Webinars Category: Retirement Planning

Mastering Your Cash Flow Strategy in Retirement – (0:00)

Alek Johnson: Good afternoon, everyone. Welcome, and thank you for joining me during this holiday season. I hope you all had a wonderful Thanksgiving and that you have some exciting plans for Christmas and New Year.

I truly appreciate you taking the time to join me today. Of all the times we could discuss cash flow, I imagine this is not the most convenient. Many of you are likely out shopping for family and friends, so I’m especially grateful for your attention.

For those who registered early, you may have noticed I changed the webinar title. Originally, it was called Mastering Debt Management in Retirement, but I’ve since renamed it to Mastering Your Cash Flow Strategy. I wanted to address that change up front.

While debt management is certainly important, as I delved deeper into the topic, I realized it was too narrow in focus. I wanted this discussion to capture the broader financial picture. Having expenses doesn’t necessarily mean you’re in debt, so I believe this more holistic approach—focusing on cash flow—will be more beneficial. That said, if you registered specifically for debt management, I apologize for the shift. I’ll still touch on it, but it won’t be the primary focus today.

With that, let me introduce myself. My name is Alek Johnson, and I am a Certified Financial Planner™ and one of the lead advisors here at Peterson Wealth.

Before we dive in, I have a couple of quick housekeeping items:

First, I aim to keep this presentation to around 30 minutes. We may go slightly over, but it should stay close to that half-hour mark.

If you have questions during the presentation, please feel free to use the Q&A feature at the bottom of your screen. My colleague, Zach Swensen, is with us today. He’s another Certified Financial Planner™ and works closely with me here at Peterson Wealth. Zach will monitor the Q&A and do his best to answer your questions. At the end of the webinar, I’ll address a few general questions as well.

If you have a more individualized question, please don’t hesitate to reach out. If you’re a client, connect with your advisor here at Peterson Wealth. If you’re exploring the possibility of working with us or just curious, you’re welcome to schedule a free consultation, and we’d be happy to assist you.

Additionally, there will be a survey sent out after the webinar. Please use this opportunity to provide feedback and suggest future topics. Your input is incredibly valuable and helps us create a more enjoyable experience for everyone.

Lastly, a quick disclaimer: This presentation is not intended as investment advice. I don’t know the specifics of your financial situation, but I hope you’ll find a few helpful insights from today’s discussion.

Why is cash flow important?

Now, let’s begin by addressing why the topic of cash flow is so important. I’d like to start by sharing some recent statistics to highlight the urgency of maintaining positive cash flow.

Cash flow statistics

According to the latest consumer debt data from the Federal Reserve Bank of New York, credit card balances have risen by $396 billion since the first quarter of 2021, when credit card debt hit a low of $770 billion during the pandemic. Over the past three and a half years, credit card balances in America have increased by 51%.

Currently, credit card debt stands at $1.166 trillion, which is $239 billion higher than the previous all-time high before the pandemic—a 26% increase from that peak.

Additionally, mortgage debt increased by $75 billion in the third quarter of 2024 and by $580 billion over the past year. Credit card debt alone rose by $24 billion last quarter and $87 billion over the last year.

This rising debt isn’t surprising, given the high inflation of the past few years, leading to increased costs for goods and services, coupled with the high interest rates on credit cards.

Cash flow statistics for retirees

While this data paints a concerning picture for Americans as a whole, what does it mean specifically for retirees?

Unfortunately, retirees aren’t immune to the issue. In 2024, 68% of retirees reported having outstanding credit card debt, up from 40% in 2022—a 28% increase in just two years.

Moreover, spending beyond their means has also become a significant concern. In 2024, 31% of retirees reported spending more than they could afford, compared to just 17% in 2020. That’s nearly double in four years, with more retirees relying on credit cards for expenses they can’t afford.

The last statistic I want to highlight is about consumer sentiment among retirees. Half of retirees currently feel they have saved less than what they will need for retirement. About one-third believe they have saved the right amount, while only 17% feel they have saved more than they will need. This means that 50% of retirees are uncertain whether their savings will last throughout their retirement years, which is a significant concern.

With that in mind, my goal today is to help you better understand how to manage your cash flow—whether you’re preparing for retirement in the near future or are already retired. We’ll start by covering the basics of cash flow in retirement, address some frequently asked questions that directly impact your cash flow, and finish with practical strategies to help you manage your finances more effectively.

The Basics of Retirement Cash Flow – (7:23)

In my experience as a financial advisor, I’ve learned that retirement is fundamentally a cash flow game. If you can master managing your inflows and outflows at a high level, you’ll gain confidence in your financial stability during retirement.

Accumulation phase and distribution phase

Let’s begin by discussing the differences in cash flow during the two major phases of life: the accumulation phase (while working) and the distribution phase (in retirement).

Accumulation phase

During the accumulation phase, the focus is on building wealth and managing debt and future risks. Your income is typically more flexible since you’re working and have control over your earnings. Expenses during this phase are often centered around paying down a mortgage, raising children, or covering their educational costs.

In retirement, your income shifts from employment earnings to your retirement accounts. What you’ve accumulated now becomes the foundation of your income, transitioning from a more flexible to a fixed income model. The focus moves from building wealth to preserving it, ensuring it lasts throughout retirement.

Expenses also shift. Instead of focusing on mortgage payments or child-rearing costs, retirees often face higher healthcare expenses. In the early stages of retirement, there’s often more travel—whether to visit family or for leisure—which creates a dynamic change in spending patterns.

Distribution phase

Because retirees are no longer working, it’s critical to understand where your income is coming from. Unlike someone working part-time who can pick up an extra shift to fund a purchase, retirees often rely solely on what they saved during their accumulation years.

It’s essential to understand your income sources and their characteristics:

• Cost-of-Living Adjustments (COLA): Does your income source, such as Social Security or a pension, have a COLA to account for inflation?
• Taxability: How are different income sources taxed? For example, Social Security, retirement accounts, and brokerage accounts each have unique tax implications.

These factors determine whether you’ll maintain a positive cash flow (more income than expenses) or experience a negative cash flow (more expenses than income).

In addition to income changes, retirees face specific challenges:

1. Loss of Annual Raises: Retirees no longer receive work-related raises or bonuses.
2. No Contributions to Retirement Accounts: Without new contributions, retirees must ensure their investments generate sufficient income.
3. Market Volatility: Retirees need strategies to manage market downturns to avoid jeopardizing their financial security.

In retirement, the responsibility to maintain purchasing power, mitigate volatility, and ensure your money lasts as long as you do lies entirely with you. Each of these challenges significantly impacts your cash flow and requires careful planning.

Retirement Cash Flow Frequently Asked Questions – (11:40)

Now that we’ve covered the basics, I want to address five frequently asked questions that I’ve heard countless times. These questions touch on budgeting, managing cash flow, and broader financial considerations. While this isn’t solely a budgeting or credit card debt webinar, these questions are vital to shaping your financial picture in retirement.

Let’s dive into them next.

Each of these questions will be addressed one at a time, as they all have some level of impact on your financial situation. Let’s dive into the first question.

How Much Do I Need to Retire?

This is a question I hear from prospective clients all the time: “Alek, how much do I need to have saved to retire? What’s the golden number?”

It’s the million-dollar question, but the reality is—and I know you’ll love this answer—it depends on your cash flow.

When clients ask me this, my response is often, “How much do you want to spend each month?”

I’ve worked with clients who are perfectly content living off $3,000 a month. They receive their Social Security check, withdraw a small amount from their IRA, and lead a happy, fulfilling life.

On the other hand, I’ve had clients who struggle to live within a $25,000-a-month budget. One of these clients might have a few hundred thousand dollars saved, while the other is a multimillionaire. Yet, the latter still faces cash flow challenges, while the former does not.

The key here is that your spending needs dictate how much you’ll need for retirement, and this varies significantly from person to person. However, a general rule of thumb is to aim for about 25 times your desired annual income saved by the time you retire.

For example, if you want to withdraw $50,000 annually from your investments, you should aim to save around $1.25 million. This is based on the commonly referenced “4% rule,” which suggests withdrawing 4% of your portfolio annually to ensure it lasts throughout retirement.

Other factors to consider include your travel plans, healthcare costs, and legacy goals. Do you plan to leave money for your children, or do you feel they’re financially secure on their own? Each of these factors will influence your cash flow needs in retirement. Determining your “golden number” requires thoughtful consideration of your unique circumstances.

Should I Pay Off My Mortgage Before Retiring?

This is another common question, and it’s an important one. Deciding whether to pay off your mortgage before retirement is both a financial and emotional decision.

Financially, it may not always make sense to pay off your mortgage, especially if you have a low-interest rate. For example, during the historically low interest rate period around COVID, many clients had mortgage rates of 2–3%. In these cases, continuing to make the payments while investing their cash for potentially higher returns often made more sense.

However, emotions often play a significant role in this decision. Many clients feel more comfortable entering retirement completely debt-free, even if it’s not the most financially advantageous choice. Paying off the mortgage can provide peace of mind and free up room in the retirement budget.

That said, there are scenarios where paying off your mortgage might not make sense. For example, if the only way to pay it off is by withdrawing funds from a tax-deferred account like an IRA or 401(k), you’d need to account for the tax liability on that withdrawal.

Let’s say you owe $200,000 on your mortgage. To pay it off using your IRA, you might need to withdraw closer to $250,000 to cover the taxes. This could significantly deplete your retirement savings.

Because of these complexities, I highly recommend consulting with your financial advisor or accountant to determine the best course of action for your unique situation.

Can I Retire If I Still Have Debt?

This is another valid and frequently asked question. The answer, once again, comes down to your cash flow.

If you can’t afford to stop working because you need your income to service your debt, then it’s probably not a good time to retire. Conversely, if you can maintain a positive cash flow in retirement—meaning your income exceeds your expenses—you can likely consider retiring, even if you have some debt.

Many of my clients carry some form of debt into retirement, whether it’s a mortgage, auto loan, or home equity line of credit (HELOC).

The critical consideration here is understanding the difference between good debt and bad debt:

• Good debt is used to acquire assets or opportunities that can grow your net worth over time.

For example, a mortgage is considered good debt because you’re investing in real estate, an asset likely to appreciate over time. In contrast, bad debt includes items like credit cards, personal loans, or payday loans—debts that don’t contribute to financial growth and are often tied to purchases that lose value quickly.

Another key aspect tied to debt is the difference between simple interest and compound interest:

• Simple Interest: Applies only to the principal amount of a loan, such as with mortgages or car loans.
• Compound Interest: This applies to both the principal and any accrued interest. For example, with credit card debt, you pay interest on the initial balance and on the accumulated interest, which can grow quickly—especially since credit cards often compound interest daily.

If you’re on the right side of compound interest, like when investing, it can work wonders for your finances. But on the wrong side, such as carrying credit card debt, it can be very harmful and costly if balances aren’t paid in full each month.

Lump Sum vs. Annuitizing a Pension

Another frequent question is whether to take a lump sum from a pension or annuitize it, receiving monthly payments throughout retirement.

Several factors influence this decision, including:

• Longevity expectations: How long do you anticipate needing income?
• Spending habits: Whether you’re disciplined with large sums of money.
• Inflation protection: Whether the pension includes cost-of-living adjustments (COLA).

Your advisor can help run the numbers, but in my experience, it often makes more sense to take the lump sum. A lump sum offers greater flexibility and the potential for growth if invested wisely. However, if you worry about spending the money too quickly and running out of income later, annuitizing might be the better option to ensure a steady, reliable income stream.

This decision, like paying off a mortgage, also includes a behavioral aspect. Ensuring positive cash flow throughout retirement often requires balancing financial analysis with personal habits and emotions.

How to Pay for Major Expenses in Retirement

One common concern is how to cover significant expenses in retirement—things like buying a new car, taking big vacations, home renovations, or handling unexpected costs.

Beyond maintaining an emergency fund, there are two primary approaches:

Build it into your retirement budget

You can allocate a portion of your monthly income to save for large expenses. However, this requires significant discipline. It’s easy to spend money that lands in your checking account, so consistently setting aside funds for future needs takes a high degree of frugality.

Create a slush fund

A slush fund is a lump sum set aside specifically for large, irregular expenses. For example, if you have $1.2 million saved at retirement, you might allocate $1 million to your retirement income plan and keep $200,000 in a separate slush fund.

This fund can remain invested and grow, but it’s available for use when needed without impacting your monthly income plan. While once it’s gone, it’s gone, it allows you to handle large purchases without disrupting your regular inflows and outflows.

Practical Strategies to Manage Cash Flow – (23:27)

Now that we’ve covered these frequently asked questions, let’s discuss practical strategies for managing cash flow.

First and foremost—and I know this isn’t glamorous—you need to establish a clear budget.

I often hear things like, “Alek, I hate budgeting. It’s boring. It’s stressful. It’s only for people in debt.” But the reality is, that budgeting is an empowering tool that helps you achieve your goals and take control of your financial life.

Many people believe that if they just had a certain amount of money, they wouldn’t need a budget. The truth is, regardless of your financial situation, budgeting provides clarity and control over your cash flow.

If you believe having more money means you won’t need a budget, consider the countless lottery winners who, despite receiving millions, thought they didn’t need a budget and ended up completely broke.

In my opinion, a budget is a tool that empowers you to spend confidently and achieve true financial freedom. Knowing exactly where your money is going eliminates guesswork, reduces financial anxiety, and allows you to plan your spending without guilt or uncertainty.

There are many ways to create a budget—whether using apps, spreadsheets, or old-school pen and paper. Regardless of your method, it’s important to categorize your expenses into fixed, variable, and discretionary costs. This approach ensures you can also account for irregular expenses.

Unfortunately, we don’t have time today to dive into the specifics of creating a budget, but my colleague Alex Call has given a detailed webinar on the topic. If you’d like access to that resource, feel free to reach out to us for the link.

Let me share two client stories that illustrate the importance of budgeting.

One couple retired with approximately $1 million in their 401(k). During their working years, they had never earned more than $75,000–$80,000 annually. However, in their first two years of retirement, they withdrew over $300,000 from their 401(k)—an amount far exceeding their retirement plan.

Upon reviewing their situation, we discovered they had also accrued $60,000 in credit card debt. Because they only had tax-deferred accounts, we needed to withdraw $80,000 to cover both the credit card balance and the associated taxes. They hadn’t understood the compounding interest working against them on their credit cards.

If they had been more diligent about budgeting, this financial nightmare could likely have been avoided. It’s far easier to increase your spending than to cut back later, so setting clear limits upfront is critical.

On the other end of the spectrum, I had a client who was financially well off but hesitant to take a long-desired trip near the end of his career. He worried the trip would strain his finances.

During our meeting, we built a retirement income plan and discovered that he could take that trip every year for the rest of his life without jeopardizing his financial stability. Budgeting showed him not just his limitations, but also what he could confidently spend on experiences he valued.

Budgeting works both ways—it helps you manage limitations while empowering you to enjoy the things that matter most.

How to maintain positive cash flow through retirement

Here are a few key recommendations to maintain positive cash flow throughout retirement:

Establish an Emergency Fund

Maintain at least three to six months of essential expenses in liquid assets like savings or CDs. This provides a safety net for unexpected events and peace of mind.

Ensure Proper Insurance Coverage

No matter how skilled you are at budgeting or investing, a single financial disaster can ruin you if you’re not adequately insured. Make sure you have proper auto, health, and home insurance. Additionally, consider how you’ll address long-term care needs, as many retirees may need to self-insure in this area.

Track Your Spending

Be disciplined, but also kind to yourself. A common mistake is creating a budget and then never revisiting it. Budgeting isn’t just a one-time exercise—it’s an ongoing tool to guide your spending and keep your finances on track.

Often, people avoid revisiting their budget because they’re afraid of facing reality—perhaps overspending has occurred, and they’d rather not confront it. If that sounds familiar, I encourage you to be kind to yourself. Budgets don’t have to be perfect. Instead, give yourself credit for the effort and use it as an opportunity to refine your financial habits.

Another strategy I recommend is seeking support. Whether it’s through professional financial management or simply an accountability partner, reaching out for help can make a huge difference in maintaining positive cash flow during retirement. Don’t hesitate to lean on others for guidance or encouragement if you find yourself struggling.

Create a Retirement Income Plan – (31:01)

Finally, I cannot overstate the importance of having a solid retirement income plan.

Your plan should ensure:

• Inflation protection: Maintaining your purchasing power over 30 years or more.
• Consistent income: Market fluctuations shouldn’t affect your monthly income.
• Longevity of assets: Your money should outlive you, not the other way around.

A good retirement income plan helps you determine how much to withdraw, which accounts to pull from (e.g., Roth IRAs, brokerage accounts, 401(k)s), and how to maximize your income while minimizing risks.

At our firm, we utilize the Perennial Income Model™, a proprietary process designed to help clients maximize their income and mitigate retirement risks.

We’re transparent about sharing this model. Whether through free consultations, Scott Peterson’s book Plan on Living, our website, or presentations at events like BYU Education Week, we make the model accessible.

Why? Because the true value isn’t in creating the plan—it’s in managing and monitoring it over the course of a 20-, 25-, or 30-year retirement. Adjustments are inevitable, and a successful plan must remain flexible to adapt to life’s changes. Think of your retirement income plan as a living, breathing document that evolves with your needs.

A well-thought-out plan, when monitored and adjusted regularly, is the key to maintaining positive cash flow and confidently spending throughout retirement.

Summary – (33:47)

To wrap things up, here’s a quick recap:

1. Debt Trends: Debt, particularly among retirees, is rising due to inflation and high interest rates.
2. Cash Flow Perspective: Retirement requires a paradigm shift in how you think about and manage cash flow.
3. Key Decisions: Understand the consequences of major financial choices, such as lump sum versus annuitizing a pension or handling large purchases.
4. Budget Discipline: Establish and stick to a budget—it’s a cornerstone of financial confidence.
5. Retirement Income Plan: The most critical component of your financial strategy is having a well-designed and flexible income plan.

Before opening it up to questions, I want to remind you about the book Plan on Living by Scott Peterson. If you don’t have a copy, please request one—it’s free! If you’d like to share it with a friend, simply provide their name and address (or yours if you’d like to deliver it personally), and we’ll send a copy their way.

Thank you all for attending today’s webinar. I know December is a busy time with the holidays, so I truly appreciate you taking the time to tune in and talk about cash flow and income planning.

Before wrapping up, I want to remind everyone about the survey that will appear after the meeting ends. If you could take a moment to fill it out and provide your feedback, we’d greatly appreciate it.

Question and Answer Session – (35:27)

Zach, are there any general questions from the audience?

Zach Swenson: No general questions at this time, Alec. However, if anyone has specific questions after the webinar, we encourage you to reach out. You can email us at alek@petersonwealth or marketing@petersonwealth. Whether your question is general or specific to your financial situation, we’d be happy to help.

Alek Johnson: Thank you all again for taking the time to join us today. I know this is a busy season, and I appreciate your attention and engagement. Wishing you all a very Merry Christmas and a Happy New Year. We look forward to connecting with you again soon!

The 5 Most Important Decisions You Will Make In Retirement (0:00)

Alex Call: My name is Alex Call. I’m a Certified Financial Planner™ here at Peterson Wealth Advisors, and I’m really excited to talk about what I believe are five of the most important decisions you’ll be making during retirement.

Before we dive in, I have a few quick housekeeping items. If you have any questions during the presentation, feel free to use the Zoom Q&A feature located at the bottom of your screen. My colleague, Zach Swenson, will be fielding these questions. Zach is another advisor at the firm, and he’ll respond to your questions as best he can.

At the end of the webinar, I’ll take some time to answer a few general questions. However, if you have more personalized questions, please don’t hesitate to reach out. We’re happy to hop on the phone, schedule a consultation, or just talk through your specific concerns. We’re here to help.

Finally, at the end of the webinar, a survey will be sent out. I would greatly appreciate any feedback or suggestions you have for future topics. Your input is incredibly valuable as it helps us improve and better address your needs.

Before jumping in, a quick disclaimer: The information provided in this webinar is not intended to constitute legal, investment, or tax advice. All information, content, and materials shared are for general informational purposes only. With that said, let’s go ahead and get started.

In the early 2000’s, Netflix approached Blockbuster with a proposal to sell Netflix for $50 million. As many of you know, Blockbuster was the giant in video rentals at the time, and they declined the offer. Netflix co-founder Marc Randolph mentioned that Blockbuster executives laughed them out of the room. Fast forward to today, Netflix is worth upwards of $300 billion, while Blockbuster has become an infamous case study, with its stores virtually extinct.

Another story from 1955 involves Morris Chang, a recent college graduate who was offered two different jobs—one at Ford for a salary of $479 a month and another at Sylvania Electric for $480 a month. Ford seemed like the better opportunity, so Chang asked if they could match Sylvania’s offer, which was just $1 more per month. Ford declined, so Chang took the job at Sylvania, where he learned about and became an expert in the growing field of transistors and microchips. Chang eventually founded Taiwan Semiconductor Manufacturing Company (TSMC), which today is worth upwards of $800 billion—15 times the value of Ford—and produces 60% of the world’s microchips.

The common theme in these stories is that seemingly small decisions can lead to massive consequences. I’m sure you can reflect on your own life and recall small decisions you’ve made that have had significant impacts. It could be the job you did or didn’t take, the move you made, or even deciding to go on that fifth blind date of the month, which led you to your now-spouse. There are countless other examples, I’m sure, that come to mind as you reflect.

Today, I want to discuss the five most important financial decisions made in retirement. Mistakes made during your working years, although painful, can usually be mitigated. In other words, you have time and income to make adjustments. However, mistakes made at or during retirement can be very unforgiving—they will impact you for the rest of your life. While we won’t be able to cover every decision you need to make today, I want to highlight what I believe are the top five, and they’re not listed in any specific order.

#1 Choosing Trustworthy Advice and Resources (4:36)

The first is choosing trustworthy advice and resources. Investing and saving during your working years is very different from investing and spending your savings during retirement. These are two different skill sets. The financial advice you follow during retirement can significantly impact your financial well-being.

So, where do we get advice from? I break it down into two categories: financial advisors and financial media. For some, financial advice may come from a professional advisor; for others, it might be a trusted contact. Financial media, on the other hand, has changed dramatically over the past 5 to 10 years. There’s now an overload of information from new types of media like podcasts, blogs, YouTube, and social media, in addition to traditional sources like magazines, TV, newspapers, and books.

Qualities to Look for in a Financial Advisor

How should we determine who or what to listen to? When it comes to financial advisors, I believe they should possess three key traits before you discuss your situation with them.

The first trait is integrity. There are many highly trustworthy financial advisors, but unfortunately, like in any industry, there are some bad actors. Early in my career, I had a colleague who was solely focused on earning a commission from selling a product—the client was an afterthought. Although he was well-respected in his community, he always put his personal financial interests ahead of his clients.

It’s important to find someone who is not only legally obligated but also has the integrity to put your interests ahead of their own financial interests.

The next trait to look for is competence. You want to find someone who specializes in what you need. Similar to going to a doctor—if you need a knee replacement, you’re not going to see a dermatologist. If you’re planning for retirement, you need to work with someone who specializes in retirement, not someone who primarily works with young tech executives or business owners.

The third trait is experience. Turnover is very high in the financial services industry. I’ve spoken with dozens of people who, at one point or another, wanted to help a friend’s son, a niece or nephew, or a youth they used to lead in their church. These people had just entered the industry, and while well-intentioned, they sold an annuity or life insurance policy. Fast forward five years, and the client is stuck in that product, but the person who sold it to them is now out of the industry.

Ways to Identify a Qualified Financial Advisor

So, how do you determine if a financial advisor possesses these three characteristics?

First, ask for referrals. Find someone you trust and ask them for recommendations. This could be an accountant, an attorney you already work with, or a good friend who is approaching or already in retirement. Ask them who they recommend and what they’re doing.

Next, use reputable organizations. You can visit the CFP (Certified Financial Planner) or NAIFA (National Association of Insurance and Financial Advisors) websites and use their advisor search tools. These advisors have been vetted and have promised to put their clients’ interests ahead of their own.

Additionally, when you’re looking to hire a financial advisor, ask questions. You can do a quick Google search to find numerous questions to ask. The CFP Board and the SEC also provide lists of questions that can guide you in your search. Here are five key questions I recommend asking when you’re interviewing and looking to hire a financial advisor:

1. Tell me about your qualifications, education, and background. You want to listen for experiences and skills that demonstrate they can help you create an income plan for retirement. Be cautious of someone who is new to the industry, works part-time, or doesn’t specialize in working with retirees.
2. Describe your ideal client. Ideally, they should describe someone who is in a similar situation to yours—someone approaching or currently retired, with the same challenges and goals that you have. It shouldn’t be, as mentioned earlier, a tech executive or business owner.
3. How are you compensated, and what services are included? You need to know if they are paid by a fee from you, if they receive commissions from selling you a product, or if they get kickbacks for placing you in one investment over another. Once you understand how they are compensated, you’ll want to know exactly what services they provide and what you’re getting for that fee.
4. Explain the process of developing an income plan. Ask them where your money will be coming from and how it will be managed. Are they truly going to get to know you, your situation, and your retirement goals? Or are they more focused on churning and burning, making a quick buck, and moving on to the next client?
5. How often will we meet, and how quickly do you respond to inquiries? You want to understand what the client experience will be like and how it will feel to work with this individual. How accessible will they be? If you’re working with an advisor, they should respond to you no later than one business day. They need to be available when you have questions.

Understanding Financial Advice in the Media

Besides financial advisors, you’ll also find financial advice through the media. Here’s a funny example of how financial media can sensationalize everyday events: Imagine a comic where, on a plane, the pilot says, “We’re going to experience a little turbulence, please fasten your seat belts.” One passenger panics, saying, “We’re going to die!” while the calm lady next to him remarks, “He’s a financial reporter.”

Another way to think about financial news is through a quote I like: “Do you know what investing for the long run while listening to market news every day is like? It’s like a man walking up a big hill with a yo-yo, keeping his eyes fixed on the yo-yo instead of the hill.”

When reading financial news, consider asking yourself, “Will I care about this in 1, 5, or 10 years?” The ultimate goal of information for retirees should be to help you make decisions between now and when retirement ends. You’ll quickly see that most financial news does not meet this goal.

Here’s a chart that illustrates this concept. Consider categorizing everything that catches your attention based on its relevance. I believe there’s a spectrum of news and information that looks something like this:

First, there’s clickbait and rumors. These are very common and mostly just noise. Examples include headlines like, “Is your 401(k) about to be wiped out? Find out what you need to do now!” or “The secret to becoming a millionaire in six months.”

Top Wall Street executives or experts reveal all—this type of news can be very time-consuming, and it is also harmful to your finances, often getting you emotionally charged to do something you probably shouldn’t do.

The next type of news is smart but not relevant. A perspective can be highly relevant to one person and completely irrelevant to another if they have different time horizons or goals. You should ask yourself whether the advice is directed at a day trader or a long-term investor. I recommend asking yourself if you are the intended audience for the advice being given.

The most important, but also the rarest, type of financial news is that which requires immediate action. The reason this is so rare is that actionable takeaways are scarce—financial media doesn’t know your goals or have any context for your life. Therefore, it’s very uncommon to find news that demands immediate action.

I believe that good financial media generally pushes you in the right direction, but it rarely provides any immediate, actionable takeaways.

To summarize, while you’re consuming financial media, be aware that there’s a lot of clickbait and rumors you can and should ignore. There are many smart financial journalists and bloggers with valuable information to share, but their content may not be relevant to you. Then, there are those few pieces of advice that do require immediate action. For most news, you should have little tolerance, and asking yourself where it fits on this spectrum before diving in is vital—it gives you permission to move on quickly to find something more relevant.

Who you listen to will help you make the next few decisions, which I feel are framed by two competing goals that all retirees have.

These goals are: first, having a comfortable standard of living throughout retirement, which usually means maintaining your current standard of living, and second, not running out of money. Too often, I see people overcompensating one way or the other. So, how do you reconcile these two competing goals?

#2 Choosing to have an Income Plan (15:58)

I would say that the answer lies in choosing to have an income plan. Without an income plan, how will you know how much money you can spend during retirement?

When it comes to spending, there is a spectrum with two different personality types on each end: the spenders and the savers. Spenders have the attitude of, “I’ve been saving my whole life for retirement. Now that I’m retired, I’m finally going to spend whatever I want.” They feel wealthy because they have more money than ever before and feel entitled because they’ve scrimped and saved for decades. However, they risk depleting their savings in the first decade of a three-decade retirement.

On the opposite end are the savers. They are afraid of spending any of their retirement funds. They know this money needs to last their entire lives, and they’re cautious because of their frugality. Savers became wealthy through sacrifice and dedication, often penny-pinching during their working years. In retirement, they struggle to change their frugal habits, living well below their means and denying themselves simple pleasures, like visiting their grandchildren or picking up the tab when dining out with them.

Finding Balance with an Income Plan

Both types can ruin their retirement—spenders by spending too much too early and savers by living well below their potential. Regardless of where you fall on the spectrum, having an income plan will help you find the right balance. For spenders, it will rein in their spending, and for savers, it will give them permission to spend.

Now, the purpose of this presentation is not to create an income plan. If you’re interested in that and haven’t received Scott’s book, Plan on Living, we’re more than happy to send it to you or provide a presentation dedicated to creating an income plan. But today, I want to talk about what an income plan is versus what it is not.

So, what is an income plan?

First and foremost, it’s a set of guardrails on spending. It establishes guidelines on how much to spend to ensure long-term financial security.

Next, an income plan needs to be customizable and flexible. It is tailored to you and your family’s individual needs and circumstances, including lifestyle and personal financial goals. Additionally, it should be flexible enough to adapt when life happens, allowing you to make necessary changes.

An income plan is also a comprehensive investment strategy. It includes a diversified investment approach to balance growth and risk, ensuring sustainable income throughout your retirement. Ultimately, it matches your investments with your income needs.

Moreover, it should include all sources of income, such as Social Security, pensions, investments, rental income, and anything else. The goal is never to maximize any single source of income but to maximize your overall retirement income.

Lastly, it needs to be focused on longevity. The plan aims to ensure that your retirement savings last for your entire retirement period, taking into account your life expectancy and inflation.

Now, what is an income plan not?

It is not a product. It’s not a life insurance product or an annuity. It is a comprehensive strategy involving multiple components.

It is not just about investments. While investments are a part of any income plan, the plan is not solely focused on investment strategies. It encompasses budgeting, tax planning, and withdrawal strategies as well.

It’s also not a guarantee of high returns. If something sounds too good to be true, it likely is. Be cautious of anyone promising higher-than-average returns.

Additionally, an income plan is not a guarantee against all risks. It does not eliminate financial risks such as market volatility or unexpected large expenses, but it helps mitigate them through careful planning.

An income plan is also not a “set it and forget it” solution. It is not unchangeable; it requires regular updates and reviews. Whether you’re working with an advisor or managing it yourself, you should review your plan multiple times a year.

A Word of Caution on Financial Limits

Before jumping into the next decision, one last thought on the importance of having an income plan:

For new retirees, this often represents access to the largest sum of money they will ever have. This can create a sense of wealth that may lead to giving more than you can afford. Beware that no matter how worthy the cause, it’s important to consider your financial limits. Ultimately, your income plan functions like your salary. If you take a large sum from your investments, you will need to lower your income moving forward. Be wise and remember that this money needs to last a very long time.

#3 Choosing When to Retire (21:10)

This leads into the next decision you have to make: choosing when to retire. This decision will have the biggest impact on your income plan, aside from how much money you’ve saved throughout your working career.

When it comes to choosing when to retire, there are financial and non-financial considerations. The two biggest financial considerations, in my opinion, are Social Security and compounding growth.

It’s almost obvious that the earlier you retire, the less money you will have compared to if you retire later. But let’s look at just how much of a difference this actually makes.

For Social Security, at age 67, you are entitled to receive 100% of your benefit. If you claim your benefits earlier, you will receive 6% less per year. For example, if you claim your benefits at age 62, you’ll receive 70% of your Social Security benefit. Conversely, every year you delay claiming beyond age 67, you receive an 8% increase per year, with the latest you can claim being age 70.

So, if you claim your benefits at age 62, you’ll receive only 70% of your full benefit. However, if you wait until age 70, you’ll receive 124% of your benefit.

Now let’s look at compounding growth. This chart shows what it would look like if you invested $10,000 a year for 30 years and achieved a 7% rate of return. Your total balance would end up being just over a million dollars.

If you examine the first five years of that 30-year period, your account balance would grow from zero to $60,000, with your investments accounting for $10,000 of that growth.

However, if you look at the last five years, from years 25 to 30, your account would grow from $750,000 to a million dollars, with $200,000 of that growth coming from your investments.

You can see that leaving your money invested for an extra five years could give you an additional $250,000.

Let’s consider an example: Suppose someone wants to retire at age 62. Between them and their spouse, their Social Security benefit at age 62 would be $3,500 a month, and their portfolio is valued at one million dollars.

Now, consider the same person who waits an extra five years to retire at age 67. They would receive $5,000 a month in Social Security benefits between them and their spouse, and their portfolio would have grown to $1.25 million.

When we input this into our income software, the Perennial Income Model, the person who retires at age 62 would have a monthly income of $7,400. In contrast, the person who waits until age 67 would have a monthly income of $10,000.

You can see that by waiting five years to retire, your income could increase by 20 to 30%.

While this sounds great, we know that the decision to retire is not always about the money. There are many non-financial considerations to take into account.

The first is health. If you’re in poor health or have a family history that doesn’t look favorable, you may consider retiring early.

However, remember that this isn’t just about you—it’s about your spouse too. Just because you may not plan on living long doesn’t mean your spouse won’t live a long life. I’ve had multiple conversations where the husband is so hyper-focused on his own situation—such as a family history of early deaths—that he overlooks the fact that his wife’s parents are still alive in their mid-nineties and she is very healthy, expecting to live a long time. You need to consider both situations when planning for retirement.

Another consideration could be serving a senior mission. If this is something you’re passionate about, it’s worth noting that a senior mission might actually cost you less than your day-to-day living expenses in retirement.

If that’s the case, what we’ve seen many people do is retire early, take less income, and allow their investments to continue growing while they’re on their mission. They may also choose to delay taking Social Security until they return from their mission. If you’re interested in this, we have a six-part series that we can send to you, which covers the financial considerations of serving a senior mission.

The next consideration is career fulfillment. If you’re in a job you hate and can’t wait to leave, the thought of retiring five years from now might seem unbearable compared to someone who loves their job and finds a lot of fulfillment in their career. You need to balance this with the quality and standard of life you have while working versus what it would be like in retirement.

We have many clients who quit jobs they don’t like and take lower pay so they can delay claiming Social Security or allow their investments to grow further.

Finally, sometimes you don’t have a choice. You might get fired, be phased out of your job, or health issues might force you into retirement. In these situations, it may be out of your control, which is why it’s important to remain flexible.

For most of you, balancing how much time in retirement you want with how much income you need in retirement is crucial. Having an income plan and running different scenarios will greatly assist you in making that decision. If you can understand what your income would be like if you retired at 62 versus 67, it will provide you with more information to help you make a more educated decision.

When it comes to income in retirement, it’s not just about how much you’ll make, but also about how much you’ll keep.

#4 Choosing to have a Tax Plan (29:31)

The next decision will help you maximize how much you keep: choosing to have a tax plan.

Many studies indicate that taxes can be one of the largest expenses in retirement and should not be overlooked. I love the quote from Morgan Stanley: “You must pay taxes, but there’s no law that says you have to leave a tip.”

Choosing to have a tax plan will help you keep as much of your money as possible. Today, I’m going to explain what tax changes happen during retirement.

In retirement, your income sources and tax situation change. Before retirement, your income comes from W-2 wages or self-employment. After retirement, your income typically comes from withdrawals from retirement accounts, Social Security, pensions, and other sources.

A key change is that before retirement, you had to pay FICA or payroll taxes, which amount to just over 7.5% of your wages if you were a W-2 employee, and just over 15% if you were self-employed. You no longer have to pay these taxes on your retirement income.

Additionally, your deductions will likely change. You’re no longer contributing to a 401(k) or an HSA, and your mortgage may be paid off, meaning you might not be itemizing your deductions anymore. It’s more likely that you’ll take the standard deduction in retirement.

Let’s dive deeper into how you’re taxed on your investment accounts, such as IRAs and 401(k)s. You essentially have three main account types, each with distinct tax benefits:

1. Tax-Deferred Accounts (e.g., IRAs, 401(k)s): These accounts are funded with pre-tax contributions, which lower your taxable income in the year you contribute. The savings grow tax-deferred, meaning you don’t pay taxes on the gains while the money is in the account. However, when you withdraw this money, it is fully subject to income tax.
2. Tax-Free Accounts: Contributions to these accounts are made with after-tax dollars, so they don’t reduce your current taxable income. The savings grow tax-free, and withdrawals are also tax-free.
3. Taxable Accounts: These accounts involve after-tax contributions and include savings accounts, brokerage accounts, etc. You can deposit, withdraw, or sell investments at any time without penalties. However, investment income is taxed in the year it’s earned, and capital gains are taxed when investments are sold for a profit.

Avoiding Common Tax Pitfalls in Retirement

A quick warning: Choosing the wrong accounts or investments to withdraw from can hurt your future income. For example, taking a large lump sum from retirement accounts to pay off a mortgage can be risky. While paying off your mortgage early is a great goal, it might be smarter to withdraw the money gradually over several years. This strategy can help you avoid higher taxes and potentially save up to 20% in taxes.

This is why it’s important to know which account to take money from and when, which ties into creating a solid tax plan.

Another tax you need to be aware of in retirement is what I call the “Medicare premium tax,” or the Income-Related Monthly Adjustment Amount (IRMAA). While you are on Medicare, your premium will increase depending on your adjusted gross income.

As you can see, if you’re married and your adjusted gross income is less than $206,000, you’ll pay $175 per person in this Medicare tax.

And then that premium increases depending on how much money you are making or, more specifically, depending on your adjusted gross income, with the maximum being $675 per person for any income above $750,000.

How they determine this is based on how much you made two years ago. This means that if you’re going to enroll in Medicare at 65, they will determine how much you pay in premiums based on what you earned at age 63.

You might think this doesn’t seem fair, especially if you were working and earning more at age 63 than you are at 65 when you’re retired. If that’s the case, I recommend filling out form SSA-44. This form allows you to inform the Social Security Administration that your income has changed due to a life-changing event, such as work stoppage or work reduction, if you’re planning to retire.

Now, as you enter retirement, how are you going to pay your tax bill? You’re no longer associated with an employer who withholds taxes from your paycheck every couple of weeks. So how does this work?

The federal tax system is “pay as you go,” meaning taxes must be paid throughout the year, just like during your working career. If you pay too much throughout the year, this results in a tax refund or an overpayment. Conversely, if you pay too little, this results in a tax liability, meaning you’ll owe additional money when you file your taxes.

Tax returns are simply a return of overpaid taxes—they’re not a gift from the government. During retirement, there are two primary ways to pay your taxes throughout the year.

The first is tax withholding. Just like you withheld taxes from your paycheck as a W-2 employee, in retirement, this withholding comes from income sources like pensions, Social Security, IRAs, or 401(k)s.

For those who don’t have the option to withhold from these sources, estimated tax payments are the alternative. These are taxes paid to the IRS on a quarterly basis and are for when withholding is not an option.

Some of you might be thinking, “Why not just wait until I file my taxes to pay?” The reason is that this can lead to an underpayment penalty from the IRS. It’s important to withhold enough throughout the year to avoid these penalties.

Managing tax withholding in retirement can be challenging and requires careful tax planning to avoid over- or under-withholding.

A quick warning on the taxation of Social Security: You may see seminars that use fear tactics, suggesting that the government could tax up to 85% of your Social Security benefits. Know that this is simply not true. These tactics are often used by advisors to get you to attend the seminar, where they will then try to sell you an annuity or a life insurance policy.

The truth is that Social Security benefits are taxed based on your total income. The more money you make from other sources, the more of your Social Security benefits may be taxed. However, you’ll never pay taxes on more than 85% of your total Social Security benefits.

If you only have Social Security income, you will not be taxed on it. But most people need additional income for their lifestyle, and the key to reducing your Social Security tax is to lower your other types of taxable income.

Going into those strategies is beyond the scope of today’s webinar, but if you’d like to learn more about lowering your taxable income, please send us an email, and we’ll provide you with a presentation and resources dedicated entirely to that topic.

#5 Realizing it’s not all about the money (39:07)

Now, the final decision you need to make in retirement is realizing that it’s not all about the money. Often, when we think about retirement, we focus on financial readiness, but we don’t consider the emotional readiness required for this significant life change.

I’ve seen many times where the emotional impact of retiring is overlooked. The reason is that we tend to focus so much on Social Security, taxes, pensions, investments, and other financial matters—which are all important and necessary to focus on. But retirement is not just about having money to live; it’s about knowing how you will live your life.

For many, work provides a sense of purpose, belonging, and structure. Without work, retirement can feel empty.

The Five Stages of Retirement

We’re going to go through the five stages of retirement because we always talk about what you are retiring from, but there’s not enough discussion about what you are retiring to. What are you going to do with the rest of your life? If your decision to retire is based solely on reaching an arbitrary age or qualifying for Social Security, you may have a disappointing retirement. On the other hand, if you are retiring because there are other things you want to do or goals you want to accomplish, your retirement can be fulfilling and potentially some of the best years of your life.

Stage one is the big day: all smiles, handshakes, and farewells. This is the day filled with anticipation, excitement, and perhaps a bit of sheer terror. During this phase, many get excited about the thought of no longer having to work. You look forward to visiting your family whenever you want and achieving other ambitious goals.

After this, you then move into the second phase, which is the honeymoon. The feeling of “I’m free!” is exhilarating. During this time, you may have family or coworkers congratulate you on your retirement, throw you a party, and you finally get to experience what every other retiree talks about.

Suddenly, you have all the time in the world to sleep in, watch movies, read books, and tackle that long-neglected to-do list. I’ve seen this honeymoon period last for weeks for some people and years for others.

But just like a honeymoon after a wedding, this time will come to an end, and you’ll begin your new life as a retiree, starting to develop your new normal.

After the initial excitement of retirement, some people who may not have a purpose or something to look forward to might start feeling disappointment or frustration. That’s okay—this is a time of adjustment. Once you settle in, you might think, “So this is it? This is retirement? What now?”

During this time, you might feel like you’re supposed to be happy and excited because you’ve been thinking about retirement for many years. The challenge is that it may be difficult to reconcile how you thought you were supposed to feel with how you are actually feeling.

For married couples, a quick side note: no matter how much you love your spouse, going from them working 40 to 50 hours a week to being with you 24/7 can be an adjustment. It might be helpful to have a conversation about needing your own space, deciding who will handle which chores, how much time you’ll spend together versus pursuing individual interests, and really, what you’re both going to do with your lives.

I know that the picture here might depict the saddest person we could find—it’s not really that bad! But it’s important to understand that having a sense of purpose is what moves us on to the next phase.

I really like this quote from Theodore Roosevelt: “Far and away, the best prize that life offers is the chance to work hard at work worth doing.” What this reminds me of is that retirement is not the end of meaningful endeavors. Whether it’s part-time work, volunteering, diving into hobbies, or spending time with family, the chance to work hard at work worth doing is always available. You just need to know what you’re going to be retiring to.

This brings us to the next stage: reorientation, or building a new identity. As you move through retirement, you may find yourself building a new identity beyond your professional life. This can be an enriching period of self-discovery.

As we work with many members of The Church of Jesus Christ of Latter-day Saints, we often see that the Church will put you to work if you let them. What I’ve found is that this can be a very rich and rewarding experience, keeping people actively engaged in wonderful causes. This could be through church callings, ministering assignments, missionary work, family history, temple work, or, if you’re not a member, community volunteering, or just reaching out and getting involved in helping others.

There’s a great quote by Elder Packer that I like: “In your golden years, there is so much more to do and so much to be. Do not withdraw into retirement from life. Do not withdraw into a retirement of amusement that, for some, would be useless, even selfish. You are never released from being active in the gospel.” For some, this may mean serving a mission; for others, it may mean taking care of aging parents. It’s up to you to figure out what being active in the gospel means for your retirement.

As you figure out what that means for you, you’ll then enter the final phase of retirement: having a new routine, moving on with purpose and contentment. Eventually, this is where retirees come to terms with and accept their newfound retirement life. Some of the happiest retirees I know tell me that they don’t know how they ever found time to work! Your retirement can be a vibrant and fulfilling time if you approach it with intention and an openness to new experiences.

The last thing I’d like to say about the emotional preparedness for retirement is that, having worked with hundreds of retirees, I’ve learned that it’s the non-financial aspects of retirement that ultimately determine its success, much more so than finances. These non-financial aspects often influence the rest of your retirement plan.

To recap the five decisions: choosing trustworthy advice and resources, choosing to create an income plan, choosing when to retire, choosing to have a tax plan, and realizing that it’s not all about the money—there’s an emotional component to retiring as well.

Now, before I open it up to questions, I wanted to quickly mention something since we’ve had a lot of people asking about it. Many, if not all, of you attending today have a copy of Scott’s book Plan on Living. If you don’t, let us know, and we’re happy to send you one. This is the book where Scott Peterson wrote down the details of our sound investment knowledge and explains how we recommend creating an income plan with our Perennial Income Model.

Since we’ve received so many questions about it, I just wanted to put it out there that if you’d like to share a copy of the book with a friend, you absolutely can. Just feel free to email us at marketing@petersonwealth.com with their name and address.

“And if you’d like, we can send the book directly to them or to you so you can pass it along. Just let us know.

Before opening it up to questions and handing it over to Zach, I want to thank you all for attending today. Please take a moment to fill out the survey about today’s meeting when it ends. Your feedback would be greatly appreciated.

Question & Answer (48:47)

Zach, any questions?

Zach Swenson: No open questions yet, Alex. Let’s give it a minute to see if anything comes through, but nothing yet.

Alex Call: Okay. And if there are no questions, that’s great too. Thank you, everyone, for attending. If you do have any questions, please feel free to send an email. Thank you very much.

How to Create a Retirement Budget

Alex Call: Hey everybody, we’ll go ahead and get started, it’s about 12 o’clock.

And so as we get started today, I just want to let everybody know that Daniel, he is another advisor here at the firm. He’s going to be taking any questions that you have.

So while I’m presenting, go ahead and chat any questions that you have to him and he’ll get back to you and he’ll respond.

So before we get started with the ‘How to Create a Retirement Budget’ I just want to introduce myself, I’m Alex Call. I’m one of the Senior Advisors here at the firm and we’re just starting, this is going to be the first kind of virtual lunch and learn that we’re doing.

And these are different from the previous webinars that we’ve done in the past where these are just going to be shorter quicker topics that we have that don’t really justify a full hour-plus type of webinar.

And so I hope you like it and as always we love any feedback that you have. And at the end, you’ll actually be asked to take a survey to provide any of that feedback and for how it went and also for any future topics that you’d like to discuss as well.

So with that being said, let’s go ahead and jump right in.

So really the goal of the webinar, or the goal of the lunch and learn today is really going to be two different goals.

For those who currently have a budget and are very good at kind of itemizing, this is exactly what we spend, this is how it is, this is going to hopefully give you some insight into how and what expenses will change as you transition into retirement. Because it will be different during your working years and during retirement how that budget looks like.

And then the second goal is going to be for those who don’t really have a budget or aren’t good at making and creating budgets for themselves. This is to give you a framework of how to estimate what those expenses might be when it comes time to retire.

And so what we want to talk about first is the insight, it’s going to be broken into four categories: Healthcare, housing, hobbies, and taxes that we’ll talk briefly on.

And then as far as the framework goes, there’s two different types of methods when it comes to building a budget that we’ll talk about.

One is the top-down and one is the bottom-up. And it just depends, do you want to start with your budget to determine how much income you need or do you start with your income to determine what your budget is going to be?

Budgeting for Healthcare

So with that said, the first thing is Healthcare. And this is probably, this could be a topic in and of itself that could require multiple webinars when we talk about Medicare and what to do with health insurance if you retire before 65 before you’re eligible for Medicare.

So I just want to give, I’ll give you an idea of what you can expect when it comes to this. And so when it comes to pre-Medicare or if you retire pre-65, your Healthcare expenses will fall into, you know, most people what we see get on the Marketplace.

And for a lot of people, you get some type of subsidy once you retire and you’re on the Marketplace. And so let me just kind of take a step back and explain how that works.

When you apply for health insurance no longer through your employer, you go through the open Marketplace. And these are going to be plans that if you have no government subsidy, you’re going to be spending probably close to $1,000 for a very high deductible, pretty poor health insurance plan. And that’s $1,000 a month for the premium. And so that would be if there’s no subsidy.

What we found is that most people, not most, but many people get some type of subsidy when it comes to this. And right now as your income approaches about $100,000 to $150,000 you start to phase out of any type of government subsidy.

But if you’re income is right around that $100,000 and you might be getting, your insurance might be close to, you might not be paying anything for a monthly premium.

And so this is something that we’ll want to estimate what your income is going to be, just kind of get an idea to see what type of subsidy you would get before turning 65, before being on Medicare.

And then once you’re on Medicare, how this works is, I typically estimate about $200-$400 per person is what their Medicare health insurance is going to be per month. And more of what that premium will be.

And why the disparity, that $200 is going to start off on the low end, that’s going to be what you pay for Medicare Part B. Just to kind of get into Medicare you have to pay that, just about $200.

And then that $400 if you go on the more expensive end, that’s going to be if you want a supplement plan. And the supplement plan is just going to be kind of a, it just supplements your Medicare to make some of those copays and deductibles less expensive.

And so that’s where the low end $200, the high end $400, so I always think of if you’re a couple, estimate somewhere between $500 to $800 dollars a month in Healthcare expenses when you retire.

Budgeting for Housing

And so the next one I want to talk about is housing. So the first question is that a lot of people, not everybody, but many people when they retire they have their mortgage paid off.

And so that’s the first question you ask yourself is, will you have a mortgage? Because if you don’t, if it’s paid off, then obviously that’s going to impact your budget quite a bit.

And then also the next question is do you plan to downsize in retirement?

Let’s say you do have a mortgage, but you plan to sell your home that you raised your kids in and downsize into something that maybe is a little more manageable as far as yard work and there’s less taking care of it, there’s not as much to take care of.

And so these are just a couple of questions that you need to be asking yourself as you approach retirement. Where do you fall in here? Or will you continue to have a mortgage and it’s just going to continue to pay that? And if that’s the case, your housing expenses won’t change much.

And then just remember that even if you don’t have a mortgage, you will still be on the hook to pay insurance and property tax.

Budgeting for Hobbies

So after housing, next are hobbies, and this is what a lot of people are hoping to do when it comes to retirement is to have more hobbies. And the biggest one would be traveling and seeing the world but also traveling to see grandkids or to see family.

And so that is what we have found is that it’s usually a pretty good tick up in people’s expenses around travel when it comes time to retire.

Also, not just traveling but also other hobbies such as whether it’s golf or whether it’s different activities, now that you have more time, you may be putting more money into these types of hobbies.

And so, you don’t want to just kind of take a step back and just kind of think through how much it is that you’ll be spending on your hobbies when it comes time to retire.

Budgeting for Taxes

Then the last one is going to be from a tax perspective. And this isn’t exact, this is kind of giving you a pretty good idea of kind of these ballpark figures of what you could expect your effective tax rate to be when you retire.

So just to take it to walk you through this chart, this is based on someone taking $40,000 a year from Social Security and then the rest of their annual income coming from whether it be pensions or IRA distributions.

So you can see here, and this is, I know some people are out of state, are not in Utah, but this is based on Utah state taxes. If you’re in a place like Nevada, Wyoming, you can just completely take out the state tax because you don’t have it.

But if you’re in a place like California, then this state tax would likely be a little bit more than what we’re showing here.

But just to give you an idea, if you make about $180,000 a year about $15,000 a month, you can see your state tax just under 5% in Utah, Federal 13%. So your total tax would be just under 18%, is what you’d be on the hook for taxes.

I know we can work with that to try to lower it, but this just gives you a pretty conservative idea of what that would be. And then just broken down, if you expect your income to be more about $120,000, then that total tax would be about 13%. Then comes $80,000, you’re effective tax rate would be about 8%.

And so your taxes are going to be less in retirement than they were during your working years most likely because you’re no longer paying into Social Security, you’re not paying into Medicare as well.

So those are just a couple insights and things to be thinking about when you’re thinking of okay, how am I going to be building out this? What expenses might be different or might change when it comes to retirement?

The next thing I want to talk about is more building out this budget, what’s that framework for this budget in retirement?

Rule of Thumb

Well during your working years, you may have seen this just kind of a rule of thumb, about a 50/30/20. And what that means is that this is your after-tax income that’s in your checking account. About 50% of that goes towards your fixed expenses, 30% towards your flex expenses, which we’ll talk about in just a second, and then 20% towards savings whether it be saving for your retirement or putting some money aside for an emergency fund.

And then when it comes to when you’re actually in retirement, we’ve seen it change like this, and this is assuming that you no longer have a mortgage, that your home is paid off.

And that’s where about 30% would go towards that fixed, 40% towards the flex, and then 30% towards the savings. And the savings again is a little bit different in retirement because you’re no longer saving for retirement with this money, but this is going to be saving for things like travel or other types of savings that you would like to do.

This is how we’ve seen it, just kind of a rule of thumb of what it breaks down to.

And so when it comes to what these effects fixed, flex, and savings looks like, the fixed, I think of the fix is this is the money that it’s the same amount every month to the same vendor.

And so I think of these expenses are tithes and charitable giving, utilities, health insurance, property tax, debt payments, things like that. This also could be considered any subscriptions that you have because it’s that set amount such as a Netflix or something along those lines.

And then the flex spending is going to be more your day-to-day lifestyle expenses. So there’s some of these that are non-discretionary, you have to buy groceries, you have to buy clothes and put gas in the car, but it’s variable. It changes from week to week and month to month.

And so the flex would come here. And sometimes what I like to do is break down you have the monthly number of okay, the flex spending it might be $3,000 a month that you have for this.

Well if you break that down into a monthly, into a weekly amount, that gives you about $700 a week to spend on this flex spending amount.

And then you have more of this savings. And the savings I think of it, it’s more of these we call them non-monthly expenses. And these are the expenses that we know pop up throughout the year, but not on a monthly basis.

And so this would be insurance premiums, home and car maintenance. These are necessary but they don’t happen monthly or exact. And then also ones that are a bit more fun, think of these big these big trips for travel like Christmas. You want to spend a lot of money on Christmas for kids, grandkids, and so forth.

And what we do here is we look at what’s the annual amount that you would be spending on these types of expenses and then dividing it by 12 to get the monthly amount that you would be spending.

And then recommend just putting that monthly savings into a separate checking account or savings account. And I know a lot of times now you have these sub-accounts as well that you can have in your savings to help you save for these specific types of expenses.

And that way as these expenses do come up, you can dip into these smaller savings accounts that you have.

So that’s a little overview of the fixed flex and savings and how we look at that.

Two Methods: Top-Down & Bottom-Up

And then the next is if we look at the two different types, we have the top-down and the bottom-up. And so the top-down is where we determine what income you have and then based on your income, is you build the budget around that.

And then you also have the bottom-up which is the inverse, meaning we start with your budget and then we determine what type of income you need to support that budget, to support that lifestyle.

And today I don’t want to get too much into determining the income. That’s not what we’re going to talk about today. If you would like to know more of what an estimated income would be in retirement, we’re more than happy to build out a Perennial Income Model scenario for you, or a retirement income estimate for you. We’d be happy to do that, just let Daniel know or send us an email after.

Bottom-Up Budgeting

So let’s look at a couple different examples of this. So when it comes to the bottom-up you say okay, Rob and Cindy, they’re approaching retirement and they have built out an income. They know that their income will be about $10,000 a month. That’s what they can rely on.

And so of this, we know okay, well 13%, just about 13½% of that is going to go towards taxes. And so they have $8,670 a month to put towards their budget or to estimate what their expenses are going to be.

And that’s where they looked at their fixed expenses, their home is paid off. And so this is going to be their health insurance, utilities, property tax that they’re putting into an escrow account, and these are going to be their fixed expenses of $2,600 a month.

And then they have their flex spending. They want to have about $800 a week or just under $3,500 a month for all their day-to-day lifestyle expenses. And this may include some of these smaller trips to go visit the grandkids and things like that to spend money on the grandkids or go out to eat, and all the more the day-to-day living.

And then when it comes to savings, they put about $2,600 a year, or $2,600 a month towards savings. The necessary savings that they know these expenses that are going to pop up, they have about $6,000 a year which would translate into $500 a month.

And then for fun, they really want to go on a big trip every year so they estimate about $1,600 a month that they put into these savings for their big annual trip, about $19,000 a year that they can set aside for that.

So that’s the bottom-up example where you start with your income, you know what the income is, and then you build a budget based off of that.

Top-Down Budgeting

And then the next example is going to be the top-down. And this is where John and Amy, they want to say, thus is the lifestyle that we want. So we want to build the budget on the lifestyle that we want and then we’ll determine what type of income we need based off of that.

And so that’s where after taxes they need $10,000 a month and then you can see the based on their fixed flex and that savings amount. And this is the lifestyle that they hope to have in retirement.

And so if we add estimated taxes to that, $10,000 and this is again, it’s just an estimate, we don’t know for sure. It’s about 15% which is pretty conservative. That’ll give them, what they will need is about $11,800 a month. That’s the income that they will need to support their lifestyle when they retire.

And so that’s when we’re looking to build this out, I always want to say if you’re doing it this way where you just want to look at the lifestyle you want, I would say this flex spending number, take what you think that you want and then I would say add 10-20% as a buffer for that.

And that way you can help get a more realistic idea of what the income will be that you’ll need when it comes to retirement.

And then when we’re thinking about okay, well, how do we produce this income? Then this is where to determine to get to that type of income that you need. It’s going to be that balance where some people might look at it and we can build out that income scenario and be like oh, we can support $12,000 a month based off of our Social Security, any other income that’s coming in, and also our investments. We can support that, so we’re good.

Other people might look at this and be like well, you know, we want to retire right now and we can only have, this is the lifestyle we want in retirement, but the income that we can produce is only $9,000 a month.

So then you need to ask the question okay, what things are you willing to cut out from a lifestyle if you want to retire now to quit with the income that you can afford, verse maybe it makes sense to wait a couple more years and to wait a few more years so that your income in retirement will grow.

And there’s just that fine balance between trying to figure out time in retirement verse lifestyle in retirement and trying to find that balance.

So as a review, I wanted to go into the insights of the things that will likely change the most with your expenses in retirement, which are going to be the Healthcare, housing, hobbies, and taxes.

And then also just determining what type of framework you want to have to help build out that budget in retirement to really give an idea of what those expenses will be for you and that’s where you either start with your income and they determine what budget you need to have to support that will support that income or you start with your budget first and determine what type of income you will need to have to support that lifestyle.

Retirement Budgeting Question and Answer

So thank you very much for watching this and going over it. And I’m just going to ask Daniel if there are any questions to have right now.

Daniel Ruske: Yeah, so I got a couple questions.

Alex Call: And also you can always just call in or send me an email as well if you have any questions.

Daniel Ruske: Can you hear me okay Alex?

Alex Call: Yeah Daniel, what was the question?

Daniel Ruske: Okay, maybe I don’t think you’re hearing me very clear. I’m going to put it in the chat and you can read it and then maybe answer it.

Alex Call: Sorry, Daniel. Sorry, sorry, I didn’t quite hear that.

Daniel Ruske: Okay Alex, let’s try again. If you can hear me, if not, it’s in the chat. But I think the audience can hear us. Just a second everybody, thanks.

Alex Call: Okay, thank you for your patience there as we got this, I have one question that talked about determining what retirement income might be and what was the recommendation.

So when it comes to determining what your retirement income is, if you’re familiar with the Perennial Income Model™ which is what we use to help people determine what type of income they have, that’s where we organize all of the different, we call it mailbox money that people have. The mailbox money meaning what’s the income that’s coming to you in retirement that’s going to come regardless of your investments.

So think of Pensions, rental properties, Social Security, and any other thing like that. And we take we add up all of those and then also look at your investments and then segment out your investments to help provide income for you in retirement.

And if that’s something that if you’re interested in, we’d be more than happy to set up a time and to build one of those out for you.

Another question, do you have any estimate of a range or average for medical expenses outside of Medicare premiums?

Yeah, so when it comes to outside of Medicare premiums, there will be certain deductibles that people have. And those deductibles range about probably about $3,000-$5,000 a year on the Medicare deductibles that people may have and also co-pays and things like that for doctor visits.

But some of that will also help determine whether or not you have a supplement plan. If you have a supplement plan those deductibles will likely decrease but it will be a higher monthly premium similar to what your insurance would be like today. Where if you have a higher premium, you’ll have a lower deductible.

So, I think that’s all the questions that we had, and so we’ll go ahead and oh, so does Medicare or the Medicare supplement cover vision or dental?

So how it works, you’ll have the Medicare supplement that likely does cover vision or dental depending on the one that you enroll in. You also have a Medicare Advantage plan that you can get, in where bundles that Medicare that is less expensive that would help with vision and dental that you could look into.

So Medicare itself does not but the supplemental plans, or the advantage plans could cover vision and dental.

And then I think this is a great question to end off of, is what is a comfortable retirement income to work toward? And that is it totally depends.

We have some people that say they want $20,000 a month and that’s a comfortable retirement income and other people that say they want $2,500 a month and that’s a comfortable retirement income. And so it’s very dependent on what you want and that’s the purpose of this webinar is to help you get an idea of what those expenses would be in retirement.

So, thank you again very much for coming out and please take that survey to let us know your thoughts. Bye.