Tweak Your Retirement Strategies to Create an Epic Retirement Plan, Ep #93

I recently had 2 fantastic questions about retirement strategies come to my inbox. Both questions require thoughtful, detailed answers. So on today’s episode of Retirement Starts Today, I focus on carefully answering both of these questions. On this episode, you’ll learn how to tweak an already fantastic retirement plan and turn it into an epic retirement plan. You’ll also discover how to develop a sound retirement strategy that considers required minimum distributions and lessens your tax burden. Are you ready to learn how to turn your retirement strategies into an epic retirement plan? Listen now to learn the details.

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Outline of This Episode

  • [1:32] Should a listener take out a HELOC loan?
  • [4:48] Why the 4% rule may be too conservative for many people
  • [8:15] So if we’re not using the 4% rule then what do we use?
  • [11:32] How to make a good retirement plan even better
  • [18:04] How to withdraw in retirement?

Why the 4% rule may be too conservative for many people

The 4% rule has been around forever and it is has lasted so long because it works. However, I think the 4% rule is too conservative for many people and here’s why. The 4% rule carries a 96% probability of having more than 100% of your portfolio’s starting value leftover at the end of your retirement. For example, if you start off retirement with a million dollars and spend for 30 years you’ll end with a million 96% of the time. There’s even a 50% probability that you will 4X your starting value! That’s great and all, but by doing that you are leaving potential spending power on the table. The problem is, by the time you figure out that you have too much left over you are often too old to do anything about it. Your chance to make those memories is gone. Think about your own portfolio, is your retirement plan too conservative?

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So if we’re not using the 4% rule then what do we use?

If you have been planning your retirement based on the 4% rule then it can be challenging to change gears. I prefer to use a dynamic withdrawal strategy in retirement that considers market performance. I didn’t make this strategy up out of thin air, I use Guyton’s rules as a guide. Guyton’s dynamic rules figure a 6% withdrawal rate is sustainable as long as we reduce the withdrawals when the market gets bad and increase withdrawals when the market performs well. Instead of using a 4% fixed withdrawal rate try plugging in a 6% withdrawal rate to your retirement model that ebbs and flows with the market.

How to adjust your retirement strategies to improve your good retirement plan to make it epic

Many people base their spending in retirement on their withdrawal rate rather than on their retirement goals. This way of retirement planning is completely upside down. Start with your retirement goals first, then create a plan for what your portfolio might be able to generate in returns and sustainable withdrawal rates. The biggest tragedy of retirement is looking back with regret at the experiences you didn’t take. Here are 3 retirement strategies you can use to improve your retirement plan

  1. Don’t pay extra taxes! We are experiencing tax cuts that may not be around forever, take advantage of them now. Converting to IRA’s now may save you in the long run.
  2. Don’t spike your income after age 70.5. If you’re not careful with your tax strategy now, your RMD could lead to a dramatic increase in your income which could also lead to an increase in your Medicare Part B premiums.
  3. Pay more taxes now to pay fewer taxes later. No one wants to pay more in taxes but by doing so now you will have more flexibility with your income, tax diversity, and it could lead to more net worth.
Learn how to develop a sound #retirement strategy that considers required minimum distributions and lessens your tax burden. Click To Tweet

How to withdraw my funds in retirement?

The second listener question concerns withdrawing funds in retirement. He already knows his rate of withdrawal and which retirement accounts to use. He wants to know when to rebalance and when to take from cash, bonds, or stocks.

Monthly distributions should come from cash and the cash comes from selling something in your portfolio. Each year you’ll want to sell another portion of your portfolio but then your positions will be out of balance. Rebalancing is buying and selling within the portfolio to get back to the portfolio’s original positions. Withdrawing in retirement becomes a constant shift of rebalancing based on market conditions and your personal risk tolerance.

Resources & People Mentioned

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