Transcript:

[00:00:00] Voiceover: Welcome to the Life Unlimited Podcast with Larry Heller. You deserve complete financial advice so you can confidently live your life your way for life. Now let’s get into this week’s podcast episode. 

[00:00:19] Matt Halloran: Hello and welcome to another Life Unlimited podcast with your host Larry Heller. Today we’re gonna talk about why distribution strategy demands even more attention when you’re in retirement.

[00:00:30] Matt Halloran: Alright, Larry, where do we begin? 

[00:00:33] Larry Heller: So what we’re gonna begin, right, where kind of your thinking about. Stopping working and transitioning into either full-time retirement, or even part-time retirement that has some income in there and all the things you need to think about. And this, there’s really, I, I kind of break it down we’ll into five different areas, okay.

[00:00:52] Larry Heller: And why you need to think so differently when you’re in distribution stage than you are in accumulation stage. And Matt, I don’t care how much money you have. When you change over and you no longer have that income coming in from your career, your job, you get a little bit nervous. You’re not sure how much money can you spend.

[00:01:11] Larry Heller: We’ve talked about that in a whole separate podcast. We’re not, you’re not sure how to really invest it if the market has some big swings. What does that mean? So really understanding of the distribution strategy before you start will give you a whole peace of [00:01:30] mind and a whole different mindset to make it much more smoother when you’re no longer working.

[00:01:36] Larry Heller: So, well, I’ll, why don’t we jump into kind of the first, the first area, actually I’ll go through all five areas and then we’ll jump into each, each one of them, Matt. Okay. so we have really income versus total return, which is kind of a conversation that I have with everybody that’s kind of in re in retirement.

[00:01:55] Larry Heller: and then taxes and how critical this part can be. It can be millions of dollars differences over your lifetime, and that’s one of the things that we spend so much time putting strategies together and having conversations with you. So we’ll, we’ll dive into taxes a little bit more, and then what’s your investment allocation?

[00:02:15] Larry Heller: Okay, you’re now retired, but. You know, well, should it change? Should you be less aggressive? Should you be more conservative? What does that mean to you? And part of that comes into area number four, which is longevity. you know, how long do you think you’re gonna live? And we’ll talk about some of the different conversations that I had with clients.

[00:02:33] Larry Heller: And then we’re gonna jump in a little bit to talk about a estate and legacy planning, because you want to kind of think, okay, I’m a distribution strategy, but if I. End up being doing it proper, I can leave my heirs even more money. four big topics. We can spend a whole podcast on each one of these, Matt Mm-Hmm.

[00:02:50] Larry Heller: But, so we’re gonna kind of jump into each one specifically and kind of peel away some of the layers there. And then of course, if you have more questions, you can reach out to us and we can talk [00:03:00] to you about that. 

[00:03:00] Matt Halloran: alright, well we have done some podcasts when it comes to income and spending and retirement, but we are gonna start there.

[00:03:07] Matt Halloran: And you want to, you want to dive into that before we jump into taxes? 

[00:03:10] Larry Heller: Yeah, sure. 

[00:03:10] Larry Heller: so a lot of people when they retire they’re like, okay, I’ve accumulated all this money and now I wanna take this pot of money and I just wanna live off the interest. Mm-Hmm. And, and that’d be great if you can do live off the interest, but if you do that.

[00:03:25] Larry Heller: Does that mean you’re gonna earn less money over your lifetime? And so does it really make a difference whether you get like income, which is what I call yield people looking at, you know, what is the yield versus your total return? On the proper portfolio. If you can make more money by doing a total return strategy than you are just looking at yield, then you’re gonna be much better.

[00:03:53] Larry Heller: Plus, if you just focus on yield, interest rates changes. Okay? Remember a few years ago, interest rates were what? Almost zero. Remember that, Matt? Then they went back up and now they come down down and they kind of. Fluctuating in a certain range, but if interest rates are very low when you’re retiring, then maybe that’s not the best strategy either.

[00:04:12] Larry Heller: and what do you do with this? You just, going to live off of the income and you’re never gonna touch the principle that you’ve accumulated through your lifetime. Well, I mean, if you can, you wanna live off that strategy, but a lot of people wanna live, live off some of the money that they’ve made.

[00:04:26] Larry Heller: And how do you do that comfortably? Over your [00:04:30] lifetime. So putting that together, doing a retirement plan, a financial plan that we’ve talked about, that nausea over time will give you a lot more peace of mind. But creating and looking at income versus total re returns, and the first thing you wanna do is you wanna coordinate your investment strategy with some of your fixed income streams.

[00:04:50] Larry Heller: What do I mean by your fixed income streams? Well, one of ’em would be Social Security. How much are you gonna get from Social Security? How much is your spouse gonna get from Social Security? When should you take Social Security? And then if you’re lucky enough, maybe you have a pension stream or maybe you decided, you know what?

[00:05:05] Larry Heller: We have a lot of clients that are not completely retiring, but they’re able to work part-time or just. Toned down and they have an income stream from themselves. So what do you do with that income stream and how do you coordinate match the income stream versus your investment strategy? So looking at total return versus income and really understanding how that works and how to create something that’ll work right for you.

[00:05:32] Matt Halloran: Now when it comes to working, you know what I, I, I’m gonna put a pin in that. I’m sorry. I, there’s something, I really think that we should do an episode talking about working in retirement. Uh, I think you’ve touched on that before, but man, I’m sorry. I. Larry, you just triggered like 20 questions that I wanted to ask, and I’m like, oh, we’re not gonna talk about that day.

[00:05:52] Matt Halloran: Okay, so let, let’s move on to taxes. So even if you are making money in retirement, or you are just taking income off of the different [00:06:00] retirement savings that you have, uh, tax considerations are huge. Let’s go there. 

[00:06:03] Larry Heller: Okay, so there’s a lot of different things to kind of talk about when, when taxes are, are going through.

[00:06:08] Larry Heller: So if you’re like most Americans, you’ve saved in a retirement account, probably a 401k plan, and a lot of that you’ve saved and you haven’t paid taxes yet. And that pot is now growing and growing and growing, and when you do pull that money out, you have to pay taxes on that. So do you let that pot continue to grow and spend down your other investments that are not in these qualified retirement accounts?

[00:06:38] Larry Heller: Do you spend more from your qualified retirement accounts earlier instead of the other accounts? Do you do a little from. Both what’s the right strategy and why? And the government has actually now pushed back the required minimum distributions before you have to take money out of these pots. So right now it’s 73, but if you’re born in 1960 or later, you don’t have to take required requirement in distribution till 75.

[00:07:05] Larry Heller: So if you’re retiring in. Your early sixties, this pot of money can grow for 10 years before you have to take it out. And a lot of times we’re seeing that being multimillions of dollars in the retirement account. So now if you waited and you’re like, LA, la da, I’ll take it outta my other accounts. I’ll forget about those retirement account.

[00:07:27] Larry Heller: And now Uncle Sam says, okay, you’re now. [00:07:30] 73 or 75, you must take this money out. And by the way, here’s how much you have to take out. And it’s a huge number. And now you are in an extremely high tax bracket, and now you’re like, oh my God, I gotta pay all this money on this taxes. Why didn’t I do something about this earlier?

[00:07:48] Larry Heller: And, and, and put a strategy earlier, because you may have been. We call the donut hole. If you retire in a, or even if you don’t retire before 65, you still have 10 years before you now have to take it out, or eight years, and maybe you’ve even deferred your social security. So you may be in some years where you have almost no taxes.

[00:08:08] Larry Heller: So does it make sense to take some out in a, keep you in a lower bracket? So later on you’re in a lower bracket? again, putting that strategy together and trying to figure that out and where to draw from could be the difference of, you know, hundreds of thousands and sometimes millions of dollars. and we’ll touch upon, this, we talk about Roth conversions.

[00:08:29] Larry Heller: touch upon this in the legacy there, but. And we did a whole episode on this episode 1 52, Matt, but also planning for that. Maybe you wanna pace, take some conversions and pay some taxes now to keep you in a lower bracket later on, and let that money grow, tax free, and either use it for yourself or pass it on to your heirs.

[00:08:50] Larry Heller: So taxes, taxes, taxes. If anything, of these five areas, this can be why you need to work with somebody. To find out the best way and the [00:09:00] best way of handling and setting up a distribution strategy. 

[00:09:02] Matt Halloran: Well, I’m gonna argue with you on that, Larry, because I think the next one is also incredibly important because a lot of people are the do it yourselfers and they think that their risk tolerance, specifically with their investment strategy and their allocation is gonna stay the same the closer that they get in retirement or after they retire.

[00:09:18] Matt Halloran: Let’s talk about that. 

[00:09:19] Larry Heller: So there’s, there’s so many different pieces of this. So now that you’re retired, okay, so you’re retired in your sixties and you know Yes. The average age for a male is 78, and ma average age for a female is 81. But if both spouses are a married couple in their sixties, the odds are pretty high that one of the two of them are gonna live into their nineties.

[00:09:43] Larry Heller: Matt. So you don’t have to do the math. You’re in the sixties. You can go to your nineties. You may have 30 more years to live. Well, that’s a long time. It’s not our grandparents, generations where they retired, got their gold watch, and a few years were gone. You have a long period of time here, so you have to keep it In mind that if interest rates are gonna be enough, and also what about that other magic I word? You have interest rates, but you have the inflation word out there. So if you are not keeping up with inflation and your account is basically staying the same, but you’re just living off the interest, it’s not worth as much anymore, and the interest that you’re earning is not gonna.

[00:10:23] Larry Heller: Buy you the same amount because of inflation. So you need to kind of figure that out. But you also [00:10:30] wanna kind of talk about what the risk tolerance is, because again, I talked earlier. When you’re retired, you get a little bit more nervous if you see your account goes down. so maybe you wanna be a little bit more considerate, but again, but now you’re living longer.

[00:10:42] Larry Heller: See now you, you wanna have, Money that’s gonna grow to stay ahead of inflation. And we also have other reasons why we wanna maybe carve out an allocation if you don’t have long-term care insurance. so one of the things we wanna do is maybe set aside some money for a long-term care insurance and that allocation should be different than everything else.

[00:11:00] Larry Heller: Or some people have enough money that they can say, you know what, I have plenty of money here. So even though I’m older, I’m okay with more in equities because that money is going to my kids. So it doesn’t matter what age you are. Depends upon exactly what your, what’s your goal. And then we have what we, we do as our reservoir strategy, which really helps put everyone’s mind at ease.

[00:11:22] Larry Heller: Again, another podcast, podcast one 19. We talk about that, and this is really where you could be comfortable and if you, knowing how you have a strategy. So if the market goes up, the market goes down, it’s not gonna impact your retirement and it’s not gonna impact, and you can kind of not worry about what you hear on the news, every day.

[00:11:41] Larry Heller: And not have to, and, and have a strategy that’s in place that you know is tax efficient is gonna be put together to, handle inflation. That’s gonna grow for you, but that’s also gonna be conservative enough there to provide the income that you need. So obviously putting an investment allocation together with the right amount of cash, the right amount of [00:12:00] bonds, the right amount of equities.

[00:12:01] Larry Heller: In this day and age, we’re doing some alternatives. So having all those combined in the reservoir strategy. To minimize taxes is what we wanna do When you’re in the distribution phase. 

[00:12:12] Matt Halloran: Well, and you really. gave us a, a little bit of foresight into this next one, which is a difficult conversation.

[00:12:18] Matt Halloran: And Larry, I know that you have this all the time and your team has this all the time with your clients, which you do need to ask the tough questions about how long you’re going to live. And, and just very quickly on the investment allocation, I like that you highlighted the fact that there will be things that are inherited.

[00:12:33] Matt Halloran: And so therefore, the risk tolerance in that inherited 401k Roth conversion, or Roth, you know, whatever inherited IRA, those sorts of things can have a different risk tolerance. But you need to sit down with a planner and have that conversation. But let’s, let’s spend a little bit more time on longevity because people are living longer, uh, and a lot of people really need to have a different plan.

[00:12:53] Larry Heller: So the, you know, the question is, we, you know, we’re planning a lot of times for the most part, we’ll look at, we’ll run financial plans to age 95, and then we’ll get some clients that’ll say 95, you know, my parents lived into their nineties. I don’t know if 95 is, we better look at a hundred and make sure it works for, I think other people says.

[00:13:12] Larry Heller: Larry, there’s no way on earth I am gonna be here at age 90 and I wanna spend my money now. So I want to be able to enjoy what I have now. So people are different that way. And how do you create what you’re comfortable with? What they’re comfortable with? I. It is [00:13:30] extremely important, having those conversations and what is their family history, what’s their current health scenario.

[00:13:36] Larry Heller: Unfortunately, we have clients that have come to us that are not great health or, and they know that there’s no way that they’re gonna out. They’re gonna live to age 100. So they, they wanna be able to do something within reason, be able to put a plan in place that makes sense, but be able to use some of that, money there.

[00:13:52] Larry Heller: so really knowing the longevity and talking about that. And part of that is also, protecting against the long-term illness. So, you know, asking like, what do you have long-term care insurance? And if you don’t and you’re married. And what happens if one spouse has a very long-term illness and how much can that deplete your assets?

[00:14:13] Larry Heller: So having those conversations is all part of retirement planning and distribution strategies. 

[00:14:20] Matt Halloran: Alright, we also need to talk about the estate and how to plan for stuff really, not just while you’re alive, but also when you’re not gonna be here anymore. 

[00:14:28] Larry Heller: I mean, obviously most people want to be able to enjoy their retirement, live off what they have and spend what they have.

[00:14:36] Larry Heller: You know, we got a few people that said, oh, I’d love to be able to die broke, die at zero, put a plan together that I live to age 95 and I have $0 left. Well, you know, that’s not. and it’s not gonna be the case. But there are other people that like, well, I, I wanna leave some money to my heirs, but putting together the right.

[00:14:56] Larry Heller: Strategy that we’ve been talking about could mean leaving more money to [00:15:00] your heirs and also being able to enjoy the retirement. So one of the things that have come up now is the new in the Secure Act, the new root rules that in the old days when you died, you had, you passed money on to your children.

[00:15:15] Larry Heller: They were able to stretch out their requirement and the distributions no more. They have to take it over 10 years. So now. We talked about, you know, you, you have a big retirement pot and you don’t take that out for 10 years and it grows to a couple million dollars and now you’re in your seventies. Oh, and now you pass away.

[00:15:34] Larry Heller: And now the kids get that and that’s really nice, but now they have to take it out. Within 10 years. So in those 10 years, they may be in a very high tax bracket. So one of the things that we talk about, distribution strategy, should we do a Roth conversion so we can move some things out at a low tax bracket?

[00:15:53] Larry Heller: And so when they inherit it, maybe they don’t have to pay tax, they, they wouldn’t have to pay taxes on it. So having those kind of strategies there and looking at also some of the. Assets that you have and figuring that out. Just, you know what’s called a stepped up in basis, some of the assets, maybe you bought a stock and it’s really gone up and if you sell it and you want to use it, now there’s capital gains tax.

[00:16:17] Larry Heller: But when you pass away, there’s what’s called the stepped up in basis. So looking at that and all that is combined and, and again, we’re not just looking at each one of these separately. We’re looking at each one of these combined with [00:16:30] everything so we can really provide your goals that you wanna do, but be able to do it in the most successful manner, both getting you the right return within the right amount of risk to provide enough income and total return during your lifetime.

[00:16:44] Larry Heller: And to minimize taxes, to leave as much as you can to the next generation. 

[00:16:49] Matt Halloran: And you have to really sit down with, Your team at Heller Wealth Management, and also all of the people who are gonna write up these documents to make sure that everything you just talked about before are going to be able to be in lockstep with what’s gonna happen, uh, with your legacy planning.

[00:17:03] Matt Halloran: But I have a question for you, Larry. I I actually, I, I probably should know the answer to this. I’m sorry that I don’t, if you inherit an IRA, can you, as the, in the inheriting person, inheritor, whatever, the person who gets it, can you convert that into a Roth? 

[00:17:18] Larry Heller: Now one, once you, once you’ve received your IRA, you’re in distribution mode and you have to take that out within, within the 10 years.

[00:17:26] Matt Halloran: Within the 10 years. So immediately when you inherited you, okay, I got you. 

[00:17:29] Larry Heller: Right. The government wants their money. They, they had deferred it and then you would defer it. Even e even further from a lot of this really started because there were a couple people figured out how to put. Tens of millions of dollars into this and their kids are now drawing a small piece for mm-hmm.

[00:17:45] Larry Heller: Long periods of time. So the government said, Uhuh, that’s not what we want. So they’re forcing you to take it out within those 10 years. And there’s also minimum distributions you have to take each year within that. so you can’t just wait until year 10. You gotta take [00:18:00] some out, Out each year.

[00:18:01] Larry Heller: So that time of planning is, is now re really important. And I, I mean there’s, we, we talk to so many people that come to us right before they’re retiring or even in retirement and I’m just amazed how nobody is really focused in, or very few people are really focused in on these strategies or advisors have really focused in on their, the accounts really.

[00:18:24] Larry Heller: Don’t get involved in this type of planning, and most investment advisors don’t get involved in this type of planning. So you really want somebody that has knows both we, that’s what we call wealth management. So you’re putting both of those hats on when you’re looking at the strategy. 

[00:18:38] Matt Halloran: You know, Larry, when you first started this podcast, hundreds of episodes ago, one of the things that used to say is that you were recovering CPA and I.

[00:18:47] Matt Halloran: I’d wanna kind of go back to that just very quickly here, because part of the Heller Wealth Management difference is the fact that you do, even though that you’re not. Practicing anymore. You do have this tax background and it really does make a big difference because you can save all sorts of money, but if the government is gonna take your all sorts of money without strong strategies, it can make a big difference.

[00:19:06] Matt Halloran: Alright, bring it home, brother. Uh, let’s do a quick synopsis and tell everybody where they need to go if they need to learn more. 

[00:19:12] Larry Heller: we’ve covered this, but making the wrong decisions can cost you a successful retirement. It could end up paying significantly more in income taxes. It can be not spending enough during your lifetime and also leaving less money for your kids after you pass away.

[00:19:29] Larry Heller: So, [00:19:30] but by doing and putting a strategy in place. Those wrong decisions can be avoided. So if anybody wants to talk to us about this, about your distribution, if you’re approaching retirement, or even if you’re in retirement and some of the things that you still may be able to do, feel free to check us out on our website.

[00:19:46] Larry Heller: Heller wealth management.com or, and you can book an appointment right through our website. But feel free to call the office at (631) 248-3600 to set up a call with one of our advisors. 

[00:19:59] Matt Halloran: And I want everybody to realize that, you know, this Larry’s hundreds of episodes into the show. And if you have not gone back and looked at previous episodes like episode 1 52, where we talk about Roth conversions or the uh, Heller Wealth Management Reservoir strategy, episode one 19.

[00:20:15] Matt Halloran: There is so much magnificent content in this podcast that you should go back and realize that there are gonna be different times in your life where different episodes are gonna be applicable. And also friends and family. There are gonna be friends of yours that you’re having dinner with and they’re gonna talk about something.

[00:20:29] Matt Halloran: You’re gonna say, oh my gosh, I think Larry might have talked about that. Please make sure that you share this episode. ’cause one of the things that we wanna do here at Heller Wealth Management is to make sure. That we are providing great advice, great education for just about anybody who can use it. So 

[00:20:42] Larry Heller: even if you’re younger, you may wanna listen to this because then you can have these conversations with your parents.

[00:20:47] Matt Halloran: Mm-Hmm. Ooh, did we do an episode on that yet? 

[00:20:50] Larry Heller: We probably did, but we could do not one. 

[00:20:54] Matt Halloran: We got two episodes out of this one, my friend. That’s awesome. Alright, everybody, well listen. If you have not subscribed, make [00:21:00] sure that you do and please make sure you go to Heller wealth management.com to find out more about what you can do to make better investment decisions and why a strong distribution strategy really does matter in retirement.

[00:21:10] Matt Halloran: ’cause as Larry said, you make a couple of wrong decisions. It can cost you million. So for Larry and everybody at Heller Wealth Management, this is Matt Halloran, and we’ll see you on the other side of the mic very soon.