Podcast Summary: "In Need of a Decumulation Plan"

Podcast Information:

• Title: Jill on Money with Jill Schlesinger
• Host/Author: Audacy
• Episode Title: In Need of a Decumulation Plan
• Release Date: December 10, 2024

Introduction

In the December 10, 2024 episode of "Jill on Money with Jill Schlesinger," host Jill Schlesinger, CFP®, alongside co-host Mark, delves into the intricacies of decumulation planning— a critical phase in personal finance focusing on the withdrawal of retirement funds. The episode centers around a listener call-in from Anthony, who seeks guidance on optimizing his and his wife’s retirement finances.

Caller Introduction: Anthony's Financial Snapshot

[03:05] Anthony:

• Location: Southern California
• Age: Anthony is 61; his wife is 55 and a half
• Employment Status: Fully retired
• Income:
  • Anthony draws a military reserve pension and VA benefits, totaling approximately $7,500 before taxes ($6,000 after taxes).
  • His wife earns a base salary of $160,000, with bonuses averaging 20%, stock options, and has consistently earned over $200,000 annually for the past decade.

[03:31] Anthony:

“I’m calling about decumulation, not accumulating. My wife is 55 and a half. I'm 61. I'm fully retired. I have some things set up. I want some fresh eyes versus my tight eyes.”

Anthony’s primary concern is devising a robust decumulation strategy to ensure sustained financial stability throughout retirement.

Financial Assets and Retirement Accounts

Anthony’s Portfolio:

• Wife’s 401(k):
  • Balance: $2.5 million
  • Allocation: $1.75 million in traditional 401(k); $0.75 million in Roth 401(k)
• Health Savings Accounts:
  • HSA: $50,000
  • Retirement Medical Spending Account (RMSA): $140,000
• Anthony’s Accounts:
  • Traditional IRA: $340,000
  • Roth IRA: $117,000
  • Brokerage Account: $205,000 (broken down into $153,000 in stocks, mutual funds, ETFs; $52,000 in money market)
  • Emergency Savings: $42,000 in 12-month CDs
• Real Estate:
  • Home owned outright with no long-term debt

[08:13] Mark:

“You guys are so set. So you own your home, right?”

Anthony confirms financial stability, highlighting the absence of debt and substantial retirement savings.

Decumulation Plan Discussion

Anthony’s Objectives:

• Monthly Expenses: Approximately $10,000
• Withdrawal Strategy:
  • Plans to take systematic withdrawals from his IRA and brokerage accounts
  • Intends to manage the decumulation process to minimize tax burdens

Key Points Discussed:

1. Tax Efficiency:

   • Mark’s Advice (16:25):

     “Don't take it from the Roth. Leave that Roth account alone. Take it from your brokerage account.”
     Emphasizes using taxable accounts before tapping into tax-advantaged Roth accounts to optimize tax liabilities.

2. Systematic Withdrawal Strategy:

   • Anthony’s Approach:
     Plans to withdraw $75,000 annually from CDs, allowing for gradual depletion of pre-tax accounts, thereby managing tax brackets effectively.

3. Gifting and Estate Planning:

   • Gifting Strategy:
     Initial intent to gift from Roth IRAs was advised against. Mark suggested gifting appreciated securities instead, which could benefit from lower capital gains taxes for beneficiaries.
   • Estate Documents:
     Anthony confirms all estate documents are in place, with plans to review them biennially to accommodate changes and ensure they reflect current intentions.

[16:17] Mark:

“That's what I got for you. That's. I got an 80 to 90% solution.”

Mark reassures Anthony that his current strategies cover the majority of his decumulation needs, highlighting the effectiveness of his systematic approach.

Insights and Conclusions

Mark’s Evaluation:

• Financial Health:
  Commends Anthony and his wife for their robust savings and strategic planning, noting their ability to live below their means and manage expenses efficiently.

• Decumulation Strategy:
  Affirms that Anthony’s plan to systematically withdraw from retirement accounts is sound, especially given the structured approach to managing taxes and withdrawals.

• Future Considerations:
  Encourages flexibility in the plan to adapt to potential changes in tax laws and personal circumstances, ensuring long-term financial security.

Anthony’s Actions Moving Forward:

• Refining Withdrawal Plans:
  Adjustments to withdrawal sources to maximize tax efficiency, such as leveraging brokerage accounts before Roth IRAs.

• Estate Planning:
  Continues to update and review estate documents, ensuring that his and his wife’s wishes are accurately reflected and legally sound.

• Supporting Children’s Financial Growth:
  Redirecting gifted funds from Roth IRAs to taxable brokerage accounts to benefit from lower capital gains tax rates for beneficiaries.

[17:17] Mark:

“Anthony, thank you so much for joining us. We wish you the best of luck...”

Mark concludes the discussion by applauding Anthony’s proactive approach and encouraging other listeners in similar situations to seek personalized financial advice without judgment.

Key Takeaways

• Systematic Decumulation:
  Emphasizes the importance of a structured withdrawal plan to sustain retirement funds and manage tax liabilities effectively.

• Tax Efficiency:
  Strategic withdrawal from taxable accounts before tapping into tax-advantaged accounts like Roth IRAs can optimize after-tax income.

• Flexibility and Adaptation:
  Financial plans should remain adaptable to accommodate changing tax laws and personal circumstances, ensuring long-term stability.

• Estate and Gifting Strategies:
  Proper estate planning and thoughtful gifting can provide financial benefits to beneficiaries while minimizing tax burdens.

Notable Quotes

• Mark on Systematic Approach:
  [12:27]

  “You have a systematic approach to that period of time. And look, for all I know, for the next four years we know what the tax rates are probably going to be...”

• Anthony on Financial Security:
  [08:24]

  “I have the TSP through both federal government and military and I rolled over to Charles Schwab...”

• Mark on Gifting Strategy:
  [16:25]

  “Don't take it from the Roth. Leave that Roth account alone. Take it from your brokerage account.”

Conclusion

The episode “In Need of a Decumulation Plan” offers invaluable insights into the complexities of managing retirement withdrawals. Through Anthony’s case, Jill Schlesinger and Mark highlight the significance of strategic planning, tax efficiency, and adaptability in ensuring financial well-being throughout retirement. Listeners are encouraged to approach their decumulation strategies with the same level of diligence and seek professional advice tailored to their unique financial landscapes.

For more personalized advice or to share your own financial stories, visit jillonmoney.com and engage with the community.