Your Retirement How-To Guide

Your Retirement How-To Guide – (0:00)

Tom Challis: Hello, everybody. Excited to be with you here today on this how-to guide webinar. Going to talk about your retirement and get into a real surface-level breakdown of things to be aware of as you are in or preparing for retirement. Before we do get started, I’m going to give everybody maybe another minute or two to join.

Just going to go over some quick housekeeping items. On this webinar with me, we have Jeff Sevy. He’s going to be moderating our chat. So if you have any questions, feel free to send them in that chat.

He can answer them throughout the webinar, and then at the end, we’ll have a little quick Q&A. So let’s go ahead. We’re going to get started here, but before we do, let me share my screen so you can see these slides that we’re going to be going over. So we’ve got some good content today.

I’m excited for all of you to hear this. Before we do get into everything, a few disclosures. Nothing in this presentation is meant to be considered advice. This is all educational and very general in nature.

If you do have specific questions, feel free to reach out to us. I, myself, or one of the advisors here are more than happy to answer any specific questions about your situation. Also, there is going to be a survey at the end. I would love it if you’d fill that out.

Gives me some great input on ways I can improve and can give us some input on some future webinars that you may be interested in. So let’s go ahead and get started. I do want to introduce myself a little bit. My name is Tom Challis.

I’m an associate advisor here at Peterson Wealth Advisors. I graduated from Utah Valley University, and I studied personal financial planning. Here, you will see a picture of me. I’m right here in the back.

I’m six-foot-eight. My family says that’s why they put me in the back. I think it’s due to my looks, but we’re not going to get too far into that right now. We’re going to stay focused on this financial planning and retirement guide for you.

So real quick, just a little bit more about me. I really enjoy the outdoors. If I’m not here at work, you can catch me hiking, backpacking, skiing. Living in Utah, such a great place, so blessed with the great nature, so many national parks here.

So if you have any cool spots, any secret lakes, or great trails, please let me know. I’m always looking for new places to try and new places to explore. But that’s enough about me. Let’s go ahead and let’s get started.

So here’s what we’re going to be covering in the next 30 minutes. First, we’re going to talk about how much do you actually need in retirement?

We’re going to help build a spending plan for you there. After that, we’ll dive into Social Security, how to apply for Social Security. We’ll touch briefly on Medicare and taxes, and then we’re going to wrap up with how to create a sustainable paycheck throughout your retirement. As I mentioned before, if any of these topics you have specific questions on, feel free to type that in the chat.

Jeff will answer those for you, or you’re more than welcome to schedule a consultation with myself or one of the advisors here.

What Do You Actually Need? – (3:23)

So getting into things, the first question, what do you actually need in retirement? So many times when I’m meeting with clients or meeting with prospects, they’ll ask the question, “How much money do I need?” Or they’ll ask, “I have X amount of dollars. Is this enough for a comfortable retirement?” Those can be great questions, but if we’re able to switch our narrative a little bit, and instead of asking, “Do I have enough?” Maybe we ask the question, “What will I spend each month?” Or we ask, “Where is my income coming from?” And we take into mind questions like, what if I live past 95? What about my spouse if I pass away first?

By asking these questions, we’re able to start the framework of creating a paycheck and not just a retirement portfolio. This is the first step in creating a genuine, true retirement income plan that is set specifically for you and your situation. So how do we determine what we’ll spend each month?

In retirement, I like to think of the expenses being broken down into three main categories. So first here, we’ll see essentials. These essentials, it’s just the bare bones of what you’ll be spending in retirement. It’s going to include things like your house payment, property taxes, food, utilities, transportation, insurance.

Those expenses that whether you’re going to Hawaii or whether you’re staying home, these are the expenses you’re going to have to be paying regardless of your lifestyle. And then that leads us into this second bucket, which is lifestyle, travel, hobbies. This is very different depending on the retiree, how much they’ll be spending in this bucket. For example, as I mentioned before, I’m the youngest of seven, come from a very big family, and I see my parents spend a lot of money on grandchildren.

Some people may spend a lot of money on trips, whatever it may be. This lifestyle bucket is something we want to make sure we’re planning on. For me personally, ski passes get very expensive. If you’re a skier, we want to make sure we can budget for that ski pass for you each year.

And then this last bucket, this is late life and those one-time purchases. This bucket is very easy to forget about. They’re irregular payments. They’re going to come and go, harder to plan for.

That doesn’t mean we shouldn’t be budgeting for them. These include expenses such as long-term care. Maybe you need a new roof. Maybe a child or a grandchild has some financial support needs that you want to help them with.

While these are irregular, we do want to make sure we’re planning for these. So now that we have a rough idea of what those expenses are going to look like, we need to see where our income is going to be coming from. So first, we’re going to start with Social Security. You can find your Social Security benefit by logging into ssa.gov.

Now, Social Security may have sent you an old statement in the past. What we want to do is make sure that you have the most up-to-date Social Security estimate from the Social Security Administration. The reason is, the better the information we have, the better decision we can make. So once we get that estimate on what our Social Security benefit will be, we’re going to look at pensions and annuities.

Maybe your old employer had a pension plan, maybe you purchased an annuity before. We’re going to want to look into these, see what those payout options are, see what that survivor percentage is, and whether these are adjusting for inflation. All of this information is going to be very important as we’re putting together an income plan for you.

And then our third thing we want to look at is retirement accounts, 401ks, 403 s, IRAs, Roth IRAs, and taxable accounts we’ve saved on the side. We want to make sure also that we’re finding all of these accounts. Just a couple of months ago, I was meeting with a client. We were able to find an old 401k for them. They thought it maybe had $10,000 to $15,000. It ended up having somewhere around $200,000 to $250,000. So we want to make sure we’re looking at old employer 401ks, just tallying up all of those accounts and likely consolidating them into one account for ease.

And then last, we want to look at every other income source. Maybe you have some part-time work you plan on doing in retirement. Maybe there’s some rental income or a sale of a business. Maybe it’s even inheritance. Regardless of what that other income is, we want to make sure we have an idea of what that income could be and where it’s coming from. So now that we have an idea of what we’re spending, we need to find what is called your income gap.

So in this scenario, we have a household who plans on spending $78,000 a year. Their guaranteed income of Social Security and a pension adds up to $52,000. Now, it’s really easy to see there’s this $26,000 gap between their expenses and what their guaranteed income is going to be.

This $26,000 gap, and closing it, is your portfolio’s entire job. You want to make sure that your portfolio is set up to be able to provide a consistent income stream, adjusted for inflation, to cover this gap. Now, if your portfolio is not able to cover this gap, there are some strategies you can employ to reduce this.

The biggest one is going to be delaying retirement. That often is not what people want to hear, but it is very beneficial in reducing this gap. And then we can look at other situations as well. Maybe it makes sense to delay Social Security. But essentially what we need to do is make sure that we are filling this gap with that portfolio.

So that raises the question, how much money do I need to fill that gap? Here I’ve got three rules of thumb for you. Now, each of these are a rule of thumb. They don’t know your specific situation, they don’t know your Social Security strategy, or your family history of longevity. What they will do is give you a quick ballpark number of if you’re on track for your retirement. This first one I want to go over is multiplying your income gap by 25. So if we look at that last situation, that income gap was $26,000.

If we were to multiply that by 25, it would suggest that you need roughly $650,000 at the beginning of your retirement to cover that income gap throughout. Now, this is quick, but it doesn’t take into account taxes or your lifestyle or your spending nature.

So again, it’s not a plan, it’s just a rule of thumb. This next one I want to talk about is what’s called the 4% rule. What this states is that you can withdraw 4% in the first year of your retirement, and then each year after, just adjust that a little bit for inflation as time goes on. This is actually based on US historical data, but it is ultra-conservative.

What we see oftentimes for people who plan on using this 4% rule is they end up passing on more money to their beneficiaries than they started with in retirement. So it’s not really maximizing their retirement as far as an income or a spending nature. And then this third rule is if you’re unsure on what your retirement expenses will be, usually you can plan on somewhere between 80% to 125% of your pre-retirement income. Now, why the range?

It depends very much on what type of lifestyle you want to be living in retirement. For some people, they expect their retirement to be very calm and very relaxing. Maybe they aren’t going to spend as much. Other people, they want to travel, they want to really live life to the fullest now that they’re not working, and maybe we need to be planning on 125% of that pre-retirement income.

Again, these are all rules of thumb. None of these are income plans or retirement plans. If you do want a specific income plan, we’re more than happy to run our Perennial Income Model™ for you, and you can see what your retirement will look like based off of your guaranteed income, based off of your retirement assets, and we can give you a good idea of what you can spend comfortably in retirement.

Social Security, Start to Finish – (11:54)

So now that we have an idea of income spending and how to work with those retirement assets, let’s talk a little bit about Social Security.

So we’re going to start by talking about how your Social Security benefit is calculated. It’s a little bit complicated, but essentially what the Social Security Administration is going to do is they’re going to take your 35 highest years of income, and they’re going to average that out after they adjust for wage growth. They’re going to take that average, plug it into their formula, which will give what they call the primary insurance amount. Essentially, this is just a fancy word for the monthly benefit you can start receiving at your full retirement age.

Now, depending on when you claim Social Security, that number can change. You can claim as early as 62, or you can delay as late as 70. Claiming early is going to reduce that monthly benefit, while delaying is going to increase it. This next slide is going to talk a little bit about the details.

So, in this scenario, we have a household that has a $2,000 benefit at their full retirement age. That is illustrated right here with this green box. You can see if they were to claim as early as 62, that benefit would be reduced to $1,400 a month. If they delay to 70, that would be $2,480 a month.

That is a 77% difference between claiming at 62 and delaying at 70. Now, while that seems like that’s a great idea, that’s not always the best case.

In some situations it is, and oftentimes it does make sense to delay. But depending on your health situation, depending on if you have minor or disabled children at home, and your work history, and your spousal benefit, it may make sense to claim earlier. If you have questions about when you should claim your benefit, feel free to reach out. We’re more than happy to run an analysis for you and see what makes sense in your situation.

So, two big factors you want to make sure you are aware of when you’re going to file for Social Security. The first one I want to talk about is the spousal benefit. That benefit is worth up to 50% of the higher earner’s full retirement benefit. So what that means is if you are the lower income earning spouse and your spouse is eligible for $4,000 at their full retirement age, you are eligible for half of that, meaning you are eligible for $2,000.

Now, a big thing to be aware of with the spousal benefit, if we go back to this last slide and we assume this is now looking at a spousal benefit, there is no increase for waiting past your full retirement age. So if this was a $2,000 spousal benefit, at 67, you would be eligible for $2,000. Delaying to 68, we’re not going to see this increase. You’re still just going to be eligible for that $2,000.

So in that situation, it likely isn’t making sense to delay that benefit. And then the second key when claiming Social Security we want to be aware of is the survivor benefit. The higher earner’s Social Security amount or the higher Social Security benefit will continue on throughout the life of both married people. So for example, say one spouse is earning $4,000 a month while the other is $2,000.

If that earner, who is eligible for the $4,000 benefit passes away, that will be transferred over to the surviving spouse, and they will receive that $4,000 benefit and their check will stop. What that means is we want to make sure that we are considering this when you are applying for your Social Security, so that we’re looking at all the possible outcomes and making sure you’re filing at the best case for you.

Now, if you do file for Social Security and you’re still receiving income, there is what’s called a clawback. I’m not going to get into too much detail here. Typically, this is not a situation we would recommend. However, if for some reason you do have to go back to work, we want to make sure you’re aware of this. Essentially, what it means is there are income limits on how much you can earn while on Social Security before some of those benefits get pulled back.

In 2026, you can earn just over $24,000 before some of that benefit starts to get pulled. One mistake people often make when thinking about this clawback is that that money’s gone forever. That’s not the case. When you reach your full retirement age, any money that was clawed back will be given back slowly over the course of your life. And once you do reach full retirement age, this earning test is gone. You can earn as much as you want at that point without any of your Social Security being withheld from you.

So, how to apply for Social Security. You can apply for your benefit as early as four months before you want those benefits to start.

So four months out, it’s a great time to create your ssa.gov login if you haven’t already, and start looking at different claiming strategies. Start to see what your benefit would be claiming at different ages, see what the spousal benefit would be. This is really when we want to start planning our Social Security strategy so that we’re prepared. Three months out, it’s a great time to choose when you want that benefit to start.

And then it’s time to file. You can file online. It usually takes about 30 minutes. You can also file over the phone or by setting an appointment with the Social Security office.

And then after you file, you want to watch out for an award letter. This will confirm the start date and the amounts that you’ll be receiving in Social Security. Now, one important thing I want to make sure you’re aware of is Social Security pays their benefits in arrears.

What that means is if you file your benefit to start in January, your first check will actually come in February. You want to make sure you’re taking that into consideration, so that when January comes around and you’re expecting that Social Security check, you have a way to pay those bills. So just keep that in mind as you’re filing. Make sure that you’re applying and filing for the day that you want those benefits to start.

So when you file, what do you need to have in front of you? Obviously, you’ll need your Social Security number. If you’re applying in person, you may need a birth certificate. It’s good to have last year’s W-2, so that can be factored into your Social Security benefit as well.

And then decisions you want to make before you go to file, you want to know, as I just said, the exact month you want benefits to start. You’ll want to know your bank routing number and account number so you can set up direct deposit, as well as if you’re enrolling for Medicare and if you want any tax withholding. If you have any questions about claiming Social Security or filing for Social Security, feel free to reach out. We’re happy to help you file, happy to run some scenarios for you.

Medicare, Taxes, and Your Paycheck – (19:22)

So next, we’re going to jump into Medicare, taxes, and your overall paycheck. This is going to be a little more surface level, but there’s some good information here that can help you. So in Medicare, we have what’s called a seven-month claiming window. So three months before you turn 65 is the earliest you can enroll in Medicare.

Ideally, this is the best time. We want to make sure when you are claiming, or when you are enrolling for Medicare, that we don’t have a gap in your insurance coverage. So if we enroll three months before, we know we’ve got it done, we’re confident there won’t be a gap, and you’ll be taken care of there.

Now, you can also claim during your birth month. This is still fine, but coverage may begin the following month. Depending on your insurance, maybe we have a short little gap there. And then delaying till three months after, this is the last chance to enroll. Your coverage likely will be delayed and maybe you do have a little gap.

But really the overall thing I want to stress here is we want to make sure that we are enrolling for Medicare in this seven-month gap. The reason is, if you delay past this window, there is a penalty. It is not a one-time penalty. It is a penalty that will follow you each month throughout your life as long as you’re on Medicare.

Now, if you’re working past 67 and you have a qualified group coverage plan, you can delay enrolling past 65, but you’ll want to talk to your HR department and a Medicare specialist to ensure that your coverage is qualified and that you don’t need to be enrolling for Medicare.

So what does Medicare cost? Part A almost always costs nothing. If you have over 40 quarters of Medicare-covered work, there’s no premium for Part A.

Part B is where we start to see the cost for Medicare. So Part B will be set each month by the Medicare office. Each year, or sorry, it will be set each year by the Medicare office, and it will adjust each year upwards with inflation. Now, depending on your income, is determinant in how that Part B is going to cost, how much it will cost.

If you have a higher income, it’s possible that you cross what’s called an IRMAA line. What this essentially means is you’re going to pay a little bit more on your Part B premium. The way it works is Medicare will look back two years at your income to see what this current year’s premium should be. So if you’re 66 years old and on Medicare, that Part B premium is going to be determined by your income when you were 64 years old.

A little bit of planning can go into there. I’m not going to get into the weeds on that. It’s just something you want to be aware of as you’re looking at Medicare. Now, the sad truth of retirement is that taxes don’t retire when you do.

However, the years from when you retire to when your required minimum distributions start are oftentimes the lowest taxable income years of your life. This can provide some great tax opportunities, such as Roth conversions, which I’ll discuss in a second.

Now, in order to reduce taxes, we can do things like look at the withdrawal order on how you’re pulling money out of your accounts. There’s a general rule of thumb, again, this is another rule of thumb, that first it makes sense to take the taxable accounts, then pull from the tax-deferred, that’s going to be your 401ks and IRAs, and then making sure to save those Roth’s for last. Now, as I mentioned, this is a rule of thumb.

Typically, it can make a lot more sense to be filling up those lower income tax brackets by withdrawing a little bit from each source. This is where having a true retirement income plan is extremely beneficial in helping you know what your tax bracket is now and what’s your tax bracket going to be in the future. By doing so, we can get a lot more strategic with that withdrawal order to help you save taxes over the long run.

The second point I want to focus on right now is Roth conversions. Again, not going to get too much detail here. Essentially what you can do is in your lower income years, you can move money from your traditional IRA to your Roth IRA, pay taxes at today’s rates, and then that money can grow tax-free. It also can help to reduce your future required minimum distributions.

The third strategy is for those of you who are charitably inclined. Starting at age 70 and a half, you can send money directly from your IRA to any charity without it having to report on your taxes. Typically, when you pull money from an IRA, you have to pay ordinary income tax on it If you do this QCD strategy, that does not report on your taxes, and it does help to reduce your required minimum distribution while giving you a tax benefit, even if you claim the standard deduction.

Now, this fourth point I want to make you aware of is depending on your birth year, either at age 73 or 75 is when the government starts telling you, you have to withdraw this minimum amount out of your IRA or 401k. This isn’t something to be overly stressed about. However, it can push you into a higher tax bracket. This is where Roth conversions in these QCDs, or qualified charitable distributions, can be very beneficial in reducing that required amount that is needed to be withdrawn each year. Now, this is really the key to all of everything we’ve talked about so far, is how to put this all together, how to make your savings become a paycheck.

So for the first years, one through five, we want to set aside enough savings to generate income for those years. We want to have that money invested very stably. This is going to be cash, short-term bonds, high-quality bonds. This is money that if the stock market takes a downturn, it’s not going to be affected too much.

The reason for that is this money is set to take care of your bills currently. For the next years, years six through 15, we’re willing to be a little bit more risky here. We’re still going to be a lot in bonds, some income-producing assets, but given we have six to 15 years before this money is needed for income, we’re willing to take a little bit more risk in this end.

And then last, we have our growth section. This is going to be the money that is for years 16-plus of your retirement. Here, we want to have diversified stocks. If there is a market downturn, we’ve got north of two decades for this money to recover, and we need to make sure that this is fighting inflation and keeping you ahead of inflation throughout your retirement. While this bucket strategy is very good and it can help get your portfolio aligned properly, it is still not an income plan.

This is the philosophy that we employ in our Perennial Income Model. However, we get much more detailed. We’ll break it down into five-year groups, and we’ll make sure that each year, each month even, we’re looking at each of these segments to make sure it is reaching its goals and it is on pace to establish the income that you need throughout your retirement.

Seven Mistakes Retirees Make – (27:03)

1. Now, seven mistakes that we see people make in retirement. The first one is claiming Social Security by default at age 62. Oftentimes people will see, oh, I can claim Social Security, I guess I should do so now. That oftentimes is not the case. Sometimes it may be, but we want to make sure we’re making educated decisions throughout our entire retirement.
2. The second mistake is ignoring the survivor benefit. Claiming the higher earner’s Social Security benefit early secretly is setting the income for the surviving spouse throughout the remainder of their life.
3. The third mistake is missing the Medicare enrollment window. As I mentioned earlier, late enrollment equals a penalty that will follow you throughout your life for as long as you’re on Medicare.
4. Fourth, and this is a really big one, it’s retiring without a spending plan. Retiring without a spending plan often leads to overspending. It’ll lead to panic, and when we panic, we tend to make bad decisions. We want to make sure we have a plan for our spending throughout our entire retirement.
5. The fifth mistake is wasting those low-tax years. As I mentioned, from when you retire to age 73 or 75, depending on when your required minimum distributions start, are oftentimes the lowest tax years of your retirement. Great opportunity for some tax strategies there.
6. The sixth mistake is holding too much cash or even too little. Both can be very expensive. One will cause you to lose money to inflation. The other may result in bad market timing decisions.
7. And seventh is confusing a portfolio with an income plan. On this last slide, we talked about those buckets set up for years one through five, six through 15, and 15-plus. That can help get your portfolio invested, but it’s still not an income plan. If you want to see an income plan tailored for your needs and your situation, feel free to reach out to us. We’re more than happy to run our Perennial Income Model for you, and you can see what those numbers look like for your situation.

Takeaways and Questions – (29:13)

Now, your action list or your homework for today. These are some key ages I want to make sure you’re aware of. I’m not going to dive into each one, but what I would want you to do is see where you are on this chart. Maybe you’re 65, and you need to enroll in Medicare.

Make sure you have a plan for that, as well as these future ages coming up. The key to retirement planning is planning. If you have questions about your current situation, how each of these ages will benefit you, or what may impact you, please let us know. Happy to help.

Lastly, that is all that we have. If you do have any questions, please send them in the chat. Jeff may have answered them for you already. If not, he’ll ask me them here now.

And we do have a survey I would love for you to fill out for some feedback. But Jeff, any questions that I can answer?

Jeff Sevy: Yes, we just have one. I was able to answer a couple here, but the one that I have for you is, is the spousal benefit in addition to your own benefit?

Tom Challis: That is a great question. The way it works is first you’ll receive your own benefit, and then the spousal benefit will be added on top, up to that 50% number. So let’s say your benefit is $1,000 and your spouse has a $4,000 benefit. You’re eligible for $2,000. The way it works is you’ll receive your $1,000, and that benefit will bump you up to that $2,000 number.

As I mentioned, we do have a survey. I would love for you to fill it out. We also have a one-page retirement how-to guide that we’ll send after this webinar.

If you do have questions about your situation, as I mentioned, feel free to send us an email or give us a call. Thank you for joining, and I would love your feedback on that survey, and enjoy the rest of your day. Thanks.