Retirement By Design: Ideal Sequence

In this episode of Your Retirement Guide, George Jameson, CFP® and founder of Capital Wealth Group, walks you through the ideal sequence for a well-designed retirement. From income planning to tax strategies, discover how the right order can help you retire with more clarity and confidence. 

 Welcome to "The Retirement Guide" Podcast! I'm your host George Jameson, owner of Capital Wealth Group, a Fee Only Advisory firm. Whether you’re nearing retirement or already retired, Join me each week as we explore the world of retirement planning and equip you with the knowledge and tools you need for a successful retirement.

Thank you for tuning in to this episode of The Retirement Guide. If you enjoyed this episode, please subscribe & leave a review. If you'd like a free 30-minute retirement review, visit our website at www.capitalwealthplan.com to schedule.

This is for education only.It is not tax, legal, or investment advice. Before  acting on any information consult your tax, legal, or investment advisor.

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Transcript

George Jameson: 0:18

So let's get started. Today we're talking about how to create a truly successful retirement plan and why the order in which you tackle each piece really matters. We'll cover the three big items, your income plan, your investment plan, and your tax plan. By the time we're done, you'll see why starting in the wrong place can leave you feeling boxed in and how this simple shift sets you free to design the retirement of your dreams. So step one, start with your vision, not your numbers. You might assume. Step one is running to your brokerage statements. Add up your balances and assess your risk tolerance. And that's what most advisors will do with new clients But starting with investments can actually pigeonhole your retirement. So instead, I recommend beginning by picturing your ideal retirement life. Without worrying about dollars just yet, here's how to do it. Paint the picture. Ask yourself, what does a perfect day look like in retirement? Are you gardening at dawn, playing pickleball with friends, taking peaceful walks on the beach, traveling? Maybe you're volunteering your time. Maybe it's all of the above. Dream big, whatever lights you up. And then next, notice the emotions. What excites you? Is it peace of mind? Is it adventure, quality, time with family? Jot down the feelings and experiences that matter most to you, and then forget constraints, at least just for now. Don't worry about the money yet. This stage is about imagining the life you want so you can build your plan around it, not the other way around. So why does this matter? If you start with numbers, you risk trying to fit your life into a budget. But when you start with vision, you build a budget that fits your life. Step two, translate your vision into an income blueprint. Once your vision is crystal clear. It is time to ask what income will support that lifestyle. So first list your retirement must haves. These are your essentials, like housing, food, transportation, insurance, and so on. This is your base level of spending. And then second list your nice to haves, such as travel, hobbies, gifts for grandkids, club memberships, whatever, adds enjoyment, and then estimate the cost. And then third, map out income sources. Think social security, maybe a pension, annuities, possibly rental income, part-time work or consulting for a few years after full-time retirement. List all your income sources. And then fourth, this is where you bridge the gap. For most people, guaranteed sources won't fully cover your vision. Now you know how much income you'll need to draw from investments in year one of retirement, and then number five. You can run the 4% rule as a good starting point. For example, if you'll have $2 million at retirement, calculate 2 million times 4%, which equals 80,000. Ask yourself. Will 80,000 fill your income gap? If yes, great. You're on track. If not, that's okay. If you've done this planning before your retirement year, you have time to make adjustments. Please keep in mind, not everyone has 2 million. So this is just an example. This income first approach gives you two big benefits. Number one, clarity on your investment needs. You'll know how much you need to save and what kind of returns are required to support your income goals, and that's powerful. And then number two, confidence in your plan. Instead of guessing, you've nailed down what your lifestyle will actually cost. So your plan is based on reality, not assumptions. And if the numbers aren't adding up yet, don't worry. You still have time and there are other smart moves you can make. You could work a little longer. You could take on part-time work early in retirement. You could increase your savings rates now while working or you could trim lower priority expenses in retirement. The key is awareness, knowing where you stand now so you can take action. So let's move on to step three. Build your investment plan to fit the income blueprint. Now that you know how much you need and when. You can design an investment plan that aligns with your cash flow needs. This is far more personalized than relying on a generic risk questionnaire. Here's the approach I often recommend, and it's called the two bucket strategy. Forget the overly complicated bucket plans that you may have heard of. This one is clear, simple, and effective. For the full breakdown, listen to episode 23. But here's the gist. So bucket number one is your cash lifeline. This holds one to two years of expected withdrawals after factoring in your guaranteed income. It should be in safe liquid investments, like money market funds, or treasury bills. You can make withdrawals monthly and replenish it quarterly or annually. And if you're very conservative, you can hold three or five years of cash if you'd like. It's a personal preference, and then bucket number two, this is your investment portfolio. This is your long-term growth engine made up of stocks and bonds. Most retirees fall somewhere between a 30 70 and a 70 30 stock to bond allocation. The right mix depends on your unique situation, your comfort level. Your risk tolerance, your needs and goals. Then you would rebalance your portfolio either quarterly, bi-annually, or even annually. If stocks are up, sell some to refill bucket one if they're down, sell bonds instead. Yes, 2022 was a tough year with both stocks and bonds being down, but not all bonds. So if you had a well diversified portfolio of stocks and bonds, this strategy would've kept you from selling at a loss. If you want more detail or examples, go check out episode 23. Now onto step four. Optimize taxes to keep more of what you earn. Once your income and investment plans are in place, turn your focus to long-term tax planning. This is where many retirees miss out, and the savings can be huge. So the first strategy you may want to consider is called tax location strategy. This is where you place tax inefficient assets like taxable bonds, high turnover mutual funds, and even dividend paying stocks in tax deferred accounts. And then you would want to keep tax efficient investments like passive index ETFs. Passive index mutual funds, growth oriented individual stocks, or even municipal bonds. For those in higher tax brackets in brokerage taxable accounts. And then think of your Roth IRA as the last bucket you'll usually touch. It's your most tax advantage account. It's ideal for growth since you probably won't touch it for decades down the road. So here again, you would add growth oriented investments, and then when you finally withdraw the money, your Roth IRA, all the gains comes up tax free. Okay? Number two, you may want to consider tax loss harvesting. If you've realized gains in the year, you can sell losing investments to offset those gains and lower your taxable income to stay invested by a similar but not identical ETF or fund or even stock right away. And then excess losses can offset future gains or reduce your taxable income by up to $3000 per year. And then number three would be withdrawal sequencing. And this one's huge. And it applies to most people in retirement. What is the best withdrawal order? The best withdrawal order depends on your unique situation. So you use retirement planning software to run scenarios. The most tax efficient approach is often draw from taxable accounts first, then move to tax deferred accounts like traditional IRAs and 4 0 1 ks, and then finally tap tax free accounts like Roth IRAs. This is not always the best strategy for everyone, so please use some type of retirement planning software or work with a financial planner. So why does this matter? The tax difference can be substantial. Sometimes hundreds of thousands of dollars saved over retirement. That's more money in your pocket or more money to pass on to your heirs. And then four Roth conversions. This strategy lets you move money from a traditional IRA to a Roth IRA paying taxes now to avoid bigger tax bills later. Roth Conversions can be smart if you expect to be in a higher bracket later, or you want to reduce future RMDs. I've covered this in detail in past episodes, so check those out. Just remember, it's not a one size fits all situation. Talk with a financial planner, and look at your whole picture before deciding. Now, let's put it all together, the three pillars of retirement. So at the highest level, your retirement plan hangs on three pillars. Number one, your income plan. You go from vision to cash flow. And then number two, investment plan. Now you know your cashflow needs and then you determine your asset allocation. Then number three, tax planning, which we just went over. Roth conversions asset location. Tax loss, harvesting, and the most important withdrawal sequencing. By approaching them in that order. Vision, income, investments, and then taxes. You gain clarity, flexibility, and peace of mind. So this isn't a cookie cutter 60 40 approach. It's a tailored strategy built around your life. So wrapping it up, remember, it's not about charts and jargon. It's about starting with your dream, translating it into numbers. Protecting those numbers with smart investment in tax planning. It's a small shift in thinking, but it can make a big impact if the approach resonates. I'd love to hear from you. Drop a comment, share your retirement vision, or let me know which steps you're tackling next. Until then, happy planning and have a great day.