Education Day: Effective Retirement Income Planning – Matt Sadowsky & Christine Russell 3-13-19

Updated : Oct 22, 2019 in Articles

Education Day: Effective Retirement Income Planning – Matt Sadowsky & Christine Russell 3-13-19


[MUSIC PLAYING] Good morning,
everyone, and welcome to our seventh year of
Investor Education days here at TD Ameritrade. My name is Ben Watson. And I will be your host
joining you all day long today. We have a very impressive lineup
of presenters and information for you today. Today’s Investor
Education Day, March 2019, is focused on retirement. Now, we will have another
Education Day coming up in the fall that may
have a different focus. But most of the
presentations today are aligned around
the idea of helping you to effectively plan,
set goals, take action to plan for your retirement. Whether you are just
starting to plan, whether you are
approaching retirement, or whether you are
already in retirement, we have something for you today. So for our first
presentation coming up, we’re going to hear from
Christine Russell and Matt Sadowsky talking about effective
retirement income planning. And then Matt and
Christine are going to take a couple of deep dives
into some very specific topics surrounding the retirement area
that you may be interested in. So whether you’ve
joined us from YouTube, whether you have found out about
TD Ameritrade’s Education Day from one of our live
events, or you found us through one of our webcasts,
we’re glad you’re here. We’re excited to be
with you and bring you all of this great
information today. So stand by. And we will begin Investor
Education Day right now. As we get started, just a
couple of quick reminders today for our discussion. This presentation is for
educational purposes only. It is not a recommendation
or an endorsement of any particular investment
or investment strategy. Any investment
decision that you make in your self-directed account
is solely your responsibility. Any examples discussed are for
illustrative and educational use only. They are not a recommendation
or a solicitation to purchase or sell
any specific security. Remember, the returns will vary. All investments
involve risk, including the loss of principal. Asset allocation
and diversification do not eliminate the risk
of investment losses. And diversification
does not ensure profit or protect against a loss,
performance of any security strategy or index, no guarantee
of future results or success. TD Ameritrade does not
provide tax advice. And we suggest that you
consult with a tax planning professional with regard to
your personal circumstances. Finally, there is no
soliciting, no photography. And no part of this presentation
may be copied, recorded, or rebroadcast in any form
without the prior written consent of TD Ameritrade. So as we get started here,
let me take just a moment and introduce you
to Matt Sadowsky, the Director of Retirement and
Annuities at TD Ameritrade. Matt is a Chartered
Retirement Planning Counselor and Retirement Income
Certified Professional and is the President of
TD Ameritrade’s insurance agency and a very smart and
knowledgeable presenter. He has been a frequent guest
on our Investor Education Days here at TD Ameritrade. And along with Matt today,
we have Christine Russell, Retirement Management Analyst,
Senior Manager of Retirement & Annuities, Strategic
Retirement Income Counsel Investments and
Wealth Institute. Christine, also,
extremely knowledgeable and informed in the
retirement area. And together, they
make a phenomenal team to bring you the
information that you need to hear about your retirement. So Matt and Christine
are gonna be talking about effective retirement
income planning to kick us off here for our Investor Education
Day here in March 2019. So I’m going to pass the control
over to Matt and Christine and let them take it away, guys. Ben, thank you. And good morning. Welcome, everybody, to
March 2019 Education Day. Really glad to be here. For those who have heard
us speak in the past, welcome back. We’re going to change
things up a little bit today, freshen it up today. Christine and I
are going to really have more of an informal
discussion about these topics. We certainly have some
planned discussion topics. And some of this is a refresh
of some items last year. We’ve got some
new items as well. But we want to have more
of an informal discussion. And we absolutely do want to get
feedback and questions from you all. We’re going to try
to interweave them throughout the
presentation this morning. And if we can’t
get to any, we’re going to try to capture them
on the deep dive webcast right after this. So stay tuned. But fire those questions in. And on the topic of questions,
if we turn to the next slide, you’ll see that– there we go– you see that
many people on this call, we suspect, have an
underlying question that they want to
resolve about retirement. And that is, they are
looking for a framework to address a
variety of questions around when can I retire if I’m
still saving for retirement? What about my spouse? How much do we need to live on? How much do we need to
amass before we can retire? If we are in
retirement, if we’re getting close to
retirement, are we going to be OK
throughout retirement? Are we going to
have enough to last? Are we going to be able
to live the lives we wanted throughout retirement? And very importantly, if
something happens to me before my full retirement
plan is filled out, is my spouse going to be OK? Is my significant
other going to be OK? So if you’re still
saving for retirement, you’re really focused
on growing your nest egg and having enough to last
throughout retirement. But if you’re in retirement
or you’re nearing retirement, the conversation is
really different. You’re no longer looking
to save for retirement, grow your nest egg. Instead, you’re looking
to tap into your nest egg. And there’s really a major
shift in the conversation. You’re going from growth
mode to conversation mode. And it’s less
about accumulation. And it’s more about
risk mitigation. So what could go wrong in
that plan that I set up? What risks could be
hitting me down the road? And how do I plan for that? And really, that
goes to the core of what retirement income
is about versus general goal planning, retirement planning. So in retirement
planning, again, you’ve got that goal you’re striving to
to have enough for retirement. Maybe you’ve got
another goal or two. Maybe you’re saving
for college as well. But when you’re moving to
retirement income planning, now you’re thinking
about, OK, in retirement, how do I account for
multiple variables that maybe I wasn’t as
concerned about when I was saving for retirement? What about multiple objectives? There’s not that
one goal anymore. Now, I’m worried about making
sure my nest egg lasts. But I also want to
tap into that nest egg and get as much cash flow as I
can, as much income as I can, every year to live the lifestyle
that I and perhaps my spouse want to live. And also, how do I
have enough money ready in case of emergency? How do I account for
liquidity to address those one-offs, those surprises,
as well as the nice to haves that come along our way? And then, perhaps I
also have some desire to leave some money to next
of kin, to beneficiary. So we’ve got these
four major objectives. And OK, now, I’m
much more worried about health care costs and long
term care costs and inflation costs. So Christine, I’m thinking
the major shift, when you move from goal planning
to retirement income planning, is really more specific,
granular, focused answers. When you’re saving for
retirement, as we say, it’s more like hand
grenades and horseshoes. You want to directionally
move in the right direction. But you got many
years to adjust. When you’re in retirement,
you’ve got to get more refined and figure out how are
you matching income to needs, right? Absolutely, the conversation
about getting more granular is so important,
being more specific. But what do we even mean
by being more specific or being more granular? There we go. OK. There is our next slide. So how do we get started? Well, the top of the
slide there says it all. Start by changing your mindset. And it’s really that
first bullet there. When we think about you may need
to draw down on your nest egg, we’re talking about going
beyond just trying to live off of dividends and interest,
or for those of you who are taking required minimum
distributions because you’re 70 and a half, beyond that. It really is drawing
down on your nest egg and drawing down
means withdrawing from your principal, liquidating
some of your investments. That’s really what we’re
talking about there. And that can be
very, very scary. That’s why that necessitates
that change in mindset. Because up to retirement,
Matt, as you well know, we’ve been telling people,
don’t withdraw from principal! Don’t spend. Don’t buy that
Starbucks latte, right? Right. And now we’re saying, it’s OK. Yeah. Yeah, so wait. I’ve spent my whole
life amassing this– my own personal fortune. And now you want me to spend it? That’s a scary thing. So recognize that it is
going to feel scary to you. So what do you do about that? Look, it sounds boring. But you need a plan. You need a withdrawal
plan, a plan that goes beyond what most
people think of as a budget or something like that. And Matt and I, we do a lot
of research with our clients. We often hear people
say they have a plan. And really, it’s more
or less like a budget. It’s not really a
plan around how am I going to withdraw from all
my different investments and withdraw that principal
in order to live my best life? Yeah, and that’s a
really important point. I mean, how often do people
not tap into their nest egg, try to live off of dividends
and interest and social security and pensions– and god bless
you if you still have one– but they’re robbing themselves
arguably of a better lifestyle. And they’re making choices. Do I want to take that vacation? Or do I want to buy that
new centralized humidifier from my house because my spouse
has a recently diagonal skin ailment? Or whatever it is, a
new medical condition. And you shouldn’t have to decide
if you’ve got the wherewithal to cover the nice to haves
and the need to haves. Yes, and but that’s
important, right? You need to know and really do a
little bit of planning upfront. And we see folks get serious
about this particular planning about five years,
in that five year away from retirement time zone. But it really is important
to have that plan. If you notice that last bullet
there, spending too little versus too much. Most of you on
the phone probably are the folks that are worried
about spending too much. And that’s obviously a danger. We’re not saying
that that’s not. Again, that’s why you have
a plan for your spending, for your withdrawal strategy. But you also want to guard
against spending too little. And we know about 20% of
people do spend too little and don’t live their best life. So a lot more on this spending
discussion in our deep dive discussion that’s
going to be coming up at 11:30 today Eastern time. So please come
back more for that. We’ll be talking
a little bit more about what we have up there,
the retirement spending smile. So please come back. Now one other
point that I wanted to make– as I mentioned, Matt
and I do a lot of research with our current clients. One of the things that’s been
a little bit concerning to me that I have seen
are that folks very, very close to retirement–
so let’s say within one year of retirement or maybe
they retired within the– they’ve only been retired
about five years or so– they’re overly
confident in their plan. So because their
plan, whatever plan it is, even if it’s just a
budget, whatever they define their plan as, because they’ve
been OK these first few years of retirement, or they
think they’re going to be OK next year when they
retire, they think that that plan is
going to be good enough for the rest of their life. And that overconfidence
is, again, concerning to me because
we know a lot can happen during the
length of a retirement. So I, again, want to
caution everyone, please, as you’re listening
to these concepts, think about how to apply
them to your own situation. And also, please think about
your spouse, who maybe is not as involved in the
financial decision making in the retirement
income planning. Because that’s another
thing that we see where maybe the spouse has
not been as involved, and there are some opportunities
there to do better and have a better plan. Great. And let’s face it as well that
we’ve also found that people might have overconfidence. And when they’re faced
with new data that suggests or new information that
suggests they might need to pivot their plan, they
don’t want to take action because it’s intimidating. And maybe overconfidence
is the wrong word. Maybe it’s how do I
actually go and do that? This is how much health
care costs are going to be. This is how much long term
care costs are gonna be. I don’t know what to do. So I’m frozen into inaction. I’m going to ignore it. And our suggestion
is chip away at it. You got to take some action. Exactly. Chip– and I think that’s
a great way to look at it, Matt, is chip away at it, is
just because it’s a big issue, and you may not know how to
solve the entire problem, you can solve pieces of it. So don’t let that
intimidate you. And don’t, because it’s worked
for a year or two or three, don’t think that it’s
going to work for 30. And let’s talk about 30. Let’s talk about 30. Switching to the
next slide here, you see how much should you
be taking out each year? And it depends on
each individual and your circumstances
obviously, but what we show here is,
as you see on the far right, that 4%, this is– many of you have
heard of the 4% rule. So if I take out
4% for my portfolio or my nest egg every year,
I’m going to be OK, right? And so what this is showing,
these different colored lines, show you your portfolio values
or your assets, your nest egg, over time as you
withdraw from them based on different withdrawal rates. And these are initial
withdrawal rates. So as you see at the top,
we’re assuming we’ve got, for example, a
$500,000 portfolio. And if you take out 4%
initially or $20,000 in year one and increase that
withdrawal amount every year with inflation,
you should last– your portfolio
should last 30 years. So for instance, from age 65 to
90, that should last 30 years. And then, what’s going
on behind the scenes here is there’s 5,000 simulations of
different market environments because we’re assuming
you’re not putting your money underneath your mattress. You’re putting some
of it into the market. So you want to see some
growth, but you also might see some
downside performance as well periodically
throughout the year. So there’s 5,000
different simulations. And 90% of the
time, the portfolio lasts at least 30 years or more. And in many cases, the portfolio
value might even go up. But what about the
other 10% of the time? And is that enough
confidence for you? And as you look at
the other color lines, that shows you what a 5% initial
withdrawal rate looks like, 6%, 7%, 8%. Point being, not surprisingly,
the more you take out, the shorter, the less time
your portfolio will last. Now this assumes,
in this scenario, this assumes you’ve got a
balanced portfolio, so 50% equity, 50% fixed income. And it also assumes certain
capital market assumptions. So how might equities perform
relative to fixed income, small cap versus
large cap, et cetera. And that’s largely based,
also, on historical rates. So if you think the future
looks different than the past, the performance might
be different and might– you’re at 4% withdrawal rate
might not last 30 years. So in not just 10%
of the time, maybe there’s a higher
percentage where you don’t have that confidence. Now, the other
important thing to point out is what is
your time horizon? If you’re 55, it
might sound crazy, but 30 years might not
be enough to plan for. You don’t want to plan for
average life expectancy, as we like to say,
you’re not average. We want to plan for the
possibility of a long life expectancy because
it stinks if you have to go back to work at
age 87 after being out of work for 20 plus years. That’s hard to do. So how do you make sure
you’re going to be OK or your spouse is
going to be OK? So let’s look. Maybe is 30 years enough? Or conversely, if
you’re 85, maybe you don’t need to plan for 30 years. Maybe you need to
plan for 10, 15, 20, whatever the right numbers. So maybe, you can take more
out and empower yourself to live that fuller lifestyle. And this is, with
high withdrawal rates, I mean, it’s rather
reasonable, right? Higher withdrawal
rates are going to deplete your
assets more quickly. But again, we also know
that for some of you, 4% might be plenty
for you to live on. 3% might be plenty
for you to live on. The reality, though,
is a lot of this depends on your
particular situation. We do these simulations
in the industry. We run, like Matt said,
5,000 different simulations to show some results. But you really
only have one life. So does it matter to you
that 90% of the time, it works great? Maybe that makes you
feel a little better. But for me, I’m always
worried I’m in the 10% that it’s not going
to work out for. So I want to know what
can I do to make sure that I’m doing the
right thing for myself. So going to the
next slide, you want to create a process of
withdrawals for your life. And Matt mentioned
this really quickly. You are not average, right? Is that what– I don’t know if you’re
striving for average. I’ve never striving
for average, right? I’m always special. And I’m sure all of you
out there are as well. But certainly when it comes
to life expectancy, none of us has a crystal ball to
actually know what our life expectancy is going to be. And I know my grandmother, from
the time she was 40, she said, I’m not going to
live much longer. And she lived to be 82. So that was over 40 years
of not living very long. So something to keep in mind. Now, we generally
suggest that people think about 30 plus
years in retirement. And certainly, if you’re part
of a couple, if you’re married, or you have a significant
other, and you’re both sharing your lives
together, it’s very common that
one of the folks in the couple in
particular are going to live at least the 30 years. Because we know that
even statistically, a lot of the
Society of Actuaries work that’s been
done on mortality, and if you look at that
fourth bullet there, one person in a
male/female couple has over a 60% chance
to live to age 90. That means out of every 10
folks, out of every 10 couples, at least six of
those couples are going to have one person
living to at least age 90. And it’s about a 30% chance that
one of them will live to 95. And that’s just today. That’s just looking at
folks who’ve retired today. So again, think about
that longer life. Make sure you’re including
your spouse, I’m begging you. Make sure you’re including
your spouse in your plans as well because both of
you need to be able to make sure you have a plan for life. And if you’re the person
that generally is involved in the retirement income
planning, make sure your spouse is
brought into the loop, and it’s a process your
spouse can follow if something were to happen to you. And it goes even beyond
knowledge and planning, right? There are some
instruments of some things like social security,
pensions, that might be tied to one spouse’s life. And especially
for some pensions, some annuities, when that
life ends, the income ends. And that needs to
be accounted for. And so don’t plan for
being precise and accurate. The object isn’t to guess
your right life expectancy. Let’s plan for possibilities
and have multiple contingency plans. That’s what retirement
income planning is all about. We said risk mitigation. What are all the
contingency plans that you can come up with for– it sounds trite– but how
you plan for the unexpected? And more on longevity is coming
up in the deep dive discussion number two. Perfect, so how do you
make heads or tails of all of this, right? And so what we
suggest is [INAUDIBLE] a five step blueprint really. And we’ll go through each of
these items in more detail. But just to kick off, so
obviously, first step– identify your expenses
and [INAUDIBLE] commit to what are your need to
haves versus the nice to haves. And then you need to assess
what income sources are available to you already today. And let’s ignore
your investments. Let’s ignore your
portfolio for a moment. What do you have? You have social
security, pensions, you have rental
income, whatever. So let’s think about
those income sources. And are the income sources
enough to cover your expenses not just today, but also
rolling the movie forward into the future? And what some folks
like to do– and we encourage this– is build
a foundation of certainty. So let’s make sure
those need to haves are covered by
your income sources for the rest of your life. So the need to haves will
always be there for you. And Matt, let me jump
in here for a second. Because honestly,
in my career, I’ve spent my whole
career in retirement. And if I could just
encourage everyone to know get up to
at least step three, I would feel like my life
has been worthwhile, frankly, because building that foundation
of certainty is critical. And again, we’ll go into
what we mean by that. But I just had to jump in– Sp moral of the story– –and talk to you about that. Do it for yourself. Do it for your spouse. And do it for Christine
so her life has meaning. Thank you. All right. So number four– the rest of
the money you have left, now, you’re thinking about,
for sure, your– the rest of your portfolio,
the rest of your nest egg. Make sure that’s invested to
cover your wants and wishes. But not just invest it. Let’s make sure you’re drawing
down on that as appropriate. That’s what Christine
mentioned the plan. And then number five,
adjust as needed– that sounds like a catch all. But it’s– we’re
gonna get into it. It’s much more complicated. Very importantly,
stick with your plan. Do not make emotional changes
based on market volatility. But adjust every
year as needed based on the non-market
considerations. And what do I mean by that? Changes in your expenses,
changes in your dependents, and on and on. We’ll get into it. So all right. Let’s start with
the number one– identify expenses. So for those of you who
are nearing retirement, still saving for retirement, you
can take a high level estimate. And rule of thumb is 85%
to 90% of your salary. And why do we say 85% to 90%? Well, because once you’re no
longer receiving a paycheck, you don’t need to pay FICA tax. You don’t need to
contribute to your 401(k) or whatever other
retirement account you have. That’s a good rule of thumb. But where you live, what your
lifestyle is, that will change. So of course, customize
for your situation. The other thing you could do
is take a bottoms up approach. And we have an income
planning worksheet available on our website. You could go in. And you don’t even need
to log in to access it. Just search for income
planning worksheet. And here, you could really
do a bottoms up approach. What are all my expenses? And again, importantly,
break them into your needs, wants, and wishes. What are your needs or
your essential expenses that you always
want to have covered versus your
discretionary expenses? And you don’t need
to be exact here. You don’t need to be precise. Don’t get down to the
exact dollar or pennies. But very importantly,
make sure you’re covering all the things you
need to cover off on, OK? So and that’s the nice
thing about this list. It’s going to
trigger some memory. Oh, yeah, I need to make
sure I’m covering that. Oh, I didn’t think
about a car, or if I don’t have a car,
who’s getting me around to my appointments and whatnot? And you can also
use that worksheet for other income needs. But why don’t you dive a little
more onto some of these expense considerations? Yeah, just quickly,
remember that your expenses are going to change over time. And you might–
we’re kind of taking a snapshot of your expenses
maybe early in retirement so you at least have a general
idea what you think you’re going to spend each year. But of course, in
reality, we know, maybe you, for example,
in year 10 of retirement, you want to help with your
grandchild’s education. So that might be
something that you don’t need to fund every year. But that’s going to come
up in year 10, 11, 12, 13, something like that. So just keep that in mind. You could also, certainly, have
one-off or surprise expenses. Unfortunately, the
roof blows off, or a tree falls down and
hits your car, crazy things like that. So again, we’re not
going to be perfect here. But just know those things are
going to continue to happen. Inflation– certainly,
you want to build that in, and then, cost
of living adjustments to social security, for example. You get a cost of
living adjustment, we could argue whether
that’s enough to really cover changes in prices. But remember to factor
those things in. Those are good things. Medical and insurance premiums– those kinds of costs also
are important to cover. So let’s jump into the next
part of the blueprint, which is assessing your income sources. And again, as Matt
mentioned, we’re talking about what’s going to
be generating income for you that you already know about. We’re not talking
about your investments, your investable assets,
your stocks, bonds, your mutual funds yet. Not talking about that yet. Just looking at things
like social security, , pensions and annuities,
rental income, alimony, anything like that that’s
going to generate you a monthly or annual income. And notice here on this slide. One of the things
that we like to do is look at those lifetime
income sources in particular. So social security,
pensions, annuities, that are going to
go for your life, look at those income
sources as ways to cover your core
needs, those essential needs that you’ve identified. So match those things up
and see how they compare. Do you have enough of these
lifetime income sources to cover your core needs? And then, look at
your other income as far as how does that
match up to wants and wishes. And that’ll bring
us to our next step. But before we get there,
keep in mind that, again, even though
inflows will change over time, social security,
pensions, annuities, those things can change. And right now, I
gotta jump in and say, yeah, social security
is not going away. It’s not going away. It’s not going. It’s not going. As long as there are
taxpaying working Americans who have FICA tax coming
out of their paycheck, social security will be funded. Will there be changes? Quite possibly. Quite probably. But you will always have some
amount of social security to help cover your bills. Yeah, and I think that’s
an important point. Pensions, on the
other hand, are not necessarily guaranteed that
you’ll get your full pension. There is a government entity
that guarantees pensions. So you might get a
partial pension, but still important to factor that in. So you always want to look at
the health of your pension. An annuity– you could have an
annuity that starts at age 85, starts paying you
income at age 85. So just because it isn’t
paying you income immediately when you retire
doesn’t mean it’s still not a valuable source of income. And remember, Matt
already mentioned this, but the impact on your
spouse if you were to die. Does your pension go
away if your spouse dies? Or did you buy that joint
and survivor annuity that pays your spouse,
continues to pay your spouse after you are gone? Very important to
look at those issues. And for you spouses
out there who have your spouse with a
pension, check into that. And then other
non-guaranteed income, deferred income
like we mentioned, so keep those things in mind
with your income stream too. But let’s step now
to the next step, that foundation of certainty. So Matt, why don’t
you take us away on foundation of certainty? We already started talking
about this a little bit. But Matt has a lot of
nice color around this. Yeah, and we firmly
believe, whether you’re saving for retirement
or living in retirement, you need an emergency fund. And so there’s no exact number,
6 to 12 months of expenses, that’s a good rule of thumb. And the beautiful thing about
having an emergency fund is it frees you up to be more
rational with your decisions. You don’t have to sell
investments at the wrong time to [INAUDIBLE] need. You don’t have to sell
low when the market’s had a downturn necessarily. And you’ve got some cushion
to stick with your plan. And that’s what a
foundation of certainty is all about, making sure
you are certain, or have as much certainty as
possible, that you’re going to be OK on the important
things you need to cover and that your plan is
going to be a solid plan. So Christine mentioned the
next bullet, matching lifetime income sources, social
security, pensions, et cetera, to cover your expenses. But really, this foundation
empowers you to perhaps stay invested or get
invested, stick to your plan, even through the down
markets, and also maybe even invest more aggressively
because, and potentially, get more upside, because if you
have some downside performers, you’re going to be OK. Yeah, and think about it. If for your life, you
know that at least your baseline expenses,
housing, transportation, food is covered. You know that’s
covered for life. Think about the security
that you will feel when you go to bed at night. That’s just– and so that’s
one of those things why we do think it’s so important
to think about it this way, to think about this
as, again, that risk mitigation, the risk of
outliving your assets, to take that off the table
and know that you’ll be OK on your baseline expenses. That’s, again, why that’s
so important to me. But when you’ve
done your matching, you’ve looked at social
security, pensions, annuities, insurance, you’ve matched
up to your core expenses, what if you do have a gap? What if your core
expenses are higher than the money
you’re going to be able to generate from social
security, pensions, et cetera? Well, you actually
can fill the gap. There are lifetime income
products out there. We’re not here to sell
you a specific product or talk about a
specific product, just again how to
solve problems. What are potential solutions? I, also, have in there
needs-based income. What do I mean by that? Well, think about this. If your partner were to
have a disability, if you had disability insurance,
then the disability insurance might pay you to take
care of your partner. Or if that person had income,
they were still working, the disability insurance
could cover their salary. So those kinds of
needs-based income sources can also be something
you deploy in your plan in order to cover
that potential risk, especially if a partner
is still working, and their work is a big part
of your retirement income plan. And I think the key word
there is risk, right? So both for annuities
and the insurances, that isn’t about
beating the contra firm. It’s not about beating
the insurance company. It’s not about making
money on the annuity. It’s about hedging risk. It’s about making sure
that the cash flow is there to cover your needs. And that’s very different than
virtually all, if not most, of your other investments
after where you actually are trying to get some sort
of gain from your investment. This is about covering
off on the risk. Do we want to stop
here, Matt, and see if there are any questions
from Ben from the audience and see if there’s an
important question or two? What do you think? Let’s turn it up. Ben, what do you got? Ben, do you have any questions
out there from the audience? [INAUDIBLE] I do. There are a couple
that have come through. So one of the
questions is, there are a lot of different methods
to say, for instance, maximize social security
payouts and things. Is there any one particular
way that is best, or is it a means– a matter of just kind of
balancing, as best you can, the withdrawal from
social security, existing pensions,
those types of things? What’s the best way
to kind of navigate through this foundation
of certainty? Yeah, I think that’s a
great, a fantastic question. And it really picks up on
where we just left off. Too often, people look at
social security as a game, or how do I game the system? How do I beat the government? How do I beat the
social security? I think I’m going to live
long, so I want to defer, or I want to get that
money as soon as possible before social security
goes away or– That’s what I hear. –before I die, right? That’s what I hear the most. And we look at this differently. I mean, that’s fine if you
want to go and do that. That’s not retirement
income planning. That’s not hedging risk. Social security is the
best annuity out there. It’s backed by the best
financially stable entity out there as well. And we look at this as
guaranteed lifetime income. And the longer you
defer the payment, the better the payment is. You get 7% to 8% growth
in your payout amount the longer you defer. So for many people,
the rule of thumb is to hold off taking it as
long as possible in conjunction with the rest of your plan
if you have a normal health situation, right? And because you
don’t know if you’re going to live a long time. So this is a great
cushion to make sure that you are going to be OK. And the great thing is,
it’s not just about you. If you die, your spouse
can step into that. So you’re taking care
of two people there. So that’s number one. Now, there’s some other
schools of thought as well when you look
at it holistically with the rest of your plan. So how are you going to pay the
bills while you’re deferring social security, right? Do you have the
wherewithal to do that? Are you able to keep working? If you’re not able
to keep working, what investments are you
going to pull down from? And where are those
investments located, meaning which types of accounts
because different accounts taxed tax differently. And are there going to be
capital gains taxes or income taxes in your brokerage account? Or are you pulling out
cash flow from your 401(k) and IRA, where you might have
more material income taxes? So lots of considerations there. But Christine, what
else [INAUDIBLE]?? Yeah, and I always start
with, first of all, are you married or not? So that’s always– if you’re
single and you can defer, it’s great to defer. But you might end up taking
it a little bit earlier, depending on health
considerations. So then, it’s really, to me,
it’s a health consideration. And as Matt mentioned, do
you have other income sources to live on while you defer? OK, pretty simple. If you’re married, then
it’s a different calculus. Maybe one spouse takes
social security a little bit earlier, usually the
lower paid spouse. And then, the
higher paid spouse, we usually try to defer. So that’s– but each person,
you do want to do some modeling on that. But those are some of
the considerations. Excellent. So– Oh, go ahead, guys. No, go ahead, Ben. I was going to say, so one
other question that came up– and I think this is kind of an
interesting general question– and without getting too
specific and into one person’s particular characteristics,
is it better to die or to– excuse
me– to retire insurance rich or insurance poor? And I think that, maybe,
speaks to the question that a lot of people have as we
look at things like annuities and insurance plans. This is maybe a
little bit different thinking as you guys have
put this idea together than a lot of people have
about retirement, right? Yeah, and my viewpoint is,
it’s all about risk mitigation, right? I don’t want to be– I have one life. And I don’t want to make
the mistake of ending up underestimating my
longevity and then having no money at the end. So that’s, again, to me, it all
goes back to risk mediation. And that’s a personal decision. And some people are willing
to take that chance. And some people don’t want to
have that headache every day or every year, like
am I going to be OK? I’d rather know for sure that
at least this is checked off. And I don’t want to
have to, perhaps, lose my financial independence
and rely on my brother-in-law or not be able to go to
the doctor that I want, to the hospital I want because
I can’t afford it, right? So it really comes down to
your personal preference. Do you want to trade
tomorrow for today? And for some people,
that’s absolutely fine. And that goes to actually the
rest of our next slide here– And actually, can I just jump
in here for a second though, Matt, because I was thinking,
really, the foundation of certainty,
though, is where we look to deploy insurance
is the core needs. So I don’t want to fool
around with my core needs. But that’s my particular
point of view. I don’t want to fool
around with my core needs. Period. End of story. But some people do. But some people might. Right, and that goes
to this slide here. So if some people want to
invest their other assets, just for their wants and
wishes, people like you, right? And we’ll draw down on those
net and those other assets. On items that I am feeling
I can pull back on, that the nice to haves,
I can reduce, postpone, or eliminate if I run out or
if I need to make adjustments along the way, right? But– Yeah, and these core– remember, our core
needs are covered now with the foundation
of certainty. Now, we’re talking about
our investable assets. So how am I going
to create income for my investable assets? And in our blueprint,
we’re looking at these investable
assets as just covering our wants and wishes,
our discretionary needs. There’s two basic
methods that we’ll discuss here really quickly– systematic withdrawal,
which we already covered. That was similar
to that 4% rule. So you’re taking a withdrawal,
liquidating assets each year. And then there’s also something
called time segmentation or bucketing. And this is really a way
of putting your assets, splitting them into
different time segments or buckets based
on time horizon. Each bucket has its
own time horizon. And you basically
split up the assets into separate portfolios. And you use them
at different times. So bucket 1, for example, would
just generate income for you for the first five
years in retirement. It would be the
most conservative. And we’d have bucket 2,
bucket 3, bucket 4, bucket 5. And bucket 5, for example,
would be the most aggressive of your buckets. And you’re going to actually
start withdrawing from that, spending that down when
you get to, like, year 21 in retirement. So that’s another way
of doing withdrawals that is different than a
systematic withdrawal, which is just that steady 4% rule. But a lot more on
this coming up. And Matt’s going to go
through the blueprint in a picture for you. So you can get a
little bit better handle on everything
we’ve talked about so far. And as we mentioned, step 1–
you identify your expenses and categorize them into the
core and discretionary needs. And then also remember,
we need to have that emergency fund in place. And we’re gonna have cash
stacked against those emergency needs. And then, we’ve got the
lifetime income sources to start layering
in that foundation, the floor of certainty. And then, of course,
all the other assets we were just talking about, for
your discretionary expenses. And for some, they might want
to tap into those investments for the core needs. But again, we believe you should
purchase guaranteed lifetime income or make sure guaranteed
lifetime income covers those needs. And then, how do you tap
into those other assets? There’s two different
main approaches to drawdown, systematic drawdown
or the bucketing approach. And the nice thing about
this, again, you’ve got that [INAUDIBLE] cover
your core needs, ideally, for the rest of your life
and that of your spouse’s if applicable. And you’ve got that
upside potential to handle the discretionary
needs and, perhaps, any other next of kin
requirements as well. Yep. So let’s move on to
adjusting your plan. And one of the things that we
want to talk about, of course, is we’ve already mentioned
this, expenses change. So I just have some
examples there. Are you going to
move to a new home? Please have some
fun in retirement. Maybe a grandchild moves in. So you have surprises. You could have health shocks,
like expensive prescription drugs that you
weren’t expecting. Please plan in caregiving
and needing care. Inflation, also another
important thing. Yeah, and one final note– I know we’re running
short on time– but market return
[INAUDIBLE] fluctuate. Do not change your
portfolio every year based on emotional
reactions to the market. Don’t get scared
in a down market. The whole point of this
plan is to stay invested. Work the plan. Totally fine if you want to
rebalance back to your model portfolio every year. But you got to stick
with your plan. Adjust your plan if those
expenses in number one change, or if the inflation assumptions
start to go out of whack, or if there are major
changes in your life. But the idea is your
plan should already anticipate market fluctuations. Plan for the fact you’re going
to have big time down market somewhere along the way. We don’t know when. But they’re coming. And you should be OK. And then, finally, taxes is
such a critical item here. Yeah, absolutely. And remember, it’s your
spendable income that matters. So if your portfolio, you’re
taking money out of your IRA, that money is going
to be taxable to you. You’re not going to be
able to spend all of that. So keep that in mind. Your social security even,
your Medicare Part B premium comes out of that. So you’re not going to
be able to spend all your social security money, so
very important to factor taxes into your thing,
so into your plan– excuse me– so final thoughts? Look. It’s a good idea to
get serious about this. I say about 10 years earlier
than your retirement date, start thinking
this stuff through. But certainly, five years is
that critical piece of time. Many folks think
that they will– we’re going to
work into our 70s. But know that most
current retirees don’t. And it’s extremely common
that if your spouse retires, you do too. Or if your spouse gets sick. Or if your spouse gets sick. Yeah, you end up
being the caregiver. So again, plan for
these contingencies. Risk mitigation is what we
care about, not perfection. And that ties me
into the last point. Please don’t ignore the monster. Health care, long term care, can
seem very scary, unpredictable. But you can plan for them. You can limit your risks. We can’t take risk
totally off the table. But you can limit it. So do those little tasks
that we’ve talked about and come back for
the deep dives. All right, guys. Thank you very much. So we’ve just heard from Matt
Sadowsky and Christine Russell. Matt and Christine
are going to be back in about 15
minutes from now with the first of our
deep dive discussions, talking a lot about
those medical costs, so digging into going beyond
medical costs and retirement spending. So that may answer
some of the questions. And I think if anything,
guys, the success of this presentation is
testament by the fact that we’ve got lots of chats
going on, lots of questions. Want to keep that chat
questioning going on. We’re going to
pull some of those out and ask Matt and
Christine as we go along. But we’ve got some
folks in the chat that are helping out as well. Now we’re going
to be back online. We’re going to take
this offline for just a minute in the stream. Then we’re going
to go back online. And you’ll see our
holding screen. Be jumping back
into the discussion in just a little bit. And then we’ll be ready
to start here again at the bottom of the hour with
the first of our deep dive discussions, jumping into
going beyond medical costs. Couple of quick reminders,
once again, that all of this is for educational
purposes only. It is not specifically a
recommendation or endorsement of any particular investment
or investment strategy. Ultimately, any
investment decision that you make in your
self-directed account is solely your responsibility. So again, we thank Matt
Sadowsky and Christine Russell. We’ll be back with them
in just a few minutes here at TD Ameritrade for our
Investor Education Day. We’ll see you coming up
in just a little bit. [MUSIC PLAYING]

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