Mastering Retirement Cash Flow: Understanding Income

Today's episode is all about understanding the crucial role of income analysis in retirement planning. We'll uncover the secrets of guaranteed income versus the uncertain stuff and shed light on the consequences of retiring without a clear income plan. Don't worry if you're feeling lost - we've got your back with practical solutions and expert guidance. Tune in and take charge of your retirement cash flow!

 

Important Links: 

Website: http://www.yourplanningpros.com

Call: 844-707-7381

Transcript: 

Speaker 1  0:00 

Welcome into another edition of the podcast. It's playing with the tax man with Tony Mauro and myself here to talk about mastering some retirement cash flow really kind of understanding income is going to be the topic conversation on the podcast this week with Tony. Who is de Moines professional alternative at tax Doctor Inc. And you can find them online at your planning proz.com at your planning proz.com What's going on, buddy? How are you?

 

Speaker 2  0:25 

I'm good enjoying the summer? How about you?

 

Speaker 1  0:27 

Yeah, pretty much the same. It's been a bit of wet one, though. It's been a lot of lot of rain. Yeah, down here where we're at. It's been a lot of rain. So

 

Speaker 2  0:32 

yeah, we have not had a lot of rain. And we just got some scoring well needed. Yeah, it's funny

 

Speaker 1  0:37 

how the country does that Right? Talk to several people all the time every week. And it's, it's always a little something different. And then whatever neck of the woods you happen to be in. So right here lately, it's just been been really wet. So our Fourth of July got kind of rained out. But that's okay. We still had a good time and with family and friends. And so everybody out for everybody else that as well. We are back here. This is for our our later July edition here. So this is our second half of July. So let's get into understanding some income. Because you know, cash is king. We've heard that Tony a million times. But in retirement incomes King right? Income is always King in retirement. Absolutely. Yeah. I mean, I guess it is all the time. But it's really, it's really more important, or certainly critically important in retirement. So what's kind of some scenarios that some issues that you can be looking at, if you don't really have a good clear picture of your retirement income?

 

Speaker 2  1:33 

If you're, you know, if you're kind of DIY, and you're thinking, well, I'll just figure it out when I get there. What are some of the issues you've seen people bump into, you know, I've seen, I've seen a lot of it up this way. And some of the people that own land, and farms and whatnot can probably relate to this. But I've seen, you know, retirees come in, and they'll say, you know, I'm ready to hang it up. But I've, I've got all this land, you know, but the land itself isn't really producing any income. So while they have a lot of assets, that that asset or assets isn't really throwing off any income? I see that a lot. Yeah, yeah, I see a lot of people trying to work their retirement income from a basket of, or a portfolio of securities that they had when they were younger, and trying to kind of make shift pull money out, you know, as they need it. Because they don't have a real clear picture. In other words, most of the time, it's, you know, not income generating stocks, and they're just going to wait for prices to go up. And, you know, hopefully sell and make gains and use that when that doesn't happen, or, or it takes longer than expected. They're stuck with out income. Well, I'd like to make life app,

 

Speaker 1  2:36 

I guess what we should do is maybe identify some potential sources of income that people might have as a retired person. So what are some examples of different places that you know, you might be able to draw income from depending on obviously your life? Right? Well,

 

Speaker 2  2:51 

I mean, the list is long, but the easy ones are, you know, your 401 K's pensions, if you have one, IRAs, of course, Social Security. Yeah, that's the big one. Everybody knows if you have some annuities, dividends and income and interest income from either investments, or bank accounts, CDs, things like that bonds, some of you could have some other type of income, you know, maybe you're working part time, maybe you are doing a little side hustle. And you've got some income coming from that. Yeah, yeah, sure. All of those things are potentials, but the three or four biggies prior Social Security, IRAs and 401 K's.

 

Speaker 1  3:29 

So you know, we talk often about being diversified Tony in the realm of investments. And I think that's where people's mind goes to, okay, I need to be diversified and not have too much in large cap or, you know, or something like that. But you really also want diversification of income sources. So you're not relying overly heavily on just one. And obviously, the big one here to think about is if you've not done any planning, or you've not done any savings properly, or some things happen in your own social security, either completely, or it's making most of what you need to live on. And I'll throw my mom under the bus with this, because unfortunately, that's where she's at in her life in her 80s. Now, I help her out. But you know, from her own potential standpoint, that's where she got she lost just about everything in the Oh, eight downturn, and in addition to some bad choices and things of that nature. She's on Social Security only. And that is clearly not where we want to be.

 

Speaker 2  4:23 

That's definitely not really where you want to be. And I've seen that too. And I've seen tax clients that get to the end. And that's really it. Because at that point, you are, it's impossible to try to generate other sources of income, you know, because your timetable it's got Yeah, it's just too late, you know, and so most of these sources need to be thought out along the way. And so which, again, begs the question of, you got to you got to get a plan and you got to work the plan, which we're always talking about. And, you know, that

 

Speaker 1  4:52 

importance of saving, you know, paying your future self right, Exactly.

 

Speaker 2  4:57 

Yeah, I mean, that's what it isn't, you know, it's hard for to take Get a 65 year old and even if they've got a large portfolio, say of of stocks or bonds or something like that and say, well, let's, let's let's diversify a little bit and go out and buy for rentals, you know, that might not be the wisest move, because, you know, they take, even though they could throw off some income, for example, well, you know, that's actually work, you know, and they may not be the wisest of choices. But you know, for a guy that's had rentals for a long time and wants to continue to have them in retirement, you know, it's a great another source. But I do think you're right, we're really trying to aim for before we even talk about what types of earnings you're getting on them or what the income is, but the different sources, the I think the more you different sources you have the more potential to really live the retirement you want.

 

Speaker 1  5:43 

Exactly. And that way, you're not overly reliant on any one thing, which again, is that diversification key. So let's talk about the two kinds of income in the way that most advisors, I think, probably categorize this or people have heard it, which is going to be what, what are the two kind of ways we would think about income? Well, a lot of times people think about it as guaranteed versus not guaranteed. Right. And, you know, I like to phrase it a you know, on the guaranteed side is guaranteed for as long as you live. So security first. Yeah, that's the first security.

 

Speaker 2  6:19 

yeah. If you have an annuity and you annuitize it, you know, it kind of becomes like a social security payment. It's annuitize.

 

Speaker 1  6:26 

So security check even say annuity on the top of it, I think. I think it does, yeah, anyway.

 

Speaker 2  6:31 

So those are the two, you know, and if you do and are lucky enough to have an old fashioned pension that works the same way, you know, it's a monthly income stream for life. So if you've got those, those are kind of, you can't make changes to them. You know, I mean, you get x and that's it. It's over when generally,

 

Speaker 1  6:49 

yeah, whatever you like, whenever you turn on your Social Security, you know, that's your that's what you're locked into that kind of, that's what you're like, yeah, and you're not guaranteed is that's going to be the that's gonna be our personal stuff, right?

 

Speaker 2  7:00 

As we all have personal stuff, your IRAs 401 K savings, you know, pretty much everything else that you're kind of hoping to use in retirement, and I say non guaranteed, because it you know, you have to initiate, I mean, even if the IRA or 401 K or your investments, you know, fully invested, you got to initiate Okay, and figure out how much is it going to earn? And how much can I take, and so in that could fluctuate a little bit. And that's why most advisors when they start talking about retirement, you know, and you hear a lot about, well, what's the sustainable rate? You know, is it 4%? Is it 3% 5% That I can take out month in month out every year, you know, and maybe not use my principal, or maybe some of my principal, but because retirees, you know, we're, again, we're thinking about that income of how much do I need every month? And then how much you know, above that? Do I do I want?

 

Speaker 1  7:52 

Well, so if we're thinking about guaranteed versus non guaranteed now, balance was where I was going to go with this, I got ahead of myself. So you know, somebody might say, well, what's the proper balance? Like, I want more of the guaranteed many of us would just say that, because we feel like, okay, great, that means that we're covered. But often if you're thinking about this, okay, so if that's where the strategizing comes in, because let's say you've got your, your assets that you've built up of, let's just keep it an easy number, a million dollars, right? And a 401k, or whatever, you know, various different sources like that. And then you got your Social Security, your polling, and the balance that comes into play, Tony, when you're trying to figure out how much you need to pull from what place at what time to create that difference of that shortfall, but also not cause yourself taxation issues, correct?

 

Speaker 2  8:36 

Correct. Yeah. And that's where the good planning comes in more for retirees. I think that even people, you know, just trying to get to the end, right. They're working because, yeah, yeah, in the working years, but it really comes down to, you know, sitting down and trying to analyze what your expenses are, so you can figure out what is covered what isn't, I think a lot of times, people don't realize that, even on the non guaranteed side, once you get this number, or your shortfall number. And depending on what you have, you know, it's fairly easily to predict, especially with today's software, where you can take a person's, let's say, let's say they had a million dollars, and we were going to assume a 4% withdrawal rate you can easily see based on different investments scenarios, how much predictability or what percentage of the time if they live to say 95 to 100? Would they absolutely run out of money and, and so then they could sit there and say, okay, so you know, there's a, for example, a 95% chance, if I have x amount of my guaranteed side, and I take my Million Dollar Portfolio invested in such a way that it's going to throw off X that I'm never going to run out of money and I I've already got everything covered, plus what I want to do and then they can feel good about that, you know, and that's, that's where the numbers come in.

 

Speaker 1  9:55 

Well, now many of us have heard the term paycheck and play check. And if not, I think that was actually coined by Tom hegner, I believe, financial professional as well, you know, so typically, we might think of, okay, well, I need that guaranteed money. That's my quote unquote, paycheck, right? That's covering my must haves and must haves, or you know, the house, rent, or mortgage or food, right? You know, the things we have to have. And then the paycheck side, often people say, well, that's gonna be the non guaranteed and that's the fun stuff in retirement. Do you see that as kind of accurate? Or is that still a really is there other strategizing to where maybe we want to try to pay for everything out of those paychecks and then let the paychecks grow or be really special.

 

Speaker 2  10:40 

you know, a one off kind of deals, I suggest that to some people that are in in the position where they're guaranteed side can cover everything. Right, you know, I don't have any clients right now that have taken me up on that, you know, that say, I want my my stash my paycheck side to just sit and grow for legacy for right. Yeah,

 

Unknown Speaker  11:00 

I guess it depends on your what you want. Right? Legacy is a great, yeah.

 

Speaker 2  11:03 

Yeah. But it is it is a point to consider. I mean, most of the people that we work with, even their you know, without increasing their, their lifestyle, the guaranteed side, the paycheck side is not generally fully covered by guaranteed stuff. Right. And so we all right, yeah, it's a shortfall. Yeah. And so we're kind of dipping into and then we got to show them. Well, you know, but you know, that shortfall could easily be covered by the other side of things. Yeah, the

 

Speaker 1  11:31 

million bucks put away. Let's say that was the exam. Yeah. And that's I think that's where most of us go right, Tony, I mean, because unless you're lucky enough to have a pension. And so because, like the like the milking stool philosophy, right, the analogy, excuse me, were the three legs of a milking stool, right you so if you've got a pension and Social Security, usually a fairly modest or even or a good, you know, nest egg built of your own, you may not have to touch that nest egg very often, because the Social Security in the pension covers it. But most of us are not in that boat. So Right. So that shortfall is a little bigger, because we don't have that quote unquote, pension leg. That's true. Yes. And even,

 

Speaker 2  12:06 

I mean, it's hard to to find these days, where they've got that, you know, because most people aren't in, you know, a place for 3540 years, most places don't have pensions, like government, right, or stay at, let's say, government. And so there is that shortfall. Now, in my own personal situation, my wife happens to be in a government spot. She's been there for 35 years. And so she has our IPERs, which, even though it's extremely good, you know, it doesn't replace 100% of her salary, but it replaces about 70%. And so the

 

Speaker 1  12:38 

shortfall, you gotta kind of you may have to look at like your own personal nest egg, correct my own

 

Speaker 2  12:42 

personal essay, and then she's gonna have Social Security on top of that. So I think with, like, in her case, about 80% of her pre retirement income is going to be covered. And so that's pretty pretty darn close, you know, and then with the other investments, you know, we have and whatnot that that's our play, check slash, fill in the gap money. And that's what you go with, you know, when you got to get engineering

 

Speaker 1  13:08 

well, so and this is where I guess the strategizing of maximization for your income streams or sources, comes into play, right? So having a good conversation, having a good strategy, put together with an advisor, like yourself, so we can it cuz we hear like terms like, hey, get us Social Security Maximization, right? For example. What's the strategy for doing that? And that's really where working with a Pro comes into place is we talk all the time, Tony about the DIY movement of the last number of years has been very easy. It's in it's been easy for quite a while, let's be honest, to accumulate money, right? So if you do the basics, you can probably save, you know, for your future self. But the retirement aspect, that preservation distribution, and the little funky nuances of how to maximize this, what's the best strategy for that? How's it gonna affect tax aid, you know, taxation by taking this money out at this time, and so on. And so that's where the nitty gritty gets really tough for folks. And that's where, obviously, you know, folks like you come in

 

Speaker 2  14:05 

it is and even with a Social Security, you know, planning for because everybody's got the question, Well, should I take it early? Or? I'm gonna take it a second I, you know, I for retirement benefits they owe me it's mine. Right? Yeah, it's mine, you know, and so I tried to talk to him about well, but if we do this, based on what you have, it might be better to wait, you know, type of thing. And I know, and big money that we're talking to, can be big money, big money. And in my own case, again, back to my wife's pension, you know, the, one of the decisions we'll have to make is, well, do we want to just take the straight pension and then when she dies, if she dies before me, I'm out, or do we want to make sure it takes a little less and so you know, if she dies before me, I've still got it till I die, you know, and then run that it's over. So it's those kinds of little decisions you got to put a pencil to and try to figure out what's best for your own situation.

 

Speaker 1  14:57 

Yeah, and often you definitely want to make sure you're making the right one there. or because, depending again on the strategy, because some people might say, well, we're gonna take the bigger dollar option, which does eliminate the spousal often, right. And so if you do that you better have that backup plan in place to know that the spouse is still covered, once that pension runs out, so or the exactly person passes away prematurely, or, you know, whatever the case might be. So there's a lot of little nuances to that. So understanding your income is really important. So this is kind of a quick rundown of some of some different categories you might find. And, again, the guaranteed versus the non guaranteed and how they kind of all play together. And that's why it's important to get a plan and a strategy. So if you need some help, and you're not already working with Tony, reach out to him and have a conversation, hopefully this kind of sparked some interest for you to start thinking about, Yeah, where is my income sources coming from? Or how do I make my 401 K and income source, things like that? Reach out to Tony and his team at tax Doctor Inc. find them online at your planning proz.com That's you're planning proz.com or call him at 844-707-7381. And don't forget to subscribe to the podcast playing with the tax man on Apple, Google or Spotify. Alright, Tony, thanks for hanging out, buddy. I appreciate it.

 

Unknown Speaker  16:06 

All right. We'll see you next time. Yeah,

 

Speaker 1  16:07 

I'll see you in a couple of weeks and we'll be back in August with a new episode here on plan with the tax man

 

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