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9 Things Every Retiree Needs To Plan For

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Welcome back to another episode of The Retire One Show! On this episode we discuss a recent study by Charles Schwab that uncovers a very interesting wealth paradox. We discuss what it takes to feel wealthy in America.

We also breakdown a recent article “Investing Road Map for Retirees” by Christine Benz of Morningstar. We discuss everything from withdrawal rates to roth conversions and back door roth IRAs. If you are planning for retirement, this is an episode you will not want to miss.


00:00 Intro

3:00 – America’s Wealth Paradox

7:20 – Investing Road Map for Retirees

11:29 – Projecting Your Retirement Expenses

13:46 – Maximizing Your Guaranteed Lifetime Income

15:42 – Creating A Guaranteed Lifetime Retirement Income

22:30 – Working In Retirement

26:11 – Creating a Retirement Safety Net

29:00 – The 4% Rule and Withdrawal Flexibility

30:58 – Taxes In Retirement

32:01 – Roth Conversions

33:07 – Backdoor Roth IRA

36:53 – Investing in Retirement

38:30 – Estate Planning

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Hello and welcome back to another episode of the Retire Once show. I'm your host, Johnathan Rankin. I'm the founder and CEO of Theorem Wealth Management. And today we're going to be talking about how much you need to feel wealthy in America, as well as how can you start setting yourself up for an investing roadmap for retirement success. So before I do any of that, I feel like I've got to address the elephant in the room. I'm doing this by myself. Usually I've got my lovely co host Melissa right beside me every episode of the Way. However, she's not here today. She's a little under the weather, and I just told her, you know what, I don't think anybody wants to hear you straining your voice because you don't have one right now. It's gone. So why don't you just take the time off and I'll go out there and I'll entertain the people by myself.


So that's what I'm doing. And this is going to be a little different than some of the other individual videos that we post on YouTube that are just me a little bit more produced. It's just going to be a conversation. You and I are going to be talking. Actually, I'm going to be doing the talking about some different topics in the retirement community. And it's going to be a little bit more informal, which is what we like. Retirement planning isn't always stuffy. It doesn't have to be it doesn't have to be a rigid box. It can be just a conversation. That's the most fun that I have with clients is when we're just talking and having a good time. That's what we want to do. And hopefully this is insightful, entertaining, and yeah, hopefully you hit the subscribe button too. That way you're here for every episode and Melissa's anticipated return to the stage.


So with that, we'll jump right in. Once again, hit that subscribe button. Make sure you subscribe to our weekly retirement newsletter. Usually comes out on Fridays. Sometimes it comes out on Mondays, which it did this past week, but usually it'll be on Fridays. So hit that subscribe button, subscribe to that, and join the community that we're looking to build here, which is helping people achieve their retirement goals without worrying about running out of money. There's a lot that goes into that. It's not as easy as it sounds, but we want to make it as easy as possible for each individual. So I hope everybody's doing well out there. Hope you're avoiding the heat that seems to be going on. I saw some statistic that this is currently the hottest month in 120,000 years. So, yes, that was the statistic that I saw. Hottest month in 120,000 years.


Now, whoever has that data, I don't know how they dictate and determine that, I have no clue. But if you joined us for previous episodes, I talked about there needing to be some sort of moratorium on how far you can go back with data because I don't feel like that 120,000 years ago is relevant today because I don't know how accurate that data could be. So we're based here in Dallas, Texas, and we go back and forth quite a bit to Phoenix, Arizona, where we spent a number of years prior to moving here. So both places are just miserably hot. So hopefully you've got good AC and you're enjoying this. And yeah, we'll dig right in. So first thing that we're going to talk about today is this wealth paradox. There was an article by Barons that discussed a Charles Schwab survey that talked about how much people needed to feel wealthy in America.


And it was a very interesting dynamic in the survey and in the article because apparently 48% of the respondents considered themselves wealthy with an average net worth of $560,000. And so they had $560,000 and they felt like they were wealthy. Now, they did cite non financial factors like health and family, which is great. They're not just focusing on the financial aspect of what's wealthy. And I do wonder how much of these surveys is the respondent just not wanting to really be honest with whoever's taking the survey. If someone asked you if you're wealthy, there's kind of a pride thing, I would imagine, that makes you want to feel like, well, yeah, I am. Because the paradox comes in where when asked how much money it takes to be wealthy in America, the average number that came back was 2.2 million. So despite only having $560,000, the average American felt that they needed 2.2 million to feel wealthy.


It kind of reminds me of what I like to call now the retirement paradox, bringing this all to retirement, the amount of people who feel like they need to hit a certain number just to feel secure in their retirement. And we've done studies, we've talked about studies that have been over a million dollars for people that need to feel secure in retirement is how much they need versus what does it take to actually have a happy retirement. We've shared a number of times how we've seen people retire with more money than they'll ever spend. However, retirement is not as fulfilling as they thought it would be. And a lot of that has to do with not thinking about their social life and what they're going to do after retirement to find purpose. But I feel like there is always this paradox, this other side to it, where you can always have all the money out there and you can be a diligent, saver your entire life.


But is that what really makes you happy? Because for most people, $560,000 makes them feel wealthy. That's great. That's not even the $1 million that they need to retire or that most people say they need to retire. So with all this, to me, I look at this survey and say wealth is subjective, it's whatever you feel is wealthy. Like I said, I've seen so many people retire with 100 or $200,000 and live a completely happy life and they don't worry about money because they've been able to build out their own plan. So that was just an interesting survey I just wanted to share with you. And to me, like I said, I find it much more subjective to the individual, it's whatever you feel is wealthy. And I'm happy for those 48% of people who consider themselves wealthy with $560,000. And I hope they are living a happy, healthy life with family around them and it truly fulfills them because that's what you want, especially in retirement as well, where you don't have the work component anymore to really think about and you're not dealing with that.


So what do you have then? You've got your family, you've got your friends, you've got hopefully your health. And if you're thinking about retirement, I bring this all up just to think about those other factors because that does go into play when you're planning your own retirement. Is it's not just about the money? And I think that's been one of the most eye opening things about retirement planning that I've seen over the past almost 20 years of doing this, is that it's not all about the money. Once people figure out the money part of it, there's so much other stuff that goes into retirement planning that they don't even figure out most of the time. It might take them a decade or longer in retirement to finally feel secure in that place of retirement. And so as you're planning, if you're decade away or a couple of years away, think about all the things that are not money related because that's what's going to help really give you a well rounded retirement.


Now, speaking of retirement and investing and money, there was a really good article written by Christine Benz of Morningstar and it was Investing Roadmap for Retirees. And this was a great article. I want to go through some of the highlights of this and just talk about it a little bit. I will share it in the show notes. But this was a really good article that just talked about the difficulty and the challenge that people have going from that accumulation mode. So while you're working and you're saving, most people see their balance go up on a yearly basis. Yes, there's years where it goes down because of the market. But for the most part, when you're saving money in retirement or in pre retirement, and you're getting maybe a 401k match and you're seeing that number compound, it's always been going up, and then you have to switch and start taking money from that portfolio that, for the most part, over the course of your entire career, has gone up from the bottom left of the chart to the top right.


So she talks about how there's this psychological hurdle that you have to jump over, because after years of saving, transitioning to that drawdown mode can feel pretty scary. And I've seen that with clients. I've seen that quite a bit where some people are scared to spend their own money. And so how do you create this sense of security when all you've known for your entire career was, you save money. You save money in this account, you don't touch it. This money goes in the account, I don't touch it. At some point, you're going touch it. But it does feel like kind of that hot stove moment where, hey, don't touch the hot stove. And you tell your kid that, and then ultimately, they've got touch it to feel that burn for themselves. It's the same type of thing for 30 plus years, you've probably been telling yourself, don't touch the hot stove.


Don't touch the now it's time where I think the stove's cooled down a little bit. It's okay touch it. She had a great quote in here that said, above all, keep in mind that your in retirement portfolio is a work in progress. The most successful retirement plans, while not overly complicated, need to change with the times and be responsive to changes in your own situation. As a great quote, because it is 100% true. You have to be flexible. There's no way that we know what's going to happen in the next six months, next year, next 2510 years. Nobody knows what's going to happen in the future. And if you base your entire retirement around the world today, that world's going to change. I mean, just think about if you told yourself five years ago, you know what, I'm going to buy a house in 2023.


I'll just wait. Interest rates aren't going anywhere. They're staying low forever. Prices are okay, you know what? I'm just going to wait until give me a five year window. I want to buy a house in five years and five years gets here. 30 year mortgages above 7%. I saw some statistic. There's over 600,000 more realtors than there are homes available for sale. So you got inventory down. You got high interest rates. Not the great time to be a buyer of real estate, but you just want to make sure that you're building out a flexible strategy, a flexible plan. So she talks about these different things to focus on and what she calls key tasks that you want to tackle, really, in retirement as you build out your financial plan. The first one is protect and adjust your expenses. The second is take stock of and maximize your guaranteed income sources of lifetime income.


Number three, decide whether and how much to annuitize. Number four, don't rule out doing some type of work. Number five, lay a safety net. Number six, stay flexible on the withdrawal rate front. Number seven, pay attention to tax matters. Number eight, right size your portfolio's risk profile number nine, give due attention to your estate and portfolio succession plan. I will say she uses very well eloquent language there that kind of makes it a little more complicated, it feels like, than it needs to be. But we'll go ahead and break each one of these down. So the first one project and adjust your expenses. So really the thought here is as you enter retirement, you want to make sure you're comparing your in retirement budget to when you are working. So how are those different? And really one of the concepts that goes around is this thought of income replacement ratios.


How much of my income today do I need to replace? And you see all these different rules of thumb that are out there 70%, 80%, how much is it? How much do I need to make in retirement? And they bring up a good point that for high income earners that are typically saving quite a bit more, that income replacement ratio is going to be a lot lower than what you might expect. Because if you're saving a lot in retirement and you're making a lot while you're if you're saving a lot while you're working and you're making a lot of money, well, when you're in retirement, you don't need as much. And so instead of replacing 80% of your income, maybe you only need to replace 50 or 60% because your income was at a higher level and you were saving a lot more means you weren't spending that while you were still working.


So don't get caught up in those general rules of thumb. You can use them as general rules of thumb, but I wouldn't make them out to be some letter of the law that you have to replace 80% of your income or anything like that. It really is going to be personal to you. But then she talks about making sure that you are looking forward and anticipating major, which calls lumpy outlays in retirement, such as when you expect to need a new car and years in which you expect your travel budget will run high. So this is an exercise that as you're building out your budget and I know that a lot of people don't like putting a budget together or thinking about tracking their spending because makes you feel like you're constrained on what you can spend. It shouldn't feel like that. But you do want to think about how long is your car going to last if your plan is to retire and maybe you're going to travel for the first ten years, build that expense in your retirement plan just to make sure that you're accounting for it somehow.


So you want to make sure that you're at least looking forward for some of those things. The next topic was take stock of and maximize your guaranteed sources of lifetime income. She talks about how the next step when plotting your retirement financial plan is to assess your guaranteed sources of lifetime income. Now for most people this is going to be Social Security. And for the lucky few you still have pensions out there that should hopefully cover your basic living expenses. If you have a pension, congratulations. That is a nice thing that they don't really do that much anymore. So hopefully that plus Social Security can help you maintain your standard of living without having to tap into your savings that much. She does talk about the concept of delaying Social Security. I know that we've talked about it on this channel here. Well the way she phrases it is that while not the right answer in every situation, it's well worth considering, especially if your family and personal health history points to longevity.


Because that's the key with Social Security. Whether you take it at 62, full retirement age delayed till 70 or any year in between. Guess what? Nobody knows if they made the right decision until they know when they're going to pass away. And unfortunately that's what it comes down to. Now granted if you're in your eighty s and you took it at 62, you can look back and go well I should have waited. But for the most part nobody knows when they're going to pass away. So it is something where you have to look at your family, look at your own health, but it is something that you want to start thinking about. How do you actually use that lifetime income? How do you make sure that as much of your daily living expenses that you need to maintain just your standard living? When I say standard of living, this isn't going on trips or anything like that.


This is what does it cost to actually live and function and just be alive? Your basic necessities, you want as much of those covered by some sort of guaranteed lifetime income. The next part was decide whether and how much to annuitize. And here's where she talks about basic income, annuities as being another way to add a baseline of guaranteed lifetime income to your in retirement plan. Now we did an entire episode on annuities. I'll link to that right here. So that way if you missed it make sure you check that out. Because I know annuities for some reason they're like a four letter word. It's one of those things where if you mention just the thought of annuity sometimes people just immediately back away because they've been cast as this evil thing. And so as we always talk about, we're not here to sell anything on this show.


We're not here to sell a single product or anything like that. But annuities have a place in a certain portfolio. You just want to make sure that if you are thinking about buying one that you do all of the research about that product. Because annuities are a product, they're a product of an insurance company. So it is something that you want to make sure that you've ran all the scenarios with your retirement picture with and without the annuity and just see does the actual annuity add value to your overall retirement? She quotes in the article retirees with pensions supplying a healthy share of their income needs have much less reason to consider annuitizing a portion of their portfolios than investors without pensions ditto. For retirees who expect that their lifespans will be average or below average, they'll tend to benefit less from the longevity risk pooling that comes along with annuities.


So in essence, what she's saying is if you expect that there's not longevity in your family and you don't expect to be around that long, that maybe annuity isn't for you. It really does stretch out and get rid of that risk of outliving your money. But if you don't feel like you're going to live until you're in your 90s, maybe it doesn't make sense. And this goes into as you're building out your retirement plan, factor it in. Just run a scenario with annuity. Without annuity. Run it if you pass away in your early seventy s, and run it if you pass away in your 90s. You want to account for all different scenarios. And that's the part about retirement planning that I don't see a lot of people doing. They'll run one plan and say, you know what, as long as I'm on this trajectory, I'm okay.


But what else can you be doing? You want to start thinking about all the different scenarios that are out there that you can help put yourself in a better position and not just thinking about the financial part of it, but what's also going to bring you less stress. Because if it stresses you out every single month or quarter every year that you're taking a large distribution from your retirement account because you see that value go down, isn't it worth a certain amount to think about some? Sort of strategy that is just going to give you a guaranteed income where you're not going to see this massive drawdown every year because you're taking out money and you can't outlive it. There's got to be some sort of just mental premium that can be put on that. So just something to consider. One thing that says is with interest rates where they are today, annuities are still not paying the highest rate that we've seen in history.


So I said one way to combat that problem is to purchase several annuities over a several year period. That is the benefit of diversifying your purchases over a varying interest rate scenarios and enables you to diversify your risk across insurers. I found this interesting in all honesty. This is one of the first times I've seen something like this or heard of this concept of purchasing different annuities from different carriers over different years, especially depending on the type of annuity that you buy. Most people will just buy one at a certain time because the thought of buying another one at a different time is just never as appealing. And this is where I wish that in this industry it was easier just to have conversations with people without it feeling like there's this massive sales pitch or this Catch 22 that has to come along with it.


You have to be able to have an honest conversation about, here are all the options out there. When you go buy a car, they're going to present you with all the options and yeah, they're always going to talk to you about do you need the extended warranty or not or all the different features that you could get or that you might need. I remember when they used to sell cars without air conditioning or without power windows. If you're watching this, you probably remember that too, where power windows was a feature that you had to add on. You had to crank the window. How many kids do they know about cranking the window? But the salesman at those car dealerships talked to you about all the different options and there wasn't this feeling of, okay, the moment you mention this one thing, I'm going to just go somewhere else.


When you're buying a car and they ask you about the extended warranty, most people don't just say, oh, you know what? You brought up the extended warranty. I think I'm going to go this way and go to another dealership. Typically not what happens. And that's why when planning retirement, I feel like there does have to be more of a conversation around, let's look at the entire universe of investments. Let's just go through and see, do any of these make sense? Because most people invest in stocks, bonds, ETFs, mutual funds, but there are annuities and private equity and all these other alternative investments that are out there that are gaining popularity, but for some reason they have just some bad rap. So sorry for that tangent, but I really wish that there was a way to have just a conversation without this feeling that it's got to be one way or another.


That's why one of the things that I always talk to my clients is my job is just to present you with everything that's out there. And we'll come to a decision together. If we're ever going to look at a certain product, we're going to talk about the pros, the cons, the ups, the downs, the goods, the bads. We're going to go through it all and we're going to have a conversation about why this certain thing would fit in your portfolio. Where does it have a place? And if at the end of the day we decide, you know what, I think I'm going to pass on that one. No problem at all. Let's go on to the next thing. Let's find something else. That's the way that it should be. It shouldn't be where you can't talk about something because other people have a bad opinion on it.


And that's just my opinion. But the next thing, the next subject she talks about was don't rule out doing some type of work. Now, it was interesting because she point out this Bureau of labor forecast that talked about how people over the age of 55 will compose 25% of the workforce in 2024, which is up from 22% in 2014. And really this has been a bigger phenomenon as people are working more part time in retirement. They're not just retiring to retire, they're retiring to something else. I see a lot with people retiring to become a contractor or do some sort of part time work. And that's something that if you build that into your retirement plan, it's going to help because you're not having to take these massive withdrawals in the first couple of years. But you have to be cautious because, as she points out in the article, the data show a disconnect between the percentage of pre retirees who say they plan to continue working in some fashion through retirement and the percentage who actually do.


Because according to a 2019 study by the Employee Benefit Research Institute, eight in ten workers said they plan to work for pay in retirement, and in actuality, only 28% of people actually do so, while workers who expect to retire at 65, the median retirement age among retirees is 62. So what you're seeing is you're seeing these different what people say and then what they're doing are two different things. On the working side, eight out of ten people say, yeah, I'm going to work in retirement. And then my guess is you get to retirement, you realize every day is a Saturday. Okay, well, why do I want to turn that into another Monday at some point? So you see less people working even though they initially were planning on it. I found the interesting one was that there were a lot of people who expected to retire at 65 years old, and the median retirement age among retirees was 62.


And there was a study that showed that more than four in ten retirees retired earlier than they expected, and it's usually because of health issues. That's not something you can really forecast. So even if you're a decade away from retirement, you're thinking, I'm not going to retire until I'm 67 or 65 or 70. I would start running scenarios of what happens if you left at 59, what happens if you left at 60 or 62, just run all these different scenarios for each age. So that way you have an idea of what does life look like if you plan to retire at 65 and that just happened to be 62 because of some health issue, there's an adjustment that's going to need to be made there. And the last thing you want to do is rush to do all that analysis right as you had to leave the job that you thought you were going to be at for another three years.


There's just a lot of mental things going on during that time, and you want to have a plan well ahead of time to go through that. And then she goes on to say that it's crucial to ensure that working longer isn't central to the viability of your financial plan. That's a great point. If your entire retirement plan is based on the fact that you're going to continue working into your sixty s and seventy s, then you might need to reassess what your plan is. In general, you have to think about, is it feasible to retire in the first place if your whole point was to go and work and do something part time? So be very cautious if you're factoring in work, because at some point it might not be up to you. It might just be up to health and all of those other factors.


The next thing she talks about was laying a safety net. And so in this scenario, what she's talking about is insurance. And she says you can't purchase disability insurance if you're not employed. And life insurance isn't typically a must have for retirees either. And she goes on to talk about how most retirees will want to insure against heavy out of pocket health care outlays with supplemental insurance policies alongside Medicare and Medicare Part D. Prescription coverage is also important. So we get a lot of questions about what's the cost of health care and retirement going to be, how much do I need to budget for that? So you want to make sure you're setting something aside for that. And the one thing that she goes to talk about here was long term care insurance. Because if you're retiring in the next year or two, or let's say you're in your 60s now and you haven't purchased long term care insurance at this point, it's going to be difficult to qualify for one.


They're easier to qualify for the younger you are. But most people aren't thinking about long term health care coverage in their forty s and fifty s. They're thinking about it as they're going to retirement. They're hearing all these scenarios about, well, what happens if I need this money to provide for my spouse as well as put me in a home at some point? And she brings up, it's crucial to consider, how would you cover long term health care needs? And the interesting part was how lower income retirees will be able to rely on Medicaid for their long term care needs if they've exhausted all of their assets. And the very affluent with, as she puts, say, more than $2 million in assets may be able to self fund long term care without disrupting their financial plans. But it's for the people in between. So if you have some money saved and you're not in that two plus million dollar range, what happens if you need long term care.


Is it going to deplete all of your assets if you're married? Is it going to cause your spouse to also deplete the assets and leave them in a tough position if something happened to you? So starting to think about that as early as possible. But what are you going to do to set yourself up if you need long term care at this point? Maybe long term care insurance isn't the answer because maybe you don't qualify for it if you haven't started that process yet. But she suggests setting aside a cash cushion to cover unanticipated outlays like big dental or veterinary bills or home or auto repairs. So just setting aside money. We always talk about the whole concept of an emergency fund. Well, you don't need an emergency fund if you lose your job because you're retired, because you don't have a job to go back to.


But you will need an emergency fund if something happens and you have a big expenditure you weren't thinking about. The next topic was stay flexible on the withdrawal rate front. So for the longest time, everybody's always talked about that 4% rule. You can take 4% for your portfolio, withdraw that amount, adjust it for inflation every single year, and that should be able to sustain you for the long term retirement success. And the example of this that she provides was if you had a million dollar portfolio that would support a $40,000 initial withdrawal and assuming a 3% inflation rate, the retiree would take home $41,200 in year two and so on. So it would compound for inflation. Now, the issue is that most recently there's been a lot of retirement research that has poked holes at that 4% rule because market history has never had bond yields as low as what we see today.


So the whole point of what she goes into here is just like we talked about before, there is no one size fits all. It's not 80% for everybody that they need to replace their income. It's also not 4% on this side that you could take from your portfolio and last the rest of your life. It's going to depend on you and being flexible and knowing that there are some years where you might be able to take five or six, some years where you might have to take three. You have to be flexible in what your retirement is going to be. I heard a quote recently that there is no average in the market because everybody talks about the long term average of stocks being 9% or 10% depending on when you're starting and when you're stopping. But how often does it actually deliver the average?


Very rarely. So you think about that. When it comes to the 4% rule, the 4% is the average of what you want to be. There might be years where it's five or six years where it's two and a half or three and a half and being flexible over a long period of time, maybe it is four, but just saying I'm going to withdraw 4% every year and I'm not going to readdress it or think about it again might put you in some trouble later on. If we do have some adverse scenarios in the markets, the next part is paying attention to tax. And she goes on to say, retirement planning would be so simple if we each came into retirement with a single investment account like a Roth IRA. Roths are great tools. It's an investment account where you contribute after tax and all withdrawals are tax free and there's no required minimum distributions like there are in traditional IRAs.


But she goes on to say that the typical retiree today will come into retirement with most of their assets in traditional tax deferred accounts like 401 or IRAs. So now you have this issue where it's been helping you on the tax front while you're working. At some point in retirement, you're going to have to take required minimum distributions from these accounts. And later in life it can cause some tax issues because aggressive savers that are in higher tax brackets later in retirement because of RMDs. So this is where you can start considering Roth conversions as a strategy. Because if you've been an aggressive saver your entire career, and you've got a few, maybe a couple of million dollars in your IRA, at some point, maybe when you're 75, depending on your age today, you have to start taking RMDs. By the time you're in your mid to late 80s, those RMDs might put you into an extremely high tax bracket that maybe you were never in your entire career.


I've seen people that make a modest income, but because they were aggressive savers, they have large balances in their 401 and in retirement it's unexpected, but they're going to be in a higher tax bracket because of RMDs at some point. So this is where you can start considering Roth conversions. If you're not familiar with a Roth conversion is this is where you take money out of a traditional account like a 401K or IRA. You pay the taxes on it during that year, and then you put that money into a Roth and you let that grow. It'll grow tax free. You don't ever have to take money out of it again. And there's no capital gains tax or anything like that. And this all reminds me of an article that I came across on a website called Rethinking 65. Com and it talked about the benefits of a backdoor Roth IRA.


If you're not familiar with a backdoor Roth IRA is, this is a way for high income earners to contribute to a Roth IRA because if you earn too much, you're phased out of the ability to contribute to a Roth. So if you, let's say, are in the highest tax brackets and you're phased out of that Roth contribution aspect, you can make an after tax contribution to a traditional IRA and then do a Roth conversion because there's no limits, there's no income restrictions on Roth conversions. So you're essentially contributing to a traditional IRA with after tax money. You're not taking a tax deduction for that, and you're immediately doing a conversion into a Roth. Now, they go through this scenario where they're calculating the potential value of a backdoor Roth IRA. In this scenario, they talk about a married couple filing jointly, assuming a 37% tax rate and a 7% annual rate of return.


The difference in the total net account balances in this example, the account balances after the IRS takes their share in 30 years for a Roth versus a traditional IRA is more than $500,000. At a 5% return, the difference is closer to $350,000. And if the couple's tax rate is 24% and the total portfolio returns are 5%, the difference is just under $240,000. So even applying this strategy over a five year period has the potential to increase the ending net balance in a taxpayer's retirement account by $20 to $30,000. I do use three main assumptions here, that tax rates are consistent because if tax rates go up, then it's a bigger benefit to have the Roth. But if tax rates go down, well, it would have been a negative impact and you would have been better off not doing the Roth. They also assume that you're fully funding the retirement account because a couple can contribute $7,500 apiece, assuming they're each over the age of 50.


So that's $15,000 total every single year. And the third assumption was that the backdoor Roth strategy was used consistently every single year. This can be very complicated, and it's very important to get professional help before you do any sort of Roth conversions or backdoor Roth strategies because once you do them, typically you can't undo them. And so they could be very complicated, very tax nuanced. You want to make sure you're getting it right. And so in going back to the article that Christine Benz wrote at Morningstar, just starting to think about taxes later on in retirement, taxes into your 70s, into your 80s is important even if you're in your forty s, fifty s, and sixty s, because most people day. And this is why I think Roth IRAs have gotten so popular in conversation these days, is because they're not necessarily new, but the concept of having these large IRA balances and then realizing, wait a minute.


I got to pay taxes on this. At some point, of course, now you start thinking about, well, how can I reduce my taxes? Well, I could have been in a Roth IRA. And it's that thought process that gets more people thinking about that Roth IRA. And I think that's why it's gotten more popular over the past couple of years. But back to the article that Christine Benz wrote. She talks about the standard withdrawal sequencing and talks about how RMDs should be the first thing to distribute, followed by taxable accounts, then traditional tax deferred accounts. And then Roth assets are typically last because they carry the biggest tax benefits. So just thinking about how you're taking money out of your portfolio from a tax perspective, next big topic she talked about was right sizing your portfolio's risk profile. And this is where you use your anticipated spending needs from your portfolio to determine how much to invest in each asset class.


And this is the basic premise behind the bucket strategy approach, where you're putting, for example, as she talks about you're spending for the first one or two years of retirement into just cash. It's not going to grow much, but you're not going to have this risk of it going down either. And then money for the intermediate years of retirement, from years, let's say three through ten, those go into primarily high quality bonds which have a little bit higher return than cash but still have more safety than stocks. And then everything else that goes into that ten plus years on can go into those higher risk buckets. So just thinking about your portfolio from a risk standpoint and how do you build out your asset allocation doesn't have to be based on just your age or what your risk tolerance is. Those will come into play.


But really, if you base it on when you're going to need the money, then it should hopefully give you confidence when we're going through periods of market uncertainty like were last year. And when the market's down, you go, well, you know what? I know that for the next one to two years, my cashes are taken care of. I know that my three through ten years I don't really have to worry about because those aren't high quality bonds. Those aren't, for the most part, going anywhere. And so it can help give you a lot more confidence in keeping a disciplined strategy when you're investing. And the last thing she talks about was give due attention to your estate and portfolio succession plan. She goes on to say the basic estate plan, things like powers of attorney for health care and financial issues such as a will and a living will, those are all going to typically be handled by a good estate planning attorney and so they'll help you draft those.


But things that she talks about that are not going to be handled by an estate attorney are how would things run if you were unable to run them? And what can you do to start simplifying the moving parts of your portfolio? For example, do you have everything spread throughout different accounts at different places? Is there a way to streamline things into one area? Do you have a list or a master directory and all of your basic documents that might be needed if something happened to you? Starting to think through that process? I know nobody wants to think about their death. Let's just face it. Nobody wants to talk about it. Nobody wants to plan for what if something happens to me here's? Who can essentially replace everything that I've done financially for our family? Here's one document that can replace all of that. Nobody wants to do that because it doesn't make you feel good.


You want to be able to feel like, you know what? I'm handling these things. I have a purpose. And so, yeah, it's not the first thing that comes to mind, but it is important because, see, it time and time again when something happens to somebody and then the kids come in and they've got to clean up the whole thing. And it could take months and years, and you think of if your kids are doing it, if your spouse is the one doing it, no matter what, those people cared about you. Those people missed you. And they're probably still grieving. So then to have them while they're grieving, go through all of this complexity just to get things where they need to be, it's just adding more strain to an already tough situation. So if you went through the whole plan of putting Beneficiaries on things and going through and building out a trust and a will and you did all that planning, just go an initial step further and try to make things a little bit easier if something were to happen to you.


Because I promise you, it might not be for your benefit, but everybody who's going to be touching these assets after you pass will be so thankful that you made it easier. Because I've seen where it can take a long time to get things settled. And every single time that something comes up where you have to send another death certificate or contact another 800 number and get run around for 30 to 45 minutes, every single time, it brings back the memory that, hey, guess what? That person that you're doing this for is no longer here. It's not a fun experience. So if you could do anything, start thinking about that process now. Just to make it a little bit so with that sorry to make it a little bit downer there at the end. We like to keep things uplifted as much as possible. But, hey, sometimes life is life.


But I'm Jonathan Rankin. Next week, I should hopefully have my sidekick here back with me. We definitely miss her. And before we get out of here, make sure you hit that subscribe button. Also, check out our retirement newsletter. There's a link in the description below to subscribe to that. I know went a little long this time. I could ramble for hours. I'm like a jukebox, but a quarter in me, I'll just keep going. So with that, I'm Johnathan Rankin. Thank you so much for watching.

Registered Representative of Sanctuary Securities Inc. and Investment Advisor Representative of Sanctuary Advisors, LLC.– Securities offered through Sanctuary Securities, Inc., Member FINRA, SIPC. –  Advisory services offered through Sanctuary Advisors, LLC., an SEC Registered Investment Advisor. – Theorem Wealth Management is a DBA of Sanctuary Securities, Inc. and Sanctuary Advisors, LLC. This communication has not been reviewed for completeness or accuracy, does not necessarily reflect the views of Sanctuary Securities, Inc. or Sanctuary Advisors, LLC., and is not a recommendation or endorsement of any product, service, or issuer. Third party posts do not reflect the views of Theorem Wealth Management or Sanctuary Securities, Inc. or Sanctuary Advisors, LLC., and have not been reviewed for completeness and accuracy. All further communications from this representative must be sent from and received by johnathan@theoremwm.com. For additional information, please refer to one of the following consumer websites: www.FINRA.org, www.SIPC.org.

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