Barry Glassman, CFP

Barry Glassman, CFP®

His vision for starting GWS was to deliver investment strategies and wealth management services typically available at the highest levels of wealth. Today, clients benefit from these sophisticated financial services targeted to meet their unique needs.

Retirement income is not what you were promised! Sure, you understood that retirement wouldn’t be like it was for previous generations, who had pensions and Social Security caring for most of their needs. But, the idea was to build up a large enough portfolio so that you could “live on interest, and not touch the principal.” Unfortunately, that strategy is likely no longer viable for most retirees.

In today’s low interest rate environment, earning safe income is a challenge. In order to achieve the retirement income necessary, retirees will need to dip into principal, take higher risks, or use strategies that look for total return instead of just yield.

For years you planned your savings. Now it’s time to harvest those savings and put together a plan to outlive that nest egg. Now you are in charge of your income, and your advisors are here to help.

Where to start?

As you approach retirement, take inventory of your financial accounts, physical assets, income sources like pensions or annuities, and debt. Make a list of what you own and where you’re receiving income, while analyzing your current spending.

Many retirees aim to keep their spending around pre-retirement levels, but keep in mind as your income sources change in retirement, so will your spending needs. For example, you may no longer have a mortgage or need multiple cars to commute to work, but travel, grandkids, and healthcare expenses could become a significantly larger portion of your budget.

Everyone has different life goals, whether it’s travelling the world, building a family legacy, or giving to charity. These goals are an integral part of how we plan for your income needs.

Organize your cash flow (inflow)

Your income will have fixed and variable sources. Fixed sources include annuity payments, Social Security, or pension income. Variable sources include portfolio withdrawals from your 401(k), IRAs, trusts, or investment accounts, and the projected sale of any personal property.

Start by summing up your fixed sources of income. You may have choice regarding when to begin withdrawals, like you do with Social Security and some pensions. These will be your core income sources that are unlikely to change based the fluctuations of financial markets.

Next, approximate your required minimum distributions (RMDs) from any retirement accounts starting at age 70 ½. The required amount will change as the portfolio grows or shrinks over time, but you’ll have a sense of what minimum income is due from your tax-deferred accounts. See our RMD Guide for details on how to calculate your distributions. Keep in mind, this amount is taxed as income as it’s withdrawn, but you can always reinvest it in a taxable account if you don’t need the money right away.

Next, estimate income that may fluctuate such as real estate income, partnerships, or other illiquid investments. Last, gather information on the net worth of your personal assets that can provide income. This would include savings in non-retirement accounts, Roth IRAs, cash and the like (but not your home or non-income producing assets). Hold off on estimating your income from these sources for now – we’ll get to that in a minute.

Plan your expenses (outflow)

Many people spend hours trying to optimize their portfolio to provide income. Yet, in my experience, far fewer retirees know where the money goes or plan how they want spend it. This is a crucial first step and it is easier than ever, given tools at your fingertips.

Your credit card statement is a great place to start. Look at your year-end statements to see how much you spent last year.

The next step is to figure out your budget. Kiplinger has a great online budgeting tool, which allows you to estimate how much you’re spending on different categories. If you prefer a more automated approach, a tool like can track your spending for you. Mint also classifies your spending by category and provide visual guides to where your money is going. Through the tool, you can set spending alerts and create saving goals for large purchases.

Many retirement advisors suggest a rule of thumb that you will need about 80% of your pre-retirement income during retirement. I suggest that you ignore this advice; you won’t retire based on averages. Your retirement is unique from your neighbors and coworkers, and you should plan accordingly.

For example, many of our clients actually spend more during their first few years of retirement. Think about what you typically do when you’re not working: you spend. You travel, you see the grandkids, and likely spend more when you’re not busy at the office. In practice, it seems likely that retirees will spend more during their first few years of retirement.

Do the simple math

At this point, you should have a list of fixed income sources and an idea of your spending needs. Now, do the math to figure out the gap: what percentage of your portfolio you need to make up the remainder of your income.

In the financial planning world, we debate constantly about safe withdrawal rates. No one will argue that the lower this percentage, the better.

4% of the portfolio has traditionally been considered a reasonable withdrawal rate for those about to retire. Yet, it seems to be the flexibility of this rate that leads to success in many retirement plans. What do I mean by that? For clients with significant fixed obligations and expensive lifestyles, it becomes a challenge to scale back if necessary.

Those with flexibility can still have large dreams as long as they have smaller obligations. If you maintain flexibility in your plan, it’s easier to keep your withdrawal rate in check, and scale back when times are tough without challenging the integrity of your nest egg. Everyone’s scenario is different, and your advisor can help you structure your income around your specific spending needs and longevity.

Explore the what-if’s

Your financial advisor probably uses some sort of financial planning software, which has come a long way in recent years. It’s now possible to plan around specific scenarios and make decisions based on projected outcomes.

While these types of programs cannot guarantee success, there are huge benefits to going through the process. One of the biggest benefits is showing the impact of simple choices. Working an extra one to three years may have an enormous impact on retirement. We can show a client that they can afford their dream home now if they sell their primary residence in a few years.

Another advantage to this type of software is showing the impact of portfolio risk on your potential retirement success. With a basic straight-line method, the higher the anticipated rate of return, the better the prospects for your money. However, this type of arcane analysis can lead to excessive risk-taking. In reality, a high-risk investment strategy could lead to big declines, forcing you to sell when the market is down just to meet fixed expenses. Newer software often shows that a conservative approach may lead to better outcomes.

There are a variety of solutions out there, but very few of them are free. Vanguard has a simplified version of this type of tool here. Warning: Vanguard doesn’t take taxes, Social Security, scenario planning, variable withdrawals, or various other factors into account, so you should take this projection with a grain of salt.

Prioritize your withdrawals

One item to consider is that different types of investment accounts have different tax treatment. For example, a trust or joint account is fully taxable, so you need to pay tax on income in the year it is earned, while IRAs or 401(k)s are normally tax-deferred, so you only pay tax upon withdrawing the money. Roth IRA withdrawals are completely tax-free as long as certain requirements are met.

A rule of thumb is to take withdrawals first from your taxable accounts, then from tax-deferred (IRA, 401k) accounts, and then from tax-free (Roth) accounts. This maintains tax-deferred status as long as possible and minimizes taxation on ongoing dividends and capital gains.

However, this may not be the best plan if future distributions from your tax-deferred accounts significantly increase your taxable income. In that case, you may want to consider taking distributions while you’re still in a lower tax bracket. Talk to your CPA or financial advisor about how your retirement income will affect your taxation.

Determine when to claim Social Security

Even though Social Security will make up a portion of your fixed income, you may not want to claim it right away. Your earnings record and the timing of when you first claim Social Security benefits both affect the amount you will ultimately receive. Although most individuals are eligible to begin claiming Social Security at age 62, your payments may be reduced by as much as 30% if you claim them before your “full retirement” age, which varies based on when you were born.

After your full retirement age, your Social Security benefit will increase by up to 8% per year for every year you delay taking benefits, up to age 70. If you can afford to defer Social Security income until then, that’s a significant payment increase; however, you also forego income in the meantime, so the deferred payout only becomes worth it if you live past a certain age. For most people, that break-even point in their life expectancy is around age 80-82. If you believe you or your spouse will live beyond that point, it’s likely worth delaying your Social Security benefit. If you’re married, divorced, or widowed, you may be able to claim benefits based on your spouse/ex’s record instead, which may offer greater benefits than your own.

See our Social Security Guide for more details. You can contact the Social Security Administration to obtain a projection of your personal benefits at (800) 772-1213.

Don’t forget about Required Minimum Distributions (RMDs)

The year you reach age 70 ½, most tax-deferred accounts like IRAs and 401(k)s require you to take money out, or face a substantial tax penalty. That’s Uncle Sam’s way of collecting what he’s owed. There are specific deadlines for taking your RMD for the first year. Every year after that, the deadline is December 31st.

The required value of the distribution is based on the December 31st value of your IRA from the previous year. You can withdraw more than this amount, but if you take less, then the tax penalty comes into play.

See our RMD Guide for more details on how to calculate your distributions. Many institutions will calculate your account’s RMD for you.

There are numerous factors that are out of your control – like inflation, market swings, and emergency expenses. Making the most of your retirement savings will require smart strategies, both inside and outside your portfolio. Establishing a spending plan at the outset will help you plan for what’s important to you.

There are numerous factors that are out of your control – like inflation, market swings, and emergency expenses.  Making the most of your retirement savings will require smart strategies, both inside and outside your portfolio.  Establishing a spending plan at the outset will help you plan for what’s important to you.

Do you want to take control of your retirement?


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