flavors of annuities. So there's a lot of
different kinds of annuities. And many of them feature
guarantees of principal or your retirement income in
the the insurance companies that issue them. For clients who value the peace
of mind and predictability that comes with
guarantees, annuities can play a really important
role in your overall savings and investment plan. Fixed income
annuities, for example, can help you close
that gap that Michelle was talking about between
Social Security and pension if you have pension income
and your essential expenses to ensure that you
have your bills fully covered by predictable sources
of income while you're retired.

For many of our
clients at Fidelity, this strategy has been a game
changer where our clients are able to neutralize
effectively the need to worry about covering
essential expenses like those pickleball
league dues. Those would probably
be essentials for me by the time I retire, but
to each his own, I guess. Many annuities
feature various fees. And some of these fees
can be high at times. It's really important for
you to understand those fees and the trade offs
that might be occurring between the investment
returns might have otherwise enjoyed versus
the value of the guarantees to you. You should also think
about the ratings and the financial strength
of the insurance companies that issue these
annuities as you may be staking your retirement
security and certainty on them. ALLY DONNELLY: I
was wondering when pickleball was going to
come into the conversation, so thank you. But Rita, I want to dig into
Social Security specifically.

There's always questions
about the right age to claim benefits. How do you counsel clients
on what considerations they should bring
into their mind before they make that decision? RITA ASSAF: Well, I would
say Social Security is just confusing. It's always a challenge. There's a lot of
myths out there. And there's headlines out
there as well of like, will Social Security last? We can't predict the future. But for now, Social
Security is here. And it should be considered as
part of your retirement income plan. But there are some things
to consider to help you decide when to claim. So first, I'll just say
that you can actually start receiving Social Security
benefits as early as age 62.

But you're entitled to your
full Social Security benefits when you reach your
full retirement age. And you might see
this shortened as FRA. So that FRA will depend
on your date of birth. Right now, the FRA for people
turning 62 and 2023 is age 67. So that group can actually start
to get their full retirement benefits at age 67. But here's where
waiting to claim is actually a benefit for
you because it can result in a higher monthly average. So for every year you delay
past your full retirement age, you get an 8% increase in
your monthly Social Security benefit. So if you wait till
age 70, that could be as much as a 24%
higher monthly benefit. So it really does help
to think about delaying and if you can make
that gap work for you.

But you also want to think
about planning Social Security when to claim with a
spouse because that does come into effect
and could actually maximize your lifetime benefit. ALLY DONNELLY: Interesting. So waiting to claim can
make a big difference. But if you're married, you
have to coordinate the decision with your spouse. Tell me more about that. RITA ASSAF: Yeah. And this is where
it gets confusing. So spouses actually can
get up to 50% of what we call primary worker's benefit. So if your spouse didn't
work for some reason and you're the
primary breadwinner, they actually can get about
50% of your retirement monthly benefit as their
own Social Security. But here's where
delaying doesn't help because if the
primary worker claims before their full
retirement age, then their spouse will
have reduced benefits. It's also important to
note that spouses max out on their Social
Security benefits at their full retirement age.

That means if the primary
worker delays till age 70, for example, and their
spouse is also age 70, the primary worker will
get that extra benefit, but the spouse will not. Also, you want to consider
if your spouse qualifies for Social Security
benefits of their own. So if they do, they will
get that amount first. If for some reason your
Social Security is higher, your spouse will get
that additional amount so that the
combination of benefits equals that higher amount.

We know that this
can be a lot, but we do have resources
and a tool that can help you assess your
options and work through that. ALLY DONNELLY: OK. Perfect. When we talk about
investments, how can someone determine
the right amount of risk to take, Michelle? MICHELLE HOWELL: Yeah. Since retirement can encompass
multiple decades of time, it's imperative that
we maintain a focus on investing for growth to help
offset inflation and longevity risk. Most would be
surprised to recognize that you can be invested
too conservatively and create just as
much of a detriment around your retirement
plan as being invested too aggressively. As an advisor, I
tend to cringe when I see articles that simplify
portfolio construction by simply taking the
number 100 less your age and using that as the sum
of the percentage of stock is what you should carry into
retirement because that's far too simplistic, right? Retirement planning is
just not one-size-fits-all.

It should be tailored it's
specific to everyone's individual situation. And two plans don't
really look alike, right? Everybody has different
investment preferences. They've got a different
history and context that they approach
investing from. And strategic allocation
between stocks, bonds, and cash and everything in between, all
the different sub asset classes should really be measuring
our own risk tolerance, our personalized
distribution needs, and just the greater context
of our own financial plan. ALLY DONNELLY: Yeah. Yeah. Rita, what's your perspective? Anything to add there? RITA ASSAF: I want to
support what Michelle just said, which is, you want to have
a diversified investment mix. It's going to be personalized
based on how comfortable you are with market volatility, your
overall financial situation, and how long you're
investing for. So your diversification
will look different than anyone else's
because you might be more concerned about inflation. So if that's the case,
may you look into tips.

So Treasury-plated protected
securities or commodities. But you also want
to consider growth. And I know a lot of
people fear growth type investments in retirement,
but they do also help against inflation. And that's where
you want to consider stocks and mutual funds. So it will vary. But having a diversified
investment mix personalized to
your goals will help you have a more balanced
plan to help you. ALLY DONNELLY: OK. All right. What about a risk that can also
be a gift, particularly for us, longevity? Women tend to outlive
men, Michelle. And if that's your
life situation, that makes a difference. MICHELLE HOWELL: Absolutely. Women, on average, tend to
outlive men by five years. So let's unpack that, right? So whether you're single
or whether you're married, there's additional income
needed to support ourselves in retirement. And that often comes in tandem
with additional expenses dedicated toward
health care costs while we're living
those extra years.

Additionally, women
tend to be caregivers, so there are added expenses
associated with that, traveling to see our loved
ones, care needs to support our loved ones. And all of those expenses
need to be incorporated into the budget at that time. Longevity risk for
everyone really demands some alternatives
to the way that you plan. So there are some obvious
considerations here like work longer, save more,
spend less in retirement. Maybe invest with a little
bit more growth in mind to grow the asset
base over time. But for many, that's just
not a comfortable situation. Rita just mentioned that often
carrying more stock allocation into retirement can be
uncomfortable for folks as they experience fluctuation. Alternatively, there
are specific investments that Jerry mentioned that really
address longevity risk directly by creating an income stream
that you can't outlive. And those investments
are the annuities that were just discussed.

And they can be designed to
convert a lump sum of money into a series of payments
that you can't outlive. Or perhaps they can be
designed to cover a particular withdrawal percentage from your
portfolio that you also cannot outlive. ALLY DONNELLY: Excellent. Excellent. I mean, this is just
so much to think about. I'd love it if each of you
could share a few takeaways you want to leave our viewers with.

Rita, do you want
to get us started? RITA ASSAF: Sure. I would say rip
the Band-Aid off, just get started with that
retirement income plan. I know it can be hard. Our fear and our emotions
can get in the way of it. It's scary and
it's overwhelming. But we found that people who
have a plan feel more prepared, have greater peace of mind. And you don't have to
do it all yourself. Your financial
professional can actually help you take the
stress out of it.

I would also say, keep
revisiting that plan because if you
constantly check in, you can help
prepare for anything that comes up unexpected. And then finally, I would
say, enjoy retirement. It's an exciting new chapter. You earned it. Have fun. ALLY DONNELLY: Yeah. We're pivoting from fun to
Jerry, back to expenses. What would you say? JERRY PATTERSON: I agree
with both sentiments. No, but I do agree very much. Getting started is
often the hardest step. But there's nothing that
gives more peace of mind and more security
as you transition to retirement than
having a plan. And having a good handle
around expenses is key in core to an effective income
plan in retirement. And I challenge everyone, give
yourself a homework assignment whether you do it
yourself or you sit down with a financial advisor. This is definitely something
we can help you with. We have tools to do it. But even in your
own kitchen, put a piece of paper down in
front of yourself and write, if you're retiring
in the year 2030, you're 2030 spending plan. And think in terms of
essential, discretionary, and one-time expenses.

And start to think about,
which of the expenses I have today when I get to
2030 are going to go away. Am I really going to
need to buy work clothes? Am I going to save
on commuting costs? What are the new expenses
that are going to emerge? The annual river cruise,
the cost of golf cart fuel. Ask yourself questions
like, is the cost of pickleball an
essential expense? Or one that's probably
real and close to heart is visiting my kids
on a regular basis.

Is that essential expense
that I have to plan for? So really getting your
hands around expenses is, like I said, key and
core to your retirement plan and your spending plan. In my own life, I'm going
through this process right now. And I did just as I described. I wrote down on a piece of
paper essential, discretionary, and one-timers. And I have a
25-year-old daughter where I'm afraid
the one-timer might happen while I'm in retirement
when she actually gets married.

We'll see. But that's going to
be a real cost for me that I've got to be
prepared for now as I start to think about expenses
as I transition to retirement down the road. ALLY DONNELLY: Yeah. Yeah. Maybe you can combine the
wedding and pickleball at the same time. Michelle, I hope you don't mind,
but we're being mindful of time and we want to get to a few
of the clients questions. So Rita, I'm actually
going to ask you to take this first one from clients. We want to do a deep
dive on Roth and RMD during our November show. And there have been
a lot of questions on this topic in the chat today. So why don't we cover
some basics right now, what they're whistle. One viewer asked, is converting
money from a traditional IRA to a Roth IRA good
strategy to mitigate some of the tax hit on the RMDs? So Rita, take this
one, if you would.

RITA ASSAF: So this might
frustrate some viewers, but the answer is, it
depends, and depends on your personal situation. So when we talk about
a Roth conversion, we're talking about
moving money that's been tax-deferred to tax-free. So usually, money that's
been in a traditional IRA to a Roth IRA. But you do have to pay taxes. And the reason
why some people do this is because they're
not eligible to contribute to a Roth IRA directly
because of the income limits that Roth have. But if you think about
Roth conversions with RMDs, a lot of people will
think, well, if I do that, then I no longer have to
take RMDs in the Roth IRA.

But this is where you need
to be careful because there are some considerations. You want to look at
your tax bracket. Will it be higher in
retirement or now? So that's a
consideration for you. Do you want to maximize
the money you're going to leave to heirs that may
be doing a Roth conversion can help because it'll earn longer
because you don't have required minimum distributions? Are you not
taxed-diversified, meaning are all your assets and
tax-deferred accounts? That's a consideration
where you want to consider a Roth so that you
have different tax treatments and you can better control your
taxable income in retirement. But here's where you
may not want to consider converting to a Roth.

If you're really in
retirement or near retirement and you need money,
like that could actually impact your taxes and
you wouldn't have time to recoup the taxes
that you would have paid on the conversion. You also want to be careful
because if you're doing a Roth conversion and you're
receiving Social Security or you're on Medicare, the
Roth conversion can increase your taxable income, which
means the Social Security benefits could be taxed and
your Medicare costs could rise. So there's a lot here. And if you're really worried
about RMDs and their tax impact, there are also
Qualified Charitable Distributions or QCD, which is
an option where you're donating to charity, use that RMD
to donate to charity, and you wouldn't
have to pay taxes. So that's why the answer
depends because there's a lot of elements
that go in there. And in next month's
webinar, I know we'll deep dive into these topics. ALLY DONNELLY: Yeah. Yeah. There's a lot there, right? Jerry, I want to get one
more viewer question in as we wrap up these last few minutes.

But this viewer asked, how is it
best to plan for long-term care if you're already over 65? JERRY PATTERSON: Great question. And we get a ton of
questions from clients about long-term
care, and am often startled at the confusion
that's out there. I just looked at some
research last week, and it was shocking to see
how many people of all ages think they already
have the protection because in their mind, they
think their health care insurance pays for that or they
think Social Security backstops that for them or Medicare takes
care of it when they retire. For those of us that
are 65 or older today, we have a 70% chance of
incurring some long-term care costs in retirement. So it's real, and it's going
to happen to more of us than less of us. And if you're already
retired and you're wondering about long-term care,
if you're relatively healthy, you can still seek out and
secure insurance protection if that's something
you want to explore.

You don't automatically get
declined because of age. It's based on health
and medical history. If you're going to
self-fund it, this is one of those
things I talked about before, I think you got to look
at it as a potential one-timer. And it's often a
potential one-timer that hits way deep in
retirement when you're older, and so it becomes harder to
surface the kind of liquidity you might have to come up with
to fund a long-term care event. So again, let's assume you're
going into a facility– I think I shared earlier– costs can range from as much
as $9,000 to $13,000 per month. And imagine if you're
late in your 80s and you suddenly have to come
up with the funds to self-fund and support a cost like that,
it's big and it's significant. But it's something you
got to think about.

So even if you're
already retired, if protection is a route
you're interested in, I'd encourage explore it. And if you're going
to self-fund it, really imagine what
self-funding looks like deep in your retirement
years where you're going to be expected to
deliver a significant amount of liquid funds to
fund those costs. ALLY DONNELLY: Terrific. Terrific. Thank you. Michele, your voice is so
important in this conversation. Help us understand what your
takeaways are from today. MICHELLE HOWELL: Thanks, Ally. Just three things, right? I agree with both Rita
and Jerry, don't delay. Start the planning
conversation today. The best retirements
have been well planned, and they are not
filled with trepidation around money in retirement. You have more enjoyment
because of that. And also, don't let the
fact that you may not have tracked expenses
become some sort of artificial roadblock
to the conversation.

Let your financial consultant
help you with this. We can help break this
up into smaller pieces. Secondarily, be transparent. The best financial plans are
built around full disclosure. There's no need for
you to be embarrassed about how you want to spend
your money in retirement or about the time you may have
sold out of your portfolio because you were anxious
due to market fluctuation. These are really
important things for us to recognize as your
financial consultants so that we can help prepare
you for these events and build a plan
that's all-weather.

You wouldn't want your
doctor to design a treatment plan without assessing
your overall health, right? Lastly, commit. Financial planning is
an iterative process, and it begs clients
and advisors coming to the table with an open mind. So my best relationships
are with clients that I meet with
multiple times a year and they always come in
looking for new ideas.

ALLY DONNELLY: Excellent. Excellent. Well, Michelle, thank you. And thank you to
all of our panelists for their great insights. This was a terrific discussion. And thank you to you, viewers,
for sending in your questions. If you're interested in learning
more about retirement income, tune in for our November
panel on RMDs and Roths. It's going to be a
good conversation too. And to learn more about other
financial planning topics, subscribe to Insights from
Fidelity Wealth Management. I'm Ally Donnelly. Thanks for being here. We hope we see you again soon..

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Retirement Planning From a CFP® Professional: 6 Keys to a Happy and Successful Retirement

sometimes I feel like I've lived through my 60s and 70s thousands of times sitting with people in retirement or those that are entering retirement we come across a lot of the same fears negative thoughts and feelings that really hold people back from having a happier retirement now we try to address those through retirement strategy and implementing plans but in today's video instead of talking about strategy I want to talk to you about how we look at retirement so you can hopefully look at retirement through a different lens and I believe this will help you have a happier retirement foreign [Music] Happy Gilmore recently and there's this place that he goes to and he calls it his happy place and if you remember the movie the lead actress she's sitting there by like a fountain of beer with pictures and Happy's grandmothers there and it's just his happy place and this helps Happy Gilmore putt a little bit better to find your happy place in retirement I want you to shift your focus away from simply trying to maximize return in retirement it's not about growing Your Nest Egg anymore what we want to do is have an acceptable level of risk something that when the market goes down we can still stay invested we can stay committed to that plan but at the same time for that level of risk we have an expected return that can help make sure that you don't run out of money and generate enough growth to provide the income that you need to maintain your standard of living so here is one of the tools that we use to help understand your willingness to take risk so risk tolerance really has two components it has a capacity component meaning given a certain level of income that you desire from your portfolio can your portfolio withstand a certain level of risk and still provide that income so that's what we call risk capacity but then you have your willingness to stay invested in a down market so when we look here this is a standard 60 40 portfolio 600 000 stocks 400 000 in bonds has a risk number on a scale of 1 to 99 of 54.

now in isolation that means absolutely nothing to you but when we start to break it down into percentages and also or I should say more importantly dollars over a six month period your standard 60 40 portfolio has the potential to lose a hundred thousand dollars with a million invested this is a statistical quantitative analysis of volatility of this portfolio going back many years now over a 12-month period that means you could lose two hundred and twelve thousand dollars mathematically speaking is that a comfortable level of risk for you if you have a million dollars it's not for me to answer that's for you to answer that's your willingness to take risk so over a 12-month period mathematically you should expect to lose at some point in time up to twenty percent you could lose more of course this is a 95 probability or what we call two standard deviations but we have what we want to achieve here is a more optimal level of risk for an expected return so we have asymmetry here where the possible upside mathematically speaking is 15.92 percent over a six month period so we do have some asymmetry here but when we look a little bit deeper the annual range midpoint is 5.27 so this would be the expected return kind of moving forward with a two percent dividend this GPA this is a pretty cool feature of this software it's designed to help you understand what we call risk adjusted returns and this is this concept is kind of what I'm talking about here they've developed this GPA and a 4.3 would be most Optimum now not every portfolio that fits your particular needs is going to be a 4.3 we're not necessarily trying to achieve that but the higher we can get to that it means we have more expected return for the For Less risk so the question really becomes are you comfortable with this range of expected outcome if not this is too aggressive of a portfolio for you but instead of just focusing on like most people do the upside we need to focus more on this downside in having a plan that is optimized or having an investment strategy that's optimized for your happy place number two I want you to start to look at all of your investment choices in retirement for what they actually are now this is much different than in the accumulation phase in the retirement phase your financial investments all the various choices out there they're really nothing more than tools tools that are used to accomplish a certain objective similar to ingredients in a recipe if you have too much sugar or too much salt or not enough herbs or spices is it may not come out the way you want it to taste we want to use the appropriate tools to accomplish the objectives that you have in retirement stocks for example they aren't used to accumulate anymore stocks are designed to help keep you ahead of inflation so you can generate income that lasts as long as you do now in the accumulation phase that's exactly what stocks are designed to do they're designed to give you the best opportunity historically speaking to accumulate a larger and larger Nest Egg of course that assumes that you save enough money but in retirement you are no longer accumulating you are Distributing so stocks are used to help keep you ahead of inflation now the downside to stocks you could lose a lot of money especially if you get too aggressive or if you invest in things that don't perform well now does that make stocks bad because you could lose a whole bunch of money no they're just a tool and once you understand how to use that tool in conjunction with other tools now you can actually construct whatever project that you're building or have a retirement plan that provides you the income you need to maintain your standard of living the number three key for a happier retirement I want you to accept that you're in the distribution phase don't expect your accounts to continue to grow each and every single year this may seem like common sense but in reality and in practice it's much harder for many people to do now you've seen your accounts hopefully grow grow grow you've been putting money in the market has performed well over most years in the past even when the market performed poorly you are still putting money into your 401k getting that match hopefully saving money elsewhere now that you're in the retirement phase you're putting a lot of stress on your portfolio through distributions now I'm not saying your accounts can't still continue to accumulate especially if we have consecutive years in the market that that does really really well but what I'm saying is don't expect it you are in the distribution phase that means you're probably taking three percent four percent five percent out when we have years where the market is also down your portfolio is down you're digging a bigger hole than you were in the accumulation phase that means that hole is harder and harder to climb out of this is why the allocation of your Investments is so important and not taking too much risk you don't want to dig such a big hole that you can never get out but at the same time you need a certain level of risk to achieve a return that can give you a Secure Retirement so mentally let's not look at our accounts every single year and say oh man they're not going up they're not increasing in value I'm going to run out I need to stop spending my money now actually if you look at it appropriately you should not expect your accounts to continue to appreciate every single year in retirement that very May well happen but if it doesn't if you're just staying level or even going down a little bit it's okay you just need to have a plan monitor your progress with respect to your goals and stay on top of it number four I want you to understand the value of secure income in retirement the more secure income you have the less you have to withdraw from your portfolio and the less emotionally you're impacted by the stock market ups and downs by political goings on by economic slow Downs if you don't have to withdraw large percentages from your Investments because you're living on passive income from Real Estate from Social Security from annuities from a pension but the point is the more income you have coming in from multiple different places that is independent of the stock market going up typically the happier you'll be in retirement also I don't want you to underestimate the power of Social Security as part of your overall retirement income plan now I hear a lot of people making comments on some of the Social Security videos that we do and also just day to day having conversations with clients that Social Security seems to be an extremely underestimated part of retirement many people want to take it early and that may be the case maybe it makes sense for you to take it early but if a husband and wife have combined Social Security of 60 000 a year and you live let's say 25 years that's 600 000 1.2 1.5 million dollars of retirement income and for many of you watch watching this your Social Security is going to be a lot more than sixty thousand dollars per year so we're talking anywhere from one million to possibly over three million dollars of retirement income for a married couple for someone who's single Social Security you can just basically cut that in half so it's a significant part don't underestimate the power of secure sources of income in retirement and also don't underestimate how valuable deferring Social Security could potentially be if you're going to live past age 80 81 or so number five I would like you to stop looking at short-term outcomes whether your portfolio is up or down whether you pull too much out whether you had an unforeseen expense and you had to spend x amount of dollars I'd like you to start looking at these short-term outcomes of things that happen to you or decisions that you've made as nothing more than bumps in the road don't get too high don't get too low retirement is a very long and windy and arduous Journey this is why it's so important to have a plan and stay connected to that because when you have visibility into the future and you're looking at things not in the short term lens but over a 20 25 30 year time frame you can see a lot of times how actually unimportant these short-term events are so don't get too high don't get too low understand that these are bumps in the road in the short term but if you have a plan these bumps in the road have been accounted for next time the Market's down and your portfolio is down 10 or 12 or 15 or more say you know what I have a plan I expected this to happen this is not a surprise and retirement is a very long journey this is nothing more than a bump in the road the number six key to a happier retirement and I know this is going to be virtually impossible for many of you watching but the number six key probably the number one is to not look at your accounts more than once a month I would prefer it once a quarter so I know some of you right now are saying Troy that's impossible I look at it every single day I need to know what my stocks are doing what my accounts are doing how am I ever going to know if I'm going to be okay well there are numerous studies on this I encourage you to look some of them up the more frequently you look at your accounts typically the worst performance you'll have over long periods of time but the person who looks at it every single day over a long period of time I think it's 25 or 30 years averages somewhere around two to three percent per year the person who looks at it once a month averages somewhere around four to five the person who looks at it once a year averages somewhere around six to seven and the person who never looks at it has averaged around 10 or 11 percent and it makes sense because we are emotional beings when we see that something isn't going right we want to Tinker we want to make adjustments this typically leads to holding on to bad Investments maybe a little bit too long or getting rid of good Investments that just haven't really had the Catalyst that maybe you were expecting and selling them too soon or we're selling our winners and cutting our losers without giving them a chance to really perform well whatever the situation may be Studies have proven this over and over again the more frequently you look at your portfolio the worse you should expect to do so instead of discussing strategy and execution in today's video hopefully today's content helps shift your perspective just a little bit with the goal of helping you to have a happier retirement [Music] foreign [Music]

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The 4% Rule for Retirement: What You Need to Know!

one of the most common retirement planning 
questions people have is how much money can   I pull from my portfolio every year and live on 
in retirement and that's where the four percent   rule comes in handy and it basically says that 
if you can pull four percent or less from your   Diversified portfolio invested in things like 
stocks and bonds and live off of that amount   while keeping the rest invested then there's 
a good chance that your money is going to last   20 30 years or more and as a frame of reference 
if you had a million dollars then four percent   would be forty thousand dollars if you had 
five hundred thousand dollars it would be   twenty thousand dollars per year and it's not 
set in stone it is based off a study that was   done many years ago and has held up well over 
time but there are instances where people as   they get older could pull more or if they retire 
early maybe they want to consider even doing less   than that but it's a really good way to get 
a frame of reference on looking at how much   you've saved and what that can translate 
into in retirement as far as income goes

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2 Retirement Tax Planning Strategies To Save THOUSANDS In Your Retirement Portfolio!

how would you like to save hundreds of thousands of dollars potentially in taxes in retirement well these two strategies I'm going to go through today when combined together have the potential to do just that now if you don't qualify for net unrealized appreciation because you don't have company stock inside your 401k you can still qualify for zero percent taxes on your long-term capital gains and dividends so when we combine these strategies together it creates a very powerful tax and income planning tool that you can use for your retirement [Music] foreign as you can tell I'm pretty excited about this video because we're going to discuss two tax planning strategies the net unrealized appreciation which I've not yet done a video on the YouTube channel about and also the zero percent taxation for long-term capital gains and dividends and you're going to want to stick around until the end of the video where I incorporate these two strategies into a real life financial planning case now unless you've searched net unrealized appreciation to find this video there's a pretty good chance you've never heard of net unrealized appreciation so in its most basic form it's when you have company stock that's been issued inside your 401k you have the option of rolling that money outside of your 401k not into an IRA but rolling it out only paying income tax on the basis that's been distributed and potentially pay long-term capital gains tax on the appreciation so that appreciation from where it was issued to where it is whenever you roll it out and retire or sever from service or become 59 and a half that's what's called your net unrealized appreciation we're here in Houston Texas where we have a lot of client clients that worked at Exxon Mobil or Chevron or some of the other big oil and gas companies we also have clients from all over the country that work for other companies that can take advantage of this net unrealized depreciation strategy so I'm going to use Exxon because we come across this plan a lot we're very familiar with the Exxon retirement plan and I want to illustrate how this concept works and there's some nuances here and there's also some financial planning considerations and of course tax ramifications that we're going to go through but if I worked at Exxon let's say from 1995 to 2020 and as part of my compensation I receive shares of stock each year over the course of my employment so these numbers are not historically accurate but I want to convey the the principle here so in the beginning years if Exxon was trading at twenty dollars and I received a hundred shares and then next year maybe I received them at 22 dollars per share and twenty five dollars per share and over time as I've received more shares as part of my compensation package the value has typically increases the price at which you were issued those shares in the year you received them is what's called your cost basis so if we do this Nua rollout that's the amount that you'll have to pay income taxes on but it's a really cool opportunity here because over time most stocks appreciate in value Exxon today is at a hundred and sixteen dollars per share so the concept of Nua is if I was issued stock at twenty dollars a share and I keep it in the IRA and now it's at 116 dollars a share that's a massive amount of capital appreciation and if I roll it to an IRA and distribute it at that point or at some point in the future I'm going to income taxes and that can can lead to a pretty big tax liability now we're down the road when I need income but if stocks appreciate it over time we typically have a mixed cost basis when it comes to the amount of shares that we've received from the company so first thing to know here and first thing to ask your company is do you guys provide a breakdown of the cost basis on an annual reporting period or do you take the average cost basis so we come across some companies here that they will provide you the information of the exact cost basis and the amount of shares that you've received in each year in that case we can really cherry pick which shares we want to roll out and really take advantage of this strategy because typically we're going to take the lower cost basis ones some companies don't allow you to cherry pick based on the lower basis shares that were issued they calculate an average cost basis for all the shares issued so this is not nearly as advantageous as being able to cherry pick sometimes it can still make sense especially if it's an older 401k or if it's a stock that has really really appreciated since those shares were issued in the average cost basis is down so this video my primary purpose is to help educate you around the financial planning considerations of the Nua rollout so I'm not going to cover all the rules and reg surrounding it I'll do that in a later video though but a couple things you should know this becomes an opportunity whenever you sever from service or typically when you're entering retirement there are some other qualifications but we'll cover those later now if you sever from service prior to age 55 you will be subject to a 10 penalty on the amount you distribute so just be aware that if you're under the age of 55 you've severed from service you have company stock inside your 401k that that 10 penalty for early distribution still applies we have Exxon this 401K here so the total value is about 1.5 million in this hypothetical example the shares the tote in totality the shares have been issued over the course of the working career equals about a six hundred thousand dollar cost basis so I'm going to use the example here where we can cherry pick the individual shares so the next question becomes which shares should I consider doing the Nua rollout because I don't have to roll all six hundred thousand basis out in the real world typically this 1.5 million of fair market value may also be comprised of mutual funds such as growth funds income Etc within the 401K for the purpose of this example Exxon stock is valued at 1.5 million dollars the cost basis of those Exxon shares within the 401K is 600 000.

Just want to point out in the real world typically everyone does not have all their money invested in their company stock but I've I've absolutely seen that over the years so the question becomes which shares do we want to take advantage of the annual rollout with the general rule of thumb is the lower cost basis Shares are more attractive and that's determined by the the value of the stock today anything above 50 percent cost basis to fair market value typically we don't want to consider for Nua now there are some extenuating circumstances sometimes with financial planning considerations that it may make sense but when we do the math and we extrapolate out looking at the value that you would have in the ira versus paying taxes on the basis now annual taxation for growth dividends Etc the Breakeven point isn't that attractive when we look at these shares that are above 50 percent cost basis to fair market value I personally like to see them around 20 or 30 percent really tops so whenever you have shares that are 10 15 20 25 cost basis to fair market value those are typically very attractive opportunities and in some situations Thirty thirty five forty percent could possibly make sense it just depends on the overall financial plan that you're putting together in other circumstances so this is a tax analysis so you may want to reach out to your CPA for help or assistance in doing this or your financial advisor if they're qualified and skilled enough to help you make these determinations I want to run through some numbers now so let's assume for whatever reason this person decides to do the whole Nua rollout so just so we understand the how this functionally works the 600 000 rolls out of the 401K into a non-ira account income tax is due on that six hundred thousand dollars you're probably looking at about a 27 28 maybe 30 percent effective tax rate we'll go with 30.

So 100 eighty thousand dollars of income taxes would be due on the basis being rolled out but in this scenario you're not just rolling out 600 000 That's the basis you're actually rolling 1.5 million dollars out of the 401K and only paying income tax on the basis now if you sell it immediately the net unrealized appreciation is the difference between the basis and the fair market value so you have nine hundred thousand dollars of gain there so if you sell that nine hundred thousand you're looking at the more preferential long-term capital gains tax that would be a pretty big tax still so the question becomes the are what planning considerations should we hold on to this stock do we feel comfortable having this much in one company what is our other wealth what if we break it out over a few years so this is what we're really going to dive into now I just want you to understand how this actually works in regards to the functionality okay let's cover how this actually works so we take the Exxon stock the basis is 600 000 but the full value is 1.5 million so if in this example we decide we want to do it all we would roll the full 1.5 million out of the 401K it will go into a non-ira account but you only owe income taxes on the basis the 600 000.

If you sell the stock immediately you will owe long-term capital gains tax which is a more preferential rate than income taxes at this level of income on the difference between the basis and the fair market value or nine hundred thousand there but you don't have to sell it right away if you don't sell it right away and then you sell it six months later you'll be subject to short-term capital gains tax because you're holding period rules take take into a place or taken to effect if you don't sell it immediately but if you wait 12 months after the distribution date 12 months in one day then you qualify for long-term capital gains tax treatment so some of the financial planning considerations are now what are the income taxes due what is my income and tax plan year one year two year three of retirement how does this fit into that overall tax and income plan and how do we optimize how do we reduce the total taxes we pay while maximizing the value that we retain if we have to pay income taxes on six hundred thousand dollars you're looking at an effective tax rate there of about 27 28 maybe 30 percent so 30 on 600 is a hundred and eighty Grand so you'd write that check to Uncle Sam and you would have 1.5 million outside of the 401K in the more preferential tax environment of long-term capital gains and dividends now you would have annual taxation on these dividends so that's something else we need to consider and we also need to consider future tax rates and make assumptions with what do we think income tax rates are going to be in the future long-term capital gains and dividend rates all of these things go into the analysis but for now this is the logistics of how it works we roll it all out pay income taxes on the basis we can either sell it immediately and pay long-term capital gains on the differential or we can hold it and if we hold it past the distribution date sell it within 12 months short-term capital gains sell it post 12 months long-term capital gains okay so I want to dive deeper into the two options we have just high level so option A is We Roll everything to the IRA we do not take advantage of the Nua rollout eligibility things that we have to consider here is future tax rates rmds other income sources and the secure act now this is not an exhaustive list this is just some of the big ones we have to take and consider future tax rates because when everything is inside that tax infested Ira when you distribute it in the future you have to pay income taxes you've given up the ability to take advantage of long-term capital gains and dividend taxes which are typically a preferential rate rmds Force distributions from your retirement account and when added with other income we oftentimes see people who did not plan for this have 150 200 250 even more of income because of required minimum distributions and their other income so when doing this analysis we have to extrapolate out and look at these factors to help make the decision today secure act I threw this in here because it forces distribution of your retirement accounts if they go to a non-spouse beneficiary that's more than 10 years younger than you full distribution of the retirement account within 10 years so if you have kids and it's important to leave this money to your children if they have income and they're working and now your retirement account has to be fully distributed within 10 years that could be a massive amount of income going on top of their income which now 30 40 50 60 potentially of your retirement account has gone to Uncle Sam if you live in a state with income taxes that could be an issue as well inheritance taxes so a lot of issues here rolling everything into the IRA you can be hit with um pretty big income taxes down the road option b is we do take advantage of the Nua rollout either wholly or in a partial Nua rollout how that works is we would take the shares that we do decide to take advantage of this strategy and we roll them into the non-ira account some things to consider there is that what are long-term capital gain rates now what are they possibly going to be in the future but also we have annual taxation of the dividends and if we're buying and selling inside that account whatever we do not roll into the non-ira account with the strategy the rest of the funds from your 401k go into the IRA and then of course whatever's left here we have the same considerations that I went through over here so now there are financial planning considerations here let's say I was at 35 cost basis to fair market value so I'm kind of right there where mathematically it may not make sense but how much non-qualified money do I have how much essentially I'm saying how much do you have outside of your retirement accounts because if you're entering retirement and all that money is inside that tax infested 401K then you don't have any ability to manipulate what goes on your 1040 your tax return by manipulate I mean we determine which accounts were withdrawing income from to manage our taxable income that we report to the IRS if we pull from our non-qualified accounts think your bank account well you don't have to report that so if you need a hundred thousand a year we pull 50 from your bank and 50 from your IRA you get your 100 000 but only fifty thousand goes on the tax return that's how we can manipulate that so how much non-qualified money do you have if you don't have much we may want to consider doing a little bit higher Nua rollout because even mathematically it may not make sense when we just compare that decision in isolation to do or not to do the Nua rollout but when we now look at the other benefits that we're receiving such as the ability to do Roth conversions the ability to manipulate what goes on our 1040 the ability to possibly qualify for a health care subsidy if you retire before the age of 65 by managing the reportable or taxable income that's reportable we can qualify for a subsidy so this is why we're so big on financial planning because as you can see it's not just about Investment Management in retirement that's important absolutely but when we tie in financial planning with Investment Management we can create some really optimal scenarios where we're creating a ton of value and helping you have more income pay less tax and ultimately have more value throughout the course of your retirement okay this is the part that I mentioned in the beginning of the video where we're going to tie into kind of a real world plan planning case so we laid the groundwork for what Nua is and some of the considerations that you have to make in order to determine if it makes sense for you to do the Nua rollout so what I want to point out here is the tax and income plan for retirement years one two and three for someone who takes advantage of the Nua rollout because the question becomes when do we sell that stock if we have 30 40 50 percent of our entire net worth in our company stock it's pretty risky to hold on to that position just so we don't pay more in taxes so here's where we're going to tie the financial planning considerations of the real world application and decisions we have to make on the Nua rollout with years one two and three of someone just entering retirement one of the big risks is if we roll it out the company's stock and we decide not to sell it because we don't want to pay the long-term capital gains immediately if we hold on to that that concentrated Equity position we have increased our risk now there are investment strategies that can be used such as buying a put option or what we call an Equity caller but I want to just talk about the tax and income plan here so in this scenario client rolls out the annual way so they have a large concentrated Equity position and they've paid income tax on the basis but do not want to sell the company stock yet so as part of the tax and income plan what I want to show you is we could break this up so year two year three and even year four possibly depending on the size of the concentrated Equity position Company stock where zero percent taxes essentially so we have total income here of a hundred and twenty thousand so what this is the tax and income strategy where we're generating income year two of retirement not year one because in year one you've done the the Nua rollout you have a big tax liability from paying income taxes on the cost basis of that company stock so here's your two so year two the the tax and income strategy is don't take anything out of the 401K no Roth conversions we're going to sell the company stock that we previously rolled out take advantage of Nua and we can have a hundred and twenty thousand dollars of income here as long as it's all capital gains and dividends your total tax liability 458 dollars now what I've done here is assumed twenty thousand dollars of dividends because if you have company stock and you roll it out it probably paid some dividends so 20K there and a hundred thousand of long-term capital gains we're realizing we're recognizing so this is darn near zero percent on a hundred and twenty thousand dollars of retirement income and we're divesting from that company stock now again some risk management strategies we could have an equity caller or put option helping to support downside volatility of that concentrated position but just taxing in complaining wise I want to show you how how this can work out so here now I've added 125 000 of long-term capital gains with twenty thousand dollars of dividends total AGI 145 000 the total tax 4208 on 145k of income 2.9 percent so again we've divested so maybe this is year two of retirement or year three we've divested from the company stock we've reduced our risk we've provided the income that we needed for retirement and we've done so in a way that's tax advantaged same thing goes on now I wanted to point this one out because I've here I've thrown in the same 20 000 of dividends 125 000 of long-term capital gains so we're selling the stock again but now we also take advantage of a twenty thousand dollar Ira distribution so this is which accounts do we pull income from in retirement how do we generate income what's the tax plan total AGI comes up to 165 the total tax is 7208 but here's the cool part the IRS ordering rules for how you pay tax on income based on where that income is generated the distribution from the IRA is actually tax-free but what happens is when you take money out of the IRA it brings some of those long-term capital gains into taxation so I did a video not too long ago where we talked about adjustments and Social Security and IRA distributions and wealth conversion taxes the tax code is filled with these where if we we take one more dollar of income it brings one other item into now a taxable State such as Social Security or long-term capital gains or dividends so just just be aware of that I guess 165 000 of income seven thousand two hundred and eight dollars in income taxes representing a four point four percent tax rate so now one two three four years into retirement we've divested the uh concentrated stock risk we provided income and a very tax advantaged manner we still have that Ira with a lot of money in it to deal with but once this is done we would probably at that point start down the Roth conversion path now every situation is different but hopefully these topics and ideas and and considerations when it comes to risk management income planning tax planning and retirement will help you have a better retirement if you want to learn in more detail how to potentially pay zero percent in long-term capital gains and on your dividends click this video right here I did a couple years ago where we do a deeper dive into the special tax advantage [Music] thank you

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The 5 Most Important Years Of Your Retirement

as a parent when you have your first child there's no shortage of people to remind you just how important the first five years are of your child's development unfortunately there's no similar Network there's no similar information source for us as we retire what are the most important five years of your retirement so I'm gonna hope to break that with today's video let's go for a walk and I'll I'll share my thoughts with you with you having been a fee only financial advisor for over 20 years now and I'll I'll cut right to the chase I think the most important years just like with your child are the first five years and I want to share that you know this is a big transition if you're thinking about retiring if you're getting close to retiring this is a big transition you think about like you know a long time ago maybe when you first left home whether you went to college or you developed a trade and you went off on your own to start quote unquote adulting the transition from high school to college where you put everything you own in a couple suitcases and you say goodbye to the the people that have been nurturing you for for your entire life that's a big big transition I'm sorry that background noise is a train you really can't see it but it's there okay so that's a big transition and the transition to retirement is every bit as big right I mean it's it's the whole world that you've known for a long long time and just like with a teenager uh or a young adult heading off to college your identity is about to change as well so you know the it's a big transition but it's important that you jump in with both feet it's important that you start off on the right track and you know one of the keys is is to understand what your goals are what your hope you know what you're going to stand for what you're hoping to do in retirement not that you have to have a to-do list but you know these are the things that are important to me as I retire and you can update them for instance for me um for me I I kind of when my day comes to retire I'm not retired yet but when my day comes to retire the things that I have thought about that are going to be important to me and are important to me now are number one relationships um you know when you work unfortunately you're not able to spend as much time with the people that you love and you care about so I'm hoping to spend more time with my adult children I'm hoping to spend more time with my wife and with with friends that mean a lot to me that unfortunately right now I'm not able to spend a lot of time with so I want to spend a fourth of my time on relationships I want to spend a fourth of my time on my health having your health is really key once you lose your health you know it's a retirement's gonna look very different for you so doing what I can to eat in a healthy way to work out regularly to keep my health is going to be important then I've always been a lifelong Learners so I want to continue to learn so a fourth of my time on relationships a fourth of my time on my health a fourth of my time just learning I just love learning and then a fourth of my time as a teacher and that's part of what this YouTube channel is is is giving back and and sharing with folks I'm fortunate what I've spent my life my life's work is something that uh brings value to a lot of folks it's not it feels like common sense to me because I've been doing it my whole adult life just like whatever you've been doing most of your adult life probably feels like common sense to you so it's important to jump in with both feet it's important not to be frugal you don't have a financial plan and know what your goals are and you know many regular viewers of my channel right we're good Savers um we're good at identifying what our goals are and saving towards those but I don't want you to be frugal and it's natural I'd say well over half of people you know whatever their budget is whatever their plan says that they can spend they end up you know still saving 25 or 30 percent of that and don't do that right it's it your whole life has been a balance between current you and future you and now this is your future your uh the future you so be sure to spend that money and enjoy it these are your healthiest most active years uh I also think it's uh it's it's good to have a financial plan if you don't have a plan boy it's really hard to know how much money you can spend and you know a lot of people are sacrificing unnecessarily you don't want to do that you don't have to do that so have a financial plan and have a plan a time plan um that I already talked about right think about how am I going to spend my time 24 hours a day is a lot of time right a significant part of our life has been spent at work okay other reasons why the first five years are super important there's some big decisions that need to be made in the first five years let's say you're 60 and um and you're retiring early a lot of viewers of my channel are hoping to do that or you're 62 or 63 you know there's some big decisions that need to be made between you know let's the first let's say 60 to 67 60 to 68 even above that but you know Medicare Medicare is not as easy as just raising your hand saying hey government you know I'm 65 years old now I'd like my medic I'd like my medicare right you have to decide do you want your uh traditional Medicare or do you want what's called Medicare Advantage which is a great marketing name uh traditional Medicare is provided by the government Medicare advantages is provided by a private company and you can change your mind on that but if you go with traditional Medicare uh it has a twenty dollar deductible for Medicare Part B and you can you can buy Medicare gap insurance and normally outside of a few exceptions you have to go through medical underwriting to be approved so if you have a pre-existing condition an insurance company can deny you the meta the Medigap insurance but when you first qualify for Medicare I am not a Medicare specialist but you have a six about a six month window where you don't have to go through the medical underwriting you get an exemption for that so that's a big decision also when you're going to start taking Med uh when you're going to start taking social security is a big decision so the first five years are important another reason is because you've got these big decisions that you have to make and then unfortunately this is just a reality that we all face in the first five years we Face what's called sequence of return risk it turns out that having negative returns having bad stock market returns in the early years of our retirement are have some of the biggest impact as to whether our financial plan is successful or not and none of us know what the first five years are going to be like but that's one of the reasons that the first five years is so important another thing that's important if you're interested in this topic is to watch this video up here that talks about five reasons to uh it talks about I'm sorry average income for retirees and this video down here that talks about five reasons to retire as soon as you can thanks for watching bye bye

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Is This a CRAZY Approach to Retirement

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Factors That Can Reduce Retirement Income

There are many different factors that can reduce retirement income. The first may be fairly obvious, but it’s the effect of death. For two spouses when there’s a pension involved, the death of a spouse could mean the loss of a pension income. Now if there’s a survivor benefit, that income may continue, so it’s important to evaluate your options when making pension decisions. A lot of people use insurance to protect against this type of income loss. Another way death can reduce retirement income has to do with Social Security. When two spouses are receiving Social Security and one spouse passes there will be a loss of one of the benefits. Now, the surviving spouse will receive the higher of the two benefits, but there still will be some loss of income. The final way that death can reduce retirement income has to do with taxes. Moving from married filing jointly to now filing single can push the survivor into a higher income tax brackets. The reason for this is that the income thresholds for married filers is about twice what it is for single filers. This can have a major impact on the surviving spouse’s net after tax income in retirement.

Taxes in general is another area that a lot of people overlook when it comes to retirement income. The reality is that taxes will take much more from you than the market ever can. For instance, going back to 2008 during the Great Recession, the average portfolio might have declined 20 to 30 percent, assuming it was well diversified, of course. That might have taken a couple of years to recover, but taxes in retirement can easily cost anywhere from 30 to 40 percent. And that’s money that will never come back. So it’s really important to consider where your different sources of income are coming from in retirement. Would it all come from pensions, Social Security, IRAs, 401(k)s, sources that will be taxed at ordinary income rates? Or do you have good tax diversification where you can choose from pulling money from maybe a Roth IRA raise or non-qualified accounts and really get a lot of control over your taxes in retirement? And finally, inflation. Inflation is absolutely something that can reduce your income in retirement. And it does this by reducing the purchasing power of your dollar in retirement.

Inflation isn’t just something that happened in the past – things will continue to cost more in the future. So let’s look back 30 years. 30 years is about the average timeframe for most people in retirement. So in 1989, the average cost of a first class postage stamp was twenty five cents. Today that same stamp will cost you fifty five cents. Also in 1989 the average cost of a new car was $15,000. Today the price of a new car will set you back on average $37,000. So you need to look at how well your different sources of income will keep up with inflation during retirement. For help optimizing your retirement income, visit us at PureFinancial.com. .

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2 Retirement Tax Planning Strategies To Save THOUSANDS In Your Retirement Portfolio!

how would you like to save hundreds of thousands of dollars potentially in taxes in retirement well these two strategies I'm going to go through today when combined together have the potential to do just that now if you don't qualify for net unrealized appreciation because you don't have company stock inside your 401k you can still qualify for zero percent taxes on your long-term capital gains and dividends so when we combine these strategies together it creates a very powerful tax and income planning tool that you can use for your retirement [Music] foreign as you can tell I'm pretty excited about this video because we're going to discuss two tax planning strategies the net unrealized appreciation which I've not yet done a video on the YouTube channel about and also the zero percent taxation for long-term capital gains and dividends and you're going to want to stick around until the end of the video where I incorporate these two strategies into a real life financial planning case now unless you've searched net unrealized appreciation to find this video there's a pretty good chance you've never heard of net unrealized appreciation so in its most basic form it's when you have company stock that's been issued inside your 401k you have the option of rolling that money outside of your 401k not into an IRA but rolling it out only paying income tax on the basis that's been distributed and potentially pay long-term capital gains tax on the appreciation so that appreciation from where it was issued to where it is whenever you roll it out and retire or sever from service or become 59 and a half that's what's called your net unrealized appreciation we're here in Houston Texas where we have a lot of client clients that worked at Exxon Mobil or Chevron or some of the other big oil and gas companies we also have clients from all over the country that work for other companies that can take advantage of this net unrealized depreciation strategy so I'm going to use Exxon because we come across this plan a lot we're very familiar with the Exxon retirement plan and I want to illustrate how this concept works and there's some nuances here and there's also some financial planning considerations and of course tax ramifications that we're going to go through but if I worked at Exxon let's say from 1995 to 2020 and as part of my compensation I receive shares of stock each year over the course of my employment so these numbers are not historically accurate but I want to convey the the principle here so in the beginning years if Exxon was trading at twenty dollars and I received a hundred shares and then next year maybe I received them at 22 dollars per share and twenty five dollars per share and over time as I've received more shares as part of my compensation package the value has typically increases the price at which you were issued those shares in the year you received them is what's called your cost basis so if we do this Nua rollout that's the amount that you'll have to pay income taxes on but it's a really cool opportunity here because over time most stocks appreciate in value Exxon today is at a hundred and sixteen dollars per share so the concept of Nua is if I was issued stock at twenty dollars a share and I keep it in the IRA and now it's at 116 dollars a share that's a massive amount of capital appreciation and if I roll it to an IRA and distribute it at that point or at some point in the future I'm going to income taxes and that can can lead to a pretty big tax liability now we're down the road when I need income but if stocks appreciate it over time we typically have a mixed cost basis when it comes to the amount of shares that we've received from the company so first thing to know here and first thing to ask your company is do you guys provide a breakdown of the cost basis on an annual reporting period or do you take the average cost basis so we come across some companies here that they will provide you the information of the exact cost basis and the amount of shares that you've received in each year in that case we can really cherry pick which shares we want to roll out and really take advantage of this strategy because typically we're going to take the lower cost basis ones some companies don't allow you to cherry pick based on the lower basis shares that were issued they calculate an average cost basis for all the shares issued so this is not nearly as advantageous as being able to cherry pick sometimes it can still make sense especially if it's an older 401k or if it's a stock that has really really appreciated since those shares were issued in the average cost basis is down so this video my primary purpose is to help educate you around the financial planning considerations of the Nua rollout so I'm not going to cover all the rules and reg surrounding it I'll do that in a later video though but a couple things you should know this becomes an opportunity whenever you sever from service or typically when you're entering retirement there are some other qualifications but we'll cover those later now if you sever from service prior to age 55 you will be subject to a 10 penalty on the amount you distribute so just be aware that if you're under the age of 55 you've severed from service you have company stock inside your 401k that that 10 penalty for early distribution still applies we have Exxon this 401K here so the total value is about 1.5 million in this hypothetical example the shares the tote in totality the shares have been issued over the course of the working career equals about a six hundred thousand dollar cost basis so I'm going to use the example here where we can cherry pick the individual shares so the next question becomes which shares should I consider doing the Nua rollout because I don't have to roll all six hundred thousand basis out in the real world typically this 1.5 million of fair market value may also be comprised of mutual funds such as growth funds income Etc within the 401K for the purpose of this example Exxon stock is valued at 1.5 million dollars the cost basis of those Exxon shares within the 401K is 600 000.

Just want to point out in the real world typically everyone does not have all their money invested in their company stock but I've I've absolutely seen that over the years so the question becomes which shares do we want to take advantage of the annual rollout with the general rule of thumb is the lower cost basis Shares are more attractive and that's determined by the the value of the stock today anything above 50 percent cost basis to fair market value typically we don't want to consider for Nua now there are some extenuating circumstances sometimes with financial planning considerations that it may make sense but when we do the math and we extrapolate out looking at the value that you would have in the ira versus paying taxes on the basis now annual taxation for growth dividends Etc the Breakeven point isn't that attractive when we look at these shares that are above 50 percent cost basis to fair market value I personally like to see them around 20 or 30 percent really tops so whenever you have shares that are 10 15 20 25 cost basis to fair market value those are typically very attractive opportunities and in some situations Thirty thirty five forty percent could possibly make sense it just depends on the overall financial plan that you're putting together in other circumstances so this is a tax analysis so you may want to reach out to your CPA for help or assistance in doing this or your financial advisor if they're qualified and skilled enough to help you make these determinations I want to run through some numbers now so let's assume for whatever reason this person decides to do the whole Nua rollout so just so we understand the how this functionally works the 600 000 rolls out of the 401K into a non-ira account income tax is due on that six hundred thousand dollars you're probably looking at about a 27 28 maybe 30 percent effective tax rate we'll go with 30.

So 100 eighty thousand dollars of income taxes would be due on the basis being rolled out but in this scenario you're not just rolling out 600 000 That's the basis you're actually rolling 1.5 million dollars out of the 401K and only paying income tax on the basis now if you sell it immediately the net unrealized appreciation is the difference between the basis and the fair market value so you have nine hundred thousand dollars of gain there so if you sell that nine hundred thousand you're looking at the more preferential long-term capital gains tax that would be a pretty big tax still so the question becomes the are what planning considerations should we hold on to this stock do we feel comfortable having this much in one company what is our other wealth what if we break it out over a few years so this is what we're really going to dive into now I just want you to understand how this actually works in regards to the functionality okay let's cover how this actually works so we take the Exxon stock the basis is 600 000 but the full value is 1.5 million so if in this example we decide we want to do it all we would roll the full 1.5 million out of the 401K it will go into a non-ira account but you only owe income taxes on the basis the 600 000.

If you sell the stock immediately you will owe long-term capital gains tax which is a more preferential rate than income taxes at this level of income on the difference between the basis and the fair market value or nine hundred thousand there but you don't have to sell it right away if you don't sell it right away and then you sell it six months later you'll be subject to short-term capital gains tax because you're holding period rules take take into a place or taken to effect if you don't sell it immediately but if you wait 12 months after the distribution date 12 months in one day then you qualify for long-term capital gains tax treatment so some of the financial planning considerations are now what are the income taxes due what is my income and tax plan year one year two year three of retirement how does this fit into that overall tax and income plan and how do we optimize how do we reduce the total taxes we pay while maximizing the value that we retain if we have to pay income taxes on six hundred thousand dollars you're looking at an effective tax rate there of about 27 28 maybe 30 percent so 30 on 600 is a hundred and eighty Grand so you'd write that check to Uncle Sam and you would have 1.5 million outside of the 401K in the more preferential tax environment of long-term capital gains and dividends now you would have annual taxation on these dividends so that's something else we need to consider and we also need to consider future tax rates and make assumptions with what do we think income tax rates are going to be in the future long-term capital gains and dividend rates all of these things go into the analysis but for now this is the logistics of how it works we roll it all out pay income taxes on the basis we can either sell it immediately and pay long-term capital gains on the differential or we can hold it and if we hold it past the distribution date sell it within 12 months short-term capital gains sell it post 12 months long-term capital gains okay so I want to dive deeper into the two options we have just high level so option A is We Roll everything to the IRA we do not take advantage of the Nua rollout eligibility things that we have to consider here is future tax rates rmds other income sources and the secure act now this is not an exhaustive list this is just some of the big ones we have to take and consider future tax rates because when everything is inside that tax infested Ira when you distribute it in the future you have to pay income taxes you've given up the ability to take advantage of long-term capital gains and dividend taxes which are typically a preferential rate rmds Force distributions from your retirement account and when added with other income we oftentimes see people who did not plan for this have 150 200 250 even more of income because of required minimum distributions and their other income so when doing this analysis we have to extrapolate out and look at these factors to help make the decision today secure act I threw this in here because it forces distribution of your retirement accounts if they go to a non-spouse beneficiary that's more than 10 years younger than you full distribution of the retirement account within 10 years so if you have kids and it's important to leave this money to your children if they have income and they're working and now your retirement account has to be fully distributed within 10 years that could be a massive amount of income going on top of their income which now 30 40 50 60 potentially of your retirement account has gone to Uncle Sam if you live in a state with income taxes that could be an issue as well inheritance taxes so a lot of issues here rolling everything into the IRA you can be hit with um pretty big income taxes down the road option b is we do take advantage of the Nua rollout either wholly or in a partial Nua rollout how that works is we would take the shares that we do decide to take advantage of this strategy and we roll them into the non-ira account some things to consider there is that what are long-term capital gain rates now what are they possibly going to be in the future but also we have annual taxation of the dividends and if we're buying and selling inside that account whatever we do not roll into the non-ira account with the strategy the rest of the funds from your 401k go into the IRA and then of course whatever's left here we have the same considerations that I went through over here so now there are financial planning considerations here let's say I was at 35 cost basis to fair market value so I'm kind of right there where mathematically it may not make sense but how much non-qualified money do I have how much essentially I'm saying how much do you have outside of your retirement accounts because if you're entering retirement and all that money is inside that tax infested 401K then you don't have any ability to manipulate what goes on your 1040 your tax return by manipulate I mean we determine which accounts were withdrawing income from to manage our taxable income that we report to the IRS if we pull from our non-qualified accounts think your bank account well you don't have to report that so if you need a hundred thousand a year we pull 50 from your bank and 50 from your IRA you get your 100 000 but only fifty thousand goes on the tax return that's how we can manipulate that so how much non-qualified money do you have if you don't have much we may want to consider doing a little bit higher Nua rollout because even mathematically it may not make sense when we just compare that decision in isolation to do or not to do the Nua rollout but when we now look at the other benefits that we're receiving such as the ability to do Roth conversions the ability to manipulate what goes on our 1040 the ability to possibly qualify for a health care subsidy if you retire before the age of 65 by managing the reportable or taxable income that's reportable we can qualify for a subsidy so this is why we're so big on financial planning because as you can see it's not just about Investment Management in retirement that's important absolutely but when we tie in financial planning with Investment Management we can create some really optimal scenarios where we're creating a ton of value and helping you have more income pay less tax and ultimately have more value throughout the course of your retirement okay this is the part that I mentioned in the beginning of the video where we're going to tie into kind of a real world plan planning case so we laid the groundwork for what Nua is and some of the considerations that you have to make in order to determine if it makes sense for you to do the Nua rollout so what I want to point out here is the tax and income plan for retirement years one two and three for someone who takes advantage of the Nua rollout because the question becomes when do we sell that stock if we have 30 40 50 percent of our entire net worth in our company stock it's pretty risky to hold on to that position just so we don't pay more in taxes so here's where we're going to tie the financial planning considerations of the real world application and decisions we have to make on the Nua rollout with years one two and three of someone just entering retirement one of the big risks is if we roll it out the company's stock and we decide not to sell it because we don't want to pay the long-term capital gains immediately if we hold on to that that concentrated Equity position we have increased our risk now there are investment strategies that can be used such as buying a put option or what we call an Equity caller but I want to just talk about the tax and income plan here so in this scenario client rolls out the annual way so they have a large concentrated Equity position and they've paid income tax on the basis but do not want to sell the company stock yet so as part of the tax and income plan what I want to show you is we could break this up so year two year three and even year four possibly depending on the size of the concentrated Equity position Company stock where zero percent taxes essentially so we have total income here of a hundred and twenty thousand so what this is the tax and income strategy where we're generating income year two of retirement not year one because in year one you've done the the Nua rollout you have a big tax liability from paying income taxes on the cost basis of that company stock so here's your two so year two the the tax and income strategy is don't take anything out of the 401K no Roth conversions we're going to sell the company stock that we previously rolled out take advantage of Nua and we can have a hundred and twenty thousand dollars of income here as long as it's all capital gains and dividends your total tax liability 458 dollars now what I've done here is assumed twenty thousand dollars of dividends because if you have company stock and you roll it out it probably paid some dividends so 20K there and a hundred thousand of long-term capital gains we're realizing we're recognizing so this is darn near zero percent on a hundred and twenty thousand dollars of retirement income and we're divesting from that company stock now again some risk management strategies we could have an equity caller or put option helping to support downside volatility of that concentrated position but just taxing in complaining wise I want to show you how how this can work out so here now I've added 125 000 of long-term capital gains with twenty thousand dollars of dividends total AGI 145 000 the total tax 4208 on 145k of income 2.9 percent so again we've divested so maybe this is year two of retirement or year three we've divested from the company stock we've reduced our risk we've provided the income that we needed for retirement and we've done so in a way that's tax advantaged same thing goes on now I wanted to point this one out because I've here I've thrown in the same 20 000 of dividends 125 000 of long-term capital gains so we're selling the stock again but now we also take advantage of a twenty thousand dollar Ira distribution so this is which accounts do we pull income from in retirement how do we generate income what's the tax plan total AGI comes up to 165 the total tax is 7208 but here's the cool part the IRS ordering rules for how you pay tax on income based on where that income is generated the distribution from the IRA is actually tax-free but what happens is when you take money out of the IRA it brings some of those long-term capital gains into taxation so I did a video not too long ago where we talked about adjustments and Social Security and IRA distributions and wealth conversion taxes the tax code is filled with these where if we we take one more dollar of income it brings one other item into now a taxable State such as Social Security or long-term capital gains or dividends so just just be aware of that I guess 165 000 of income seven thousand two hundred and eight dollars in income taxes representing a four point four percent tax rate so now one two three four years into retirement we've divested the uh concentrated stock risk we provided income and a very tax advantaged manner we still have that Ira with a lot of money in it to deal with but once this is done we would probably at that point start down the Roth conversion path now every situation is different but hopefully these topics and ideas and and considerations when it comes to risk management income planning tax planning and retirement will help you have a better retirement if you want to learn in more detail how to potentially pay zero percent in long-term capital gains and on your dividends click this video right here I did a couple years ago where we do a deeper dive into the special tax advantage [Music] thank you

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Anna Downs Discusses Pre-Retirement Planning Tips

foreign [Music] this is retired life news online sandwich between your occupation'' s last chapter as well as retired life is a transitional duration referred to as pre-retirement although there'' s no hard as well as quick policy for when this phase need to start if you'' re not taking note it might pass you by and leave you ill got ready for what follows and joining me is Anna downs as well as she methods in Superior Wisconsin Anna welcome back so the very first step is imagining your retired life right a couple of starting items of discussion is what does retirement look like for you do you wish to travel that'' s going to create a requirement for an extra investing greater than you are spending today what does your budget look like do you still have home loan repayments do you still have automobile settlements there are several aspects that need to be taken into account for us to really visualize what will certainly retirement resemble from there it assists us springboard onward in developing a plan together in layering the next actions so thinking of your customers exactly how do you establish an earnings plan there is a detailed procedure that I use when developing an earnings prepare for somebody in retirement initially we start with visualizing retired life several of the variables that we currently discussed do you intend to travel what does your budget plan resemble then moving on we discuss danger tolerance as well as durability at that factor we after that consider your Investments that you have in assembling a strategy that you feel comfortable with ultimately retirement can vary dramatically among retirees it'' s essential that you ' re functioning with a consultant that makes a plan customized to what your demands and also wishes are so a location that it'' s typically forgotten by individuals getting right into retired life are health and wellness care costs that'' s an important factor to consider best health insurance coverage costs can be among the greatest barriers for individuals to retire very early it is vital if you select to retire before the age of Medicare that you have either a strategy that'' s advanced from your previous employer or on your partner'' s prepare otherwise and also you require to purchase private health insurance policy it is earnings driven this is something that has an extra cost that you require to be completely gotten ready for it'' s essential to function carefully with your medical insurance representative your CPA and also your monetary organizer when buying medical insurance prior to Medicare age that'' s Anna Downs in Superior Wisconsin and also this is return retired life News on-line [Music]

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John Sciancalepore of The Investment Center Discusses Retirement Income Planning

foreign [Songs] civil servant you have top quality Federal retired life benefits your benefits are different from economic sector staff members in a variety of means unlike economic sector workers numerous federal workers have access to pension plans in addition to 401k like strategies for their retirement futures for instance joining me is John shank Lepore with the investment center John divides his time in between Germany Italy and Jacksonville Florida so he'' s an active guy John thanks for joining us while a government pension plan behaves it likely won'' t cover all the earnings requires in retirement so how do you develop a lifetime revenue stream Scott thanks for having me Scott we use numerous methods to assist the clients pertain to the verdict that although a government advantage of pension plan is beneficial and also numerous it'' s possibly insufficient for the individual to live the retired life that they wish to so by leveraging several Technologies and also doing a truth finder we can put a dollar number on just how much money that customer or customer pair will need so that they can have the type of retirement that they desire John with people living much longer now how can you shield what'' s been saved however still supply development via retired life well Scott we'' ve got a huge series of items that practically fit practically every customer situation Once more by going back to the fact finder we can match the proper product with that said specific'' s requires in regards to durability there are a number of Solutions available that can we we can use to supplement their currently ensured pension to consider that specific or pair yet another source of surefire revenue so it seems like in the majority of situations it truly makes good sense to function with an expert skilled as well as government advantages I would agree yes my method evolved throughout the years I offered on energetic task with the armed forces right after college however going via college I knew I wished to enter the economic markets I truly appreciated my time in the middle church yet I knew I had a greater calling I have structured my technique to deal with active service military retired armed forces as well as government employees since I took pleasure in these partnerships while I got on energetic responsibility and it makes feeling to deal with an advisor that lived that life and recognizes all about these intricate advantages due to the fact that rather honestly a whole lot of advisors in the industry wear'' t truly discover government workers or energetic obligation armed forces appealing potential customers my assumption has actually been John shank Lepore with the financial investment facility and also this is retirementnewsonline.com foreign [Music]

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