Transcript

[00:00:00] Intro: Welcome to Retirement Unlocked with Larry Heller, your life, your way, unlimited possibilities. Join us as we explore how tailored financial planning and investments can help you navigate life transitions with confidence. Let’s dive into this week’s episode.

[00:00:20] Bill Tucker: And welcome back to Retirement Unlocked with Larry Heller.

Many wealthy retirees take comfort in seeing a strong net worth on paper, but in retirement, financial confidence doesn’t come from a balance sheet. It comes from cash flow. Retirement introduces multiple income sources, shifting tax exposure, and no decisions around withdrawals, liquidity, and lifestyle spending.

When those pieces are not coordinated properly, even affluent retirees can feel uncertain about how much they can spend, how to manage taxes efficiently. Or whether their wealth is structured to last. Today, Larry [00:01:00] explains why net worth alone isn’t enough in retirement, how high net worth retirees should think differently about income, timing, withdrawal, coordination, and more.

And before we get started, just a quick update for our listeners. Heller Wealth Management is now part of Savant Wealth Management. So going forward, you may hear the Heller Wealth Management team referred to as Savant or Savant Wealth Management. But you should know and understand their commitment to helping you unlock your best retirement remains exactly the same.

So congratulations. Before we get started, Larry.

[00:01:38] Larry Heller: Hey, thank you so much, bill.

[00:01:40] Bill Tucker: Very good. So let’s dive into this topic about Hi, how do you manage? You know, most people think, well, I retire with a high net worth. I’m looking at my net worth. Golden. We’re in good shape.

[00:01:52] Larry Heller: Yeah. So I mean, yeah, because it is not just net worth, first of all, net worth can be different ’cause you got one person who retires with 10 million [00:02:00] and most of their money is non-qualified assets.

You another person who retires with 10 million and a substantial amount is in retirement. And guess what? They gotta pay taxes on that. So, so that, that’s one thing. But two, you know, it really boils down to kind of what your income is and really what your expenses are because you have a much higher lifestyle, and we’ve had this with clients.

Clients have a, you know, a lower net worth, but they’re living off less and spending less. Mm-hmm. If they have less stress and they have easier ways of doing that, and you have somebody who has a super high net worth, but their expenses are really high and they’re all stressed out and trying to figure, you know, trying to figure it out.

So really it’s not just the dollar amount that’s gonna make you a. Kind of successful and, and happy and stress free. It’s really the, the the cash flow. Yeah. And so, uh, so that’s what we’re gonna talk about here today because you got a lot of moving, a lot of moving pieces in, in retirement and cash flow.

You can have multiple income [00:03:00] sources. Distribution decisions. Where do you take the money out of your retirement account, your non-retirement account? Now that your RMDs are pushed back to 73 to 75, you could be in a much higher tax bracket, LA later on. So, and that’s really another piece is the tax considerations.

It’s not just what your. Earning, it’s what you’re keeping after taxes. So all these kind of moving pieces and really kind of how do you shift the focus from how do I, what’s my net worth to how am I getting the enough of income to meet my expenses? And that’s gonna make you feel more wealthy.

[00:03:36] Bill Tucker: Oh, Larry, come on.

You’re making me feel, you’re making me worry about retirement now. I got good money. I’m gonna retire, I’m gonna be happy. So, and you’re talking about income versus total return, and this sounds complicated, Larry.

[00:03:50] Larry Heller: Yeah, well, it, it, it is, and it can be more complicated because you’ve got a lot of these income.

Paths that you can get income. Um, so one of ’em, social Security. [00:04:00] Well, when do you take Social Security? Two, the quiet minimum distribution. Just what I just mentioned, 73 or 75, or do you take it earlier? Do you lucky enough to have some pension income? Um, interest dividend qualifi, qualified dividends versus non-qualified dividends.

Do you have any? Other part-time businesses or rental income, did you defer any of your money from your work that you now have to take out? So it’s not just about, you know, planning to generate income, it’s about planning to generate income to meet your expenses, net of taxes. And it’s not just about planning for year one, it’s about planning for the next 20 to 30 years.

Combine what you need to do in year one.

[00:04:41] Bill Tucker: How do you do that? I mean, I, if somebody, they’re looking at all looking at the various streams of income, how do you help them sit down and visualize that and how do you help them understand

[00:04:51] Larry Heller: Yep.

[00:04:52] Bill Tucker: How to be,

[00:04:53] Larry Heller: and a lot of people, they first come and they say. You know what?

I don’t wanna touch my principle. I just wanna live off the income.

[00:04:58] Bill Tucker: Yeah.

[00:04:59] Larry Heller: [00:05:00] And so their strategy is to live off the income and then we talk about risk and how much can they return from that. We talk about inflation and living off the income. ’cause you know, generations ago people just lived off the income in the bank and that was great when inflation was low.

But what happened to a lot of these retirees that when in the interest rates went back. Um, inflation went up and interest rates didn’t. Yeah. They were actually earning the same amount of money, but they were living on on less. So you don’t wanna really just look at income, you wanna look at total return.

’cause you want to make sure what you’re gonna ha what you’re gonna have now is the same earning capacity than what you’re gonna have 10, 15 years from now.

[00:05:42] Bill Tucker: So are there simple rules that help retirees understand that, you know, maybe it’s like a default, they can look at it and go, okay, now I get it. Or.

[00:05:49] Larry Heller: Well, there’s not really, you know, it’s not one rule for, for everybody. It’s like, okay, you know, which, which account do I spend first? A lot of times people say, well, I’m gonna spend my taxable account, let my tax deferred [00:06:00] account grow. Well, that’s now not, not always the best strategy, or I don’t want to, I wanna avoid touching my, my Roth account.

So, so really trying to figure out what the strategy is, is, uh, as far as rules. Really goes out the window because everything is different for everybody and how it fits into the puzzle for you.

[00:06:22] Bill Tucker: So how do you, what are some of the things you need to balance? Because you, you got your taxables, which is, which would be like, you know, your IRA where you get, you’re gonna have an RMD, you can’t, you can’t not have an RMD.

You’re gonna have to take that. So. I mean, how do you, how do you coordinate all of this, Larry? ’cause it does, it does. Now I’m beginning to think this requires a high degree of sophistication or something,

[00:06:45] Larry Heller: right? So the first thing is the, is is the taxes. And you know, the accounts really just look at what your taxes are for, for this year or maybe for the next year.

But we wanna look at the taxes. Not only now, but what is your tax bracket gonna be when you’re taking require minimum distributions at [00:07:00] 73 and 75? Is it, if you’re 10 years away from that? And your account’s gonna grow and possibly double or more. Your require minimum distribution could be so large, it kicks you into such a high tax bracket.

Mm. So maybe we want to smooth the tax brackets out earlier. And sometimes, you know, people say, uh uh. That’s the further taxes may, may not be the, the best thing and then it’s the opportunities and the opportunities lost. Um, you know, we had a client earlier this year that came to us in their seventies and they’re in now a much higher tax bracket.

’cause they’ve taken their required minimum. Distributions out, but they, they lost the opportunity when they were 65 to 70 to possibly do some Roth conversions in that, which would lower their tax brackets later out. Um, so that’s another thing to look at. And then now with the new salt deductions, depending upon if you’re itemizing going back to now possibly 40,000, there are phase outs.[00:08:00]

So if you take too much in one year, you may be losing some of your assault deductions. So that’s, that’s another thing to consider. And then to throw something on top of that is the Irma brackets for Medicare costs, which I don’t care how much money you have, when people start looking, looking at that, and they’re saying, well, you know, it’s two, $200 a month, and then all of a sudden you make too much money and now you’re paying $700.

People get upset about that. So you, you want to kind of at least, you know, approach that and try to even it out so you’re not gonna pay that as well. So, uh, it’s a big, it’s a big jigsaw puzzle and like I said, you know, two retirees with identical net worth and, um, can experience dramatically different outcomes if it’s not structured right.

So it’s all all about planning for the long term, figuring it out over the short term, maximizing what you can. But minimizing your tax, your taxes.

[00:08:54] Bill Tucker: Well, gimme, gimme a way I can do that. I mean, what, how do you think about it when you, if you were sitting down to talk to me [00:09:00] about it?

[00:09:00] Larry Heller: Yep. So, um, you know, if you, we, we talk about cash and, and buckets and, uh, our reservoir strategy, but you know, really that’s kind of how we start to look at this.

What do you need short term? And when you, when we say short term, usually we say two, two to three years. The reason why we say two to three years that although not a guarantee, the stock market usually recovers within. Three years or less. Of course there have been times like the.com bubble and the 2007 financial crisis that it took four to five years.

Yeah. And there’s still no guarantee, but two to three years will give you time that if we have a correction on the market, that you don’t have to worry about what’s going on in the market so that that’ll be money that’s coming out. It’s not income, it’s actually cash that’s go, gets out and it feels, you know, gives you that confidence that you’re taking that out, that you don’t have to sell when the market market is down.

So that’s the first thing. So we’re actually starting to structure, uh, you know, a, a, a cash bucket to [00:10:00] recover the cover your, your expenses. Um, you don’t wanna have too much in that cash bucket. ’cause like I said before, you wanna stay ahead, ahead of inflation. We have a whole podcast that we did, um, just a little while back on our, our reservoir strategy and the cash buckets and the short term and, and the difference between cash, medium term, long term investments.

[00:10:23] Bill Tucker: Well, I could see, like, I looking at it differently, like from my, my viewpoint, I, I think a key question is how much of that liquidity is strategic and how much is fear driven? I know you probably, you look at it and you’ve got a good answer for that, but you know, I. I’m sitting over here going, Larry, Hey, what, what do I do?

[00:10:42] Larry Heller: Yeah, well, again, we, we wanna stress test your lifestyle as much as possible. Of course things are gonna change over your life, but we wanna stress test that so we don’t have to worry about market downturns ’cause we know there are gonna be market downturns. We don’t know what. Possibly h healthcare costs are gonna be, do you have a, a [00:11:00] long-term care insurance policy?

If you don’t, are you gonna have a long-term illness? And we sure don’t know how long you’re gonna live. So it would be great if we knew how long you were gonna live. So we can plan it that way. And then we, we don’t know if your lifestyle, you may want to. Do some large expenses. You may decide you wanna gift the family members, buy a second place.

So we wanna kind of stress test all these and try to put a game plan together. Obviously revisiting these and changing them a a as your decisions change. But the more stress free you can have during your retirement years, the better that you’re gonna enjoy them.

[00:11:34] Bill Tucker: Yeah, and this is a good place for me to just jump in here and remind people that Larry and his team has put together a takeaway, a summary on tax planning and retirement.

And you can find that download in the episode description below this podcast. So it’s a good resource. And I just, you know, you don’t need to panic about whether you remember this whole conversation or not. ’cause, ’cause that summary is there for you. I mean, what. I guess, you know, I think a lot of people [00:12:00] think when they retire, hey, we can, we, it’s gonna be a lot easier now.

Sure. I don’t know if I’m gonna have enough money, but, uh, you know what should, when I look at my lifestyle planning, when I begin looking at these things. What should we be looking at?

[00:12:17] Larry Heller: Yeah, I mean, uh, again, we’re, we’re trying to make retirement, you know, optimize so you can really enjoy life. I, I would, I would say still most people come to us and they, uh, underestimate what they can spend.

During their lifetime. That’s probably the biggest gratification that we get to clients when we do some retirement planning. Yeah. Cash flow. And we’re showing them either what they wanna spend, they could do it, or what they were thinking about wanting to do. And they can do that now because, and they can do that with, with peace of mind.

So really, you know, doing this, looking at it and you know, and being able to put some of these strategies in place so they can peace of mind, enjoy the retirement. ’cause that’s really what it’s about. Uh, you know, you’ve [00:13:00] worked all these years, you’re getting to the point and point now. You don’t wanna feel that you’re just surviving.

You want to feel that you can optimize what you can do. So again, controlling tax brackets, funding your lifestyle without regrets. Balancing growth with cash, liquidity, um, and also supporting legacy goals. You know, people do wanna possibly leave money to their, to their heirs or maybe do something nice while they’re alive.

Um, whether that’s funding. Grandchildren’s college education or, or just helping out during their lifetime. So really finding out what they wanna do to really make, make sure that we can reach and, and, and each of our clients can really enjoy retirement and do what they want to do.

[00:13:43] Bill Tucker: Yeah, that’s great. So can you give a, give us a real life scenario, maybe, I mean, Nick, without going into specifics and identifying clients or anything, but people with the same net worth and they have, you know, maybe a little bit different confidence in terms of where they are.

[00:13:57] Larry Heller: Right. Well, I’ll give you kind of one example really. [00:14:00] Instead of comparing two clients, I’ll give you kind of one that came to us and, you know, believe it or not, they had over $7 million in, in, in of net worth.

[00:14:09] Bill Tucker: Okay.

[00:14:10] Larry Heller: They were acting year by year. Every year they make a decision, how much should I pull out, where should I pull it out from?

And they were stressed out on what to do. They were stressed out about turning on the television, the Arkansas down, oh, my portfolio is down. I’m not gonna be able to do what, do what I want. They had no strategy. They had no asset allocation to determine that they had no tax planning that was going on. Uh, and it was causing them a, a causing them a lot of stress.

And after we were able to kind of put together a game plan accounting for all these things that we’ve talked about, they, they had a clear, they had a coordinated income and a withdrawal strategy, clear spending guardrails, and a defined liquidity plan. So we were able to minimize the tax strategy for today into the future.

We, we got a [00:15:00] cash reserve strategy, um, put together so they didn’t have to worry about hearing the stock market. They could say, you know what, you know, we know that we’re gonna have some downtowns. We are prepared for that ’cause we have proper cash cushion and an asset allocation for a successful long-term retirement.

So the differences between before and after when having a good proper retirement plan in place, it, it, it is so, is so important. It’s not exactly what you know, what fund you’re investing in, but all these other type of um, um, uh, strategies are really gonna make you have a lot less stress. And this couple, this couple actually said after, if it witness for first year, how much.

Stress is off of their minds. Oh, that’s great. Because they were able to see and have a game plan in place.

[00:15:50] Bill Tucker: That is great. Well, Larry, as we get ready to wrap up this episode, can you give us some key takeaways for the listeners?

[00:15:56] Larry Heller: Yeah. So one of the, you know, [00:16:00] takeaways is really kind of having a, a game plan.

I know exactly, or have an idea of where my retirement income is gonna come from, my cash flow, not only of year one, but like I said, over the next 10, 20, 30 years. Have my withdrawals been structured for tax efficiency or just convenience? Um, one of also things that I, we do, and I find, uh, it’s more psychological, but pay yourself a monthly amount.

So you’ve been working your whole life and you have, you know, a certain amount of money going into your possibly checking account and you see it there and you pay your bills. So do the same thing, you know, each month from your retirement accounts. Um, transfer a fixed amount into your checking account.

It just makes people feel like they’re not spending their nest egg. It’s basically feeling that that’s their, um, income. Just like they were, they were, they were working. So that’s another little. Tip that we have. Um, and then stress test the you, your lifestyle against the volatility, against your longevity, [00:17:00] and, and make sure that you have a retirement plan that is gonna last for now and into the, into the future.

So if you’re retired or approaching retirement, the goal isn’t just to grow your balance. Balance sheet is design how your wealth flows, because retirement isn’t about how much you’ve accumulated, it’s about how intelligently you distribute the income to yourself.

[00:17:23] Bill Tucker: Makes a ton of sense. And, uh, just one more reminder.

Larry and his team have put together a takeaway or summary on tax planning and retirement. You will find it in the downlink load in the episode, in the description below. You might want to go check that out. Larry, this makes a lot of sense and I, I love the example that you gave because. They came in with money and a lot of stress.

They came out of the process still with the same assets, but a massively lower stress level. I can’t, I, I’m sure they were. They were a grateful client.

[00:17:57] Larry Heller: Absolutely.

[00:17:58] Bill Tucker: Alright, ladies and [00:18:00] gentlemen, thank you for listening to today’s episode of Retirement Unlocked. If this episode helped you think differently about the role that cash flow cash flow plays in retirement, please like and subscribe and share it with someone you think could benefit.

Looking for help in designing a retirement income strategy that goes beyond net worth and gives you clarity around spending taxes and long-term sustainability. Well check the episode description. For resources and a link to schedule a complimentary 20 minute call. Because in retirement, like much of life, it’s not just about how much you have, it’s about how well it works for you. We will catch you next on.

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