Retirement Income: 6 Sources Many People Miss

Summary

Podcast Summary: Your Next Dollar: Money Management for High Earners

Episode: Retirement Income: 6 Sources Many People Miss
Host: Andrew Giancola (A)
Guest: Ryan Sterling (B), Fiduciary Financial Advisor, NerdWallet Wealth Partners
Date: July 28, 2026

---

Episode Overview

In this episode, Andrew and Ryan dive deep into the often-overlooked income sources for a well-funded, low-stress retirement. Focusing on high earners, they outline two essential retirement income "buckets": covering your essentials (the income floor) and funding your lifestyle (portfolio income). They break down the six main income sources—including Social Security, pensions, annuities, part-time work, cash-flowing assets, and investment portfolio strategies—offering practical insights, real-world examples, and high-impact tips for planning decades in advance.

---

Key Discussion Points and Insights

The Two Buckets of Retirement Income

1. Bucket One: The Income Floor

Covering Essential Expenses (housing, food, healthcare)

A. Social Security

• Common concern among high earners: Will Social Security be there for us?
• Ryan: “This debate has been going on for decades… Social Security is still going strong.” (02:20)
• While the Social Security Trust Fund is projected to deplete in the 2030s, total elimination is very unlikely; benefits may be reduced, or taxes raised instead.
• Planning takeaway: Don’t bank entirely on Social Security; treat it as potential supplemental income and plan for legislative uncertainty.
• Social Security claiming strategies are situationally dependent and often require professional advice.
  – Andrew: “Trying to navigate Social Security without an advisor is pretty difficult.” (04:13)
• For some, Social Security meaningfully covers essential expenses, preserving their other assets. (05:21)

B. Pensions

• Pensions are extremely valuable and considered “S tier” for providing lifetime guaranteed income. (05:41)
• Ryan: “Pensions are a massive, massive benefit... I have yet to come across a person who says, I regret working for an extra year or two to maximize those benefits.” (06:23)
• Sometimes worth staying in a job longer, even taking a pay cut, to vest or maximize pension benefits.
• Younger listeners: Consider pension offerings in career decisions—even if it means less salary now, it can deliver more security and flexibility later.

C. Annuities

• Controversial; often sold inappropriately and not typically recommended for high earners.
• Ryan makes a compelling case comparing annuities to Warren Buffett’s insurance investments:

  “If you buy an annuity, you’re effectively on the opposite side of Warren Buffett.” (10:30)

• Annuities may make sense for those who need psychological peace and cannot manage market volatility, but math usually favors self-managing retirement income.
• “You’re locking that money up... If something were to ever happen to you, that money is going to disappear." (12:15)
• Younger high earners can “build their own annuity” via disciplined investing and keep all the returns.

D. Part-Time Work in Retirement

• Often overlooked, working part-time can enhance both finances and fulfillment.
• Examples: Coaching, working at golf courses or theaters, being a Pilates instructor, or tour guide.
• Ryan: “For a lot of these clients who have part time jobs, they get to pick and choose when they want to work. And that’s the power of financial independence...” (15:27)
• Added perks might include health insurance—especially valuable for early retirees before Medicare eligibility.

E. Cash-Flowing Assets (Real Estate, Businesses)

• “Passive income” is a misnomer—these assets require hands-on management, especially at first.
• Real estate or small business income can supplement retirement but is rarely truly passive:

  Andrew: “It is not even remotely passive. You have to spend a lot of time doing this. Even if you get a property manager... you still have to manage those managers." (19:28)

• Takes decades to build a meaningful portfolio; beware of overly optimistic “passive income” narratives.

---

2. Bucket Two: Portfolio Income

Funding Your Lifestyle—Above and Beyond the Basics

A. Taxable Brokerage Accounts

• Among the most flexible and underrated tools, especially useful for high earners and/or early retirees.
• Withdraw anytime without penalty (unlike retirement accounts), highly tax efficient with strategies like tax-loss harvesting.
• Ryan: “Taxable brokerage account is one of the most underrated accounts out there... It’s a very tax efficient way for someone to get access to their savings.” (21:57)

B. Tax-Deferred Accounts (401k, Traditional IRA, 403b, 457)

• Great for high earners for upfront tax deduction and long-term tax-deferred growth.
• Be mindful of future tax liabilities—large balances can trigger significant taxes during required minimum distributions (RMDs).
• Consider Roth conversions during lower-income years.

C. Tax-Free Accounts (Roth IRA, Roth 401k)

• Provide tax-free growth and tax-free withdrawals; major estate planning advantages.
• “Roth IRA alone won’t make you rich... it needs to come with other strategies.” (26:21)
• Watch for unintended consequences: Some retirees hoard Roth assets for heirs rather than spend on themselves.

  “In a weird way… a traditional IRA… could actually lead to a happier retirement because you might end up spending more money.” (28:29)

---

Notable Quotes & Memorable Moments

• On Social Security:

  “Every single time someone asks ‘When should I take Social Security?’ I have to say, ‘It depends. You need to talk to someone about your specific situation.’”
  — Andrew (04:13)

• On Pensions:

  “If you can maximize that benefit, what it does for you in retirement is truly extraordinary… I have yet to come across a person who says, I regret working for an extra year or two to maximize those benefits.”
  — Ryan (06:23)

• On Annuities and Warren Buffett:

  “If you buy an annuity, you're effectively on the opposite side of Warren Buffett.”
  — Ryan (10:30)

• On Part-Time Work:

  “For a lot of these clients… they get to pick and choose when they want to work. And that’s the power of financial independence.”
  — Ryan (15:27)

• On Real Estate as ‘Passive’ Income:

  “'Passive income'… these are not passive income strategies, these are side jobs.”
  — Ryan (17:50) “No, it is way more work… Even if you have one or two rental properties… it takes like a month, a month and a half just to place the right person.”
  — Andrew (19:28)

• On Portfolio Income Flexibility:

  “Taxable brokerage account is one of the most underrated accounts out there... a very tax efficient way for someone to get access to their savings.”
  — Ryan (21:57)

• On Roth Accounts and Spending:

  “I’ve had so many conversations… people have stuffed everything in their Roth IRA and now… don’t want to spend any of it. A traditional IRA could actually lead to a happier retirement because you might end up spending more money.”
  — Ryan (28:29)

---

Important Segments & Timestamps

• Opening and Overview of Two Buckets | 00:00 – 02:20
• Social Security: Reliability and Planning | 02:20 – 05:21
• Pensions: Maximizing & Career Trade-Offs | 05:41 – 09:20
• Annuities: Pros, Cons, & Psychology | 10:09 – 13:53
• Part-Time Work & Benefits | 13:53 – 17:50
• Cash-Flowing Assets & Passive Income Myths | 17:50 – 21:57
• Taxable Brokerage Accounts | 21:57 – 23:21
• Tax-Deferred Accounts | 24:17 – 25:27
• Tax-Free (Roth) Accounts & Overemphasis | 26:21 – 29:53
• High-Impact, Six-Figure Retirement Decisions | 30:04 – 41:37

---

Six-Figure Retirement Decisions

1. Withdrawal Strategy Order (Taxable > Tax-Deferred > Tax-Free)

• Following this order can reduce total taxes by 14% by age 100—potentially saving hundreds of thousands (or even millions) for high earners. (32:51)
• Sometimes, spending from tax-deferred accounts first (for multi-generational planning, low cost basis) may be optimal.

  “There are some cases where it actually does make sense to spend your tax deferred accounts first.” — Ryan (30:59)

2. Roth Conversions & Timing

• Best done early in retirement or low-income years to minimize tax impact.
• Don’t let “tax bomb” fears drive your decisions: Focus on overall well-being and lifestyle.

  “If you have six figures of additional income in retirement from a tax deferred account, that's not a bad thing.” — Ryan (36:17)

3. Is Your House a Retirement Asset?

• For most, homes are lifestyle assets—not financial ones; avoid relying on your home as a primary retirement plan.

  “A home is so much more than an asset. It should not be your primary asset as it relates to planning for retirement because of the emotion that’s tied to it.” — Ryan (41:37)

---

Takeaways for High Earners

• Begin designing your retirement income strategy in your 30s and 40s.
• Use two buckets: cover essential expenses first, then design a blueprint for funding lifestyle and aspirations.
• Don’t overlook six-figure optimizations—withdrawal order, Roth conversion timing, and not over indexing on home equity could mean huge savings or more discretionary income.
• Don’t base decisions solely on taxes; align your money strategy with values and life goals.
• Financial planning is highly personalized—what works for one may not fit another.
• Consider working with a fiduciary advisor to navigate complexities (Social Security, Roth conversions, estate dynamics).

---

For more deep dives on any topic covered, subscribe to the podcast; dedicated episodes coming soon.

Transcript

[A]

So when you retire, your income sources can come from multiple different places. And there are six real sources of income in retirement. Now, if you're in your 30s or 40s, you need to start building towards some of these income sources so that you can ensure that you have a smooth and stress free retirement. So today I'm joined by Ryan Sterling and we're going to cover the two buckets that every single person needs to know when it comes to retirement income. We're going to dive into the sources that cover your essentials no matter what. So think of things like Social Security or pensions. We're going to dive into the three account types that help you fund your lifestyle. If you want to live this lavish life and you want to live the retirement that you actually dreamed of, you need to understand these three income sources. And we're going to talk through six figure decisions that can absolutely change the way that you think about money. Plus, we're going to talk about what to do in your 30s and 40s. So these income sources are actually there when you need them and why guaranteed income may cause people to be happier in retirement. Ryan, I am so excited for this episode. I can't wait to dive into this. This is one of the most important things that people need to understand even when they're building wealth early on in life.

[B]

Yeah, no, no question. Really important episode. And happy to be back.

[A]

So this is going to be something where we dive into the two different sources of retirement buckets first. And I want to kind of talk through this in a way that, that makes sense for a lot of people. Now, bucket, we're talking about the income floor now. I want listeners to think about it in a way where you're trying to cover your essential expenses. What are those baseline expenses that you need to cover in order to make sure that you have a happy and successful retirement? So we're talking about things obviously like your essential expenses, like housing and transportation and food. How can you cover those expenses and how can you build income sources that allow you to cover the big basic things? So the first source is going to be Social Security. So Social Security is one of those things, Ryan, that we all know they have been saying for years and years, while Social Security isn't guaranteed, it's going to go away at some point in time. There's always adjustments that they are talking about when it comes to Social Security. And so the big thing that high earners wonder, Ryan, is should we bank on Social Security being there? And is this something that is reliable for someone who say is in their 30s or 40s and still is a couple decades away from retirement.

[B]

This debate has been going on for decades. I can go back the last 20 years. I, I remember people saying, oh, Social Security is not gonna be around in the next 20 years. And here it is. It's still going strong. Now. It's been in the news a lot recently because the Social Security fund is right now scheduled to be depleted in the early 2000-30s. So people take that as, oh, my gosh, Social Security is going away. So it doesn't mean it's going away. The concern is, are benefits gonna have to be reduced now? I would say there is a very, very, very small chance that current retirees are going to have their benefits reduced. I also think there's a small chance that we're going to see it reduced for us. So we do factor it into our plans, we do factor it into our modeling. I do think it's an important component of income that we need to take into account. However, hey, if someone says, I don't want to plan for Social Security, let's plan to not to not include it. And if it is included, all the better. Again, I would say it's going to be around by the time most of us listening are retiring. It's no guarantee. It might be in some sort of reduced form. I think the higher likelihood is that our taxes are probably going to go up to pay for it to make sure that that fund is not depleted and benefits are reduced.

[A]

Completely agree. I think the tax component is the biggest piece of this. And there was just some data that came out that said most retirees, most baby boomers, are voting for higher taxes for the younger generations for them to obvious pay for their Social Security. So there's a lot of stuff going on there, and it's going to be a definite legislation battle when it comes to this. And I think going forward, it just may be reduced like you said. And it's one of those areas where we need to figure out exactly where that floor lands. And so this is why we tell you all the time, even if you're in your 30s or 40s, kind of understanding what your retirement number is and tracking this on a yearly basis allows you to make these micro adjustments if they make a change to Social Security, for example, because if you're banking on this, which a lot of high earners, you can use this as, you know, a nice to have. But if you are banking on this and this is something that you definitely want to make those adjustments going forward, and Social Security can get really complex. This is not something where you're just going to go and say, ah, I'm going to take it at 65 and that's perfect for me. No, this is very situationally dependent and it's going to depend on a number of different factors, which is where your advisor comes into play. Because I think trying to navigate Social Security without an advisor is pretty difficult. Ryan. My parents are in their late 60s right now. Most of their friends either recently retired or just retired. And the number one question they ask me all the time is they come to me and say, when should I take Social Security? And every single time it's going to be one of those situations where you have to say, it depends. You need to talk to someone about your specific situation. Because if one spouse makes way more money throughout the their entire lifetime and one makes less, then it's going to depend on, you know, that's going to be a factor on who takes it and when and those types of things. So this, I think is one of the most important things. And people don't realize how complicated it is when it comes to taking Social Security and when you should take it.

[B]

It's complicated. It can also be meaningful. So we have some clients that we help navigate through this process and they're in their 70s right now. They have assets where they're not necessarily reliant on it. However, Social Security right now is covering their month to month expenses to the point where they don't need to touch any of their other assets. So it can be meaningful.

[A]

Absolutely. And I think that's where most people need to have these conversations. And for those of you who want a deeper dive on any of these topics, we will have full episodes on each of these topics. So make sure you subscribe to this podcast if you haven't done so already. Now the next one is pensions. Pensions, by far, especially if you get guaranteed lifetime income, are one of the best sources of retirement income that you can ever have. If we were ranking this on a ranking board, this would be S tier for me. It's one of the best sources out there. So, Ryan, would you have someone stay at a job longer if they had a pension in place and that pension was going to vest or they're going to get those full benefits of that pension, if it was going to be over the course of say, the next five years, would you have them stay longer? Is this worth it? That much?

[B]

Yes, full stop. Pensions are a massive, massive benefit for people. And if you can maximize that benefit, the what it does for you in retirement is truly extraordinary in terms of providing that income floor that we're talking about today. So we have a number of clients who have maximized their pensions and when they hit retirement, it's to the point where they're no longer talking or worrying about meeting the day to day expenses. They're now talking about legacy planning. And these are also people who didn't necessarily make a lot of money in their careers. So that delayed gratification, they are certainly experiencing that now. I've been doing this for over 20 years now. I have yet to come across a person who says, I regret working for an extra year or two to maximize those benefits.

[A]

That's where I think most people need to realize, hey, if it's a short term, you know, sacrifice that you have to make, but you're going to get some guaranteed income, or if it's something like it increases 8 or 10 or 12%, that's a big deal long term. And you can look at the compound difference between that amount and it's going to be a big deal for sure.

[B]

I also think it's important not just for retirees, but for younger people listening to this who are choosing a career path. You know, maybe you're in your mid-30s and you're choosing between jobs. This is important question to ask or important important consider. So it could mean potentially making less money to go into a job or a career with a pension. However, if you have that pension, the value of that pension is something that a lot of people don't appreciate today, but you will appreciate in the future. And it's something that we can help quantify what that benefit actually means today.

[A]

It's funny that you say that because I have a friend, for example, who worked at one of the big pharmacies across the country and was an executive at one of those pharmacies and actually took a demotion to move over to a big company, Johnson, and Johnson moved over there for a position that had a guaranteed pension in place. And I thought that was such an interesting move. But he realized and ran the numbers and did the math and it told him basically, hey, you'd be much better off in retirement if you actually made this move, got this guaranteed pension, made less money, also took that demotion, but it worked out in his favor for exactly what his plans were in retirement. So I thought that was just an interesting example of someone who made a reverse move in order to get that guaranteed pension.

[B]

Yeah, absolutely. I've seen people move into jobs in their 30s to get a Pension, they make less money, but then they get into their mid-50s and they fully vested their pension, so they're going to get the full benefits, but then they're in their 50s and they're like, hey, I want to try a new career. Knowing that you have that floor in place, it can just, again, open up so many possibilities. So, again, this is something when you're considering a career and a pension is in place, it very well could warrant taking less income. And today, for this incredible benefit.

[A]

Absolutely. And for those of you out there who, you know have been in the past, maybe in the military or something else, you can get those guaranteed pensions in place, and then you can have a second career between age 40 to age 60. So it's a really cool way to start that income floor. You don't have to worry as much about money because you have that floor in place. And so this removes stress and anxiety from your life, which I think is so incredibly important. And the reason why we do all this stuff is to try to make sure that we have this floor in place. Now, let's get a little controversial. Ryan. The next one I want to talk through is annuities. Now, there are two camps when it comes to annuities. There are people who say you should never, ever have an annuity. And you and I have talked about this in the past, where annuities are sold the wrong way to the wrong people in many situations. But there are also people in the camp who say, well, it's going to depend on someone's situation. And so annuities can be beneficial for some people. Where do you fall on this?

[B]

All right, so let me take one big step back and just look at it from a different lens. So when you think about annuities, these are sold by insurance companies. When you think about who is one of the greatest investors that's ever existed,

[A]

who comes to mind, my favorite is Warren Buffett, by far.

[B]

Warren Buffett. What is Warren Buffett's single best investment? In my opinion, the single best investment was Geico, was an insurance company. Why was Geico such a valuable investment for Warren Buffett? Because people pay the premiums. He gets the cash today, and then he gets to deploy that cash. And Warren Buffett has kind of figured out that if we can have that cash today and we can invest it and we can earn a higher return than we're paying out, that's a massive tailwind for Berkshire Hathaway. So when I think about, do I want to be on the same side as Warren Buffett? Or do I want to be on the opposite side of Warren Buffett? I want to be on the same side of Warren Buffett. And if you buy an annuity, you're effectively on the opposite side of Warren Buffett.

[A]

Why?

[B]

Because you're paying into premiums to get a guaranteed return in the future. But that insurance company on the other side of it is able to invest that money, the money that you're giving them, earn a higher return and ultimately pay you out less. So that's why, at a very fundamental level, I don't like annuities, because again, I don't like the fact that you're giving your money today to another entity to earn more and pay you out less. Okay, but where could it potentially play a role in someone's financial life? Well, if you're somebody where you're like, I get that, but you know what, I just like the guarantee and I cannot see the volatility on a day to day base I can't experience. I'm going to sell out, I'm going to put my money in cash. Well, then maybe it could make sense. Even though you're getting an inferior return over time, it could make sense to turn it over to an insurance company and to get the guaranteed payouts. But overall, I would say that annuities, every time I've gone through the math, it typically is not in someone's favor.

[A]

It definitely is not. If you, if you look at this mathematically, this is one of those areas where this is going to be more so a psychology decision in math. And it's a fear based decision because annuities are still an insurance product. And I think most people need to realize this. I think they think this is an investment product, this is an insurance product. And because of that, an insurance product really is never the best investment. We've talked about this with life insurance or anything else along those lines we need to think through. If this is something that you want to do going forward, you need to understand the trade offs. And there are multiple trade offs when it comes to annuities. You're locking that money up. If something were to ever happen to you, that money is going to disappear. I mean, there's a lot of different things that you need to understand when it comes to this. But if you absolutely want that guaranteed floor, and that guaranteed floor is going to make you feel better, I guess it is something that you can consider or look deeper into. But you just got to understand the math. And this is the reason why the trade off also is that you could just have someone in your corner, like a nerd wallet wealth partners advisor who can help you through this process and help you through your portfolio portfolio so you know how much you can draw down and pull. They can relieve that stress and anxiety so that you don't have to rely on a product that just locks up all of your money and you don't have the ability to pull it out. And so that's part of the conversation that we wanted to have with these is just because I know for some people they feel better, just haven't get guaranteed income and that guaranteed income sitting there. But in reality you got to run the numbers on these products. Otherwise you could be getting yourself in a situation that you don't want to be in.

[B]

Most of our younger clients are contributing on a monthly or quarterly basis to their investment portfolio, which in a sense like we're creating an annuity for them. But instead of having an insurance company in place that's going to eat up those returns, you get to keep all of that upside for yourself.

[A]

Absolutely. I think that's the, that that's the big key that most people need to understand is you can create your own fund, your own annuity that allows you to have that income coming in. So that's powerful for sure. The fourth one is part time work. And I love this one, Ryan, because I think this is a very, very interesting thing for people to consider. Most people don't consider this when they retire because they feel as though I've been working for 40 years or 30 years and I just don' want to be working for the first couple of years. But then they realize pretty quickly, I don't know what I'm going to do with my time. I feel like I'm a little bit bored. I've traveled a little bit and I've spent some time doing the things I thought I wanted to do. And now I really have all this extra time on hand. Maybe I should go out and get some, do some work or some part time work somewhere. And I think this is a really cool thing for people to do, especially if they have hobbies. For example, I used to own a couple of pickleball facilities, Ryan, and we would have people come in who really enjoyed playing pickleball and that was one of their most favorite things to do. And I said to them, hey, you're really good at pickleball. You're really good at dealing with people. Do you want to come become a part time coach? And these be folks who recently retired, either in their late 50s, they were in their early 60s and they looked at this and said, actually I do want to do this. And this allowed them to have part time income. And this was like at 40 or $50 per hour where they were able to supplement some of their retirement and do do more because of this. One, it keeps you busy. Two, it allows your brain to continue working. And there have been numerous studies that show that you can, you know, fight against dementia. By continuing to work, you can really improve longevity, your health span and your lifespan. So there are some really cool things when it comes to part time or continued work. What do you think about this?

[B]

Oh, I, I love it. I have a client of mine who is retired, who's financially comfortable, who works at a golf course and he gets free golf at the golf course. He likes being in the environment, he has friends there. It's something where it keeps him going. He can pick and choose his hours. So he's not working every single day, but it's something that keeps him engaged. I have a client who works at a theater and you know, she loves plays, she loves musicals and she loves just being in that environment. So she's a part time usher at a local theater. I have another client who works at a pottery shop. I have another client who works part time at a university choosing her own hours. So, so this is something where a, there's money coming in but it keeps you engaged, it keeps you in a community. But I think that the important nuances for a lot of these clients who have part time jobs, they get to pick and choose when they want to work. And that's the power of financial independence and it's the power of a lot of these other income streams they have coming in is they don't need it, they're choosing to do it.

[A]

And I think that's the most powerful step because if you need it then it becomes stressful, it becomes this, this point of stress. But if you don't need it, then it's just something that allows you to do some of the things that you love and I think that's really, really cool. Some other examples, I know people are tour guides or they're fishing captains or they have the ability to kind of do some, some super interesting things. My wife goes to Pilates every single day and one of her Pilates instructor is a retiree who just does it part time. So I think it's really cool to kind of see some of this stuff and some of the ways that you can think about this, if you can think through, okay, well what are some of the things that I love to do and how can I make a little bit of money doing that? I think that's a really great way to stay busy, stay active and make it stress free. Don't make it something where you feel as though you can't take a trip or vacation that you want to do just because you have this part time job. No, make it to something where it's flexible and allows you to do some really cool stuff. Also, one added benefit that you could look into is if you can find a job that also will provide things like health insurance. Man, that is a huge saver, especially if you are retiring early in your 50s. That is a huge saver right before Medicare. So I think that's another cool thing that you could do when you start to think about some of this stuff. The last one I want to talk through with Bucket one is cash flowing assets. So this is going to be things like real estate or owning a piece of a small business or things that are going to allow you to produce some cash flow so that you can also have some of this income floor. Ryan, what do you think about cash flowing assets and do you have any clients who you know are, are looking into this or that they invest in things like this?

[B]

I think it depends. I think every cash flowing asset is different. You know, I say this all the time. You know, one thing that's like nails on a chalkboard for me is the term passive income. These are not passive income strategies, these are side jobs. So it's in a way sort of like a part time job. But they can, they can be, they can be great ways to support income. It's not as, you know, quote unquote guaranteed as Social Security or a pension. So again, even if you own a rental property, you know, there still could be variability in terms of that income coming in on a month to month basis. But, but overall, again these are, these are great ways to have income coming in, in retirement. There is a. But these income strategies take a while to build up. And I will say the journey from going from your first rental property to having a portfolio of rental properties that's paying you an attractive income, that could be a 20 year journey. So the mistake that I see people make is they start in their 30s thinking that a rental property is going to make them rich or allow them to retire in the next two years and then they're very disappointed that hey, this isn't passive, it requires work, it requires energy. And by the way, this is a 20 year journey to get to the point where this is paying me an income stream that that is somewhat reasonable. So I will caution, I think people can do the same thing with, with the stock markets. And I think people can do the same thing with potentially dividend paying strategies that are truly passive. So I just want to again have that one, that one point of caution that it does take time, it does take energy, There could be more efficient ways to do it.

[A]

So I have owned multiple rental properties, dozens of rental properties in the past. I have bought and sold multiple businesses as well. And I will tell everybody out there, if you feel as though you're getting, you know, you're looking at this and thinking it is an amazing way to just build wealth. And it's going to be so easy and it's going to be so passive. It is, is absolutely not. It takes a ton of work when you are looking at some of these cash flowing assets. And so it is not even remotely passive. You have to spend a lot of time doing this. Even if you get a property manager or you get a manager in place for some of your business, you are still going to have to manage those managers, which takes time, it takes energy, it takes some of your thought process. And so if you are looking to have a retirement where you don't have to worry as much about some of these things, then this may not be the option for you. But for some of you out there who are trying to, you know, take some of your additional income that you are making and you want to put it into cash flowing assets, it can be a great option if you are built that way. If you want to continue to stay busy, if you want to continue to work on some of these projects, then you can look further into it. But again, it is by no means passive whatsoever. And so you need to understand that going into it, I think there's way too many gurus out there on social media or wherever else that make it seem like it's passive. No, it is way more work. Even if you have one or two rental properties, properties, if a tenant leaves, it takes you some time, you got to go through a bunch of different tenants just to make sure you can find the right one to place in that property. I can tell you it takes like a month, a month and a half just to place the right person, especially if you have the right parameters in place. So some of these businesses or some of these real estate strategies that seem simple are not as simple as most people make them out to be. So I just want to put point that word of Caution out for people. Again, the market is way more passive than a lot of these other options. And so that's, that's something to definitely consider. Now that's bucket one is to try to cover some of those baseline expenses. But bucket two is portfolio income. And listeners that have been here for, for a while know that Ryan and I love portfolio income. This is something that is a big part of, you know, our own strategies. A lot of the, the clients at NerdWallet Wealth Partners, they are working through portfolio income strategies as well. And there are three different types of buckets that make up this strategy. Ryan, I'm going to. First, I want to talk through taxable brokerage accounts. Now, you and I both love taxable brokerage accounts, especially for people who are looking at retiring early. But really anybody out there, because it has so many different benefits when it comes to, you know, flexibility and the ability to not have any contribution limits, especially for high earners, those contribution limits can get in your way. But what do you love about taxable brokerage accounts when it comes to having the ability to kind of fund your lifestyle or even do more above and beyond than just your baseline or floor income?

[B]

Yeah, I mean, I've said this many times. You know, taxable brokerage account is one of the most underrated accounts out there. And the thing I love about it is the flexibility of it in that if you get to the point where you reach financial independence in your early 50s, let's say you work at a job where you have a pension and you have a really attractive income floor starting in your early 50s and you have a taxable brokerage account. Well, you, you can really enjoy early retirement because you have an income source coming in and you're able to pull money from a taxable brokerage account whenever you want. As opposed to some of these retirement accounts where you are faced with a penalty if you pull money out before the age of 59 and a half. So you could say, okay, well, but when I pull money out, isn't that taxable? Well, yes and no. So dividends are taxable, but they do come with more favorable tax treatments. But also if you sell and you realize a capital gain that is taxed at a much lower rate than ordinary income, you can also do something called tax loss harvesting where you can take losses in the portfolio to offset future gains. So it's a very tax efficient way for someone to get access to their savings, to their capital when they reach early retirement. So I love it because it's tax efficient and it provides A lot of flexibility.

[A]

And that's where the key is, is that flexibility and the tax efficiency. Where I used to be the person that was like, now just retirement accounts, stuff them, fill them up as much as you possibly can, that's the way to go. But no, the taxable is an amazing account and something that I think we really, really need to consider next is tax deferred accounts. Now, anybody who hasn't heard our episode on the youe Next Dollar Blueprint, I would highly recommend you check out that episode and we will also link it down below in the show notes so that can you, you can check out our free guide on the your Next Dollar Blueprint. But we have tax deferred accounts pretty high up in our order. When we think about how we want to allocate our next dollar. And the reason for this is because the tax efficiency. So these are going to be the accounts like your 401k, your traditional IRA, your 403b, your 457, depending on whatever your job is. And so these are some really great accounts that you can utilize for some of this tax efficiency. So Ryan, when should somebody consider some of these tax deferred accounts? And is this something that, you know, a lot of people should be doing upfront?

[B]

Okay, so the tax deferred accounts are also a very important tool as it relates to building wealth, especially for people who are high earners today. So if you're in your 30s and a high earner, when you contribute to a traditional 401k, you get the benefit of a tax deduction today. And especially if you live in a high income state like New York or California or Illinois, you get the benefit of a federal tax deduction, but also a state and city tax deduction. In addition, that money grows tax deferred. So you're not paying money on any sort of capital gains or dividends that are accruing in the accounts. But here's the challenge. The challenge is in the future, when you take money out, that's when you are taxed on it. So you can find yourself in a position where you accumulate an enormous amount of money in these tax deferred accounts. And then all of a sudden you're staring at a pretty big tax liability in the future. Now, there are some ways to minimize that tax liability, going through Roth conversions, etc. But again, when just talking about the tax deferred accounts, they are a great tool, especially for high earners. But you do have to be aware of, you know, some of the tax considerations that come down the line.

[A]

And for those out there, as a reminder, we want you to, you know, focus on first increasing your income. But then we want you to start to get those matches right off the bat in step two. And then step three is we're going back to the traditional 401k or your traditional IRA. And that's going to be the area where we really want you to get that tax efficient upfront, especially for high earners. Again, I want everybody to remember, if you are a high earner, the order that you need to think about your money is very different from other people out there. You don't need to listen to like traditional financial gurus out there who are telling you, hey, make sure you just do a couple of these different steps. No, you have a very different financial situation. And so that's why the, your next dollar blueprint is so important. Now the last one we have is the tax free accounts. And so these are going to be things like the Roth 401Ks, the Roth IRAs. And these are great accounts because of that tax free growth. Ryan, I know this is something that you and I have talked about a lot in the past too, but why are these accounts powerful and are they over emphasized in some situations?

[B]

So yeah, they're very powerful. And I am a big fan of the Roth IRA as well as the Roth 401K. And for people who can do the mega backdoor Roth, these are great strategies. And again, it goes back to you get the tax free growth and then when you take money on the future, you're not taxed on it. These can also be amazing estate planning tools as well in that if your kids inherit your Roth ira, when they take it out, they're not taxed on it. So again, huge fans of the Roth IRA, the Roth 401K and the Mega backdoor Roth. Okay, where do I think they're potentially oversold? So number one is, you know, I always say a Roth IRA is not going to make you rich. A Roth IRA is a great tool, but doing the Roth IRA alone I think will allele a lot of people very disappointed. It needs to come with other strategies. So I have seen it where people think that, hey, as long as I do a Roth ira, I'm set. You're far from set from doing just a Roth ira. There's a lot more that you need to be doing at the same time. And this is almost more of kind of one of those kind of the emotional or psychological pieces of money. I've seen people where they've stuffed everything in their Roth IRA or Roth 401k and they are now at the point where they are retired. Now here's where the challenge is. So for people who are financially independent, let's say again, you have a pension, let's say you have the Social Security, let's say you have enough income floors and then you have all your money in a Roth. I've seen people where they've been like, well, wait a second, my kids are going to be able to inherit this. They're not going to have to pay taxes on it. I want to leave this for them. And I think that's great and that's very noble. However, it could come at the expense of living your life today. So I will say I've had so many conversations with people before where they're like, I kind of like that I have a traditional IRA because I have to do the required minimum distributions. And there's almost a forcing function that makes them spend. So in a weird way, like, yes, with their traditional 401k, you're going to pay taxes when you take money out, but it could actually lead to a happier retirement because you might end up spending more money and you'd be able to experience those life experiences that you wouldn't otherwise because you'd be too afraid to take money out of this amazing tax free vehicle.

[A]

The reason why we build wealth, the reason why we do all of this is so that you can enjoy your life, so that you can have the ability to take these dollars and put them towards the things that you actually value. And if you just hoard them in an account and you know, just have them in this place where you never really spend down some of those dollars. It is one of the greatest tragedies in my mind that a lot of people do because you're working all these extra hours and if you're slaving away at all these extra hours where you really don't want to be doing that job and then you don't spend that money, what was it all for? What was the reason why you did all this? And this is why it's so important to have a financial plan in place so that you can prioritize what your North Star is, some of the things that you actually want to be doing.

[B]

That's right, that's right. And, and again, I would also say too, and every family is different, but a lot of the kids of our clients who are retired, so you know, people are in their 30s, 40s, you know, early 50s, they want their parents to spend the money. They don't want them to hoard all of these accounts for their inheritance. They're just like saying mom and dad, like, go live your life like we're fine. So again, it's just like a really important thing to note. While I do think the Roth is an amazing vehicle for building wealth and again, there's a lot of tax advantages. Like it could create some hoarding mentality.

[A]

Absolutely. I think that's, that's a key. So think about this as you start to plan out some of these retirement income sources because this is going to be something where if you struggle spending money, this is something to definitely think through as we go through this.

[B]

So.

[A]

All right, Ryan, so now we're going to dive into a couple of six figure debates. Now these are a couple of things that have come up on a recent study done by Vanguard that I think are super interesting. And the goal with this is to give and spark ideas for the listeners in terms of ways that they can save six figures when it comes to some of these retirement income sources. So the first one I think is pretty interesting and it's right in line with what we just talked about. It's the order to pull from some of these retirement accounts. Let's say if you have all three of them, let's say you have tax deferred accounts, things like, you know, your traditional 401k and your traditional IRA. Let's say you have your tax free accounts and you have your taxable accounts. Well, the interesting thing about this is that Vanguard came up with a study looking at all the different data on when you should pull from these accounts. And what they said was to spend from your taxable accounts first, then your tax deferred accounts like your traditional 401k and your IRA and then save your Roth accounts for last. First thing, Ryan, is I want to see what you think about that.

[B]

So at a very high level, I agree with that and I think for most people that order makes a lot of sense. But there's a but. And the but is if you are somebody where you have a very low basis in your taxable accounts. So what I mean by that is you bought ETFs or stocks years ago and you have a pretty big embedded gain. There's a chance that if you're looking at this money from a multi generational standpoint, that that is actually better off not to spend and to have your kids inherit that money and actually spend your tax deferred accounts first. So I actually have a family where we're going through this right now, where it actually makes a lot more sense for the parents who are very, very, very financially comfortable and they've done very well with their investments over time, but it actually makes more sense for them to spend money out of their tax deferred account, get that depleted as fast as possible for two reasons. If it continues to grow, their required minimum distributions when they reach the age of 73 are going to be so significant that they're going to be paying a lot of taxes in their 70s and 80s at the same time, if those accounts grow to be too big, the IRA accounts, if they grow to be too big and their kids inherit it, when their kids inherit it, they have to take those funds out over 10 years and that's taxable money. Whereas if they inherit the taxable accounts, the kids get what's called a step up in basis. So they're able to sell the entire portfolio then and pay zero taxes on that. So again, there are some cases where it actually does make sense to spend the tax deferred accounts first. But you have to look at it more from a multi generational lens.

[A]

And I love this, this is a great perspective on why it matters, what your goals are, because your goals are going to dictate how you have to think about some of this stuff and how you have to dive deeper into the way you want to pull from these accounts. Because really, if you look at Vanguard's analysis, the analysis they did was if you're going to try to spend this money down throughout your entire lifetime, but if your situation is different and you want to, you know, hand that money down to your heirs, it's going to be a very different way that you want to pull from these accounts. Now here's the interesting stat that that Vanguard came out with this, Ryan, was if you followed that order that they just talked about and you decided you want to spend this down throughout your entire lifetime, the, the payoff that they came up with was if you followed, hey, taxable, then tax deferred and then tax free, this could cut cumulative taxes by about 14% by age 100. So if you live to age 100, it would cut it about 14%. Which the amazing thing about this is most high earners out there, if you built up this portfolio and you have a multimillion dollar portfolio, this is going to save you hundreds of thousands, if not even millions of dollars, depending on how big your portfolio is by just understanding the order of operation. But the reverse is also true if you want to hand this money down to your Heirs, you could be saving, you know, hundreds of thousands of dollars for your heirs just by understanding the order to do this. And this is why your goals are so incredibly important, because this is going to tell you and dictate what you actually do with your money and which accounts to pull from. If you just pull from them willy nilly, you could end up with a much larger tax bill than you anticipated. It is a six figure decision to understand some of this stuff.

[B]

That's right. That's right. And there's a lot of nuances in stake. And really the question is, what do you want to accomplish with this money?

[A]

Money, Exactly. I think that's the big, the big key overall. So number two is the tax bomb that's hidden inside of your 401k. So one big thing that a lot of high earners are considering is looking through things like Roth conversions. Now, if you do Roth conversions at the wrong time, you could end up with a tax bill much larger than you ever anticipated. And if you do it in the wrong years and your timing is off, it could be a major financial mishap. And so what we want to make sure that you do is do them in the right year. So Vanguard looked at this and they said, hey, when is the best time to do some of these Roth conversions? And they found a people early on in retirement when their income is lowest. That's when they do their Roth conversions all the way up to the timeframe when they have to start taking RMDs. What do you think about this, Ryan? And is this something that you all do?

[B]

So the answer is yes, but once again, it depends. Look, I will say that we want to minimize people's tax burden over time, full stop. However, we also don't want to let the tax tail wag the dog. And I will say that the phrasing of the tax bomb quote unquote is like nails on the chalkboard for me. I feel like it creates this fear and this anxiety over traditional IRAs or tax deferred accounts where it's like, this is a good thing. So I was reading an article recently where someone had accumulated $8 million in a retirement account, so now they didn't do Roth conversions. So, you know, they're at 73 years old at $8 million in a tax deferred account, and now they're, they're required to take some of that out. And their opinion was that it wasn't worth it because of the taxes they're going to have to pay. And I just, I wanted to like scream into a pillow. Right. It's like you have $8 million you're required to take out, call it 400, 500,000 or so. That's a good thing. It's a good thing to have $500,000 of income in retirement.

[A]

Yes.

[B]

You're going to pay taxes on this? Yes. All else being equal, it probably would have been better to do, to have done some Roth conversions from the age of 60 to 73. But you know what? This is not a catastrophe. This is not a. None of this was worth, just could have been optimized in a much better way. So like I will say, like, it does get very frustrating to me when people again think that they're screwed because they have this big tax deferred account that they have to start taking money from Again. If you have six figures of additional income in retirement from a tax deferred account, that's not a bad thing.

[A]

Absolutely. And I think it comes down to planning. Because if you have the plan in place and you already know this ahead of time, it's the perfect storm where you can also just be able to enjoy your money, but in addition also save on these tax dollars. But in reality, if you don't do this the right way, then you look at some of that six figure differential. But I love that you brought that up because I think this is one of those things. If you make money decisions based on taxes. Like I know people who will move across the country, for example, to a place they really don't want to be for tax reasons, or they'll move to Puerto Rico where they have zero income tax just because they want to save money on taxes. I think that is one of the most ridiculous things that you can do when it comes to your money. Your money is a tool. It's a tool to get what you want out of life. And if you don't use it as such, then you are doing this the wrong way. Your money psychology needs to have a complete flip because this is in reality what money is there to do. It's there to serve you. And that's what I want most people to realize.

[B]

Here's an interesting fact pattern. So I know somebody who is 63 years old, they work their entire life, they have a really attractive pension, they have a tax deferred retirement account and they're now taking Social Security. So I talked to them about, hey, the Social Security, like if you delay it, you will maximize your benefits if you wait to the age of 70. And he told me, yeah, but you know what? I can mountain bike right now and my wife can mountain bike right now. And we really like to travel and we really like doing mountain biking adventures. And you know what? I'm worried that I won't be able to do it in my 70s. So that additional Social Security income that we have coming in right now allows us to be able to live our life to the fullest today. So then I say, hey, by the way, it also makes it harder for these Roth conversions because you have this pension income, then you have the Social Security income, and you start kind of dipping into this category of like the Roth conversions actually kind of don't make sense. And you know what he said to me? I don't care. And I showed him the numbers. I showed him how much more he's going to pay in taxes over time. And he said, I get it. This is a really important decade in my life and I'm going to live it to the fullest today. And you know what? I'm all for it.

[A]

That's the way to think about it is even if it's not the most optimized decision, optimization can crush you when it comes to maximizing life value when it comes to some of this stuff. So please, please, please think through your goals and understand exactly what you want to be doing there. The third one is talking through, is your house a retirement asset? Now, the big question here, Ryan, is kind of thinking through your house in a number of different ways. One is you can utilize your house as something where you build up equity over time. Maybe the kids leave and then all of a sudden you decide, okay, I want to downsize. At some point in time, I'm going to use that equity and roll it into, you know, a smaller house. But then I can take that equity and put it in the market or whatever else I want to do to live off some of that income. Okay, fine. But we know long term real estate does not go up forever, so you need to factor in some of that stuff as well. Two is you can obviously borrow against your house. You can get a HELOC or something else along those lines. Lines. But you know, at some point in time you have to pay that back or somebody's going to have to pay that back. And then three is things like a reverse mortgage, which I don't absolutely love. I don't know how you feel about this as well, but I want to talk through this. Is your home a true asset when it comes to retirement, or is it just something that is a lifestyle decision that you made? And if you have some equity in place. That's a nice to have. But in reality it is one of those things that you need to buy a house for lifestyle reasons, not for just financial reasons.

[B]

So I am in the camp of the latter. Look, I think a house is an asset. I think for a lot of people it's a very important asset. But in my opinion it should not be your primary asset as it relates to building wealth and supporting a successful retirement. And the reason being is again, while a home is an asset and homes tend to appreciate over time, the challenge is it's also, to your point, a lifestyle asset and the point where people get really attached to their homes and for good reason. Like it's your home, it's where you raised a family, it is your sanctuary. It's all of these good things that provide a lot of utility to somebody. And the idea that you're gonna reach the age of 70 and all of a sudden you're going to sell it and you're going to move to a state that has a lower cost of living and you're gonna move to a small apartment. Like I've seen people follow that fact pattern before. It can lead to depression, it can lead to feeling a massive sense of loss. It can lead to then people saying, you know what, I'm not leaving my house and, and I'm going to do something where I'm going to have a HELOC or I'm going to do a reverse mortgage and next thing you know, you're in your 70s or 80s and you're in a massive amount of debt and you're creating a problem for your kids. I've seen it all the time. So again, a home is an asset, but home is so much more than an asset. And again, it should not be your primary asset as it relates to planning for retirement because of again the emotion that's tied to it.

[A]

And the reality is if you look at the stats in this country, many people have the majority of their wealth built up in their home. That's not what we really want you to be doing here is we want you to be considering, you know, building up your portfolios or building up your other cash flowing assets and your other income so that you have the ability to retire comfortably, not worrying about tying up all of your money into an asset that you can't really use the funds from. And I think this is really important for most people because once you have this lifestyle, you know, decision in place and you have this home in place, just having the ability to stay there if you want to is really powerful. And the only way that you have those options is to make sure that you rely or look into some of the income sources that we have talked about in this episode today. So I think really important to know, but really, in reality, if you use your home as an asset and think about it as something you're going to be able to pull from in retirement, that's probably not always the best solution for most people out there. Those are some of the retirement income sources that we want you to focus on. Again, we have the two buckets in place where you're thinking about your income floor and how you're going to fund your normal equity everyday expenses. And then we have our bucket two where we're talking about, you know, how do you fund the life that you actually want? That's the goal when it comes to retirement income. And that's how you can have the retirement that you have always, always dreamed of. But it starts now. It starts by thinking about this in your 30s and 40s so that you have the ability to be able to live the life that you want. So that's it for today's episode. We truly appreciate each and every single one of you listening to this episode. I'm not an advisor, but if you want to work with an advisor, just like Ryan, check out the link below to Nerd Wallet Wealth Partners where you can schedule a free consultation with one of our advisors to see if we're the right fit for you. Also, if you're enjoying this podcast, make sure you follow like subscribe and all the different things in order to get every single episode and also leave a five star rating and review. It truly helps us spread this message that we want everyone to understand how they can use money as a tool to build wealth long term. Term. Thank you so much for being here and we will see you on the next episode.