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for retirement planning. planning. the

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season for company, great questions,

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and better retirement strategies. Wade

0:46

and Alex are here with the next part

0:48

of our Q &A series to help you wrap

0:50

up the year with confidence. Q&A series to help you

0:52

so we got one from

0:54

with here Okay, so we got one And

0:56

it says, Suzanne planning purposes, for

0:59

How do I calculate the I

1:01

value of a future value want

1:03

to estimate the impact of

1:05

my the deferred my combined deferred accounts

1:08

my my five-year plan. Can

1:10

you you give an example of the

1:12

calculation? Okay, this question

1:15

this question is actually a cousin

1:17

to another question on our list

1:19

that actually explained the problem correctly,

1:21

but then asked us if asked us

1:23

was correct. So maybe we

1:25

should. So maybe we should read that

1:27

other question and then come back to this

1:29

question because it lays more of the it

1:32

lays of what's going on. of what's

1:34

going on. read the question. the question.

1:36

Okay. So this is, this about something in

1:38

Secure Act 2 .0, act

1:40

2.2. is is beneficial for

1:42

owners spias in IRAs. this other me read

1:44

this other question. It'll provide

1:46

more context then we'll come back

1:49

to this question question too. Okay, could you

1:51

could you say something about

1:53

the new RMD rules for people

1:55

who own a a qualified annuity? that has

1:57

that has been annuitized and also own?

2:00

traditional IRA that is subject to an

2:02

RMD to an RMD I understand

2:04

that new that rules finalized this

2:06

past summer. past summer allow a

2:08

to aggregate the December the account

2:10

value of the the annuity

2:12

with the December 31st account

2:15

value of the IRA the IRA

2:17

the purposes of determining the

2:19

combined annuity and IRA and IRA RMD

2:21

dollar for dollar. for And

2:23

because the annuity the on the

2:25

annuity account balance will be.

2:27

will be or or will frequently exceed

2:29

the the RMD amount that would that would

2:31

be required on the same balance

2:33

under the IRS tables, you will you will

2:35

end up with a lower aggregate aggregate

2:37

the you aggregate the with the

2:39

IRA balance together with the IRA

2:42

of for the purposes of determining

2:44

the total Instead of of using

2:46

the alternative method of applying the

2:48

annuity distributions to satisfy the

2:50

RMD requirement requirement, you're IRA

2:52

distributions to satisfy the

2:54

IRA IRA. R&D requirement. Okay. Do

2:56

I I understand all

2:58

this correctly? correctly? are there

3:00

any pitfalls? any pitfalls? So first,

3:02

For those. yeah, I'll try to read like

3:05

myself. I think what I think

3:07

question ultimately is is, hey,

3:09

we we can now

3:11

combine accounts. accounts. Would that have an

3:13

annuity in in like an IRA account

3:15

with an annuity in them? We're gonna in

3:17

that account value with another one, with

3:19

another IRA one have a combined have together

3:21

as opposed to taking as independently from

3:23

those two different accounts. from those

3:25

two because it's about accounts.

3:28

No, can explain more

3:30

context. more context. Okay, secure. So first of all,

3:32

if you were of all, to if you

3:34

were able to follow, read I didn't

3:36

read that very well, but yes, what

3:38

I read was So that answers

3:40

the the first part of the

3:42

question. What was that

3:44

saying? that So So 2 .0

3:46

added a nice provision for

3:48

individuals that own spias that

3:50

own spias in IRAs. To clarify why

3:52

it's a nice provision. in

3:55

In the old days, suppose, okay,

3:58

let's say, let's I've You know, I've got five... $500

4:00

,000 in my my IRA. half

4:02

of that. Maybe take half of that, weird I'm

4:04

making up weird numbers, but I'll take half of

4:06

that and put that in a put that in a spia.

4:08

will provide me monthly payments

4:10

for the rest of my life.

4:12

for the It's very likely the

4:14

case that the SPIA payment would

4:17

be higher. would be higher the RMD

4:19

would have been on that on

4:21

that ,000 I just put into spia.

4:23

In the In the old days,

4:25

this was bad I I couldn't

4:27

count any of that Spia payment. against

4:30

the RMDs due on the other

4:32

$250 ,000 left in the account. I So

4:34

I ended up having to take

4:36

out more. out more. I I had to

4:38

get my my payment. That covered the RMD just

4:40

for the SPIA premium. just for the and

4:42

then I still had to take

4:44

my and on the remaining IRA assets. RMDs

4:46

on the remaining IRA new rule

4:48

The new rule 2 .0, and that's

4:50

what 2.0, being described in this

4:52

paragraph, is in this Every

4:55

year. is every year... there'll be

4:57

a calculation done on the

4:59

present value of your remaining of your

5:01

payments. spia payments. then you calculate

5:03

the the on that present value. value,

5:06

and it's it's probably gonna be less

5:08

than your SPIA payment. spia payment. But but

5:10

you take the on the present value

5:12

of the remaining annuity annuity the RMD on

5:14

your other IRA assets. And that's your

5:16

total RMD due. that's your total but

5:18

now you can apply the apply

5:20

payments. spia payments the the due on

5:22

the non -annuity assets as well. as

5:24

well. So it it lowers the amount you're

5:26

required to take out of your IRA. out of

5:29

your IRA. It's a very nice

5:31

provision. So with that first question,

5:33

that first question, yes, that individual stated

5:35

it correctly. They They also asked,

5:37

are there any pitfalls to be aware of before

5:39

using this method? of before using this

5:42

the answer is the not really. no, not

5:44

really. Every year, annuity annuity insurance

5:46

company will have to send

5:48

you a form telling you what

5:50

what this number is, what this present

5:52

value is value is. to be able to then

5:55

know what the the on it will

5:57

be. it will be. So now other

5:59

question. is understood all this and

6:01

is now getting to the question

6:03

of, of, well, how do I

6:05

know what the present value of my

6:07

value is so that I can estimate

6:09

what those that I will be over the

6:11

next five years? R&D's will be over the

6:14

one, it's a present one,

6:16

calculation. value you

6:18

consider over your remaining

6:20

life expectancy. life expectancy.

6:22

Well, how much are how much are

6:25

you expected to receive from this the spia?

6:27

and then at current interest rates, what's

6:29

the present value of that amount? of

6:31

that amount? That's be what the the spia

6:33

is, its present present value. That's what the

6:35

insurance company is going to be doing. going

6:37

to be If you really wanna get precise

6:39

about it, it, you you can find the

6:42

IRS rules about how to do those

6:44

present value calculations. They have their life

6:46

tables showing you how you how many years

6:48

are you expected to receive this SPIA

6:50

payment. payment, and then based on

6:52

the interest rates that you rates you

6:54

get that present value. value. Now that being

6:56

said, you want just the you

6:59

want just the back of the envelope

7:01

calculation so you can get an idea about

7:03

this. about this, you could. could,

7:05

this isn't gonna be correct, but again,

7:07

as a 80% of the way to the answer, of

7:09

the way to the answer. Just

7:12

before you started receiving SPIA

7:14

payments, just mean, the spia value was the

7:16

value was the premium you

7:18

put into it. And then and

7:20

then each year. what those spia

7:22

payments you received are. So if.

7:24

At a a $300 ,000 premium.

7:26

into this via, initially, you

7:29

can calculate the you

7:31

can calculate the RMB off the

7:33

,000. I In the first year,

7:35

I get $40 ,000 of payments

7:37

from the SPIA. from now I that

7:39

from, now I have $260 ,000 could

7:42

a rough estimate. I

7:44

could treat the present value of remaining

7:46

SPIA payments as that. The next the

7:48

next year, subtract the next

7:50

$40 ,000 I receive $220 $220, ,000 left. left.

7:52

That's a rough estimate that

7:55

will give you some idea

7:57

about this, The the present values

7:59

never gonna be higher than the than

8:01

the you unless well, unless

8:04

interest rates dramatically but you can

8:06

you can probably. that aside to

8:08

the most that aside at the most

8:10

part. to give you a rough gonna give

8:12

you a rough estimate yeah, the that. have

8:14

information the IRS does

8:16

have information and based on the interest

8:19

rates and giving you the on how

8:21

based on how many years you this

8:23

BIA payment. You could use Excel to

8:25

calculate the the value value. of those BIA

8:27

payments. And then that would be

8:29

an estimate that you use to calculate

8:31

the to calculate the RMD. Now wait, I I, I want to

8:33

to make sure I I it right myself. myself.

8:35

When I I was listening to the

8:37

question. I was specifically the the

8:39

first part not how to calculate the

8:42

present value of a speed or anything

8:44

like that anything isn't the new isn't the new

8:46

law effectively like, isn't that that what you just, did

8:48

I I get it wrong? Because combining

8:50

both accounts accounts to then. you know, get

8:52

an you're talking about technically technically are

8:54

are aggregating. Well, it might be in

8:56

the same IRA. the same IRA. Yeah, okay,

8:58

okay. Sure, sure, in in the same market, but

9:01

if you have if you of them is one

9:03

of them is and one of them is like

9:05

a regular investment account, of you can aggregate

9:07

those. that's all I was yeah, you

9:09

can aggregate different can aggregate all I was And that's

9:11

all I was. Oh, yeah, that's correct statement,

9:13

but it just doesn't have anything

9:15

to do with this question. to

9:17

do with this question. I mean, mean, it, it

9:19

does at the extreme, but that's not

9:21

the main thrust of of. No, the main

9:23

the main value and I get that value and

9:26

I get that. Now, don't, I was kind of like, on

9:28

ramping. Don't you need, does the insurance you

9:30

you, does the insurance company help

9:32

you at all with the value

9:34

itself itself, like something like that? or

9:38

they'll need to send you a form. need to

9:40

that you tell you what the present value

9:42

of your the is so that you can

9:44

calculate spia is so that you can calculate

9:46

its they don't, there are

9:49

guidelines about how to do

9:51

those calculations. to do those calculations.

9:53

But I but

9:55

I give give the exact explanation for

9:57

it. Yeah, yeah, that's fine, that's fine.

10:00

I'm not podcast. Okay,

10:02

let's do the next

10:04

one. My and my

10:07

husband's 43B plan miscalculated

10:09

our automatic RMD withdrawals

10:11

for the past five

10:14

years. Who do you

10:16

think is responsible for

10:19

fixing this? That's

10:23

ultimately something you may want to

10:25

speak with a lawyer about. I'm

10:27

assuming the problem is they under

10:30

calculated and so now the IRS

10:32

wants to apply a penalty for

10:35

not taking out the full RMD

10:37

amounts. And the penalty, it goes

10:39

to everything if I'm correct, right?

10:42

It accumulates with interest at a

10:44

pretty steep rate, but the secure

10:46

act did reduce, the penalties used

10:49

to be extreme, like even 50

10:51

percent. penalties on the amount you

10:54

didn't distribute. It is the case

10:56

that, and this would qualify at

10:58

least as a valid excuse, that

11:01

I think you could get the

11:03

penalty down to 10% at this

11:06

point. But I think the argument

11:08

here is, well, you don't feel

11:10

like you should pay the 10%

11:13

penalty. And that's really going to

11:15

be a legal type argument. Yeah,

11:17

I mean, there's plenty of ERISA

11:20

lawyers that would be able to

11:22

deal with that specifically, but yeah,

11:25

it seems there's an error somewhere

11:27

along the path. There could be

11:29

many variables. I don't know if

11:32

it's an input error, an output

11:34

error, or what have you, but

11:36

yeah, that's for another legal, that's

11:39

for a legal fight, guys, I

11:41

would imagine, at this point. If

11:45

the mistake went the other way and

11:47

they just had you take out more

11:49

than you needed to, there's probably not

11:51

going to be much recourse for that.

11:53

I mean, unfortunately, you could have had

11:55

more tax deferral, but I don't know

11:58

how that anything could be. resolved. It's

12:00

more the issue of if they told

12:02

you you could take out less than

12:04

what's required. And there's penalties involved in

12:06

you might also take it up with

12:09

the IRS about not having those penalties

12:11

applied due to a mistake that was

12:13

not really your fault. Yeah, I mean,

12:15

the only thing I would add to

12:17

that is, Maureen, look, I feel for

12:20

you in those situations. We've had many...

12:22

you know, new clients come to us

12:24

because of things like this and Unwinding

12:26

that or fixing that is some of

12:28

the things, you know Kind of get

12:31

get involved in and it's it's never

12:33

pleasant So I I do feel for

12:35

you in that regard, but I don't

12:37

know if we can point a finger

12:39

at one way or the other not

12:41

because we don't want to it's just

12:44

we don't It's beyond the purview of

12:46

this podcast other than like yeah, to

12:48

a call on a risk on attorney

12:50

and lay down the case and see

12:52

what they say what they say what

12:55

they say All

12:57

right, we've got one. Retiring at

12:59

50. What contracts or market assets

13:01

can protect my late life income

13:04

floor against decade-long inflation of 10%

13:06

and negative real market returns, i.e.

13:08

Stackflation, Japan. A contract with the

13:10

devil. This is usually where tips

13:12

enter the conversation now. Treasury inflation

13:15

protected securities provide you an inflation

13:17

adjusted rate of return. It's currently

13:19

for longer matureties in the ballpark

13:21

of 2% real plus inflation on

13:23

top of that. That would protect

13:26

if you bought a 30 year

13:28

tips that would give you inflation

13:30

adjusted purchasing protection for the next

13:32

30 years. So if you're retiring

13:34

at 50 that would get you

13:36

to 80. So the question is

13:39

more about I think with late

13:41

life income floor. You don't have

13:43

anything beyond a JD that really.

13:45

There's no way to get protection

13:47

against long-term inflation that goes beyond

13:50

the end of the yield curve,

13:52

which would be 30 years. You

13:54

can't get protection beyond 30 years.

13:56

You can hope that 30 years

13:58

from now, you could roll that

14:00

money into a new tips. But

14:03

who knows what that would look

14:05

like in 30 years? I think

14:07

ultimately, though, it's just speaking to

14:09

the need to be flexibility, because

14:11

there's nothing that's truly... going to

14:14

protect against every contingency over a

14:16

long time horizon? And this, they

14:18

continued this question, or maybe they

14:20

thought of other things, just this

14:22

changes the answer here. I'm considering

14:25

buying tips today at a payout

14:27

to pay out at age 80,

14:29

then buying a spia with 2%

14:31

cola adjustments, but that seems a

14:33

very expensive approach that doesn't really

14:35

protect against high inflation after age

14:38

80. Also, the tips plus be

14:40

approach for goes 30 plus years

14:42

of market returns. For example, is

14:44

there any sort of variable annuity

14:46

available with COLA adjustment? Just before

14:49

I, you chime in wait while

14:51

you're thinking about the answer here.

14:53

And so this is where I

14:55

would also ask just in terms

14:57

of the linearity of your thought

14:59

and making sure that it's consistent,

15:02

not that it's not, but this

15:04

is a very emotional thing and

15:06

I want to be able to

15:08

parcel out everything here. And so,

15:10

The statement started with I need

15:13

to protect my late life income

15:15

floor against a decade long inflation

15:17

of 10% I assume you mean

15:19

yearly not just from one year

15:21

year one year 10 it's increased

15:24

10% so right off the bat

15:26

it's I mean this is the

15:28

last thing you're going to be

15:30

thinking about if this is the

15:32

last thing you're going to be

15:34

thinking about if this happens is

15:37

Is like the distribution I think

15:39

there gonna be a lot of

15:41

issues going on with the country

15:43

if you're talking about 10% inflation.

15:45

You know, and then in addition

15:48

to that, you're saying you want

15:50

to predict against negative real market

15:52

returns, right? And so it's hard

15:54

to juxtapose that statement within the

15:56

last statement being, but I may

15:58

miss out a market return. I

16:01

may miss out on market returns

16:03

if I invest in tips and

16:05

a sphere, which I don't disagree

16:07

with that statement. It's just you

16:09

can't have it both ways, is

16:12

just the issue I just want

16:14

to point out. And I'm not

16:16

being prescriptive. I'm just kind of

16:18

my observations from the observations from

16:20

the questions. as we're doing these,

16:23

the questions actually are quite insightful

16:25

from the standpoint of how the

16:27

thinking works for this particular person,

16:29

right? And so obviously that first

16:31

statement is I am scared. Maybe

16:33

it's, you know, we just were

16:36

just coming off on the election,

16:38

so and maybe you're on the

16:40

other side of things, and it's

16:42

like, oh my goodness. And it

16:44

would have been the same way

16:47

if the Democrats won. I'm sure

16:49

we would have had Republicans coming

16:51

in and this and that, so

16:53

it's... And I don't even say

16:55

that's you, but that's that happens

16:58

a lot right now. And so

17:00

I would temper that with just,

17:02

you know, a decade long inflation

17:04

of 10% and then negative real

17:06

returns on top of that. We're

17:08

going to have significantly greater problems

17:11

going on if that happens. But

17:13

that being the case, you took

17:15

Wade's advice ahead of him saying,

17:17

okay, I consider about, well, not

17:19

Wade's advice, so this is an

17:22

advice, but just Wade's point about

17:24

considering buying tips, I'd a payout,

17:26

rate, then a spia, then a

17:28

spia. with 2% COLA adjustment, you

17:30

know, etc. but that seems very

17:32

expensive. And then it ends with

17:35

the, also the tips plus B

17:37

approach for goes 30 plus years

17:39

of market returns. Yeah. So then

17:41

is there a sort of variable

17:43

annuity available with COLA adjustments? So

17:46

I'm just addressing the thinking in

17:48

that question seems to meander a

17:50

little bit. If you're looking for

17:52

more personal advice... Take

17:54

a look at

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18:14

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18:16

you deserve. that don't

18:19

forget to check the show

18:21

notes to get your check the show

18:23

on to income planning. e-e-book on

18:25

retirement the specific answer Well,

18:28

so a so a with 2% cost

18:30

cost of living adjustments doesn't

18:32

protect you you against Inflation exactly

18:34

it's giving you an annual step up

18:36

of 2 up of 2% if you're

18:38

worried about high inflation about high you're

18:40

missing 10% you're missing not helping helping now if

18:42

you're talking about like having the

18:44

tips for 30 years and then 30

18:46

years and then at something else, something who

18:48

knows what kind of financial products

18:51

we'll have at that point. will have

18:53

at that point? It could be a

18:55

completely different world, but then by then.

18:57

there will be inflation adjusted existed

18:59

in the past, in the

19:01

CPI indexed spias. one

19:03

left last one left the market in

19:05

January, 2020. no one's been back in the been

19:08

back in the market let's I

19:10

mean, the assumptions and just forget the assumptions.

19:12

as is. What about and just treat it

19:14

as is, what about the strategy? about I'm

19:16

more inclined to think about it like

19:18

tips I get, and inflation protection and

19:20

I'm worried about inflation. Forget the numbers

19:22

that that put out there just in general.

19:24

I'm worried about inflation I'm worried about I

19:26

like and the like. I like the I

19:28

would probably probably forego the spia

19:31

And since this is long is long term

19:33

because thinking at age 80, so

19:35

I'm thinking age 80 so I'm the time

19:37

frame they're thinking about locking down,

19:39

I'm thinking about like of a down. I'm

19:41

thinking of Kulaq instead of a

19:44

I mean, a Qlack inside of the IRA. of

19:46

the IRA. you you lock that in

19:48

now. So that's the the other option that

19:50

you you a deeply deferred income

19:52

annuity today. And then you can make

19:54

that that But then you miss

19:56

out on any sort of inflation protection

19:58

for that. for that. because

20:00

if there's this high inflation in

20:02

the next 30 years, you locked

20:04

in today. Well, did they lock

20:06

it down? Okay, they're talking about

20:08

80, maybe when they turn 60,

20:10

or 65. When they turn 65,

20:12

they consider the QLI. And there

20:14

are, like, we may see financial

20:16

innovations. There is already. And I

20:18

don't know if we can really

20:20

say the names of companies in

20:22

this context, but there's a provider

20:24

out there who has It's not

20:26

truly an inflation adjusted annuity because

20:28

it would stop payments at age

20:30

100, and it's not fully guaranteed

20:32

three You can mention that name.

20:34

We're going to do a podcast

20:37

on it as well, and we

20:39

did a study on it. And

20:41

I think they have They can't

20:43

talk about it. We can you

20:45

see it then you're the compliance

20:47

officer No, there are some ETF

20:49

companies that are coming out with

20:51

interesting solutions, not ETF companies, there

20:53

are some investment companies that are

20:55

offering ETFs with some pretty interesting

20:57

solutions that have to do with

20:59

structured outcomes from the income standpoint

21:01

that are taking, I would say,

21:03

some interesting qualities from annuities and

21:05

marrying that with interesting qualities with

21:07

markets to create more structured products,

21:09

but that are liquid. more liquid

21:11

in nature and ETF driven. And

21:13

that's, I'm not saying it, that's

21:15

the company to get, but I

21:17

think its weight's point is innovation

21:19

is really coming in, is gonna

21:21

start to come in fast and

21:23

heavy within these products as everyone

21:25

knows that it's peak 65. All

21:27

these folks and all these investment

21:30

companies are looking in a mirror

21:32

thinking, all right, we've done a

21:34

great job over the last 25

21:36

years with accumulation products and we'll

21:38

continue to do so because there's

21:40

people born every day. But we

21:42

need to really start focusing on

21:44

decumulation products because there's a real

21:46

gap there. Even from a business

21:48

standpoint, there's a gap in the

21:50

offering. And so you're seeing a

21:52

lot of stuff coming in through

21:54

there. Yeah. And so that is

21:56

the LifeX that does have that

21:58

inflation adjusted version. I don't think

22:00

it's available at age 50, I'd

22:02

have to double check. There's a

22:04

age band, I have to double

22:06

check, but I'm thinking like 55

22:08

to 75 is when. I forget.

22:10

They just changed some things up

22:12

to be in an ETF structure

22:14

as opposed to a mutual fund

22:16

structure. And I don't, I don't

22:18

remember. Yeah, we'll have a podcast

22:20

about that at some point, because

22:23

it is a financial innovation that

22:25

that speaks to this question, because

22:27

the other part of the question.

22:29

But again, it's not, if you're

22:31

worried about high inflation, coal adjustment.

22:33

Or if you're worried about low

22:36

market return, then who cares about

22:38

a variable annuity to something else?

22:40

Well, and also, well, that too,

22:42

but also, just coal adjustments don't

22:44

provide inflation protection. They provide a

22:46

fixed annual cost of living adjustment,

22:48

regardless of whether inflation is 1%

22:50

or 20%. So if there's high

22:53

inflation, yes, you'll get a little

22:55

bit more purchasing power, but it's

22:57

not. That's baked into the pricing.

22:59

You start with a lower payout,

23:01

because it's going to step up

23:03

over time. You really want some

23:05

sort of CPI protection, and I'm

23:07

not aware of any variable nudity

23:10

that had a CPI adjusted benefit

23:12

attached to it. It'd be too

23:14

expensive, because how are they going

23:16

to protect themselves from that risk?

23:18

Yeah, especially when they allow it.

23:20

individuals to invest as they wish

23:22

in the sub accounts. Well, that

23:24

goes back to another point. Another,

23:26

this is now a little nerdiness

23:29

here, but variable annuities may not

23:31

be the right chassis for you

23:33

as well. It could be more

23:35

along the lines of a rila.

23:37

Could be a better. Yeah, if

23:39

you're using this kind of thinking,

23:41

then maybe a registered index length

23:43

annuity, you know, a rila would

23:46

be kind of a preferred. choice

23:48

perhaps than a variable annuity. You're

23:50

seeing them less and less popular

23:52

because of the inefficiencies and structural

23:54

stuff that Wade mentioned within the

23:56

variable annuity world. Okay.

24:00

Okay. There was another live

24:02

question there on the, and

24:04

this one I think can

24:06

be a shorter answer because

24:08

it is an easier question.

24:10

Finally, a nice easy question.

24:12

After full retirement age to

24:14

optimize Social Security monthly retirement

24:16

payments that I'm already drawing,

24:18

can I just voluntarily pause

24:20

until age 70? Yes. After

24:22

full retirement age, you're allowed

24:24

to suspend your benefit. If

24:26

you had claimed earlier and

24:28

then realize in hindsight you

24:30

wish you hadn't done that,

24:32

you can pause after full

24:34

retirement age and then begin

24:36

collecting delayed retirement credits to

24:38

offset some of that loss.

24:41

So if you if you

24:43

claim to 62 and then

24:45

you pause at full retirement

24:47

age and then you delay

24:49

until 70 and suppose your

24:51

full retirement age is 67.

24:53

you'd get a 24% boost

24:55

on that lower benefit you're

24:57

getting from having claimed early

24:59

that may offset and get

25:01

you closer to where the

25:03

the full retirement age benefit

25:05

would have been. So yes,

25:07

file our suspending at full

25:09

retirement age is allowed. You'll

25:11

begin collecting delayed credits on

25:13

that lower benefit amount that

25:15

you have because you claimed

25:17

early, but that can help

25:19

offset some of those lower

25:21

benefits for you. All right.

25:25

And then, you know, any questions

25:27

for me, Wade? Just to, since

25:29

we had the write-ins, we can,

25:31

or do you want to? Yeah,

25:34

I think from our big question

25:36

list, we were ready to start

25:38

question number three from that at

25:40

this point. Okay. So, yeah. So,

25:42

Alex. Oh, and I combine two

25:44

questions here together that are variations

25:46

on a theme, but I think

25:48

they can just be addressed together.

25:50

So the first question, should I

25:52

lump some a Roth IRA in

25:54

January or dollar cost average shot

25:56

the year? And so to be

25:58

clear, this is when I'm adding

26:00

new contributions. Should I make my

26:02

full Roth IRA contribution in January

26:04

or spread it throughout the year?

26:06

Second question. Now this is now

26:08

I'm taking distributions. So when it

26:10

comes to receiving distributions from a

26:12

tax deferred account, is there an

26:14

optimal approach? Is it better to

26:17

take the annual distribution as a

26:19

lump sum in January or in

26:21

December or spread it out monthly?

26:23

Dollar cost averaging it out? What

26:25

are the tax applications? Or is

26:27

this simply based on an individual's

26:29

needs and personal circumstance? It's an

26:31

interesting question. It's good. You know

26:33

what it's showing you me that

26:35

the question we would get asked

26:37

all the time and we're getting

26:39

asked this question with more or

26:41

more, but it's a similar type

26:43

of question is, I have money

26:45

to invest in the market. Do

26:47

I put it all in at

26:49

once or do a dollar cost

26:51

average into the market? Right? And

26:53

this is kind of the inverse

26:55

of that, but theoretically, it's kind

26:58

of asking the same thing. Right?

27:00

Like, do it do it all

27:02

out? Well, do I take my

27:04

money out all at once? Or

27:06

do I dollar cost average out

27:08

of it? Oh, you're not dollar

27:10

cost average. Or do I take

27:12

it out on a monthly basis

27:14

proportionally? I think there's all answer

27:16

to it. Two perspectives I want

27:18

to share. And that if you...

27:20

take it out monthly as opposed

27:22

to all at once and the

27:24

markets go up I think it

27:26

was like point eight a month

27:28

point eight percent a month or

27:30

something like that whatever adds up

27:32

to like 10% a year right

27:34

and so if the markets go

27:36

up over the long term and

27:38

you're going to be taking distributions

27:41

for let's say 25 years assuming

27:43

you're a total return investor then

27:45

you're probably better off. But

27:47

your best answer would be wait till

27:49

December all the time, right? But you're

27:51

probably better off kind of just smoothing

27:54

it out Because more money will stay

27:56

in let's say you take your distributions

27:58

for January you still have February through

28:00

December Samber's distribution invested in the market,

28:02

right, et cetera, et cetera. So if

28:05

you smooth it out that way, I

28:07

think that's a better, that's better for

28:09

you from an investment perspective. Simply because

28:11

you're removing the vagaries of just short-term

28:14

volatility and you're capturing the longer term

28:16

moments where the markets will, you know,

28:18

meander forward, if you will, the upward

28:20

drift, if you will. So you're able

28:22

to capture it like that. And, you

28:25

know, that's a similar answer to lump

28:27

sum or contributions. Do I put it

28:29

all at once or lump sum? At

28:31

there, you would do the lump sum

28:34

because the markets go up or the

28:36

long term, the sooner it's invested, the

28:38

better. You know, that kind of thing.

28:40

So, here, it's the same thinking, but

28:42

it's the inverse where I would just

28:45

fume it out, frankly, myself. Now, that

28:47

being the case, it does give you

28:49

a lot more flexibility. fuming it out

28:51

from a retirement income standpoint if you're

28:54

now doing the bracket management wait and

28:56

what I mean by that if you

28:58

take everything out at the beginning of

29:00

the year sure the money's there but

29:02

let's say there's a windfall there's you

29:05

know you're already touching a bracket doesn't

29:07

give you a lot of flexibility or

29:09

you know it pushes you over something

29:11

that you didn't want to because now

29:14

you can't control it you already took

29:16

it out whereas if you've been taking

29:18

out money over the course of the

29:20

year and then come October you realize

29:22

that, you know what, if I take

29:25

out more money here, I'm going to

29:27

push myself into another bracket because of

29:29

some other variable that happened that I

29:31

wasn't expecting. Now you have flexibility to

29:33

hold off on those. You know, to

29:36

hold off on those distributions and still

29:38

maintain the tax efficiency of it. To

29:40

me, you just, it gives you a

29:42

lot more optionality. You're in the market

29:45

a little longer, you know, over the

29:47

time period. and I think can help

29:49

you manage your taxes a lot more

29:51

as you go along as opposed to

29:53

like it's too late as January you

29:56

already did this there's no coming back

29:58

from this at this point. When

30:01

you're doing those doing just to just

30:04

to my we did the on the

30:06

stuff, there's a lot of things

30:08

that can flip you over

30:10

the top, the the Irma surcharges,

30:12

et cetera, et cetera, et cetera. And

30:14

so And make sure that you're giving

30:16

yourself that you're giving an income

30:19

standpoint. from an Wait? standpoint. Wait?

30:21

Yeah, yeah, Yeah. And so assuming like. liquidity not

30:23

an issue or the need for spending and all

30:25

that all that. It's right is markets do tend to

30:27

go up over time and this is

30:29

something you're going to be doing every year.

30:32

going to be The odds are in your

30:34

favor odds are in your favor that in the case

30:36

of making contributions, make your

30:38

rough IRA contributions in January,

30:40

in the case of taking

30:42

distributions. distributions from guess we're probably

30:44

talking more about the about the RMDs from

30:46

your your deferred account, wait till later

30:49

in the year just to get

30:51

the most tax advantage growth. I

30:53

I definitely make my Roth IRA

30:55

contributions in January, start saving up previous

30:57

year so so that after January 1st

30:59

I'm ready to to, okay, hit these

31:01

things right at the start of

31:03

the year. start of That gives you

31:05

the best long -term growth prospects. If

31:07

you're worried about, if worried about if like

31:09

the resonates with you, with

31:11

you, no big problem big problem with spreading

31:14

it out more. At the end of the day, day,

31:16

if if grow, it might be a little bit

31:18

less a for you, but it's not really

31:20

going to make that much difference in the

31:22

long term. to make that The only other

31:24

caveat in the on term. The only other caveat, though,

31:26

on RMDs, we're until December to take

31:28

out your to take out There

31:31

is a problem is a you pass away

31:33

that year. away that in the year

31:35

the passes away their beneficiaries have

31:37

to make sure that they

31:39

take out any they take out any for

31:41

that year. that year. So if it's, you pass

31:43

you pass away 20th and this is a

31:46

major shock to your This is a major

31:48

shock to your family and you haven't taken your

31:50

RMD yet. doesn't act your family

31:52

doesn't act and get that RMD

31:54

out by December there's going gonna be a

31:56

penalty involved, not taking out the

31:58

required amount for the year. year. So for

32:00

that reason, you may think about taking

32:02

out that R&D sooner in the year

32:05

to give your family a sufficient runway

32:07

to not have this be one more

32:09

thing to worry about late in the

32:11

year. But other than that, it's, I

32:14

would think, yeah, contribute early in the

32:16

year, distribute later in the year is

32:18

the way to over the long term

32:20

to get the most tax advantage. Well,

32:23

so you're, that's different than my, I

32:25

would, I would do it just during

32:27

the year, like slowly, you're saying backloaded.

32:29

you would personally backload, which mathematically on

32:31

an Excel sheet that would work because

32:34

markets go up. The reason I like

32:36

to kind of smooth it out myself

32:38

personally is because it gives me the

32:40

discipline without thinking about it. I think

32:43

that there's plenty of people that once

32:45

you give yourself the autonomy to kind

32:47

of make intuitive, what you

32:49

feel are intuitive decisions, like, oh,

32:51

I think this is going to

32:53

happen, so I'm going to do,

32:55

I think you start running into

32:57

problems from a behavior standpoint. And

33:00

so I personally like to, I

33:02

don't like to do it all

33:04

at once, I don't like to

33:06

do it all at once, I

33:08

don't like to do it at

33:10

the end of January, at the

33:12

end of December either. I just,

33:14

you know, I would prorate of

33:16

that thing across the year and

33:18

call it a day. do it

33:20

throughout simply because it's automated and

33:22

I don't even think about it.

33:24

I wouldn't think about it. That's,

33:26

that would be my game. Thanks

33:28

for tuning in. Don't forget, we'll

33:30

be back next week with part

33:32

three of our Q&A series. So

33:34

keep those retirement questions come in

33:36

and we'll keep the answers rolling.

33:38

See you there. Wade and Alex

33:41

are both principles of McLean Asset

33:43

Management and retirement researcher. Both are

33:45

SEC registered investment investment advisors Virginia.

33:47

The opinions expressed in this program

33:49

are for general informational and educational

33:51

purposes only, and are not intended

33:53

to provide specific advice or recommendations

33:55

for any individual or on any

33:57

specific securities. To determine which investments may

33:59

appropriate for you, you, consult

34:01

your financial financial All investing

34:03

comes with a risk, including

34:05

risk of loss. of loss.

34:07

performance does not guarantee future

34:09

results.