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Howdy. Welcome in. Hey everybody, Peter Rashan here with Rashan Planning. So glad that you are along with me today as uh we we kick off another inhour webinar series for the third Friday of every month. That is our goal. We’re calling it F3 family, friends, and finance. Last month, we covered understanding retirement income and this month’s edition is going to be retirement income strategies that hold up under market volatility. So, we’re going to dive into a little bit more specifics about some
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effective retirement income strategies. As a reminder, if you missed last month’s webinar and would like to go view it, that is available on our YouTube page, on our web page, rashanplanning.com. So there’s there’s plenty of opportunity for you to catch up on older editions of the webinar series. And again, we are going to do these every third Friday of the month. So if you’d like to subscribe and and and kind of be a routine viewer, watcher um participant in in the webinar series, you are welcome to do that. But
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let’s go ahead and and jump in here because I don’t want to waste uh too much time today. Want to get right to it. So, uh I am doing this live. Now, you could be watching it pre-recorded, but today right here, right now, I am live. If there’s any technical uh difficulties, we we did pretty well last month, but bear with me. You know, technology being technology can always can always surprise you. But, uh hopefully there you are now seeing my screen here. And at Rashan Planning, we put together what we call the optimized
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retirement plan for our clients. Now, before I get into exactly all that consists of is income, investments, taxes, health care, and legacy. So, a combination of five critical areas. We call them the five critical pillars. Investment services are offered through Brookstone Capital Management and Rashan Planning. And this presentation does not take into account your specifics. And as I’m talking about uh investments and taxes and estate planning and legacy, always make sure you consult with your
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financial professional. Uh just a few quick words. Don’t take this information and apply it without consulting a professional. And of course, from the financial standpoint, we do offer that service. uh in in retirement I find that a lot of people may be aiming for the wrong goal or have the wrong priority in place. So what is more important in your retirement? Is it higher possibility or higher probability? And what I mean by that, a lot of people are keeping their money at higher risk even in retirement
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because of the possibility of market-based returns, but the probability of success over retirement, I believe, is more important. And to demonstrate that fact, I’ve got this chart here uh that shows the the Monte Carlo simulation that if you have a million dollars on day one of retirement and you want to start taking the 4% withdrawal rate that you can do so for a period of time and change color there. uh you got your million dollars, you’re taking your 4% withdrawal rate and you know there’s there’s a good pro
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probability here that you end up with with money. But a lot of people are staying invested because of the possibility of ending up up here and they’re ignoring the probability of running out of money and all of the years thereafter. And so that’s what we want to try to avoid here. And that’s why again that optimized retirement plan is is very important because most people have had an investment plan and that’s what they’ve known during the course of basically their entire lives, their
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entire working career. And just as a reminder from from last week’s the investment plan is when you are the income plan. You’re earning income, you’re putting money into your investments. That’s an investment plan. But when you retire and the money changes directions, now your investments have to create the income. You can’t just do that on a whim. You have to have a specific plan for how to generate that retirement income. And that is income planning. And it’s why the term income
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planning has become so popular is that there is a demographic wave in population of people who are making this transition and suddenly the money is changing direction. So for the last 30 40 years, we’ve talked and heard a lot about investment management and focused on rate of return and been taught that we need to shoot for the highest potential rate of return and take more risk to get more return. But now as this generation turns the corner and their money is changing directions, uh we need
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more income planning. We need specific income planning because again recall from last week’s webinar all of the five pillars of of investments, income, taxes, healthcare, and legacy become interconnected. Uh and that’s why we put together that optimized retirement plan for our clients. And we’ll get into some specific income planning strategies that hold up under market volatility. Um but as you recall last week and and go refresh on this, I’m going to do a very quick version here. the direction of
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your money, the the the change from investment planning to income planning might matter more than the direction of the market. And on last week’s or last month’s webinar rather, I gave the example using the realworld returns of the S&P 500 for the first 20 years of this century. And using those returns, we had three different potential directions of money. We had contributions, we had just holding the balance, and we had distributions. Well, the contributions, you’re making deposits into your account, kind of like
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you’ve been contributing to your 401k with just holding the balance. We’re not we’re not taking any money out. We’re not adding any money to it. And the we’re letting the market work. the real returns of the market um in in that chart do produce growth over time, but it’s a kind of wild ride. Your $500,000 hypothetical starting balance uh gets down to about 378 379 and then climbs back up. We we lost 50% twice and then we had to gain 100%. But everything changes when we start taking
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distributions. When money starts coming out, if we’ve got $500,000, we’re taking out a 5% cash flow example here, $25,000, we are out of money by the year 2017. If we retired at the end of 1999 following this this uh market return and this scenario, we have run out of money 17 years into retirement and we had less than half of our starting balance about 10 years into retirement. So, the direction of your money matters. And you’re like, “Okay, well, that that makes sense. Same market returns, but
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I’m adding money or I’m not or I’m taking money out. There’s going to be different results.” Yes, there are. But in retirement, less risk may mean more. And so what I mean by that is if instead of using the S&P 500 returns, if we have even a lower but more stable return, more predictable, more dependable, then we don’t run out of money in just 17 years and it is a lower return. So in this period of time from 2000, beginning of this century, all the way through 2019,
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and yes, I did pick a particularly difficult time. I wouldn’t say the worst case scenario, but it was a challenging time in the market because I want individuals and families and couples and savers, investors to be prepared for challenging times. But it was a challenging time in the market. We had some great years. We had some fantastic years. I mean, 26% return, 13%, 23, 29% return, 19. Those those years nobody complained, but there were some other years, right? And there weren’t a lot of
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them. But in in a 20-year period, there were four. So, you know, right around the the kind of average 75% of of the time, generally the market’s moving in an up direction, but there are always those off years, and we had a few of them. The average return over this period of time was 6.11%. So, if we go back to our example here with our two charts, our 6.11% rate of return using the S&P 500 and taking a 5% cash flow from that. So, we’re growing by six, a little over six, and we’re only taking out five. We still
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end up running out of money. And people say, “Well, how is it that I have a higher rate of return, but I’m taking out less and I still run out of money?” Because averages are not dependable. They are the average of extremes. And not every year we can count and depend on this 6% rate of return. So if instead we replace that 6% with a lower 2% lower rate of return, but instead of an average return, it is a steady rate of return. Not only does the money not run out, but I have to add 20 additional
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years to this chart before that withdrawal rate of 5% and the growth rate of 4% do eventually run the account dry. And yet still I want to avoid that point. I think everyone moving into retirement wants to avoid that point. But why would people choose this chart over this one in the back that gives us so many more years of retirement income? And I believe it’s because we’ve been trained to shoot for the possibility of higher returns rather than focusing on the probability of success. And if the
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weatherman says that there is a 91% chance that it’s going to be bright and sunny, but there is a 9% chance of rain today, I might feel comfortable leaving the house without my umbrella. But if my retirement plan includes a 9% probability of failure, of me running out of money before I run out of the end of life, I’m doing everything I can to try to make sure I identify why that is and avoid it. And so that’s what we’re going to be talking about today. Some retirement income strategies that can
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withstand a and make it through market volatility to give you a lasting confidence for your income plan in retirement. So there are a couple different strategies I’m going to go over. The first is dividing up your money by the type of money. Now this is effective because different types of money have different tax consequences. So, we have our tax deferred assets, we have our non-qualified assets, and we have our Roth assets. And sometimes these can be mixed up and we can do a little bit of this out of order, but I
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actually like it in this order, one, two, and three, because you could take the same money, the same amount of income out of each bucket, and there’s a different result for what you get to keep because the tax deferred bucket is 100% taxable. So if you take out $100,000, you’re going to have to deduct your tax rate from that to be able to spend the net. So if we take a h 100,000 out of the tax deferred bucket, we’ve got to pay taxes. Whereas next in line, if we start taking $100,000 out of our
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nonqualified, well, that that there’s a lot of that that is potentially tax-free. And then the Roth, if we leave that for last in line and let it grow for as long as possible, well, all that growth and all that income is tax-free. And so we move from kind of good to better to best here. And we leave the best for last in this scenario. And why do I say potentially tax-free for this middle bucket, this non-qualified bucket? Well, in the tax code, it allows for you to harvest capital gains. If
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your income as a married couple in this scenario is below 98,000, then you can harvest those capital gains out of that bucket, the the growth that has occurred there, and that can be tax-free income to you. So, again, you know, potentially tax-free income there if you are just pulling out uh growth and gains and your income is below that threshold. Um the the Roth account though does grow completely tax-free and so we would lay we we would leave that bucket for last in line and save it for later. Strategy number two here, a
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guaranteed income solution and this generation of retirees has done well in investing. That investment plan has been taught to us. In fact, this generation has saved up more personal wealth, more assets, more net worth than any other previous generation. And yet, still the question is, how do I know if I have enough? And how can I make sure I’m not going to run out of money over retirement? Well, one solution for that that has uh been talked about a lot, discussed a lot, and is utilized very
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effectively is with guaranteed streams of income. Now, when I’m talking about guarantees, I’m not talking about anything in the stock market. Nothing in the stock market can I guarantee what your rate of return is going to be. So, we’re talking about alternative non-correlated to the stock market investments. And there are a few different types, but for this discussion, this part of the the strategy discuss discussion, pardon me, I’m going to talk about annuities specifically for the now and forever
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bucket. never the right place for all of your money, but it could be an appropriate place for some of your money, especially if you’ve got other money that is there and available in case you need it someday and maybe even some money that you never intend to use. Now, the way this works is you can with contractually guaranteed rates show what your deposit would be and dollar for dollar what the income would be later on down the road when you want to take it. And from the time that you deposit the
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money till the time that you want to start taking the income, there’s some guaranteed growth on that. So in this hypothetical example, a married couple, both of them being 63, decide to deposit $250,000 into a contractually guaranteed lifetime income annuity. That $250,000 grows to 356,000 for an income benefit base. and then they start pulling the income at $20,120 per year and that is guaranteed to last for the rest of their lifetimes. Now, I’m going to use this 20,000 figure for for a basis, but just for a point of
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reference, um the 4% rule has been kind of the rule of thumb, the guideline for how much income Wall Street and the financial world has said you should be able to take out in retirement. And that’s why I used 4% in that earlier scenario. Um, but $20,000 is a lot more than 4% of 250. In fact, it’s it’s about 8%. A little bit more than 8%. Now, it did take a couple years to get there, but let’s let’s compare this. If instead of using that guaranteed lifetime income annuity, our same hypothetical married
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63y old couple left all $500,000 in the market and then started pulling out that same $20,120 per year for the rest of their lives. And I am now using the returns from 2000 through 2025 and then I am repeating them again. All right. So, those are the returns of the market I’m using. Their money lasts. They make it 40 years. Those two 63 year olds are now 103 years old, and they are still pulling out $20,000 a year. They still have money left, but not that much money. Their 500,000 turned into 152,000. But they
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made it through. They didn’t run out of money. Could we have done this more efficiently, though? So instead of the $500,000 all in the market, what if we divided that up? What if instead we took $250,000 and put that in that guaranteed lifetime income annuity? That $250 can generate the same $20,120 and not put any stress on the remaining amount of money. So, what we would do is take the lump sum, leave it invested, half the money, 250,000, and then 250,000 in that guaranteed lifetime income. That kicks out the income. Look
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at the stress that that takes off of the rest of the investment portfolio. Now, instead of 153,000 at the end of that same period, that married couple leaves behind $1.6 $6 million just because they didn’t have to take income from their investment account. And again, this is why income planning is so important and having some support element of structural foundation of guaranteed lifetime income is so valuable. Not only did we generate this income more efficiently by only using half the money, but we allowed our growth money
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to continue growing in the market and doing its job. And so that’s a that’s a split funding scenario where we’re using some guaranteed income and then allowing the market to do its job. Another strategy that is talked about for generating retirement income is a time optimized bucket approach. So we have some money set aside for now, some money set aside for a little bit later into the future, and then some long-term money. So how does this one play out in realworld stress testing scenarios?
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Well, the theory is that the the money that is used for now eventually does begin to dwindle and the intermediate and the long-term money continue to grow in the background. So, let’s see how that works. And then it’s basically a rinse, wash, repeat. That first bucket gets exhausted and we refill it using the growth from the later buckets. So, let’s say we’ve got that same $500,000 hypothetical portfolio and the now money, years 1 through five, we’re getting very low growth on that money,
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maybe 2%, right? We’re we’re just kind of getting interest rates on that. Well, that 63y old couple lets that grow for a few years. They retire at 66 and then they start pulling out that same $20,120 per year. And after 5 years, the bucket is almost exhausted. Well, at that point, we take money from the intermediate term bucket, which has been growing in the background with a little bit better growth rate. Still a relatively conservative 5% assumed rate here. And again, in the market, we can’t
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make guarantees, but we can find some good interest rates generally. Well, after this bucket in the front is almost exhausted, all we do is take a h 100,000 and replenish. And then we rinse, wash, and repeat. And every few years, as the balance of the now bucket begins to draw down, we take another $100,000 and replenish it from the intermediate bucket. And we can do that for a period of time. But oh no, we’re 92 and we’ve run out of money in both buckets. Well, don’t worry. We didn’t use all the
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money. Out of our 500,000 hypothetical starting value, we put a 100,000 in the now bucket, 200,000 in the intermediate bucket, and the other 200,000 was left to grow in the market, doing its job of growing. So, at the same time that we ran out of our initial 300,000 between the first two buckets, this 200,000 that we have in the last bucket has now grown to 700,000. And again, we can just rinse, wash, and repeat this same cycle over and over. Um, so this is a pretty solid strategy there. Uh, the protect
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the principle and live off the interest approach is something that has been attractive over periods of time. And I say over periods of time. In theory, this is a very practical and a and attractive approach. I just want to protect my principal. I don’t want to spend it down and I want to live off the interest, only the interest, and preserve my nest egg. Well, it sounds great in theory, but this is what the interest rates have looked like over the last quarter century. There were periods where it was high. And if you retired in
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1999 expecting to be able to live off of a five or a 6% interest rate cash flow, well, in just a few short years, you were sadly disappointed. And for a long period of time, interest rates were exceedingly low. So, this is what interest rates look like over that period of time. And again, if you’re retiring in 1999, expecting a four, five, 6% kind of cash flow and protect the principle, live off the interest, for a lot of the subsequent years of this quarter century, you were very disappointed. Not only that, but you had
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a varying amount of income. So, for the first few years, you could generate a a a decent income, almost that 20,000 that we have been talking about. Sometimes even a little bit more than that. But there was a period here where the interest on $500,000 was less than $1,000 a year. And I know many of you probably remember looking at your bank account statement with the 0.01% interest being disappointed in the pittance, the pennies that you were getting of interest for a long period of time. Now they have come back up, but
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interest rates are not steady and are not guaranteed over a long period of time. They’re going to change. So that protect the principle and live off the interest approach is practical for a portion of your money but generally not for the income that you need to count and depend and rely on consistently from here on through the duration of your life. So again I didn’t want to take up too too much time today. Uh but those are the four strategies that I wanted to talk about. the type of money, the
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guaranteed income, the time optimized portfolio, and the protect the principal and live off the interest. Uh now, which one of those is the best? Um in in fact, most of the time it’s a mix of several of them. There is no one that is a one-sizefits-all always right. And in order to get optimal results for your situation, often times we’re using some kind of hybrid approach or or mixing a few of them. The different types of money correlate with the time that you might use it correlate with I would like
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some guaranteed income. And I do actually have one other tip here that I I I did want to share. So, this is kind of a bonus tip with the time optimized bucket approach in in particular. Again, the theory is that you’re using up the now bucket and the later buckets are growing to replenish. But what happens when we’re taking risk with that later bucket and the market goes down? It doesn’t always go up. So, what happens when we see a decline or a long-term correction or even some temporary but
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sharp volatility in the market and our later bucket goes down? Well, good news is we’re not depending on this bucket for income quite yet. In fact, we don’t plan on depending on that money for quite some time in the future. So, the fact that the market’s down with just this bucket doesn’t impact our daily life or our ability to pay our bills. So that can be a great time to begin doing some tax planning. The next item in our pillar of essential financial tax, income, investments,
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healthcare, our pillars of planning. Tax planning is one of our best opportunities here. And so when the market is down, if we’ve got IRA money in that bucket, it is a great time to convert it to Roth and let the recovery and the growth happen on the Roth side of things. Now, that again does take careful planning and it’s why we think it’s essential that you bring all of the pieces, all of the pillars together in your plan. income, investments, taxes, health care, legacy, all of these items
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are interdependent and they are all connected. They all form the picture for your financial situation and your outcome. So, uh, if you would like to set up a time to talk to me about your income planning or your investment management or questions that are on your mind, feel free to, uh, scan the QR code here and you can schedule a time or reach out by calling the office. uh my team will set us up with a a time to chat. We can get to know each other if and I will be as direct as possible in answering any questions. Uh again, don’t
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act on any of this information unless you have consulted with a financial professional and from the tax and the legal planning side for for a a an attorney or a tax professional. I hear a lot of people make the comment that my source for financial advice doesn’t provide tax guidance. And I am not a CPA or accountant. I don’t file taxes. But when I make financial recommendations, I should certainly understand the tax implications and your outcome. Uh where where your choices take you is a matter
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of how interconnected the the advice is. So you could have the best source of financial, legal, and tax advice. If if those are not coordinated and cohesive, you’re not getting the most out of your plan. And I see a lot of people who unfortunately are are are maybe receiving advice about access to the market, which is important. We we need access to the market. We need those investments. We need growth, but that is really only part of the picture. And that is why we offer that complimentary
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opportunity to get your optimized retirement plan put together. So once again, I am Peter Rashan. I hope today’s webinar was informative for you. In upcoming webinars, we’ll be talking specifically about Roth conversion strategies and rules and requirements and and things you want to avoid to avoid penalties. Uh we will be talking about 401ks, when and how to to make the most of them and and take control over them. We’ll be talking about annuities as a specific income strategy and planning tool. So,
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lots lots of topics coming up that I hope are of interest to you and feel free to shoot me uh any uh ideas or thoughts or questions that you would like me to address in these. But that’s it for today. Again, I am Peter Rashan with Rashan Planning. Thanks for tuning in. And if you are uh watching live, you aren’t able to uh catch the whole thing, feel free to email us. We’ll we’ll send you a copy of this after we’re done. Uh that’s it for today on Family, Friends, and Finance. Uh we’re here to help. Look
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forward to hearing from you soon, helping in any way we can. Take care. >> This has been Planning Matters Radio. The content of this radio show is provided forformational purposes only and is not a solicitation or recommendation of any investment strategy. You are encouraged to seek investment, tax, or legal advice from an independent professional adviser. Any investments and/or investment strategies mentioned involve risk, including the possible loss of principal, advisory services offered through Brook’s own
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capital management, a registered investment adviser. Fiduciary duty extends solely to investment advisory advice and does not extend to other activities such as insurance or broker dealer services. Advisory clients are charged a quarterly fee for assets under management while insurance products pay a commission which may result in a conflict of interest regarding compensation.
