What is the best withdrawal strategy for your retirement accounts when you finally get to retirement? This is something we should plan ahead of time. Today we will model different retirement withdrawal strategies like taking proportionately from the Roth IRA and 401k as compared to taking from taxable investments first then the pre-tax plans like the 401k and finally the Roth IRA.
Hey dustin tibbetts here financial advisor with jazz wealth managers i’m not distracted we’re focused we’re going to do this welcome to our fin tips series typically these are very short videos we go through a quick tip try to show you something maybe say a few words that get you thinking go check in asking questions things like that of course we hope you check
Us out at jazzwealth.com we are investment managers for you uh just like all the big guys but we do a whole lot more because we know we’re the small fish in the big pond we got to prove it to you but anyways today i’m gonna uh i’m gonna take a little bit more time so what i’m gonna do is today i’m talking to those of you that have 10 to 15 years until retirement
And then those of you that are in retirement or very very close that’s who i’m talking to and i’m going to spend some time on this so it may not be a shorter video but i think you’ll like it right because what i want to do is i want to get you thinking about your withdrawal strategy i spend so much time going over investments it’s my passion it’s what i like
Doing so we usually focus on volatility investments all this great stuff as you’re putting money in but now we’ve got to start thinking about when the money comes out you know there’s a huge difference in how you take the money out i’m not saying that to scare you i’m going to actually show you so we want to make sure your withdrawal strategy is at least in the
Back of your head if you’re about to retire we have to go over this it’s something that you have to do and to do this what i’m going to do is actually use our example here this is nest eggs financial planning software we use it’s called write capital if you want to check it out and see what kind of features it has but they let us put our own name on there so
We call it nest egg i thought it sounded cuter anyways i’m going to use our sample customer here i’ve done a few things differently you may remember we’ve done previous videos on debt strategies refinancing and all this stuff here’s what i’m going to do i’m going to go over real quick who is this person so you can either relate or find common ground here all
Right first thing i’m going to do is just give you an overview louis armstrong is his name his wife is lucille i made his age 49 this time lucille 37 because i’m trying to create a separation in age there i’ll show you in a second they’ve got expenses pre-retirement expenses of that we don’t have to go through that they have savings plans this is the focus
They got a 401k to put money in uh getting a match and everything lucille’s got a 401k putting five percent in up to the match what she’s doing they got a roth ira here with us putting fifteen hundred dollars in there lucille’s got a roth with us putting five thousand in there he’s got a health savings account as well okay so that’s their savings at the moment
Income he makes a hundred she makes seventy we’re estimating social security that’s not really a topic for this well it’ll come in all right let’s check it out when they retire louis louie wants to retire at 65 lucille at 63. i did that intentionally the they need basically 90 000 a year or 7 500 a month in retirement expenses that’s how much they want to live
Off of that’s their number 90 000 a year and here’s the important thing we don’t care about bank accounts today we care about investments we’ve got a handful of different investments here we have post-tax with the roth meaning it’s tax-free we’ve got pre-tax pre-tax uh this is an old four-way it’s a rollover so pre-tax hsa potentially pre-tax it is tax-free
Of course for user for medical expenses but let’s pretend he’s using it for a retirement account and then we’ve got a taxable account which is uh basically long-term short-term capital gains so there’s some flexibility on how taxes get paid there okay let’s pretend that he’s ready to start taking money out what account does he take money from how do we know
Which ones to take money from is actually quite a huge difference here so now instead of pretending and playing the uh investing game we’re going to go over to the withdrawal game here so what i’m going to do and you can let’s go like that so you can see it here is the current withdrawal strategy so they’re obviously not retired everything’s cool they retire
Income drops we’ve got to take what ninety thousand i can’t move my cursor but you could say adjusted uh taxable income just over ninety thousand little inflation baked in there and so here’s what we’ve got we have an equal withdrawal strategy down here we’re modeling a almost just a proportionate withdrawal strategy we take from the taxable account take from
Some some from the tax deferred take some from tax free accounts and louis has all of that to detail that we’ll go down to 65 where he retires this is where louie is going to retire lucille’s going to continue to work they need 90 000 right when he retires you got 37 here coming from a taxable account 22 you can see at the bottom there coming from pre-tax and
Then roth ira with the rest we’re essentially taking it out proportionately the system is not exactly proportionate because it’s factoring in some of his capital capital gains and rmds we’ll get to in a second all that good stuff so it’s not exact but it’s saying based on your what we want to keep your tax rate under separate video for that it’s trying to do
It in a way where we don’t go over the tax rate that we’ve kind of specified for him anyways okay so that’s what we’ve got now what we want to question is is that the best way you’ve got to ask these questions you know women are the best savers because they always ask questions and they do not fear not knowing i went with the family some in-laws to the gun
Range i’m not a gun guy i thought it’d be fun i went there and i was truly a man at that moment i was like i don’t know much about this and i was trying not to i was trying to be cool you know like i don’t know and the women were in there just asking questions galore no fear of telling people they didn’t know and to be honest they learned more than me because
I was too cool to ask questions so you got to ask questions here okay let’s say your question is well how do i know that’s the best way right let’s try something different what if we take from a number of different scenarios what if we go taxable first and if we can’t get all the money from the taxable we go to tax free uh which is the roth in this case and
Then if we can’t get all of our retirement income there let’s go to tax deferred last you could choose from any number of these scenarios but i’m gonna just i haven’t done this yet so i’m just going to click and see okay so it’s a lot more all right so first thing i would do if i saw this i go that’s exciting i don’t know that that’s true i would go hunting
In the software looking for a reason why that number is high but let’s assume this is the number they’ve got a good net worth they make good money let’s say we know that there is a greater benefit to taking from his taxable account first then tax-free than the pre-tax accounts the 401ks things like that so we know that there’s a benefit in doing that if we
Go over here the details you can see the different strategy now now he retires and we come over here we take 62 000 right from taxable then we go tax free we take the 11 000 and he already has enough money so we don’t need to take anything from tax deferred it’s an idea maybe not the best but it’s one idea now you’ll notice as you go down here uh 72 that’s
Going to come into play later we got rmds in there right in a tax deferred account you have to take the required minimum distribution that’s what it’s starting to factor in there for his account so it’s essentially going to drain those out there if you’re questioning what that is there okay so we’re looking at this we say okay there there is an advantage to this
Strategy here there may be other advantages to others but i want to show you how this plays out and i’m sorry for taking a little bit longer today but this is this is so important because obviously there’s a lot more dollars there so here’s the retirement analysis we this is basically the probability that he’s going to be successful in retirement currently he has
A 66 chance of being successful i notice there’s a difference over here now he’s got 69 percent we can look at the reasons why retiring is 65 63 blah blah blah here’s the reason why debt proposal remember in our previous video i might have already linked it i’ll try to link it if youtube lets me um we had a proposal where he was going to pay off debt a little
Bit earlier because he could i did a video on that now what we’re going to say is okay let’s keep that keep doing the debt there but now we’ll go to distribution strategy down here our current strategy is equal meaning the one i showed you right we’re going to take a little bit from each account until we make up the total income that we need in this case 90
000. what we’re going to do is say what about that thing that just said 635 000 extra where we take from the accounts in a different way now let’s propose that that’s the scenario that we follow so up here current plan if we don’t change anything is 66 with those dollars we’ll refresh it and over here it’s going to calculate whether we have an increase slight
Increase okay there you go so this basically means that death he’s going to have extra money he’s not going to run out of money right now he probably won’t run out of money everything’s cool inside of that one so huge difference to doing that i’ll take it a step further and we’re going to look at the cash flows here this is the real geeky stuff i’ve explained
Everything if you need to go that’s fine but this is the geeky stuff here current plan we’re going to go down to 65. here you go we’ve got income from uh uh the wife still she’s lucille’s still working so we got income coming in tax payments the interesting one there 27 126. notice how the tax payment slowly goes up it drops off in here for a while now lucille’s
Not making as much they’re pulling extra money out they’ve got the rmds and everything that’s essentially what they’re paying tax on we got social security kicking in for both of them there then taxes go up towards the end there because they took proportionately across all their accounts now their ira 401k which they had more pre-tax dollars remember from our
Previous screen now the those accounts have grown so big the rmds are huger they’re much larger and they’re taking from income so their tax bill is going up considerably there at the end i don’t know if this is the best way like i said i’m ju this is just what i’m modeling here while we’re talking let’s go to proposed plan which remember is taking taxable tax
Deferred tax-free then tax deferred so that was just what we modeled in this case we take a look at 65 where they were officially got one retiring look at the difference in tax payments here not too much here in the beginning but notice how as we get later in life taxes are less chances are when louis is no longer with us because he didn’t live this long and
Lucille is now maybe kind of getting stuck with that sort of unfortunate scenario where she’s a widow and has to pay a lot of tax we don’t have that in this case or we have less of it in this case so the tax situation is much better which likely means that’s one of the reasons they end up with more money so again we’re now suggesting to louie this is an idea
This is not maybe the best we’re going to model other scenarios but hey louie we’ve got to talk about your withdrawal strategy because i need to do some homework and make sure this number is accurate but as of now it seems like you’re going to end up with more money if all i do is tell you take money from here first then you’re tax-free your roth accounts until
That’s depleted and then your tax deferred account so such a huge difference there and it’s one of those little things i don’t know that anybody ever talks about that maybe old josh scanlon over there at heritage wealth i know he talks about this a lot uses the same software but one of those things that never comes up because we spend our whole life thinking about
Money going in the best investments the lowest fees the best returns the lowest volatility all this great stuff will i have enough do i i don’t know we almost never think about that withdrawal strategy but if you’re retired or very close to retirement you got to have that conversation hopefully someone’s willing to do that with you if not of course you know
This is marketing i hope you check us out i will dig through this we’re here in florida so you can imagine we have our fair share of retirees as customers typically they have more money and that’s more important to do the right thing with it so i appreciate you guys watching hopefully that helped i’ve been trying to use this software a little bit more on these
Videos to get you thinking uh maybe just simulating examples leave me a comment i can’t always answer to the comments that you have based on regulations but if you leave a comment what would be helpful to model i’m willing to model different scenarios we’ll use louis armstrong as an example we can change ages and things give me an idea maybe there’s something
We can model in there where i sort of help you without actually giving you advice so i don’t get in trouble and i thank you for watching enjoy the rest of your day we’ll talk to you soon you
Transcribed from video
Best withdrawal strategy for retirement accounts. By Jazz Wealth Managers
