
Mastering Retirement Withdrawals: Expert Tips for Smart Distribution Planning [Ep. 169]
Do you know the smartest way to manage your withdrawals in retirement?
In this episode of the Life Unlimited podcast, host Larry Heller, CFP®, CDFA®, shares expert strategies for managing retirement withdrawals to ensure financial stability and tax efficiency.
Larry covers essential steps for building a smart distribution plan, emphasizing pre-retirement planning and proactive wealth management. The episode explores the benefits of Roth conversions, the impact of the Secure 2.0 Act, and critical topics such as the widow penalty, annuities, and estate planning, all supported by real client insights.
Whether you’re approaching retirement or already retired, this episode offers practical tips to help you minimize taxes, optimize withdrawals, and protect your wealth and legacy. Don’t miss this valuable guide to mastering your retirement finances!
Watch the Video Version
Listen to the Audio Version
Key episode discussions include:
- Strategic tax planning to minimize taxes before the distribution phase
- Understanding different income streams like Social Security, pensions, and retirement accounts
- Real client scenarios illustrating the impact of effective and missed strategies
- The effects of federal and state estate taxes, plus planning for longevity
- Integrating attorneys and other professionals for a holistic financial plan
- And more!
Transcript
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.
Matt Halloran[00:00:18]:
Hello and welcome to another Life Unlimited podcast with your host, Larry Heller. Today we are talking about mastering retirement withdrawals.
Four expert tips for smart distribution planning. Now, Larry, there’s an enormous amount of stuff that we can go ahead and cover here. Where do we even begin?
Larry Heller [00:00:36]:
So, I mean, we’ll begin right when you’re kind of thinking about retiring because. Or actually before you retire.
But when you’re thinking about it because you want to put a game plan in place to minimize your taxes. So don’t wait until you retire to have a game plan because the right game plan could save you thousands and we’ve seen hundreds of thousands of dollars which allows you to spend more money during your life or leave more money to your heirs. So why give it to the government when, if you can do the right planning, you can minimize a lot of these taxes?
Matt Halloran [00:01:14]:
So give me a date, give me a age, give me a milestone that this game plan thinking needs to really be started.
Larry Heller [00:01:24]:
So it’s probably five to seven years before I call you entering the distribution phase.
So you have your accumulation phase and you’re investing money during the accumulation phase. There are some things to do during that in anticipation of the distribution phase, but that’s when you want to start thinking about it and you want to start thinking about, okay, I’ve been saving all this money and depending upon how you’re saving it and what buckets, we’ll talk about whether it’s retirement accounts, non retirement accounts. So you want to start thinking about how are you going to draw down the money when you’re in retirement. Now, it’s most people aren’t going to start thinking about that well before, but we do. So we’re going to start thinking on that so we can think about putting a strategy together which will allow a much smoother transition to retirement and allow us to implement and optimize strategies for withdrawals and minimizing taxes by addressing them.
So you want to focus on the tax efficiency and your eventually income distribution strategies.
Matt Halloran [00:02:38]:
So. Well, what am I missing here? Because the direction that I want to go is really the difference between you and some of the other people that are out there. Is there anything else that you want to talk about with the setup here before we move on to.
Larry Heller [00:02:54]:
Yeah, no. So let, let’s kind of just talk a little bit about this. And with there’s a Lot more in some of the podcasts, which I’ll mention some of the, the podcast out there, but there’s really three. I got kind of distinct money that you’re going to draw from when you retire. There’s the income stream which we call which is your Social Security.
You’re, if you’re lucky enough to have a pension or maybe you have a business buyout. Then there’s the, your qualified assets, your retirement plans. Those are the parts that you haven’t paid taxes yet. Then you have your non qualified assets, maybe just joint accounts or maybe you have a Roth that you, that is going to be tax free. So you have a couple different areas that you’re going to pull from and which area should you pull from first?
A lot of people say, well I’m going to pull down from my non taxable accounts and let everything grow in my taxable account. Well, with the required minimum distributions being pushed back to 73 and 75, that may not be the best strategy for you to do that. So there’s a whole podcast which goes into the distribution strategy and demands in retirement. But planning for taxes earlier on will allow you to determine which pot of money you’re going to start drawing down from. And there are things that you can, you know, things that you can do and even, even earlier knowing what your tax brackets in.
I even talked to, you know, my kids about this. Now if you’re in a retirement account, should you be in a Roth? Should you contribute to a traditional, should you do a little bit about both? Because there may be that maybe you may be at a much higher tax bracket later on or much lower tax bracket later on. So all these kind of things and all these thinking should be done.
But like you mentioned, the time that we really kind of focus in on this is, you know, five or seven years, you know, before, through the transition period and right through retirement.
Matt Halloran [00:04:59]:
And you’ve, you have done an episode a little bit more on this too, correct?
Larry Heller [00:05:03]:
Yeah, so we did episode164 where we go really go into more details and some of the strategies such as Roth contributions and things like that in that podcast.
Matt Halloran [00:05:14]:
Gotcha. All right.
So this isn’t for the faint of heart, my friend. There is a lot of people out there who say that they manage these sorts of things. They’re stockbrokers, there are, you know, advisors and then there are accountants and then there’s insurance people who are saying they have solution to all of this, but they don’t do the kind of planning that you’re talking About So let’s talk about that, please.
Larry Heller [00:05:36]:
No, I mean, first of all, I mean, I’m born bread and butter is, I’m a, was a cpa. I’m not practicing, but I spent five years.
So taxes is kind of something that I always kind of look at. But most firms out there, brokerage firms out there, investment advisors only out there, they’re just focusing on growing the portfolio. They’re not thinking about income strategy, tax strategies and how to minimize it, how to provide an income distribution when you, when you retire and accounts really not doing that kind of planning either. They’re looking maybe how you can get the most tax deductions now. And sometimes doing a Roth conversion means you want to pay a little bit more in taxes now to save a lot more for a lot many years down the road.
So you want to work with somebody that kind of is combining both and is looking out both. Of course, you don’t want to have taxes making your investment decisions, but you want, you could do the planning within your investment strategy to minimize those taxes. And I’ll let me give you a couple client stories or potential client or client stories that came to us sometimes too late. We, we, we met with a client and it was at this point he was 75 and he had a little rot account and I and he had a very large retirement account. And we started talking about this and I said, you retired at 63 and at that point you’re required a minimum distribution.
Even if it was 70, maybe it would have been 72 by now. You were in a lower bracket. Did anyone talk to you about doing some Roth conversions each year? Well, he had, he didn’t even start taking his Social Security until he was 67. So he had four years where he was in a really low bracket.
That opportunity is gone. Pussy. No, can’t go back. Can’t change it. Opportunity to take very little taxes and putting that is putting this in the Roth.
And why would you want to do that? Well, one, it’s going to provide you with more money if you decide to do that. But two, and this is now even more important with the new Secure 2.0 act that requires children to take out inherited IRAs over 10 years by converting more money into the Roth. Yes, your kids would have to take it out in 10 years. But, but guess what?
They wouldn’t have to pay any taxes and they can be in a really high tax bracket down the road. So not only planning, when we do this for you and your taxes, we’re thinking ahead to maybe the next generation without that really impacting you and how that can benefit, benefit for them. Because a lot of people are like, these Ross Roth accounts are going to be for my kids, I don’t need it. So we can invest that differently. We can put more money in that, convert in there, be more aggressive and hopefully, even if they retire in their 60s, a lot of people, people living into their 90s, you can build up these Roth accounts for 30 years and think about how much that could grow.
So when your kids get that, they get that and they can take it out tax free. So those are, you know, two kind of, two kind of client examples. The third one is annuities, deferred annuities. They are the most tax inefficient investment. And I haven’t really figured out why people would want those annuities.
I know there may be some reasons, but, but annuity works great when you’re putting your money in because you don’t pay taxes on it. But when you want to take money out, it’s ordinary income, just like a retirement account. And if you die and you die, there’s no stepped up in basis. So that means when your kids get it and they want to take money out, they still have to pay taxes. So again, we looked at a client that had a very large annuity and instead of just pulling out, the other part about annuities without going deep into taxes is it’s a LIFO basis means that you, the money you take out first is your last money in and that’s your tax money.
So we looked at doing a, an annuity and doing that over a ten year time frame. So you can now spread the cost basis over that 10 year time frame during a time when they’re in a really low tax bracket, again making it more efficient to get rid of this annuity, use some of that to live on, minimizing the taxes rather than having to draw this annuity later on when their required minimum distributions are higher or their kids might be in a higher tax bracket. So if you have annuities, really want to look at some of these possible tax strategies. So those are three client examples that we’ve had in the last year to talk about.
Matt Halloran [00:10:20]:
Well, let’s go ahead and use the first example that you just talked about, which is the Ms.
Roth conversion. Because managing taxes during the distribution phase is definitely a huge component on what we want to talk about today. And I think that example was one that it was just, they didn’t, they missed it, as you said. So what are some of the things that we need to pay attention to now during, like from now and into the distribution phase is going to make this much more efficient.
Larry Heller [00:10:45]:
Yeah.
Focusing on what your tax bracket is going to be. We have a cash flow analysis, so we put in all the, all the numbers. What your Social Security is going to be, if you have a pension, what that is going to be, how much you need to live on. So how much you going to need to pull out of your accounts. What is your tax, what is your federal bracket, what is your state bracket, what are all the other investments throwing you off?
And you can run a report now and it shows you the different tax brackets you’re going to be and the effective bracket you’re going to be. It does talk about there is obviously always changes in tax law. So the tax law is going to sunset in 2026. Maybe, maybe they push it back. But that’s another part of the planning that we’ve been doing because you probably would be in a higher tax bracket in 2026.
But now that may push that back. So looking at your tax bracket and trying to figure out what your current bracket is and what your future bracket is is kind of really the first thing that we kind of kind of do during the distribution phase. And the other one we look at is what we call is the widow penalty, because once you pass away, the surviving spouse now gets bumped up into a higher tax bracket. So you want to kind of look at that. Obviously you don’t know when you’re someone’s going to pass away, but you can plan for some of that maybe when you’re in a little bit lower bracket now, especially if one spouse is much older than the other spouse or if one spouse is sick or ill.
Maybe we want to do something now in the joint brackets where later on they’d be in a single bracket. So that’s another planning phase. And then also just diversifying all the accounts in the withdrawal strategy, maybe you don’t want to have diff. You. Maybe you want to have different investments in different.
One of these. These buckets. And how do you come about that and how do you create it? And we’ve created our reservoir strategy. So we’ve had a couple podcasts, but the last one we did on the reservoir Strategy was episode 1 19.
So go back and you can listen to the reservoir strategy and really see how we create a process, a procedure, an investment strategy in retirement, in the distribution phase, not only to minimize taxes, but also to leave you of the worry about the ups and downs in the market. So listen to episode 119 about the reservoir strategy.
Matt Halloran [00:13:16]:
Now, one of the other things that you have a very, very strong network in are attorneys that can really help with estate and legacy planning. How does this fit into mastering retirement?
Larry Heller [00:13:27]:
Throughdrawals.
So, you know, you’ve worked a long time to create some assets, maybe build a business, and it’s, and it’s grown. And a lot of people don’t realize that there are taxes to be paid, possibly upon, upon death. So while you’re kind of looking at this, your minimize income tax strategies and your investment strategies, you want to keep kind of an eye on the estate and how can you minimize potential estate liability? Now, again, we’re not attorneys. We work very closely with it, with attorneys, but we know the, the whole big picture.
We know your net worth. We can see what this projections would grow. And you want to look at it both on the federal tax and the state tax, because in New York State that they have what’s called the cliff tax. So if you’re over $7 million by a little bit, you’re taxed from $1. So there are a lot of strategies to put in place.
And how do you do this and how do you minimize that? So looking at the different taxes and trying to plan early on, that is one of the things that, one of the things that we do. And also sometimes Roth contributions and it’s a little bit of a way to manage the estate taxes because your income tax, you may be paying some income, income taxes up front. So, and you know, the Secure act now kind of impacts a lot of this strategy because it increases the tax burdens. Like we talked before, the beneficiaries now have to take money out over 10 years.
So if you know your children are going to be in the top tax bracket later on or pretty have a pretty good idea, you may want to do some taxing, some Roth conversions now that will benefit them. So, so that’s one of the other things that we look at. And then there’s gifting strategies and possible charitable strategies. So there’s all different ways of combining this retirement income needs, your lifetime needs, because obviously we want you to enjoy your lifetime, make the most out of it, have the most money that you can during retirement. But we also want to minimize your taxes and maximize what can go to your heirs as well.
Matt Halloran [00:15:48]:
So when you just said the cliff tax at 7 million, right in the state of New York, a lot of times when you’re talking about larger sums of money, it’s more complex and There are bigger stakes. Where do we take that?
Larry Heller [00:16:05]:
Yeah, because now it comes, it comes into play. So yeah, I mean, you’re talking about higher amounts for let’s say, federal taxes.
Matt Halloran [00:16:14]:
Well, all of the above.
Larry Heller [00:16:16]:
Right.
Matt Halloran [00:16:16]:
I mean, so, so when we’re talking about larger, more complex things. Right. When you have bigger dollars, there’s bigger stakes that, that are, that are playing out there, that if there are mistakes made, man, get slammed pretty hard.
Larry Heller [00:16:33]:
Yes, yeah, you can.
And there are simple things to do and setting it up and making sure the, some of the assets are titled properly, maybe in one spouse’s name, maybe in the another, maybe you know, both through some revocable trust. So how do you minimize that when you have bigger dollars? And then obviously if you get into the federal estate tax numbers, which right now are well into the $20 million range, if you plan properly. But we’ve seen people that don’t plan properly and you have to plan it on the first deck because a lot of these strategies need to be put in place before the first spouse dies. So there’s a lot of different things that you can do.
And of course, like you said, the bigger the number, the larger the estate tax can be. And it can be millions of dollars. And you can really do some things with some simple changes. And of course you can get into really some more complex strategies to try to minimize the estate taxes.
Matt Halloran [00:17:31]:
Well, one of the other things here is, you know, we’re talking about good tips for smart distribution planning.
One of the things that you have to pay very close attention to is longevity because a lot of people either don’t think they’re going to live as long or maybe they’re going to live as long, but they’re going to be in care for longer. How does that affect any of this?
Larry Heller [00:17:49]:
So I think now I saw a study that if a Married couple ages 65 are healthy and alive, the number was really high that one of them was going to live into their 90s. I think it was like 70 or plus number. Don’t hold me exactly to that.
So that’s another 25, 30 years. So now when you’re looking at certain things and looking at their distribution strategy and possible Roth conversions and they’re living longer now, that comes into play a little bit more when you’re looking at something up front. So you really kind of want to look at that. Of course you want to look at making sure that they have, you know, proper protection and long term care insurance, possibly that’s a whole nother area. But looking at the Tax strategies are crucial for possible, you know, the tax burdens later in retirement.
And you want to make sure obviously the money is going to grow and last for a long period of time. But we’re also planning for the possible minimizing of taxes throughout a very long period of time in your next phase of life that I call it after you retire.
Matt Halloran [00:19:01]:
Yeah. Now you did episode 164 that was, you know, really talking about a strategic approach to distribution. Is there anything there that I’m missing that we want to talk about maybe from that episode before we start wrapping this whole thing in a nice bow?
Larry Heller [00:19:18]:
No, I think it’s the same episode I mentioned first. It’s really the, the way this, you know, proactive approach to retirement plan distribution. Couple that with the episode 119 reservoir strategy will give you a lot of information and a lot of ideas if you’re about to retire and go into that distribution phase or even if you’re a few years away. I’ll give you some thoughts about what you need to do now because you’ll be able to see how it’s going to work later on.
Matt Halloran [00:19:46]:
So this seems.
And as I. We were preparing for the show today and you sent me the mind map that we use, I was like, larry, dude, so much stuff, man, I can’t imagine keeping all of this stuff straight. But, but this is literally what you do every day. You take all of these pieces of this very complex puzzle and you actually turn it into a nice, nice picture. So.
So bring us home, brother.
Larry Heller [00:20:08]:
Yeah, so. So what we really want to do is we want to maximize the returns that you’re going to minimize income taxes, minimize potential estate taxes, so you can transfer the highest to your heirs, all while making sure that you live the life you. You want. Most people we come to when they, they’re surprised, we tell them you money than you’re spending now and still do all these strategies and get what you want.
So it’s really like you said, it’s a, it’s a big puzzle and putting all these pieces together because one move affects another move. And you want to make sure that you’re doing everything properly and working with us and we work closely with you, with the other professionals such as accountants and attorneys, as a team to make this work. And that kind of goes to our, our brand, our Life Unlimited brand that we talk about. Hello, wealth management. Because that’s what this is.
So you can live your Life Unlimited.
Matt Halloran [00:21:03]:
Yeah, well, listen, if you haven’t listened to episode 119 or 164. Please go back and listen to that. But Life Unlimited is the ultimate goal. That’s the name of the show.
That’s who Larry is. That’s what their team is there to help you with. And when you master your retirement withdrawals with these tips, it can make a huge, huge difference. Now, if you have been sitting around and you’ve been talking to your friends about this, especially as you’re getting close to prepare for retirement, please share this podcast with them super easy. All you do is click that share button.
Because Larry’s goal and everybody, everybody at Health hello, Wealth Management’s goal is to help educate people to make wiser financial decisions so that they can truly live their Life Unlimited.
Larry Heller [00:21:40]:
And with that, reach out to us on our website, hello, wealth management.com or, and you can schedule an appointment right there if you’d like to, or, or you can just call us 631-248-3600.
Matt Halloran [00:21:53]:
All right, everybody, thanks very much. We’ll talk to you soon.