Managing Cash Flow in Retirement Jill on Money with Jill Schlesinger
Release Date: December 30, 2024
Host/Author: Audacy

Introduction

In the December 30, 2024 episode of Jill on Money with Jill Schlesinger, host Jill Schlesinger delves into the intricate topic of managing cash flow during retirement. True to her style, Jill simplifies complex financial concepts, making them accessible to listeners. The episode features a listener call from John in New Jersey, whose meticulous financial planning sparks an engaging discussion on optimal strategies for maintaining cash flow in retirement.

Listener Call: John's Financial Situation (02:16 - 05:20)

Jill welcomes John, a 57-year-old early retiree from New Jersey, who has retired without pensions and is living off his substantial savings. John outlines his financial landscape:

• Brokerage Account: $2.2 million in indexed funds and some cash, including holdings in SGOV (a zero to three-month Treasury fund).
• Roth IRA: $480,000 achieved through a mega backdoor Roth, invested primarily in index funds and individual stocks.
• Traditional IRA: Approximately $2.1 million in a 10-year Treasury bond ladder.
• Real Estate: Owns a single house valued between $1.4 and $1.7 million, mortgage-free.
• Withdrawal Strategy: Currently operating on a 3.3% to 3.5% annual withdrawal rate, translating to about $162,000 per year before taxes.
• Expenses: Monthly pre-tax spending ranges between $13,500, although they live below their means.

John's meticulous planning and diversified portfolio set the stage for a deep dive into effective cash flow management in retirement.

Discussion: Managing Cash Flow and Bond Ladders (05:21 - 08:30)

Jill begins by assessing John's strategy of utilizing a bond ladder within his Traditional IRA. She inquires about the specifics:

Jill Schlesinger (05:40):
"How much is in there right now?" [06:05]

John (05:40):
"The brokerage is about 380,000. So it's about 390,000." [06:11]

John explains that the bond ladder matures annually starting in 2026, with interest flowing into a money market account and reinvested in SGOV. This setup provides liquidity and minimizes interest rate sensitivity, currently yielding around 4.9% to 5%.

Strategies: Roth Conversions and ACA Subsidies (08:31 - 14:15)

John shares his dual strategy:

1. Roth Conversions: Gradually converting Traditional IRA funds to Roth IRA to manage taxable income.
2. Health Insurance Strategy: Leveraging the Affordable Care Act (ACA) in New Jersey to receive subsidies by keeping his Modified Adjusted Gross Income (MAGI) low until Medicare eligibility.

John (07:59):
"We're going to be using the ACA in New Jersey because we're kind of in control of what our adjusted gross income is going to be." [08:10]

Jill evaluates the complexity of balancing Roth conversions with ACA subsidies, questioning the long-term tax implications and the effectiveness of this strategy.

Jill Schlesinger (09:45):
"The risk that you're taking is you are wrong about tax rates and where you guys land ultimately." [09:45]

John acknowledges the meticulous nature of his plan, balancing immediate health insurance costs with long-term tax efficiency.

John (10:09):
"For a family of three making about 120,000, it would be about $850 a month." [09:45]

Jill weighs the benefits against the operational complexity, ultimately questioning whether the potential savings justify the effort.

Jill's Advice and Conclusions (14:16 - 15:09)

Jill commends John's proactive approach but advises caution regarding the sustainability and simplicity of his strategies.

Jill Schlesinger (10:38):
"I couldn't be bothered. Isn't this terrible? I'm going to admit this to you, I could not be bothered for this $5,000." [10:38]

She highlights the potential risks of overcomplicating retirement strategies, especially concerning future tax rate uncertainties and market volatility. Jill suggests that while John's approach is not inherently flawed, it requires significant management and discipline.

Jill Schlesinger (15:09):
"I really do. John from New Jersey, just make sure you dot all your I's, cross your T's, have your estate documents done." [15:09]

She emphasizes the importance of comprehensive estate planning and maintaining flexibility in withdrawal strategies to adapt to unforeseen financial landscapes.

Closing Remarks

Jill wraps up the episode by reiterating the value of proactive financial management in retirement while acknowledging the balance between optimization and simplicity. She encourages listeners to reach out with their financial questions, emphasizing the wealth of free resources available on her website.

Jill Schlesinger (15:44):
"You may actually be able to do both. You really might." [15:44]

Listeners are reminded to subscribe to the Jill on Money newsletter for ongoing financial insights and to engage with the community for personalized financial guidance.

Notable Quotes

• Jill Schlesinger:
  "Everyone listening if you don't know that term, basically you're pulling out about 3.5% of your total investments on an annual basis. And that's fine." [04:36]

• John:
  "Our plan was to spend from the brokerage account and then do some Roth conversions every year until we're about 70." [07:30]

• Jill Schlesinger:
  "Great is the enemy of good. But dude, this is what you want to do." [12:20]

Conclusion

This episode of Jill on Money offers a nuanced exploration of retirement cash flow management through John's real-world financial scenario. Jill Schlesinger provides balanced insights, highlighting both the merits and challenges of sophisticated financial strategies. Listeners gain valuable perspectives on optimizing withdrawals, managing tax liabilities, and ensuring sustainable income throughout retirement.

For more detailed financial guidance and resources, visit jillonmoney.com.