Managing Retirement Income Decisions During Retirement

Jim Lorenzen, CFP®, AIF®

Managing retirement income has never been easy.  Those who retired in the early 1970s saw interest rates rise dramatically, then fall the same way – all within about a 15-year period.   When interest rates were going up, it made them feel good; but, few paid attention to inflation or tax implications.   During one period, interest rates were in the double-digits, but so was inflation, which meant their “increased” income wasn’t really increasing at all.    Money is worth only what it buys at the checkout counter.

So, the retiree who felt great about a 15% interest rate during 15% inflation (yes, it really happened and could happen again, blindsiding people who didn’t live through it before), weren’t really getting a raise at all – and that was before taxes!

The real problem, of course, came when interest rates began to fall.  During the period that interest rates (and inflation) dropped to 12% from 15%, retirees were seeing their incomes drop by 20% (a 3% drop in rates from 15%) while still seeing prices rise by 12%.

How do you manage income in retirement?  It ain’t easy.

Naturally, you could consider a basic withdrawal sequence using a straightforward strategy to take money in the following order:

  1. Required minimum distributions (RMDs) from IRAs, 401(k), or other qualified retirement accounts.
  2. Taxable accounts, such as brokerage and bank accounts.
  3. Tax-deferred traditional IRAs, 401(k), and other similar accounts
  4. Tax-free money – from Roth IRAs for example

This sequence can provide an order of withdrawals; but, other than the RMDs, it doesn’t tell you how much!

But wait! (as they say on tv).

How much?  And, how can you be sure you won’t run out of money?

RMD can provide a clue!

The RMD calculations can provide sound guidance for your entire portfolio!  Using the IRS formulas, Craig Iraelson, executive-in-residence in the financial planning program at Utah Valley University, did some back-testing with hypothetical portfolios invested in different investment allocations with RMD withdrawals starting in 1970 (the beginning of a relatively flat ten-year stock market).   Using beginning values, and even with a portfolio invested in 100% cash, there was still $850,000 left after 25 years!   And, a portfolio that was 25% stocks had $2 million left.

RMDs appear to address longevity risk pretty well; but, there’s another question.   Is the income level provided by the RMDs enough to preserve the pre-retirement lifestyle – or anything close?

There’s the rub.  In the back-tested portfolios, the initial RMD was 3.65% of assets… and that falls within the widely-accepted 4% rule…  but, that’s only $36,500 of pre-tax income.  Even if the retiree family has an additional $30,000 from Social Security, that’s still just $66,500 before taxes; and, for many successful individuals, that isn’t enough.

So, there’s the trade-off:  Sacrifice income for longevity, or accept longevity risk in order to take increased income.

Fotilla Images

Maybe there’s another way.    How can a couple have more freedom to take greater income early while still addressing the risk of running out of “late-life income”?

My “Late Life Income” report shows how many couples have addressed this issue.   You can access it here!

By the way, when you get my report, you’ll also receive a subscription to my ezine.    If you decide you don’t want the ezine when you receive it, you’ll be able to unsubscribe immediately with a single click and, of course, your email is never shared with anyone.

Enjoy the report!  Hope you find it helpful.

 

Enjoy!

Jim


Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

What’s Your Focus?

Jim Lorenzen, CFP®, AIF®

Most people buy life insurance based on the same outdated advice they’ve been given for years.   It’s predictable:  buy term – and, for many people term insurance makes the most sense!   Others have been told they should buy “whole life” because it’s permanent and comes with the most guarantees; and, for many people that probably is the best choice – and it does come with the most guarantees.

All generally agree they should buy the most amount of death benefit for the least amount of money – and in some cases, that’s true as well – but, not in all cases.

Different strategies and case designs are possible to achieve a wide variety of objectives and all can make sense for some people and not for others.    This should be no surprise.  There are people who are allergic to foods other people love – my dad, for example, couldn’t eat peanuts, but I could munch on them all afternoon.

If you’re wondering what kind of life insurance strategy makes the most sense for you, the first thing to do is to identify your focus – your priorities.  Life insurance can be simple death protection or it can function as a highly versatile financial tool accomplishing a number of objectives.

What’s your focus?  What do you want life insurance to accomplish for you?  Here’s a little tool you can use to help identify your focus; so, when you talk to an advisor (naturally I hope it’s me, but it can be anyone you trust), you’ll be able to more clearly communicate just what your needs really are.

Hope you find this helpful.
What’s Your Focus Life Insurance Priorities Tool

By the way, when you request this tool, you’ll also receive future issues of my ezine.  I hope you find that helpful, as well; but, you can unsubscribe at any time and be removed from the list immediately.

Enjoy!

Jim


Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Do You Have A Greedy Business Partner – Even if you don’t own a business.

Jim Lorenzen, CFP®, AIF®

If you work, you have a business partner, even if you don’t own a business.  And, this partner isn’t like most others.

The problem is your partner in the business of life gets to decide how much of your revenue he wants to take… and you have no vote.  In fact, he can – and will – change his mind at any time at any time, including during your retirement years.

What can you do?  You might find this special report helpful.

You can access it here.

Enjoy!

Jim


Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Do Advisors Really Add Value?

 

Jim Lorenzen, CFP®, AIF®

For years the media and others have debated the ultimate value of an advisor to the individual investor.   Some believe they either under or outperform; others believe the value is more about providing a disciplined investment process; and, there are still others who believe the value lies in the planning and tax optimization process.

Vanguard – long a champion of the individual investor and low-cost investing – conducted their own study and actually came up with more than a conclusion; they came up with a number.  You may find it interesting.

You can access it here.

Enjoy!

Jim


Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Can You Reduce Risk By Adding To It?

 

iStock Images

Jim Lorenzen, CFP®, AIF®

Ever wonder why so many “off-the-shelf” allocation engines available today tend to look so much alike?   The reason is pretty straightforward:   The investor’s menu of choices is limited by the engine provider based on similar sets of data inputs and a short risk questionnaire.   When you couple that sameness with a fear of placing “risky” investments in the hands of the general public in a litigious culture, you get what you’d expect:  Off-the-shelf tends to look a lot alike with limited ‘plain vanilla’ investment options and sometimes, if not often, a proprietary product line.

“Plain vanilla” isn’t bad!  However, there are ways a little pinch of something can actually enhance the flavor without causing stomach upset.

You might find this risk report interesting, if not helpful.
Risk Report
Enjoy!

Jim


Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Will My Money Last?

piecing-retirement-puzzle-pathJim Lorenzen, CFP®, AIF®

Scott and Linda (not their real names) are in their 50s and have done a lot of things right:  They’ve worked hard, saved and invested, and they’ve been practical in their spending.

They feel like they’re well on-track to a secure retirement; but, a few “wild cards” do have them concerned:

  • Inflation and longevity:  They know what’s happened to their purchasing power over the last 30 years.  They’re concerned about the next 30+ (maybe 40) when they’re living off their investments.
  • Taxes:  While there may be a temporary reduction coming now, they also know the U.S. is facing a $20 trillion debt and there will be 7 or more presidential elections – not to mention 15 congressional elections – that will take place in the next 30 years.  That spells a lot of potential changes and changes in tax laws.   They want old-age income that will be protected from the politicians.
  • Health costs:  A huge wild-card.  They know the odds are about 50% one of them will need it, but they don’t want to see long-term-care insurance money going down the drain if they don’t need it.  They also want money available if they do have a chronic illness.
  • Liquidity:  They want money available for emergencies during retirement without having to jump through a ton of hoops.

I thought you might like seeing a sample case study about how one couple addressed this issue.

Enjoy!

Jim


Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.