Next Steps for Possible Retirement

Summary

Podcast Summary: "Next Steps for Possible Retirement"

Podcast Information

• Title: Next Steps for Possible Retirement
• Host/Author: Audacy
• Release Date: December 12, 2024

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Introduction

In this episode of Jill on Money with Jill Schlesinger, host Jill Schlesinger, CFP®, along with her co-host Mark, delves into the complexities of preparing for retirement. The episode focuses on a listener call from Paul in Seattle, who is navigating the uncertainties of extending his career by another year before retiring.

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Caller Introduction: Paul from Seattle ([03:04])

Paul, a 64-year-old single individual, reaches out with concerns about his impending retirement. Originally planning to retire at 65, Paul's job has been extended to 66, leaving him anxious about his financial arrangements during this extra year.

Key Financial Details:

• Annual Income: $145,000
• Retirement Savings:
  • 401(k): $1.9 million (pre-tax)
  • IRA: $300,000
  • Brokerage Account: $46,000
  • Certificates of Deposit (CDs): $200,000 (two CDs maturing in January and October next year)
• Emergency Savings: $130,000
• Real Estate:
  • Primary Residence: Mortgage of $153,000 on a home valued at approximately $625,000
  • Additional Lot: Valued at around $50,000

Paul also mentions financial obligations towards his ex’s 16-year-old child, allocating roughly $500 per month for support.

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Concerns and Goals ([07:09] – [10:43])

Paul expresses nervousness despite having substantial savings. His primary concerns revolve around:

• Job Market Uncertainty: Potential difficulty in securing a new job due to his age.
• Asset Management: Ensuring his retirement funds are allocated optimally during the extended working period.
• Financial Obligations: Managing ongoing support for his ex’s child without depleting his savings.

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Advice Provided: Managing Retirement Funds ([08:48] – [19:18])

Mark and Jill analyze Paul's financial situation and offer strategic advice to secure his retirement.

1. Maximizing 401(k) Contributions:

   • Mark's Suggestion ([08:57]): Paul should continue contributing to his 401(k) up to the employer match, ensuring he leverages free money to grow his retirement savings.

2. Diversifying Beyond Pre-Tax Accounts:

   • Roth IRA Considerations ([09:37]): Mark discusses the benefits of contributing to a Roth IRA for tax-free withdrawals in retirement, though he notes the immediate timeframe may make this less critical.
   • Brokerage Account Enhancement: Emphasis on allocating additional savings to taxable brokerage accounts to provide liquidity and flexibility.

3. Tax-Efficient Withdrawal Strategy ([09:55] – [15:04]):

   • Controlled Withdrawals: Mark advises Paul to proactively withdraw from his pre-tax 401(k) and IRA accounts in a manner that minimizes tax liabilities. For instance, pulling approximately $200,000 annually from pre-tax accounts between ages 65 and 70.
   • Automatic Withdrawals Setup ([17:08]): To alleviate anxiety, Paul can set up automatic monthly withdrawals (e.g., $15,000) from his retirement accounts, ensuring a steady income stream without the stress of manual management.

4. Estate Planning and Financial Security ([15:04] – [19:18]):

   • Self-Managed Pension Plan: By treating his 401(k) and IRA as a personal pension, Paul gains control over his retirement income, reducing reliance on employer-sponsored plans.
   • Risk Mitigation: Ensuring that Paul's strategy accounts for unexpected expenses, such as potential increases in support payments or large purchases like an RV or cabin.

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Key Takeaways and Conclusions ([19:18] – [20:07])

Mark reinforces the importance of proactive financial planning in retirement:

• Control Over Withdrawals: By setting up automated systems, Paul can manage his income without being overwhelmed by the process.
• Tax Efficiency: Strategically withdrawing funds minimizes tax burdens and preserves capital.
• Psychological Preparedness: Establishing a clear, structured plan reduces anxiety and provides peace of mind.

Notable Quotes:

• Mark ([09:55]): "How am I going to pull the money out of that pre-tax account in a way that is tax efficient?"
• Mark ([15:28]): "You've put together your own pension plan."
• Mark ([19:04]): "You just give yourself permission, and we will happily help you out along the way."

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Final Thoughts

Paul concludes the call feeling reassured and appreciative of the actionable strategies provided. Mark and Jill emphasize the value of having a structured plan and the support available through their platform to navigate retirement challenges.

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Conclusion

This episode offers valuable insights into retirement planning, especially for individuals facing extended working periods and complex financial obligations. By advocating for proactive management and tax-efficient strategies, Jill and Mark provide listeners with the tools to secure a stable and comfortable retirement.

For more personalized advice, listeners are encouraged to visit jillonmoney.com and reach out for support.

Transcript

[Jill Schlesinger]

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[Mark]

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[Jill Schlesinger]

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Hi, this is Jill Schlesinger. If you're a business owner, you know that trusting your gut is important, but so is relying on the right partners. That's where American Express comes in. The American Express Business Platinum Card works just as hard as business owners to help them pursue their passions with world class business and travel benefits. You can earn one and a half times membership rewards points on select business purchases and have complimentary access to more than 1400 airport lounges globally so you can continue running your business wherever it takes you. Terms and points cap apply. Learn [e-mail] AmExBusiness welcome to the Jill on Money Show.

[Mark]

It's Thursday, December 12th and we are here trying to help you make better better or less bad financial decisions. Really. We're here to help guide you through the big choices you make in your life. And we want you to understand that there are usually choices. There's not one ultimate answer. We are not the kind of folks Mark and I. Mark, the best executive producer in the world, also a certified financial planner, as am I. We're not the kind of people who think that there is only one solution. We do not think that you should try to optimize your life. We think that you should understand what your choices are and then have some agency in this process. That is what I love about this show. It is not that I'm going to pontificate on what's the best, although my answer is usually the best. I'm just kidding. It is not. And we want to hear what you want to do, help you figure out ways to get there. That is the beauty of this program. So if you'd like to get in touch with us, go to our website, jillonmoney.com, click the contact us button and write us a note. If you'd like to join us on the air live, then all you need to do is check the box and Mark will do everything else. While you're on the website, don't forget bookmark it. We've got content that changes all the time. We've got a free weekly newsletter. It's fantastic. All right, today we are talking to Paul, who is joining us from Seattle. Hello, Paul. How are you? What can we do for you?

[Paul]

Hi, thank you for taking my call.

[Jill Schlesinger]

Of course.

[Mark]

What's going on?

[Paul]

So I am probably two years to retirement. My position just got extended another year, and I want to make sure that I am putting my money where it would be best served during this next year.

[Mark]

Okay, so you're going to be retiring at the end of 25 or end of 26?

[Paul]

Well, my hope would be 27, but with the job market the way it is and me being older, the chances of me actually getting another job might be slim. So I'm looking at all, all the possibilities.

[Mark]

So what should we at least consider, like, when do you think you'll be done with this job?

[Paul]

It'll be the end of 20, 25.

[Mark]

Okay. And so let's just do that. How old are you, Paul?

[Paul]

64.

[Mark]

All right, 64. Are you married, single? Partnered? What do you got? Single, single. Okay. How much do you earn?

[Paul]

About 145 a year.

[Mark]

Great. Congratulations. That's good. Do you have any kids, any grown kids? Do you have any obligations to anyone?

[Paul]

I do.

[Mark]

Yeah, I do. And is that something we should consider as we look ahead in your financial life?

[Paul]

Well, I already put them on notice that it's not going to be as free willing as it was. So.

[Mark]

I like that. I love that idea. Like, just to give you a good heads up, gang. Yeah. The gravy train is coming to a screeching halt. Okay. Are you using a retirement plan through work?

[Paul]

Yes, I do have a retirement plan through work. I have a fidelity count that's about 1.9.

[Mark]

Whoa, whoa, whoa. Hold on one second. $1.9 million in a. Is that as a workplace plan or is that other money?

[Paul]

No, that's 401k from.

[Mark]

Is that pre tax?

[Paul]

Yes.

[Mark]

Wow, that's a boatload of money. What else you got?

[Paul]

I do have an IRA that has about three. Three in it.

[Mark]

Three what? 300.

[Paul]

300. Sorry.

[Mark]

I was excited. I thought it was going to be 3 million.

You gotta ask billionaires.

I mean, my God, Amazing. Okay, three.

[Paul]

Then I wouldn't be so nervous.

[Mark]

I don't think you're gonna be so. All right, so in an ira. Okay, what else?

[Paul]

I do have a brokerage account that has 46,000 in it.

[Mark]

Okay. Just fun. Is that like a fun money account?

[Paul]

Sorry. Yes, it has one stock in it. Yes.

[Mark]

Okay. Oh, okay. Well, all right, Very good. And what else do you got? You got some other monies that are out there?

[Paul]

I have two CDs, both have about 100,000 in them. They both mature, one in January, the other one in October of next year.

[Mark]

And.

[Paul]

And then I have an emergency savings with about 130 in it.

[Mark]

Okay. Wow. And what about a house?

[Paul]

Yes, I have a house.

[Mark]

Paid for?

[Paul]

Nope. I owe about 153,000 on it.

[Mark]

What's it worth?

[Paul]

Maybe three and a quarter or, sorry, six and a quarter.

[Mark]

What's the interest rate on the 153? That, that remaining balance?

[Paul]

It's 3.5.

[Mark]

Great. Okay. Any plans to sell that house in probably three years? All right, so don't need to do anything with it. So hold for three years. Do you have any other real estate?

[Paul]

I have a lot that I don't do anything with.

[Mark]

How much is that worth?

[Paul]

I think it's worth around 50,000.

[Mark]

Do you have any desire to do something with said lot?

[Paul]

Not really. Not really.

[Mark]

Okay. All right, fair enough. What should else should we know in terms of like your like your general approach to like where you are right now? You sound nervous, but you've saved a lot of money. Do you spend a lot of money? I can't imagine you do because it sounds like you've saved so much.

[Paul]

Yeah, I don't spend a lot of money. But I also don't worry right now about spending money. If I want something, I, I will buy it.

[Mark]

True. What do you think you spend on an ongoing basis?

[Paul]

It's probably, I'm thinking probably five to seven a month.

[Mark]

Okay. Does that include help for the kids or whoever else you're helping? Okay, so is it fair to say. Let's just look at how old are the, how old are these folks that you're helping out? 20s, 30s, 16. 16. Oh, well, you have to do that. 16 is like a real. That's a kid still, right? You can't, we can't get rid of that one.

You're on your own.

Dude, I thought you were going to be like ye, I have like a 36 year old.

[Paul]

Well, no, technically they're not my kids, so.

[Mark]

Okay. They're an ex's kids.

[Paul]

It's a long story, Jill.

[Mark]

Oh, man. Okay, so you got a kid who's 16 years old who you help out. How much do you think that is?

[Paul]

Oh, my gosh, a lot.

[Mark]

Give us a number. Like if you say I spend five grand a month and it's two grand a month for the 16 year old.

[Paul]

Is no more or less, probably about 500amonth.

[Mark]

That's not that much big deal.

[Paul]

Okay.

[Mark]

Did you like that?

Okay.

Mark is laughing at me. I just like that. Okay, so I think. Let's just hold that $7,000 a month for a second.

[Paul]

Okay.

[Mark]

Okay, so 7,000 all in. Anything you want. Right, Right. Okay. And what are you doing in terms of that 445 grand? How much are you putting into retirement accounts right now?

[Paul]

19 into the 401k and the rest I've just been putting in savings.

[Mark]

Do you have a match in your 401k?

[Paul]

Yes.

[Mark]

What's that? Matches up to what, 6%? I think you should just drop that amount down to the match. I think you should just put in whatever you are putting in right now. I think you should just put in up to the match. Okay. And then everything else, I think should just go into the brokerage account because you've got a ton of money in that 401k in that. You. You've got $2.2 million that have not been taxed yet. Right. The IRA and the 401k, I don't want to add to that.

[Paul]

Okay.

[Mark]

Do you have a Roth option through work or not?

[Paul]

I believe yes, there is. Yeah.

[Mark]

Mark, would you rather have Paul put money into the Roth or should he just beef up the brokerage?

I mean, I know the Roth has the best tax treatment there is. I get it, but we're only talking for another year. I don't know, you're kind of splitting hairs. Either way is fine with me.

Either way is fine with me. But if you want access and it's already, you know, it's fine. I think that we should plan if you were to. Okay, let's. Let's think about this. Let's say you finish up in a year from now, you're 65. You get. Will you get health care coverage through your work or will you be just going on Medicare?

[Paul]

Well, I'll be forced to go on to Medicare.

[Jill Schlesinger]

Yeah.

[Paul]

But I do have a secondary option through my employer until I find another job.

[Mark]

Oh, okay. Which may not, of course.

[Paul]

Right, right.

[Mark]

All right. And Then what about any pension?

[Paul]

Nope.

[Mark]

Okay, do you have a Social Security estimate in your, like maybe at your full retirement age, which would be 67 or 70 would be the max.

[Paul]

What was it? I know it's over three, but I don't have that.

[Mark]

Probably three or four just based on your income is my guess. Okay, so what are you worried about, man? You got boat tons of money. You are good. You're in good shape. You don't spend that much. You think you do, but you don't. So let's say it's seven grand a month and let's say you're going to do that for, I don't know, like five or ten years because 16 is young, right? And so I think the idea here would be you can throw the money into a Roth. I, I would not add, you know, again, if they make you put up to the match in the traditional, fine. But if they match in the Roth, just use the Roth. Or just put up, you know, put in enough to get wherever the match is and then put money in your brokerage account in a year from now. How would you feel? This is going to freak you out, man. How would you feel if I said, okay, you're. Let's say you don't work. Let's just pretend you don't. You might. But like you said, it might be that you're not going to get a job or the kind of job you want. So if that's the case, what you should be thinking about is how am I going to pull the money out of that pre tax, those pre tax accounts? How am I going to pull that out in a way that is tax efficient? Okay, you with me? Okay. So you're a single dude. So right now your highest tax bracket is the 24% bracket. So one thing to just think about is let's say you have zero income in a year from now. So begin the year 2026 and you've got your income is zero. Got a little money from the brokerage account or your CDs and that. Okay, what I would be doing is I would be pulling out probably $200,000 a year from your pre tax account in those years between 2026 and 2030. In other words, between the time that you are 65 and 70. Okay? And pull that money out and pay the tax it's due and hold your nose. But you got the, you got the money to do this. You have the money to do this. All right. When you're 70, you claim your Social Security, right? You'll have, let's say it's 4ish of your need of your expenses and then you don't have to pull quite as much out of your retirement account. You'll pull a little bit less out, maybe half as much. Maybe you're going to pull out 100 or 80, whatever it is and you're going to keep doing that and you're going to live on that money and life is going to be good. Mark, is there any way that Paul runs out of money in this game plan?

I don't see it. Unless these kids become a bigger problem than they currently are.

Yeah, I mean that 16 year old, are you like you have to buy a car? Like I mean I don't know what you have to do, but. Oh criminy. Okay, well I mean you just can't go crazy with this kid, right either, right? I mean as you said, everyone's been put on notice. But I also do think that you have a lot of money and if, especially like if you're thinking about holding the house for three more years. What happens in three years?

[Paul]

Oh, well then I was going to get an RV and maybe go live on property and build a cabin.

[Mark]

What do you think, Mark? I feel like this is another RV story. Are you going to buy one of Those tricked out RVs? What was that one? That guy had a $300,000 didn't he? Mark? Did he not have like a $300,000 RV?

It was like a rock band tour bus.

It was incredible. I was so excited when I saw a picture of it. So I think that you are going to be in great shape. Even with, and when I put that on top of it, the idea of selling the house and building it like you're in good shape. You, you, you know what, it's hard to conceive of a way that you spend all of your money. It is more likely that you're so apoplectic and you won't spend any of your money. Which is why I want to encourage you that when you stop working to start pulling money out of that pre tax account. That's your, it's your money. It's like you're going to pay yourself. Dude, that's a, it's. You've put together your own pension plan. Okay. You've $2.2 million, right, 1.9 in the 401k, 300 grand in your IRA and you're going to have a big huge pension plan. But that pension plan, it has to come out to you. You have to pull it out and waiting for 10 years until the government forces you to pull it out is not a good game plan. It really isn't. The better game plan is for you to control how that money comes out.

[Paul]

Okay.

[Mark]

You feel okay about that, Mark? I sense a little consternation. What do you think?

Yeah, I mean, he's. He's obviously very nervous. I mean, he already thinks he's gonna have to get another job. And you don't have to get another job.

Yeah. I mean, if you want to get another job, that's fine, you know, maybe. But you don't have to. And you're putting a lot of pressure on yourself in that respect.

[Paul]

My concern is, and I know I've heard this on your show from other folks. Is starting to take the money out.

[Mark]

What, you mean, like, how to or.

No.

[Paul]

Or just taking it? If you've saved all this time and now you're gonna actually start taking it out. That's hard.

[Mark]

It is. I don't feel like I'm gonna have a hard time with it, but you first. I'm just kidding. No, you know what it is? That's why I think if you consider this, like, you have created a pension plan for yourself, and now you're just going to turn the pension spigot on. It's an easier way to force yourself to get the money out. It's a, like, it's a little bit of a mental shift. I get it. But in some respects, if you just said, oh, if I were a pensioner, if I worked for the government, if I worked for a municipality, if I worked for a school, I would have been forced to put a chunk of money away every year. And then when I retired, they'd spit out a monthly income to me. And that would be what you would be living on. Partially. Right, Right. And so the fact that you just have to do it yourself just means that you need to be able to force yourself to say, I have to turn my pension on. That's what it is. It really. It's that simple. It really is. I promise you. And I don't. I know that it's going to be a bit of a hurdle, but if you can start to at least game this out now, a year ahead of time, I think you'll be very happy that you did. What I might do is, if I'm you, it's a year from now, I look at that retirement account and the ira. Where is that ira?

[Paul]

Oh, it's with Schwab.

[Mark]

Oh, okay. It says with Schwab. Okay.

[Paul]

Yeah.

[Mark]

So and is that okay? I just want to make sure that is a Schwab. Is that a Roth or that, is that. That's the Roth ira, right?

[Paul]

Yeah, that's the Roth one. And I haven't put money into that in at least 20 or more.

[Mark]

So maybe what you do is you take your. When you retire, you take the 1.9 million out of the 401k and you roll it. You don't take it out, you roll it into a rollover IRA at Schwab. Okay? And then every year you set up ahead of time, and I'm going to make it up. I want $15,000 a month sent to me. That's what I want. They'll send it to you and you can even have them withhold 20% taxes. And so you can prepare for that. And you can just have them automatically send you 15 grand a month. The only thing you have to do is ahead of time, put 200 grand in cash so that that's done. And maybe that's a really good practice for you. You know, you say, okay, of my 1.9 million, I'm going to sell out a certain amount of money. It's going to go to cash, and then for that year, there's my 15 grand every month. And you set it up automatically. That's what I would do.

[Paul]

Oh, okay.

[Mark]

That way you don't have to feel so anxious. It's done. You've forced yourself to do it.

[Paul]

So I thought that I need to for the money that's with Fidelity. I need to find a way for it to generate income. And then that's what I'm supposed to be living off of.

[Mark]

Well, there's some people who would tell you to do that. I would not be that person. I think it's more important for you to pull the money out of your pre tax accounts so that you can control your tax liability. I get it. That if you got a brokerage account, you know, if you have like an account and you want to set it up as like if it were, let's just pretend that instead of having it in 401k that it was simply in a brokerage account, there is probably some way that you can say, okay, send me dividends and that's what I'll live off of.

[Paul]

Right.

[Mark]

But in this case, the money hasn't been taxed yet. You got 2 million bucks that hasn't been taxed or 1.9 million. So we need to be much more assertive. Assertive in getting the money out. And that's that's why. Okay, so that's what I'm thinking.

[Paul]

Okay.

[Mark]

And. And I feel like if you do that, you're going to be in great shape. You give yourself permission. We set you. We set systems up ahead of time that kind of address our worst fears. That's kind of like why people will say, I need to buy life insurance because I don't want to think about this later. I want to buy it and it'll be done with. I want to do my estate planning. I don't want to think about that. And so I would think that for someone like you, who sounds like you're a little nervous about where things stand, you really can do this. And you just give yourself permission, and we will happily, happily help you out along the way. So is that. Does that sound like a game plan?

[Paul]

Yeah. No, that's great. I appreciate that. Thank you very much.

[Mark]

All right, man.

[Jill Schlesinger]

Good luck.

[Mark]

And if you are listening to this and you're worried about how you're going to retire and what are you going to do and where is the money going to come from?

[Jill Schlesinger]

Breathe.

[Mark]

Let us help you. This is what Mark and I like to do, because it's not our money. So isn't it easy for us to say number one? But also, you know what? It's a lot. It's like, why you can have, like, a dispassionate person voice come to the table and say, all right, here's what I think your options are. So you may have many more options than you believe. You may be freaking yourself out for no reason. Let us help you you out. Go to our website, jillonmoney.com click that contact us button and let us know if you want to join us on the air live. Don't Forget to bookmark jillonmoney.com because Mark changes the content all the time. You can subscribe to us on the Odyssey app or wherever you find your favorite podcast. Please leave us a rating and review wherever you listen. And of course, put your hands metaphorically on someone's back. Or even better, if someone wants this them a hug. I like a hug myself. Change your work, Change your wealth, change your life. Thank you for listening. We'll talk to you tomorrow.

[Sharon McMahon]

Working from home. That means you're also eating from home. We suggest stocking your fridge and pantry with fruits and veggies so you always have a healthy snack within reach. This healthy suggestion is brought to you by Regents Blue Cross Blue Shield of Oregon. Together, we help.

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