I'm 65 And Married With $500,000 In My 401(k) Can I Retire Now?

you're 65 years old and married and you've built up five hundred thousand dollars in your 401k you may be asking yourself the question with everything that's going on can I retire now that's what we're going to look at in our video today [Music] hello I'm John Vandergriff I'm one of the owners in the wealth planning team lead here at Blue Ridge wealth planners where we help people create plans to address the question that we're looking at today can I retire now and what all do I need to include in that planning process and so if you've never had that type of discussion with a financial professional or a planner we would invite you to come and talk to us you're going to see a link below this video that you can click at any time schedule an appointment where we can go through a very similar discussion to what we're going to do today with you and always you know if you find Value in this make sure that you share it with other people subscribe to our channel so you can get more videos like this and leave us some comments about what we're talking about especially if it's something that's relevant to you so so with that said we always like to before we go into kind of the meat of this discussion talk about why most of the discussions that happen in the financial world really aren't that productive when it comes to helping people create a plan and and getting the outcome that we feel like is the best part of a plan and that is more confidence comfort and control moving forward and it has to do with the order in which you talk about these things because goals are important plans are important Investments are important but it depends on which area you start with to determine the quality of what you're working with so generally speaking when we look at the financial industry and you go talk to a financial advisor most of that conversation is going to be centered around the Investments that they have at their disposal why they're better than what you're doing now or who you're working with and through that conversation they're going to try to determine what kind of risk that you want to take ask you several questions and then as we do that that will come up with some type of planning recommendation or portfolio sometimes a templated approach that they have where they're going to recommend that you go into that specific model or recommendation and what doesn't often get addressed completely in that recommendation with the portfolio is does this accomplish the goals that I have or not if your goal is to grow your money as quickly as possible most of the time that's the way those plans are built and some people think growth is the only thing that matters but as we're going to talk about today we need to recognize there is more to just investing money than growing because growth unfortunately won't take care of everything because it's not always present so as we look at this for us we feel like this is the exact opposite direction that this should flow through because really the most important thing and what separates you from everybody else is the goals that you have and the way that those need to be addressed or planned for so obviously the goals are going to be what we build upon that will determine what type of planning recommendations make sense and then that plan will then filter and say okay based on the things that we need these are the type of Investments that we need to be positioned in some of which you may be in now some of which you may need to transition to so as we look at this I feel like this really gives us a picture of how this discussion should go and you're going to see the way that we do that today and again since we can't openly talk to each of you that are watching this we have put some goals here so assuming that we've already had the goal discussion with you what are the things that we're trying to accomplish in this particular plan with this 65 year old couple so they are looking to retire now now that they've crossed into Medicare land and as 65 year olds they want to make that transition well but at the same time they want to take less overall risk than they are currently because they didn't like the way the market treated them last year they don't want to repeat that again but they are in a position where while taking less risks they want to keep the same quality of life basically not having a drop off from the income that they're enjoying today to what they're in in retirement so and then as we look at this they want to make a good decision with the Medicare choice that they have we'll talk a little bit about that today but that will usually be some later discussions and a big driver of that is how are we going to pay for it which is always important and then the main reason that a lot of people are retiring today is they want less stress they want less things that are building stress in their life if they could function at half the stress level but still be productive some people would do that unfortunately in most employment situations it's an all or nothing proposition so so as we look at this based on the way that they're consuming money today use a different marker here so they need six thousand dollars a month to provide what they want net and then if we add taxes in of eight thousand dollars a year for taxes that means they have a gross need of eighty thousand dollars a year and so as we look at their social security filing decision if they file today combined they would have about sixty thousand dollars coming in from Social Security so that makes the math very simple their total coming in is 60. they take that from 80 that means they need twenty thousand dollars a year provided by their Investments so as we look at this from the onset of the video their total investment bucket today is five hundred thousand dollars and so simple math tells us that they need right at four percent of their bucket uh to be able to do retirement today and make it work so as we look at this four percent is kind of at the top of what we recommend because as we start to see these numbers translate down if we have an income need of four percent we want our growth over time to be able to take care of that but also we need to factor in inflation impact to where if we have somewhere between two and four percent that means that we need a growth annually of somewhere between six and eight percent and the higher that top end gets the harder it is to consistently do it so as we get to the planning part of this what will naturally happen is the bigger this number gets the less we'll be able to factor in increases for inflation over time so as we look at that we want to make sure that we are aware but also um being aware that they are looking to get less overall aggressive with an overall risk range somewhere between 15 and 20 percent in a worst case scenario so again how do we build those investments in such a way where we can avoid that happening but also make sure that they have the income that they need and long-term growth potential to take care of this inflation conversation so so very important thing to factor in here as we said from a annual income standpoint they are you know on eighty thousand dollar a year in income which would put them Top Dollar Wise in the 12 percent tax bracket which for them moving forward you know is probably the lowest that that bracket is going to be as we look at it and I'll share those brackets with you and again as a breakdown they've got 500 000 in pre-tax they had fifteen thousand dollars in kind of savings checking accounts we did not include in our number down here and then zero money and tax free buckets and so one of the conversations that we want to have is how do we have an efficiency conversation with this not just from an investment return or a risk perspective but from a tax perspective because as we look at things for most the people we're talking to and I would say this situation as well we are in a position where they probably have the lowest tax environment that they're going to be in maybe the rest of their life so as we look at this their top dollar today at eighty thousand dollars of taxable income would put them in the 12 tax bracket as we look at taxes the main thing that we have to focus on here is what is the tax rate now versus what will that tax rate be later and so as we look at that the tax code is set to change after the 2025 tax year so January 1 of 26 we will go back to what was the 2017 tax brackets and so as we look at that these are adjusted for inflation you'll see that their top dollar jumps from 12 to 15 percent and you say well John that doesn't seem like a lot well that's a 25 tax increase uh for the dollars that are in this 15 bucket so as we look at this that is something that is notable because we want to be in a position where we understand what is the tax impact here but also how can I make efficient decisions here especially if taxes do get worse because as we look at it in 1981 this is the last time that we had a noticeable difference between the tax rates that we have had now because even jumping from a 37 to a 39.6 top bracket again doesn't sound like a lot but when we compare that to where 1981 was seventy percent the top bracket and unfortunately it wasn't just the top bracket but as you see it didn't take a whole lot of income to start to get to you know really high tax positions because in today's money 150 000 would be taxed at 37 percent you would have to get to above 700 000 to cross into that bracket today so so as we look at this it's a delicate balance because we do want to look at where is the income now where will the income be long term when we look at required minimum distributions the pool that they're taking right now is going to be enough to where they don't have to factor in additional withdrawals for long-term care or not long-term care but required minimum distributions so it is truly a discussion of can we take money out today and pay a less tax rate than we can later but not going crazy with it because now that they are in Medicare territory they do have to pay attention to the amount of taxable income that they show and so you know 194 is where that number tops out at and again we need to be aware of that because that would make any of their Medicare decisions more expensive from a Part B and D cost and those would typically be deducted from their social security if they were taking at the time if not you would just be billed for that directly and so as we look at this this is something that's important to factor into the planning decisions because this technically goes into effect that you're age 63 but since they're 65 it's just every two years they're going to look backwards and if you go above that bottom threshold you're going to have additional costs associated with your Medicare decision so so again as we look at making a good decision with Medicare there are some other areas that get impacted as we're looking at with taxes that can impact the Medicare decision so we want to be aware of that as we start to transition into this next bucket of Health Care coverage so currently no Long-Term Care Home Health Care so we've got to look at it and say you know one of the big risks that they have today is the fact that they only have fifteen thousand dollars of liquid after tax savings and so by doing this transition even if it's little bits over time we're trying to increase the amount of money that they have after tax so that if they do have a long-term care issue in the future the reality is Medicare is not going to pay for that that's not what designed to do so it's going to put the burden on this or some type of coverage that they could get to supplement their savings but in the absence of that they just need to have more liquid after tax money so that they can functionally take care of the expenses that they may have without having to add additional taxes that just continue to erode the savings bucket as we look at it so so again as we look at this you know taxes and health care really what you see as we go through this discussion is there is a lot of connection in the things that we're looking at and so you know as we look at this particular family of transitioning to our last category of a family Legacy so they do not have children so the beneficiaries of their accounts are each other which is typical for married couple and then they've got nieces nephews four of them and again just equal split between each one so so again with them they do have each other um up to date but not they had not included uh the nieces and nephews on uh 401ks yeah so they do know to make sure that again if your desire is for something happy you need to assume that worst case scenarios will take place and you won't have everything done from an estate planning documents they do have them complete but needs to be updated they had made the decision uh for their wills and even it included nieces and nephews on there but hadn't taken the additional step to add that into their beneficiaries but that had happened 10 years ago and so as we look at this you know that would be something where looking and getting an estate planning attorney to review it just to see if everything looks good would typically be the recommendation there and then as we look here annual gift amount to charity or family members so from their income they are tithers and so the unfortunate reality today is tithing off of a eighty thousand dollar income will not allow them to get much credit for that and so some of the thing that we're going to look at with the way that we structure some of this uh planning is how do we make a good Advantage with some of the charitable contributions that we want to do and again it's not a requirement but if we're doing it and we can get credit for it or have our taxable income show up lower later those are all things that we are interested in and want to particularly investigate so so as we look at this you know the goal of this type of conversation is so that we can see the connection we can recognize what things need to happen so that we have answers to the questions that come up in each of these categories and for this couple the more planning we do hopefully the less stress that brings because we are in a position where we are taking control of the things that we need to and trying to plan for as many of the variables that are out there as possible now again unfortunately we don't have the ability to predict the future but for this particular couple that doesn't mean we do nothing that means we do as much as we can control and then go from there so so as we look at this this is typically what we go through when we have our first discussion with the family and so as we look at this we recognize that there are some areas that we need to examine first because from a fiduciary perspective for us to exercise that standard of care we need to see where they are positioned first to see if they are close to to generating the income they need are they in the risk range is their return enough because in some cases if somebody's doing exactly what they would like to do it's Our obligation to recommend that they continue down that path and again you know as we look at this so so we've got to test what they're doing now and then based on that if there are some changes that are needed then we make recommendations of what things to change and usually just so you can see how that conversation goes It's good to look at the investment World a different way too many times people think oh I've got risky money and safe money I've got stocks and bonds there's more options out there but more options can create more complexity our job is to look at this and say how simple can we make this discussion and so what we try to do is we try to divide money into the buckets by which they have the best and most effective contribution so again these are typically the three things that we want from Investments we want growth potential accessibility and some level of protection or security but the reality is you cannot get all three of these things in one investment tool and so what that means we have to diversify and find a mixture of these things that matches up with who you are but also the goals that you have so as we look at this the challenge that we have with people on a daily basis is we've spent Decades of time focused primarily on growth because when you started your first investment account that was the only thing that really mattered because when you looked at your current position you had two things in your favor that make growth a very attractive Lane to be in so first you had time to let this money accumulate and you had a willingness to take risks because you didn't need it it wasn't very much when it started but also you had an income coming in and so as we look at this this starts to shift especially for people in retirement because most people that are in retirement especially this couple do not have time to leave their money alone without touching it otherwise their lifestyle suffers and as we looked at their goals they have a desire to take less risks not more risk so growth is still an important component because of the reality of keeping up with inflation over time once you make the decision to retire that is now the responsibility of you and the way you invest to come up with how we tackle inflation conversations and again if you work with us that's our job to assist you in that but as we look at this growth starts to transition and try to shift to what is the appropriate amount of money there and then how much growth can we let this get by leaving it alone well the way that we functionally are able to lead alone is putting appropriate amounts of money into access and protection areas so as we look at this access monies are important for a variety of reasons but obviously if you have an emergency an unplanned expense or even if it's a large planned expense you need to make sure that you have access to that as well and then as we talked about before having more liquid after tax money is good so that you can combat some of the issues that you may have later with health care so it's important to have money in Access positions that you can get to and again typically access positions are going to have less risk to them overall but still be fully accessible to you and then we counter that with protection areas because obviously we need to make sure that we have some areas that we can count on for safety but then as we look at this as a whole we're in a position where we want to take income from safe Investments today that is the goal and again a lot of people talk about dividends I've mentioned that in some videos where you know if you have dividend Investments and you consume the dividend that typically results in a bad growing investment because most dividend Investments are driven by reinvesting those dividends but more than anything we want to count on safety from our income so the worst case is zero and we know we're not digging the hole deeper anytime something loses because 2022 people had stock and bond allocations both were losing money when they were pulling income out of those for their enjoyment in retirement that money is permanently gone and it's harder to grow back because you are effectively digging that hole deeper we want to avoid that by having enough in protection Monies to leave it alone for 10 to 15 years even factoring in inflation so that we can have this for emergencies but really this on a growth path undisturbed so it can continue to accumulate much like it did when you were growing and working this bucket just replaces your paycheck this bucket continues down the path that you had your 401k on for a long time so so as we look at that how does this translate for this couple well again what we're looking at is of this 500 000 we're putting 250 000 in protected funds to cut down our overall level of risk we've got a hundred and fifty thousand dollars in the growth bucket and then we've got a hundred thousand that stays liquid uh showing a four percent return for these to be conservative uh net six percent return on that again to be conservative but also showing an increase on this for inflation of about two and a half percent so again we like to see that number at three percent but if we get to a point where we start to run out of money too quickly the way we manipulate that is trying to control the expectation for inflation uh so as we look at this with a two and a half percent inflation growth what we see is this couple at 65 won't have to dip back into other funds until they turn 78 so we've got 13 years before they need to replenish this bucket as you see their growth or the income need is grown from 20 000 to 27 uh 27 570. we had three hundred thousand dollars back to that bucket and we repeat the process they get down to a position here we're at 90. so 12 years later we need to refill that bucket then again we're at 37 000 of need that allows us to cover that and as we look down here we're in a position where they still have just a little less than 160 of money obviously we would like them to have as much as possible but as we look at the high income need that they had today we're good we're able to make this last until 95 and be able to you know have the consistency of income over time but still keep a liquid bucket that is there for emergencies or Health Care issues as time passes so as we look at this this is what we try to do with some of the families and if we can't make the numbers work we're going to tell you that but but we've got to make sure that we factor in the things that you need today the impacts of those moving forward and then trying to build something that from a high level can accomplish our goals and then we dig in and make sure we understand the Dynamics of each of these investment tools but before we ever put any money in anything so as we look at this if someone has not taken you through at least this much of a planning discussion because I think we've spent maybe 20 to 25 minutes here you probably don't have a plan you may have a Investment Portfolio or a bunch of different accounts but how all those things functionally fit together is really the secret to having less stress in retirement having a plan and making sure that you are continuing down a path to accomplish the goals that you have and so again if you've not been able to benefit from that we would love to invite you to come and talk to us see if we can help you in the way that we've been able to help lots of families we've been fortunate that we've built a lot of great relationships here in East Tennessee locally through YouTube obviously we're expanding that into different places and so we look forward to continuing to do that you know if you're somewhere in the country we can do anything around the country and love to see if we can help you in the way we've helped families here so thank you for your time today as we said if you feel like this has been helpful to you leave us some comments suggestions if you know somebody who's got a similar situation to this share this video with them and see if it can help them as well and we look forward to sharing more content with you in the future but that's all we have for today [Music] thank you [Music] [Music]

Channel: Blue Ridge Wealth Planners

Views: 5,591

Keywords: retirement planning, retirement, income planning, investment planning, financial advisor, retirement income, Roth IRA, IRA, Tax Planning, Tax, 401k, wealth planner, wealth planning

Id: g1oTHRrYipw

Length: 23min 9sec (1389 seconds)

Published: Wed Aug 16 2023