Office Hours - Your Retirement Paycheck

So welcome to this live session. Thanks so much for joining me. I am Nancy Gates and I lead the service team here at Bolden with a focus on delivering meaningful support to our users through education, coaching and community engagement. Today's session is a special office hours devoted to the topic of funding retirement expenses from multiple sources. I always do ask you to keep in mind that our live sessions are intended to provide general educational information, so anything discussed should not be considered specific investment tax or legal advice. We always recommend consulting with your investment tax or legal professional prior to acting on anything you hear in our classes. So today's topic is your retirement paycheck and Managing your income and expenses in retirement can seem overwhelming, but it doesn't have to be. We can help with questions like what will my income sources in retirement be? What's the best way to draw for my investments to fund necessary as well as discretionary spending during retirement? How can I structure a regular retirement paycheck that gives me confidence to spend in retirement and more? This slide portrays what's known as the retirement spending Smile provides a visual illustration of a typical retirement spending curve. Once you retire, you'll need a process to ensure that you're able to fund your spending through your lifespan. Having a system can ensure that you're able to easily access the funds you need when you need them, whether you're paying utility bills, booking a large trip, or transitioning to a retirement community. Here at Bolden, we call that system your retirement paycheck. Retirement comes with multiple changes, and one of those is the end of regular paychecks from your employer. Our retirement paycheck represents the method of funding the life you desire after leaving work. Because each person's circumstances are different, each person will have a different mix of income sources in retirement, and this slide portrays the most common ones. The first potential source of income in retirement might be some part time or contract work or passive income such as rent, followed by investment income, pensions, annuities, Social Security, and required minimum distributions. While those might be sufficient to fund your expenses, for most retirees, they're not. And when more income is needed, especially during the gap years, many people dip into their retirement accounts, which is okay too. After all, that's what you save for. To further complicate matters, each income source might come into play at a different time or only during a specific phase. It's common for individuals to encounter what I call gap or delay years after your working commence and before claiming Social Security or receiving required minimum distributions. During these years, you might transition from reinvesting dividends and interest to withdrawing those. To fund your expenses, you might start receiving a pension or claim Social Security, rely upon a bridge annuity or another type of annuity, or tap one or more of your savings accounts so now that you understand the retirement PayCheck concept, the second part of today's presentation is going to focus on a system which can help you manage your cash flow and spending. Once you have the system in place, you'll be able to monitor your spending which can help you identify trends, determine whether your estimates were on target, and make sure you're not overspending or being excessively frugal. Because there's so much variability in the early years, you may want to review quarterly and then move to annually once things smooth out. To set up your system, you'll need to establish your operating accounts. First, set up a checking account to act as your cash flow account and a savings account with your emergency fund for those unexpected expenses that pop up. Next, identify a paycheck reserve account which holds the money you'll need this year. This can be another after tax or pre tax account depending on your overall investment strategy. Once you've established your accounts, you can set up transfers from the paycheck reserve to your cash flow account. You can use a regular, biweekly, weekly or monthly transfers, whatever you were used to when working to fund your estimated recurring expenses. And you can use one time transfers to fund those large expenses such as a home renovation or a large trip. For the third part of today's presentation, we're going to look at a couple of real life retirement paycheck examples. Our first case study is Amy. She's an early retiree with a little consulting income and a well funded brokerage account. Because Amy wants to keep her income under an income threshold until age 65 to maximize premium tax credits for the Affordable Care act plan and keep her health care costs low, she's funding shortfalls from her brokerage account. Amy's consulting income is directly deposited into her cash flow account and she scheduled a monthly transfer from her brokerage account into the cash flow account as well. This process will get her through to age 70 when she plans to claim her Social Security benefit. Once she begins Social Security, she can reduce or end her brokerage withdrawals. And depending on her pre tax balances and expenses, when she reaches her required minimum distribution age, she may find herself in the position to reinvest some of those RMDs. Our next case study is Craig and Kayla. They're relying on an income floor strategy. An income floor Strategy entails having enough guaranteed income to fund essential expenses such as food, housing, insurance, transportation and health care. Because Craig and Kayla cover all of their essential expenses with their pension and annuity, they don't schedule any regular withdrawals from their retirement accounts to their cash flow account. They'll tap the other accounts as needed for large expenses such as travel, home renovations, gifts and charitable donations. As with the others, they'll make adjustments when each of them claims Social Security and again when they reach required minimum distribution age. Our last case study is Renato and Carla. They have a pension from Renato's employer. They want to reduce the balances in their pre tax accounts to avoid higher taxes. After the required minimum distributions begin, Renato and Carla are taking withdrawals from pre tax accounts to the top of the 12% tax bracket. So they've excluded in the software the after tax accounts from the withdrawal strategies. This slide summarizes some of the topics we covered today. A couple of next steps you might want to consider and I'm going to show you. These three use cases in the software. Now I represented Amy as a single person, but you can't have a single scenario and married filing jointly scenario. So the scenario I have for Amy in the planner is actually married, if you pick up on that. So here is Amy with post tax withdrawals and for income, she has $2,000 a month. In consulting income, she'll be claiming Social Security at age 67 and her spouse will be claiming at 67 as well. In accounts and assets, we see that the brokerage account is what's going to be tapped for retirement withdrawals. If we go to money flows, she's using the traditional withdrawal order which prioritizes that after tax account we can see the withdrawals by type, the withdrawals by account to validate that they're coming from the brokerage. We can also navigate to the insights retirement withdrawals report. Her withdrawal rate is not beginning until retirement date, Which I should have changed. And then the withdrawal amounts here. The shortfalls are very small actually. So that's Amy. And then Craig and Kayla have the income floor strategy. And so they don't have any withdrawals. They're relying upon an annuity and a pension to fund their essential expenses. Our third case study is Renato and Carla. No pensions, no annuities. They haven't customized the withdrawal strategy to prioritize the pre tax accounts. What they've done is they've excluded the brokerage account from withdrawals. That's forcing the software to take withdrawals from the pre tax accounts. If we navigate again to the retirement withdrawals report, we can see that the shortfall is coming from Amy's rollover ira. So that's the retirement paycheck concept, and that's a couple of case studies that you can account for using the Bolden platform. All right, have a wonderful day, everybody. Happy planning, and we'll see you soon, I'm sure. Have a great day.