Agenda

Foundational Knowledge: 3 Buckets of Wealth
What is Retirement Planning?
An Overview of Three Case Studies
The Importance of a Spending Plan
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3 Buckets [0:38]

All your money can be categorized into 3 Buckets: The Taxable Bucket, The Tax-Deferred Bucket, and the Tax-Free Bucket. John Choi illustrates the differences between each. He starts by explaining the effects of tax before entering the bucket, while it’s growing in the bucket, and withdrawing from the bucket. He also teaches us about the typical accounts you would find in each of the 3 Buckets of Wealth.

The Goal of Retirement Planning [5:38]

Ultimately, your incoming money should match or exceed your outgoing expenses. During your working years, your paychecks come from employment. When you are retired, from where do these retirement paychecks come? Many rely on Social Security, Pension, 401(k), 403(b), IRA, etc. How do you know when you’ve saved enough for retirement?

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Retirement Spending [13:46]

Is there a benefit to delaying my Social Security checks, or should I opt to receive them as soon as I can? In this section, we learn that there are many risk factors in poorly planned retirement spending. How can I optimize my Social Security, Pension, or Retirement Account spending so that it will outlast my lifetime and help build generational wealth? How long will my retirement savings last? Every situation is different. We can address these retirement concerns and help maximize your income and potentially avoid penalties and taxes.

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Video Transcript

Hi, everyone, and welcome to the webinar, “What is Retirement Planning” Here at Epiphany Capital, we've done many, many retirement plans for our clients; maybe hundreds probably not thousands, but hundreds of retirement plans. I just wanted to maybe give you some clarity on exactly what retirement planning is because it seems like there's not a real clear-cut definition of this subject. So, I just wanted to shoot this and share this with you now. Before we begin, we just need to get on the same page on some of the terminology that I want to share with you. I want to first start with what the three tax buckets are. No matter where your money is, no matter how much you have or don't have, from a tax perspective, your money can go in only one of three tax buckets. It's the taxable bucket, the tax deferred bucket, and the tax free bucket. So, the way that money goes into these three different buckets is if you put money into the taxable bucket you actually have to pay the tax and then it can go into your taxable bucket. Tax deferred buckets are actually pre-tax. You actually get a tax deduction for putting money into the tax deferred bucket. The tax-free bucket is kind of like your taxable bucket when you're putting money in because you have to use after-tax dollars to put money into the tax-free bucket. Now when it's growing, and when you're taking it out, there's three different and distinct set of rules for these three buckets. So let's hit the taxable bucket first. In your taxable bucket, while it's growing, you are being taxed on it every year for the interest and the dividends that are coming out, or being paid to you in that taxable bucket. So at the end ofthe year, if you earn any interest or dividends, you'll generally get something called a 1099. That just says this is how much you've earned in interest or dividends. You've got to pay the tax on that every single year. When you sell a stock, let's say, you had bought Apple stock for 100, and then you sold it for 150 that 50 is going to be taxable at either ordinary income rates or capital gains rates depending on how long you've held it. So, again, that is an ongoing tax situation in your taxable bucket. In your tax deferred bucket, you are going to, again, use before-tax dollars. If you earn interest or dividends, you're not going to be taxed on that while it's growing. While it's in the tax deferred bucket, you're not going to incur any capital gains when you sell a stock. So that example of Apple, if you sold it for, if you bought it for a hundred and then you sold it for150, that 50 gain is not taxed quite yet. So it is a tax deferred, or what I like to call: a Tax Postponement Bucket. And then your tax-free bucket is after you put the money in and it's growing you do not get a 1099 for your interest and dividends it is not taxable in that year. In fact, it is it's never taxable once once you put it in that bucket as long as you pull it out the right way. The same goes for any gains, again, using our Apple example: if you had bought Apple for a hundred dollars and then you sold it for 150, again, no capital gains whatsoever so long as it's in that tax-free bucket. And then you pull it out the correct way, and that's very important! So what are some of the different accounts that go into each bucket? In the taxable bucket, you might have cash you might have cds money markets savings accounts your brokerage accounts that have stocks bonds mutual funds etc. And then in the tax deferred bucket: these are your government-sponsored plans your 401ks your 403bs your IRAs, things of that nature. And in the tax free bucket, some people consider municipal bonds in that bucket uh it's kind of comes with an asterisk because the interest on those municipal bonds actually count as something called provisional income which could force your social security payments to be taxable so not completely tax free, but you know it's it's kind of a gray area. 529s are also tax-free but the caveat there is that when you pull it out you have to use it for qualified educational expenses. Otherwise, there is a penalty on those dollars. And then your Roth IRA, probably one of my favorite investments out there that is completely and truly tax free. Because, if you pull it out the right way, there is no uh tax while it's growing and there's no tax when you take it out. Certain cash value life insurance policies operate in the same way where again: no tax while it's growing, no tax when you pull it out. Again, I can't stress the importance enough: you gotta pull it out the right way! So before I actually dive into what I want to show you, the process of the actual retirement planning. And this is where we're going to get into the the meat of the presentation so when you're working or during your working years your paycheck is generated by your job. Your employment, right? So let's say you're making uh five thousand dollars a month and then your bills are four thousand dollars a month okay great. Your five thousand dollars coming in after tax. You pay your bills of four thousand dollars and then you've got a thousand dollars left over. Hopefully you're saving that. Not spending all of it, but you know, hopefully you're saving that. Now when you retire, where do your paychecks come from? Because, by definition, when you're retired, you don't have a job anymore, right? So um the idea is that when you no longer have a job, that the money is going to come from one of two sources: the first source is your social security and or pension. These are lifetime guaranteed accounts. You're going to get a paycheck every month into your bank account, and it's like clockwork. Comes in? Great. A lot of times though, those paychecks really don't cover your expenses. So you've got to supplement that with money that you've saved up in your 401k, your IRA, or your money in the taxable bucket, in your brokerage accounts. You've got to pull money out of there so that you can make up the shortfall between what you're bringing in and what you need to pay out. So retirement planning is just basically your paychecks that are coming in from those two sources to the money that you need to live during retirement: whether it be a mortgage, if you still have one, the light bill, property taxes, so on and so forth. So you obviously, you're going to have bills. When you retire, and again, the goal is to match those two up or exceed what's coming in versus what's coming out. The graph that you see on the screen is really a representation of someone's net worth when we're born. We have zero net worth, obviously, the dip below zero, as you'll see maybe in our college years we, we actually owe more than uh what we're worth, right? And we get a job and slowly our net worth goes up and up and up and then hopefully at the height of our uh assets then we can retire. And then we can draw down on those uh to supplement our retirement income. So the first case study that I want to hit is Bob and Sally. And Bob and Sally are retiring in 10 years. And in 10 years, we know that their combined social security is going to be twenty five hundred dollars a month. And also they're fortunate enough to have a combined pension of two thousand dollars a month coming in before taxes. So when we add those two together and we subtract out the taxes we estimate about four thousand dollars a month coming in. Again, after tax that we can use for uh retirement. retirement expenses. um in this case Bob and Sally's outgoing need is only three thousand dollars a month. They got four thousand coming in. They have to spend three thousand dollars and to, to us, that's a success. They don't need to tap into their 401k. They don't need to tap into their IRAs. Of course, until their required minimum distribution required minimum distribution age of 72. They just need to focus on the efficient passing of their wealth down to their kids. So uh what I might suggest in this situation is maybe reposition some of those tax deferred dollars uh in their 401k and their IRA maybe reposition into their tax free bucket. So that they can efficiently, and efficient by efficient, I mean not getting killed in taxes. Efficiently passing their um their, their nest egg and their net worth down to their children. Case study number two is a little bit different. This is Terry and Mary. Again, they are going to retire in 10 years. Similar to case study number one uh their combined social security is 2500 a month. In 10 years they got a pension as well again two thousand dollars a month. You subtract out the taxes you got four thousand dollars coming in guaranteed, after tax that they have available to spend. For their retirement income, the problem in case number two is that Terry and Mary need five thousand dollars a month for their living expenses. So they have a thousand dollar a month shortfall. And they want that shortfall guaranteed, like their social security, like their pension. So they don't have to worry about anything now. With Terry and Mary, they've got 1.2 million dollars saved up. And so what I might suggest is that they take a portion of it, call it uh $200,000. They buy themselves a guaranteed lifetime income annuity. and that's going to generate in 10 years a thousand dollars a month in after tax retirement paychecks so the 4,000 coming in from social security and pension the 1000 coming in from uh their GLIA that that added up is five thousand dollars a month they need five thousand dollars a month so that's great now that leaves a million dollars that they still have which we can just leave undisturbed so that it can grow take advantage of compound interest and hopefully that'll be a lot more in the future and one of the things that I might again suggest is that million dollars that's generally going to be in their tax deferred buckets in their 401ks and their IRAs maybe think about or consider shifting that into their tax-free bucket so that if they have a one-time need they want to buy a vacation home or a boat or whatever sometime in the future after they retire then they can pull it out tax free they don't have to get killed in taxes at that point because we do believe that taxes will be higher in the future now case number three is joe and debbie and again like terry and mary they are looking to retire in 10 years and again like the two previous couples their combined social security is $2,500 a month their combined pension is 2,000. They got four thousand dollars a month coming in after tax problem is that they need ten thousand dollars a month for their living expenses they got a six thousand dollar shortfall and they want that shortfall somewhat guaranteed they don't want it all guaranteed but they want some of it guaranteed and fortunately they've got two million dollars saved up and what I might suggest is they take six hundred thousand dollars buy a guaranteed lifetime income income annuity that would generate three thousand dollars a month in after tax retirement paychecks and so they've got four thousand dollars coming in from social security and pension they've got three thousand dollars coming in from glia so they got seven thousand dollars a month now that's guaranteed to come in but they still have that 3000 right that 3 000 a month shortfall so how do we get that money well uh what i might suggest at that point also is to reposition some of their tax deferred money the money that's in their iras the money that's in their 401ks reposition that into the tax free accounts so that we can pull money out of out of those investments to the tune of three thousand dollars a month to make up for their shortfall and we don't have to worry about future tax hikes so in summary um there is one thing you still need for retirement planning now case study number one as you uh could guess is it requires not a lot of planning but case number two in case number three I think the one thing that they need is something called a structured income plan or a SIP. I call it and you can think of that as a year by year spending plan so the problem that I see with many retirees is that they don't have a plan on where to pull their money from in what year what amount they're just kind of going at it in a willy-nilly way they're they're withdrawing from various tax buckets in the wrong order and that can affect how long your money will last we just call that the withdrawal order risk so the goal in retirement is obviously is to generate the highest retirement paychecks for the lowest amount of taxes and one of the solutions that we would advise or recommend is to have a personalized or customized structured income plan it's going to be your retirement spending guide it's going to show you year by year how much you pull from which retirement accounts and how much and this is what a sample structured income plan looks like you've got your couple over here you got their ages we list out the different accounts tax taxable accounts tax deferred accounts some tax-free accounts we see how much we're pulling out from each account in what year and then we have our sources of income your pensions your social security and we subtract out the taxes and we match up what they need uh to what's coming in so it's a really nice uh piece i think it's a critical piece for you to have and i want to make a very special offer that i've never before offered to anybody and that is i would like to do a structured income plan for you okay completely at no cost completely no obligation so in order to get that it's very simple just go to johnchoi.net that's my website and you'll see that if you use a desktop computer just hit this test drive button right here if you're on your mobile uh and maybe your tablet you have to hit these three lines and then you just hit and then it'll uh pop up another menu and then you hit this test drive right here it'll take you to a another screen where you can just press this button where it says start my test drive and then that will take you to my calendar and just book an appointment it's just a 15 to 30 minute phone call we'll find out if i can help you if you need my help and if you do and you're willing to then i can make up that structured income plan for you i can put one together a basic structured income plan so at least you'll have some clarity on what accounts are coming um actually what accounts that you're pulling money from in what year and uh and in what amount so again please if you're interested in this go to johnchoi.net hit test drive over here on your desktop you got to hit these three buttons on your mobile phone uh and then hit test drive over there and then and then you press this button start my test drive so i hope that clarified a little bit more uh on what retirement planning actually is if you have any questions you can also book a general consultation appointment on my calendar there thank you for watching i hope to talk to you soon and i wish you all the success in your world in your retirement planning take care