Withdrawals in Retirement

Summary

Podcast Summary: Withdrawals in Retirement

Podcast Information:

• Title: Withdrawals in Retirement
• Host/Author: Audacy's Jill on Money with Jill Schlesinger
• Release Date: February 10, 2025

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1. Episode Overview

In the episode titled "Withdrawals in Retirement," Jill Schlesinger, CFP®, delves into the often complex topic of managing retirement withdrawals. The discussion centers around a listener, Joy from Southern California, who seeks advice on optimizing her retirement income while mitigating risks associated with her investment portfolio.

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2. Listener Call-In: Joy's Retirement Strategy

a. Joy's Financial Profile

Joy provides a comprehensive overview of her financial situation:

• Age: 68
• Retirement Duration: Retired since 2008
• Income Sources:
  • Stocks and Bonds: Primarily bonds, totaling approximately $900,000 in ETFs and $1,000,000 in stocks outside retirement accounts.
  • Retirement Accounts: $600,000 in pre-tax retirement accounts with minimal Roth funds.
• Real Estate Holdings: Owns two condos—one valued around $650,000 and the other at approximately $200,000, both mortgage-free.
• Cash Reserves: Holds about $500,000 in CDs amassed from an inheritance.
• Monthly Expenses: Approximately $5,000
• Social Security: Planning to claim at age 70, expecting around $3,700 monthly.

Notable Quote:

[04:02] Joy: "I am retired a long time now and I need income. I am debating should I be taking the income from my IRAs..."

b. Joy's Concerns

Joy is apprehensive about her current investment allocation:

• Current Allocation: 46% in stocks
• Desired Allocation: 30% in stocks to reduce risk

She is nervous about future market volatility and her ability to sustain her income without depleting her assets.

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3. Jill’s Analysis and Advice

a. Evaluating Joy’s Current Strategy

Jill assesses Joy's financial standing, noting her substantial cash reserves and diversified investment portfolio. She reassures Joy, emphasizing that at 68, she is not "old" and has a solid foundation for her retirement.

Notable Quote:

[04:50] Jill Schlesinger: "You're not old. What are you talking about getting up there."

b. Recommendations on Asset Allocation

Jill advises Joy to avoid withdrawing from her stock and bond holdings to prevent triggering capital gains taxes, especially given Joy's low basis in stocks. Instead, she suggests utilizing the substantial cash reserves:

• Use Cash Reserves: Recommend living off the $500,000 in CDs for the next two years, reducing the need to tap into investment accounts.

• Adjust Retirement Account Allocation: Shift the retirement accounts to a less risky allocation (e.g., 60% bonds and 40% stocks or 70% bonds and 30% stocks) to decrease volatility without incurring taxes.

Notable Quote:

[10:03] Jill Schlesinger: "I think you should be living on the cash for the next two years."

c. Tax Considerations

Jill highlights the importance of tax-efficient strategies:

• Avoid Capital Gains: By not selling stocks, Joy can prevent significant taxable events.

• Qualified Charitable Distributions: Encourages Joy to consider donating directly from her retirement accounts to charities, which can provide tax deductions.

Notable Quote:

[16:08] Jill Schlesinger: "You can give money away on an annual basis... find some charities to try to actually give some of your money away and do it tax efficiently."

d. Utilizing Cash Reserves

Given Joy's half a million dollars in CDs:

• Liquidate CDs: Jill suggests breaking CDs as needed to cover expenses, leveraging the cash instead of pulling from investments.

• Manage Penalties: Typically, early withdrawal penalties from CDs are minimal and manageable compared to the tax implications of selling investments.

Notable Quote:

[10:30] Jill Schlesinger: "Break a cd, who cares? You got plenty of money, Mark."

e. Estate Planning and Charitable Giving

Jill advises Joy on estate planning:

• Update Will and Beneficiaries: Ensure that all assets, including condos and retirement accounts, have designated beneficiaries.

• Consider Trusts: For more complex estates, especially with multiple properties, establishing a trust might be beneficial.

• Charitable Donations: Utilize charitable giving strategies to provide for loved ones and philanthropic interests while optimizing tax benefits.

Notable Quote:

[16:16] Jill Schlesinger: "You should have a health care proxy. You know, you should have all that."

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4. General Insights on Retirement Withdrawals and Asset Allocation

Throughout the discussion, Jill emphasizes key principles for managing retirement funds:

• Diversification: Maintaining a balanced portfolio to mitigate risks.

• Tax Efficiency: Strategically managing withdrawals to minimize tax liabilities.

• Liquidity Management: Leveraging cash reserves to reduce the need for liquidating investments during market downturns.

• Estate Planning: Ensuring that all assets are accounted for in estate plans to benefit heirs and charities effectively.

Notable Quote:

[18:04] Jill Schlesinger: "You've earned the ability most likely to reduce the risk. You curtail your upside, and hopefully, you make those big swings up and down, you make them a little less big."

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5. Conclusion and Takeaways

Jill concludes the episode by reinforcing that Joy is in a strong financial position and has multiple strategies to ensure a stable and stress-free retirement:

• Leverage Cash Reserves: Use available cash to cover expenses, preserving investment accounts.

• Adjust Asset Allocation: Modify the retirement account investments to align with lower risk tolerance.

• Implement Estate Planning: Update wills and consider trusts to manage asset distribution effectively.

• Engage in Charitable Giving: Utilize tax-efficient strategies to support causes meaningful to Joy.

Notable Quote:

[13:41] Jill Schlesinger: "Joy to the world, babe. Joy, because you're good."

Jill encourages listeners to reach out with their financial concerns and highlights the importance of personalized financial planning to navigate retirement successfully.

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Key Takeaways:

• Utilize Cash Reserves First: Reduce dependency on investment withdrawals by using liquid assets.
• Strategic Asset Allocation: Adjust investment portfolios in retirement accounts to match risk tolerance without incurring unnecessary taxes.
• Estate and Charitable Planning: Ensure proper estate planning and explore charitable giving for tax benefits and personal fulfillment.
• Seek Professional Advice: Personalized financial strategies are crucial for addressing unique retirement challenges.

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For more personalized financial advice and strategies, listeners are encouraged to visit jillonmoney.com and engage with Jill Schlesinger through the show's various offerings, including live webinars and the weekly newsletter.

Transcript

[Jill Schlesinger]

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[Mark]

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[Jill Schlesinger]

Welcome to the Jill on Money Show. It's Monday, February 10th and we are here trying to help you make better financial decisions. Maybe just give you a little cheerleading as you were walking along your financial journey. Remember everything that's going on in your life, even if you think it's stupid or you're worried and you think, oh, I don't want to, I don't want.

[Mark]

To bother them, bother us.

[Jill Schlesinger]

We love to hear from you and especially if you feel like you're having some stress about something.

A lot of people say this to.

Me that, you know, what is it.

[Mark]

That you do with this show?

[Jill Schlesinger]

And I always think what we try to do is take the temperature down, take the emotions down a little bit, help you get where you want to go, hopefully with a lot less stress.

[Mark]

Just get in touch with us.

[Jill Schlesinger]

Go to jillonmoney.com, click the contact us button. Let us know if you want to come on the air with us live because that's where I think we tend to do the best work when we can talk to you and ask follow up questions while you are on our website. Website. Don't forget to sign up for the free weekly newsletter comes out on Fridays. Mark does such a great job with that and I really think you'll enjoy it. So if you have a question, you can just go to jillonmoney.com click the contact us button. Today we are so lucky. We are talking to Joy, who's on the line from Southern California. Before we got on the air, we just made sure that you were safe from the most recent round of fires. So that's good. So, Joy, what is on your mind?

[Joy]

Well, first of all, let me just say that I listen to you guys as much as I can almost every day.

[Jill Schlesinger]

Oh, yay.

[Joy]

I learn a lot. So I guess my the biggest question I have is I am retired a long time now and I need income. I am debating should I be taking the income from my IRAs and I would because I would like to bring my allocation of stocks down to 30% as opposed to where it's at now, 46%. I'm very nervous about the future and I'm, you know, getting up there in age.

[Jill Schlesinger]

All right, hold on a second. I'm going to tell you whether you should be nervous or not. You could be. You can feel your feelings. But let's try to get through this. First of all, Joy, how old are you?

[Joy]

68.

[Jill Schlesinger]

You're not old. What are you talking about getting up there? Come on now. Are you a New Yorker by origin?

[Joy]

Yes, I am.

[Jill Schlesinger]

Couldn't you hear it, Mark? I felt like I was like, I'm talking to a sister. She could be from Queens for all I know. But it sounds just like she could be right from here. How long have you been retired? You said you've been retired for how long?

[Joy]

Well, don't laugh, but I've been retired since 2008.

[Jill Schlesinger]

All right, that's great. What is the source of your income right now?

[Joy]

Stocks and bonds, mostly bonds.

[Jill Schlesinger]

You have no pension?

[Joy]

No pension.

[Jill Schlesinger]

And how much money do you have in bonds?

[Joy]

Right now I have probably close to 900,000 ETFs.

[Jill Schlesinger]

Okay. In ETFs. And this is outside of retirement, right? Yes, correct. And the stocks that are outside of retirement, whether it's ETFs or individual holdings, what do you have in that stock beside?

[Joy]

I have probably close to a million.

[Jill Schlesinger]

Okay, that's great. And what about inside of a retirement account?

[Joy]

Inside the retirement account. I have to look at my allocation, but I probably have.

[Jill Schlesinger]

Just give me the total for the retirement account right now.

[Joy]

About 600,000.

[Jill Schlesinger]

Okay. Did you claim Social Security already?

[Joy]

Not yet. I'm going to wait till 70.

[Jill Schlesinger]

And what's that amount at 70?

[Joy]

That's going to be about. Probably after Medicare. That'll probably be about 3,700, 3,600 right around there.

[Jill Schlesinger]

Great. Okay. And you're single or married? Partnered.

[Joy]

Single.

[Jill Schlesinger]

No kids? No kids. Okay. And you own your home?

[Joy]

I own, believe it or not, I own two condos.

[Jill Schlesinger]

Two? You only live in one? I can. I'm pretty sure.

[Joy]

Well, I'm a snowbird. So one is on the east coast and this one here is in the west, on the West Coast.

[Jill Schlesinger]

Okay. How much is the west coast condo worth?

[Joy]

Probably about six to six. Fifty. Six, fifty maybe.

[Jill Schlesinger]

Okay. And is there a mortgage outstanding?

[Joy]

None.

[Jill Schlesinger]

Okay. And say. And the east coast, how much is that worth?

[Joy]

That's about 200. No mortgage.

[Jill Schlesinger]

Okay. How much do you spend a month?

[Joy]

Right now I would say I need about 5,000.

[Jill Schlesinger]

So this Social Security is going to be a game changer for you?

[Joy]

Yeah.

[Jill Schlesinger]

Okay, so. And in your retirement accounts it's all pre tax. There's no. There, there are no funds right now that you have that are Roth funds, right?

[Joy]

I have a tiny little Roth fund.

[Jill Schlesinger]

All right.

[Joy]

There's, you know, just a couple thousand in there. That's it.

[Jill Schlesinger]

Okay. Yeah. So you are just pulling out the money that has been distributed from both the stock dividends and the bond interest, is that right?

[Joy]

Mostly. If not all from the bond interest, yes.

[Jill Schlesinger]

Okay. Okay. And you have not pulled any money out of the retirement, the pre tax retirement account yet, right?

[Joy]

No, I haven't.

[Jill Schlesinger]

I. So right now we have to wait till you're 70. So we have 20. So let me just make sure. I understand. Just timeline wise. We have 20, 25 and 2026, where we need to have this $5,000 a month of need for you net to you. Is that right?

[Joy]

Yes.

[Jill Schlesinger]

Okay. So it's just these two years. It's very good. Okay. It's. That is. That is actually, like, makes it a lot easier because once you get to. You know that once you get to Social Security and you grab that, you have that money coming in, you know, you're golden, right?

[Joy]

Yes.

[Jill Schlesinger]

All right. As long as you know that. Okay. So right now, if I were to look at the taxable income that you have from both the stocks and the bonds, I don't know whether you own California municipal bonds or other bonds in these ETFs, but what has your tax return been looking like after.

Over the last couple of years?

[Joy]

You mean the amount I've made or the actual return made? Well, I actually looked this year. I did one thing that I shouldn't have done. Oh, I know. I took $100,000 of stock out and it added. It's going to add to my income for this past year.

[Jill Schlesinger]

For 24.

[Joy]

For 24.

[Jill Schlesinger]

Okay. That's not a problem, though.

[Joy]

Yeah. So I. I think the capital gains on that were 49,000. So I have to add that to about 70. About 77,000. So, you know, adding the 49 to the 77, that's okay.

[Jill Schlesinger]

Yeah. Okay. But we're not going to worry about the 49 because you're not going to do that particular thing again.

[Joy]

Right.

[Jill Schlesinger]

But here's what I think you should do. I think you should stop taking money out of your stock account. I think you should stop doing that. And I don't think you should sell anything right now either, by the way. What I think you should do is for 20, 25 and 2026, you're gonna do the same thing. You're gonna have taxable income. Okay. It's not gonna be that much. You're gonna pull it out of your retirement account. You're gonna take $100,000 this year. You're gonna take $100,000 next year.

[Joy]

Oh, okay.

[Mark]

All right.

[Jill Schlesinger]

And you're gonna pay at the 22% bracket. Maybe it'll be 24. Yeah. Okay. Do you have cash on hand at all or not really?

[Joy]

Yes, I have. Don't yell at me. I have probably have about a half a million dollars.

[Jill Schlesinger]

Oh, wait a minute. Then don't take that money out. Hold on, hold on, hold on. Wait a minute. You have a half a million dollars in cash. Can't you just. Why are we messing around with Your stocks and your bonds anyway. Why don't you not. Why don't you spend the money from there?

[Joy]

It's a, it was, most of it was an inheritance and I put it into CDs.

[Jill Schlesinger]

So how do the CDs come due? What's, what's happening with it?

[Joy]

They'll be due, you know, maybe towards the end of this year.

[Jill Schlesinger]

Can't you break one of these and pay a little interest? Who cares?

[Joy]

I guess I could, yeah, why not?

[Jill Schlesinger]

I think you should be living on the cash for the next two years. Forget about that previous advice. I'm a dope, okay? Don't do that because you didn't tell me about your cash stash. I think you should use that for the next two years. And I would not worry about anything. But what I would do is instead of starting to mess around with your allocation of the stocks and bonds right now, change it in the retirement account and go heavier on income. That's in the retirement account. If you just want less risk, you know, because right now you're like 50. 50 stocks, bonds, outside. Okay, Inside of the retirement account. Go, go like, I don't know, put, put 60% in bonds and 40% in stocks. Or if you're really nervous, go 70, 30 in there and reduce the volatility of the account and don't worry about it. So you're going to take money out of this, the CDs, whatever. You can look at the penalties. I'm sure it's like three Mark. Isn't it usually like three months of interest or something? Something. It's usually not that much. Break one of the CDs, use that to live on. And then once you start your Social Security at age 70 after like say in 2027, you're going to pull a lot less money out of the account. You could maybe start dribbling some money out of the retirement account just to make, just to give you that extra income if you want. I wouldn't like soak up your cash right now to necessarily do a Roth conversion because you got a lot of money. It's already been taxed. Don't worry about it. This is just a near term, little crunch, but you have the cash, so. So you can do it.

[Joy]

Okay.

[Jill Schlesinger]

Were you nervous?

[Joy]

So I guess. Well, I'm a little nervous only because should I be taking it out, the allocation, should I allocate it in the ira or should I allocate because I have a large amount of stock also in the brokerage.

[Jill Schlesinger]

Yeah, but so what you said you have A million dollars in the brokerage account and 900 grand in bonds, right? Then on top of that, you have 600,000 in retirement accounts. Shift the retirement accounts to a less risky structure so you don't have to actually pay any tax to do that. Because if you start selling stocks right now, you're gonna get your. You're going to be in a little bit of an issue with your capital gains, right? You got low basis stocks. So the other thing that you can do is you can do not, you know, you don't want to reinvest any dividends and interest. Take it and rebuild your cash because you're going to spend down some of your cash, right? Because we know you're going to spend down, you know, 50 grand a year for the next couple of years. So what?

[Joy]

Right?

[Jill Schlesinger]

You're in good shape. You're in great shape.

Forget about good shape.

You're in great shape. Are there any holes in this Mark? Are there any holes in. Should Joy feel? Joy? That's what I want to know.

[Mark]

As Three Dog Night would say. Joy to the world. Yes.

[Jill Schlesinger]

Yeah. Joy to your world, babe. Joy, because you're good. So the thing is, a lot of times when you say you want to reduce your allocation, you can do that very easily, simply in the retirement account and not. And not trigger any capital gains.

[Joy]

See, that was. Yeah, that was the question I always wondered about, because you're reducing your stock allocation in your ira. But that's the place where it should be growing, I thought. And then.

[Jill Schlesinger]

Doesn't matter. You got so much money. What do you care? You got so much money. Who cares where it's growing? It's growing everywhere. You know, it's like you can't help yourself. You're gonna die with a lot of money. I hope you have very nice either grown friends who you can leave money to or great charities. What are you gonna do with all this money? You don't even spend anything.

[Joy]

I. Well, I thought I did, but, yeah, I don't know what I'll do with it. I guess I'll leave it, some of it to charity and some of it to my niece and nephew.

[Jill Schlesinger]

All right, listen, if you're charitable, once you get through your retirement, okay, once you get to that age, 70, another thing that you can do with that retirement account just to kind of move things along. There's two things if you're charitable. One is you can do something called a qualified charitable distribution. If you give money away, like, if you're charitable right now, do you give money away on an annual basis. Do you think I haven't yet? All right, well, like, find some charities you can give away. Some low cost basis stock. You can just give it away. You can make a qualified charitable distribution. You can divert money from your retirement account and send it directly to a charity when you're over the age of 70 and a half. So what I am going to challenge you to do, Joy, over the next couple of years is see which one of your nieces or your nephews sucks up the most to you and you can reward them. And number two, you're going to go find some charities to try to actually give some of your money away and do it tax efficiently. That's your goal. Like find some charities. Like maybe you say, ah, you know what? I've got so many friends in the California fires. How would I give money to the Red Cross? Right? And you can give money to the Red Cross. You can take that stock position, you have that million dollars. You can say, what's the position where I've gained the most? Let's just pretend like, oh, I own Microsoft at like a dollar a share. You could say, I'm going to give some of that money straight to the Red Cross and they'll do it with you.

It's very easy.

They know how to do stock transfers. You'll get a big tax deduction for doing it and you can feel good about yourself.

[Joy]

Yeah, that sounds like a plan, actually.

[Jill Schlesinger]

Yeah.

So that's what I would say to you. Have you done estate planning yet?

[Joy]

I just have a will and that's really it. I'm not sure if I need a trust for, you know, maybe having two homes or.

[Jill Schlesinger]

Well, I think what the thing is.

In the will, does it say you.

Have like a couple of nieces and nephews and that's where it's going and that's that.

[Joy]

You know what I. Well, I think I just had put those on my accounts, you know, in my.

[Jill Schlesinger]

The transfer on death and then maybe the retirement. As a beneficiary in your will, you need to actually say, you know, hey, I'm just gonna say, like pretend that Mark and I are your niece and your nephew, right? And you say, I'm gonna give in my will. Whatever. You know, of course, that whatever moves by beneficiary retirement account goes by beneficiary. All the other stuff, the stocks, the bonds, you should have an account that's labeled a transfer on death. It should be called transfer on death. And then you label who you want it to go for, to go to. But Then you've got these condos. You have to leave that to somebody. Yeah. And yet that. That happens in the will and that's it.

[Joy]

Okay, that's. Yeah, that's.

[Jill Schlesinger]

But you should have a health care proxy.

You know, you should have all that. All right, good. As long as you have that, that's good.

[Joy]

Yeah.

[Jill Schlesinger]

All right. Ready for a big, like a. Taking a deep breath, this allocation question. Piece of cake. You got a half a million dollars in the bank.

Break a cd, who cares?

You got plenty of money, Mark. What's the likelihood that Joy spends even half of the money she's accumulated?

[Mark]

Slim and none, considering that she's been retired for nearly 20 years and she still still has this. You know.

[Jill Schlesinger]

Exactly. You're in great shape, Joy, so we wish you the best. Give us a holler if you need anything else. If you are looking at retirement, if.

You'Re a little worried about your allocation.

I think people have been a little bit nervous, especially as you, you know what happens? You get older and you say, oh.

That 50, 50, that 60, 40 portfolio.

That used to be very comfortable. I don't like the swings anymore. And if you've got a lot of money, maybe that's fine. Maybe you don't need to take as much risk. It's okay. You've earned the ability most likely to reduce the risk. You curtail your upside, and hopefully you make those big swings up and down, you make them a little less big.

So give us a Holler.

Go to jillonmoney.com Click the Contact Us button. Let us know if you'd be willing to come on the air live. Don't forget that you can sign up for our free weekly newsletter and you could subscribe to our Service, Jill on Money Live.

That is a $45 charge for the.

Next 12 months, where you have access to quarterly live webinars, including our upcoming webinar with the fantastic Ed Slott. We're going to be talking about IRAs, Roth IRAs, tax season, Ed's the man. Thursday, March 6, 7 Eastern Time. You can only join us if you are a subscriber to Jill on Money Live. Don't forget, gang, you can subscribe to our program on the Odyssey app or wherever you find your favorite podcast. And I have neglected to ask you for this. Forgetting about the rating and review, why don't you send this podcast to somebody, you know who you think would like it? You are our marketing plan. We want to expand our audience with your help. So people like you just send this along and they'll be new listeners. It'd be great. Okay, do something nice for someone else today. Change your work, change your wealth, change your life. Thank you for listening. We'll talk to you tomorrow.

For decades, real estate has been a cornerstone of the world's largest portfolios. But it's also historically been complex, time consuming and expensive. But imagine if real estate investing was suddenly easyall the benefits of owning real, tangible assets without all the complexity and expense. That's the power of the Fundrise Flagship real estate Fund. Now you can invest in a $1.1 billion portfolio of real estate starting with as little as $10 4700 single family rental homes spread across the booming Sunbelt 3.3 million square feet of highly sought after industrial facilities. Thanks to the E Commerce wave, the Flagship fund is one of the largest of its kind, well diversified and managed by a team of professionals. And now it's available to you. Visit fundrise.com jillonmoney to explore the fund's full portfolio, check out historical returns and start investing in just minutes. Carefully consider the investment objectives, risks, charges and expenses of the Fundrise Flagship Fund before investing. This and other information can be found in the Fund's [e-mail] Flagship this is a paid advertisement Every week on the.

Moff Podcast, we share stories that are funny, strange, heartbreaking and above all, true.

[Joy]

I myself have been married for 56 years, unfortunately to four different women.

[Jill Schlesinger]

It turns out the people I was looking for all my life is what you people would call nerds. Follow and listen to the moth on the free Odyssey app or wherever you get your podcasts.