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Welcome to How to Retire on Time, a show that answers your questions about all things retirement, including income, taxes, Social Security, healthcare, and more. This show is an extension of the book How to Retire on Time, which you can grab today on Amazon or by going to www.howtoretireontime.com.
This show is intended for those within 10 years of their target retirement date or for those are are currently retired and are concerned about their ability to stay retired.
Welcome to How to Retire on Time, a show that answers your questions about all things retirement, including income, taxes, Social Security, health care, and more. This show is an extension of the book, How to Retire on Time, which you can grab today on Amazon, or you can go to www.how to retire on time.com. My name is Mike Decker. I'm the author of the book, but I'm also a licensed financial adviser, insurance agent, and tax professional, which means when it comes to financial topics, we can pretty much talk about it all. Now that said, please remember this is just a show so everything you hear should be considered informational as in not financial advice.
Mike:If you want financial advice, then request your wealth analysis for my team today by going to www.yourwealthanalysis.com. With me in the studio today, it's mister David Fransen. David, thanks for being here today.
David:Yes. Hello. Thank you for having me.
Mike:Yeah. David's gonna be reading your questions, and I'm gonna do my best to answer them. Now you can send your questions in right now or anytime this week. Just save this number, 913-363-1234. Again, that number is 913-363-1234, or you can email them to hey mike@howtoreontime.com.
Mike:Let's begin.
David:Hey, Mike. How do people manage their income in retirement? As in, do they get it once a year and have to spread it out? Do people get monthly checks?
Mike:This is a seemingly simple question from an administrative standpoint, but it is an emotionally devastating question to answer. Why? Because we're all used to just getting a paycheck.
David:Yeah.
Mike:We are controlled by that paycheck. It's as simple as, okay, I have x amount of money that just got in my bank account. That's how much I can spend this month. We are hardwired over 30 to 40 years of working to just kind of manage our money around that paycheck. So it's very normal to say, hey.
Mike:I I kinda want to replicate that. Yeah. Business owners might be a little bit different because they're used to having to just make it work. Right? People that work off of commission lead jobs might be able to make it work in a more flexible way, but most people got a paycheck.
David:Mhmm.
Mike:It was routine. It was consistent. And so here's kind of how it works. Let me break it down. If you got a pension, if you qualify for Social Security, you're getting the monthly checks.
Mike:That's just how it works. If you buy an annuity and turn on lifetime income or annuitization, you would get monthly checks. And you might wonder, why do you just say the same thing twice? I didn't. Lifetime income is exactly what it sounds like.
Mike:It's guaranteed income for life based on the contract, and you have that as long as you live. Annuitization, specifically, is more applicable to a term called period certain. That means whether you're alive or not, someone's going to get monthly checks for this predetermined period of time, whether it's 5 years or 10 years or 20 years, whatever it is. K? So little bit different semantically, but it still results into monthly checks.
Mike:Any questions on that before I go into the occasional checks?
David:No. I did. I got it.
Mike:Occasional checks. You've got your dividends. So they happen when they happen, whether it's, you know, bond dividends, whether it's, you got some blue chip stocks, which is a fancy way of saying stocks that pay a good dividend. K? REITs, privately held REITs, publicly traded REITs, they would have a dividend.
Mike:DSTs, They they just they pay out a dividend, but it's not necessarily every month. So you kind of have to plan around that. Do you have just quarterly income and you work through it once a quarter? Do you have it biannual? And and it just depends on the investment, what they're offering.
Mike:And then you've got the portfolio income. This is where people really struggle. Because your entire life, this money was something you never touched. It was like a sin. If you had a a a life event and you had to pull money out of your 401 k, you probably felt bad about doing it because it was your savings.
Mike:Yeah. And that's not to be mean or disparaging. Life happens.
David:Right.
Mike:And if you had to go through that, it's terrible. I'm sorry you had to go through that. I wish you didn't. So we have years of a belief system that says, don't touch this. So when we start taking income out, it is emotionally difficult because and, you know, this this is how your brain is hardwired.
Mike:It's trying to protect you from making decisions that may not be in your best interest because there's so used to this being savings. So how do you take your income from your portfolio? Some people do it when needed. So they just they'll pull a portion out and just kind of slowly spend it down, then they'll pull another portion out and just slowly spend it down. Others will do it once a year, and they'll put it into, like, a a high yield savings account and then spend it down as needed.
Mike:Or some people will put it into a separate account, like, in a a different bank, the high yield savings, and then set up monthly automatic transfers to simulate that monthly check.
David:Oh, right.
Mike:That's a good one. Yeah. Some do it once per quarter. So every quarter, they'll just take out a little bit. And some people will just take out once per month.
Mike:What is right is probably not the correct way to ask this question. It's which one is going to help you with your emotional limits. Are you okay just getting everything in your bank account and make it last for the whole year? Or will you better bridle your spending and lifestyle through the monthly checks? Yeah.
Mike:And if that's the case, yeah, throw it into high yield savings, once a year or twice a year or once a quarter as depending on what you're willing to do because the more frequently you're having to sell positions or adjust the portfolio or look for money, it's just time. Or you could just do it 1 year and then go from there. So that's more of a personal preference. One more thing I wanna mention, and that is when it comes to starting your retirement, some people want what I'm gonna call training wheels. Okay?
Mike:When I say training wheels, they just can't wrap their head around pulling income from their portfolio. So what they'll do, at least this is how I help them emotionally overcome the idea of income in retirement. I say, okay. Great. You need income for the next 5 years.
Mike:Right? And they say, yes. Great. How much is it? We put the plan together and we see roughly what that number is.
Mike:I say, great. Now what we can do is we can help simulate basically a 5 year pension. K? So you're gonna get monthly checks. Here's the annual amount.
Mike:Here's what the tax implications are. And you're gonna get it every month. And we're gonna simulate that for the 1st 5 years of your retirement. Are you good with that? Yes.
Mike:Here's why I'm good with that. It's period certain. Think of basically a CD letter from an insurance company. K? You get a fixed amount every month for the 1st 5 years.
Mike:But it shows you that, hey, you can take your money, put it into something that gives you your money back while your other assets grow. Why is this important? Because you you have to trust that you've allocated your money to different objectives. You're not just making money off the growth. You're making money and there's gonna be ups and downs but you're overall trying to grow your assets.
Mike:And so even though you might spend down parts of your portfolio, other parts of your portfolio should grow. And so separating the 2 can emotionally help people kind of see, okay. It's okay to take income. It's okay to draw down this account while the other accounts are supposed to grow. And because it's period certain, there's not really a legacy issue.
Mike:Someone's gonna get the money. Right? You're not locking it up for life. And if you die too soon, it might just not disappear. But, you know, you you get what I'm saying?
Mike:So that can help a lot of people. By the way, what I've just described, you can do this through a CD, a CD ladder. It's not competitive, especially with today's rates. You can do it through a bond ladder. It's less competitive or you can use it through a SPIA, s p I a or single premium instant annuity.
Mike:Okay. That's what it means. And it's it's basically a CD ladder from an insurance company. Right now, I've noticed that they're offering a slightly better rate than you can get through bonds or CDs. Doesn't mean it's always gonna be that way.
Mike:You gotta shop around. You gotta explore it. But hey. Let's say you didn't have to worry about your income for the next 5 years. You could simulate how to get your own money back.
Mike:It's principal protected, so I can't lose money. And the rate can't change. The amount can't change just to help you ease into retirement. That's why I call it the training wheels.
David:Yeah. I see.
Mike:Because it is one of the most stressful things you can do in life is to retire. Mhmm. To give up a paycheck and have to simulate your own paycheck on your own. Especially when you don't have a financial background. Especially when you don't really understand the tax code, which most people don't.
David:Very thick. Very lots of pages.
Mike:Yeah. Yeah. It's real page turner.
David:Yeah. Right.
Mike:I mean, jeez. You don't need, what what what's the sleep aid? You don't need melatonin No. Next to your bed. You need the tax code next to
David:your bed.
Mike:So I I say that jokingly because I personally love the tax code and going through it. I know most people don't. But what I'm getting at is there are so many ways that you can take income from retirement. It doesn't have to be one way. It's what is right for you.
Mike:What's the framework or the system that's going to help you and then implement that. But, yes, in retirement, you will probably need to take income from your assets. The question is, how?
David:Mhmm.
Mike:And that's a great conversation that starts with planning and then goes to strategy and then goes to your portfolio design. That's all the time we've got for the show today. If you enjoyed the show, consider subscribing to it wherever you get your podcast. Just search for how to retire on time. Discover if your portfolio is built to weather flat market cycles or if you're missing tax minimization opportunities that you may not even know exist.
Mike:Explore strategies that may be able to help you lower your overall risk while potentially increasing your overall growth and lifestyle flexibility. This is not your ordinary financial analysis. Learn more about Your Wealth Analysis and what it could do for you regardless of your age, asset, or target retirement date. Go to www.yourwealthanalysis.com today to learn more and get started.