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Discussions in this show should not be construed as specific recommendations or investment advice. Always consult with your investment professional before making important investment decisions. Securities offered through registered representatives of Cambridge Investment Research Inc. A broker-dealer member, finra, sipc Advisory Services through Cambridge Investment Research Advisors Inc. A registered investment advisor Cambridge and Greenway Wealth Advisory are not affiliated.

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It's time to dive into some insider secrets of investing and retirement planning. To make your retirement as smart and as elegant as possible. This is Money Chic with Sherry Rash.

0:00:31 - Speaker 3
Hey everybody, welcome into this edition of Money Chic, with Sherry Rash and myself Talking investing, finance and retirement, and this week on the podcast we've got five things you must know about decumulation to retire successfully. So first I'm going to let Sherry come in and say hi, what's going on, sherry, how are you?

0:00:48 - Speaker 4
Doing great. It's hot, I'm sweating. Yeah, yeah, middle of summer we're middle of summer.

0:00:52 - Speaker 3
yeah, we're middle of July, so it's toasty indeed. Everything going good so far, Kids doing good.

0:00:58 - Speaker 4
Kids are great. That's awesome.

0:01:00 - Speaker 3
Always good to hear Still enjoying camp and all that good stuff.

0:01:02 - Speaker 4
They're in basketball camp this week. Girl Scout camp last week Busy, busy, very busy, yes, lots of focuses there.

0:01:09 - Speaker 3
Yeah, very good. Well, talking about focus, let's jump in and talk about this decumulation here. So so much of the financial world focuses around accumulating money. Right, that's tons of advice. You're not going to find any shortage of advice on how to guides and guard rails and things of that when it comes to saving and investing and building wealth. But there's a lot less resources out there to help retirees navigate the period of time after retirement. This is sometimes known or is called decumulation, so the spending down and managing of the assets you've accumulated through our life. So on this episode, sherry, we're going to point out five things that folks might want to know or must know, and let you kind of tackle those for us and point out some things and share with us. So let's jump in with the first one. Just a lack of support. There's often a lack of support in the Serena.

0:01:56 - Speaker 4
Absolutely. I mean, everyone talks about accumulation. Everyone thinks about accumulation when they're investing. We're accumulating our entire working lives for retirement and advisors especially like to pick investments to have your account values grow right. We like to talk about rates of return and how well we did for our clients to help them grow their money and then, when it's time to flip that switch and help them deplete their assets, it's not as fun to talk about or to show that the account buyer is going down as a result of making withdrawals. I actually really enjoy the decumulation phase and setting that up for my clients and ensuring that they do have that income stream. But there really is a huge mindset shift you have to make and many clients I have one in particular that is having a really hard time switching from accumulation to decumulation and you now need to pay yourself and you're paying yourself from your investment. So accumulation cannot be the only goal anymore once you hit retirement.

0:03:03 - Speaker 3
Yeah, and I imagine that you know, really, at the end of the day, we've been on a 11-year, you know good market cycle, right. I mean it still really is going well, even with the blip in the pandemic in 2020. And I imagine, for the DIY folks who have been, you know, because it's easier to do the growth portion right, it's easier to grow the money than it is to understand how to preserve it and distribute it throughout retirement, and that's obviously really where financial advisor and professional can come in because of that decumulation phase. So I imagine there's a real transition point for folks like that as well, if they've been doing it themselves and it's like OK, now I know I need help because retirement is a lot more complex, but then how do I let go? You know.

0:03:41 - Speaker 4
Yeah, you're exactly right. When you're accumulating, you're essentially treating all of your dollars the same. They just need to grow. But when you decumulate, you cannot continue treating every dollar the same. And what I do with my clients is I actually create, I call it buckets. So certain buckets are what you're taking the income from and bucket one is what you're living off of for the first five years of retirement. Buckets two, three and four have more of an accumulation focus. But once bucket number one becomes empty and it will be emptied that's when we shift to bucket number two to start taking income from. So you can't treat all of the dollars the same in decumulation the way you did during accumulation.

0:04:25 - Speaker 3
Okay, absolutely. And so when we're talking about these five steps, let's go to number two here, when you mentioned the person that you were having is having some trouble shifting, is it the fear of spending? Is that there, I guess, hang up with it, Because I imagine that's a lot for folks when it's like I've built all this money, now I'm afraid to spend it or I'm uncomfortable spending it. I mean, there's a lot of different, you know, mindsets out there when it comes to that.

0:04:47 - Speaker 4
There are a lot of different mindsets. They are not confident that they have enough money to start spending. So that, which just means that they don't have a plan in place, because I show my clients here's what you can spend, here's your income, go at it. And so there is definitely a fear of spending. Also, again, if they're scared to spend, that means they're still in the accumulation mindset, so they haven't made that shift to decumulation. Also, some folks are scared to spend because they want to leave money to their children, their beneficiaries, so they want to spend as little as possible so they can leave money to their family.

And usually when talking to the family, the family's going spend your money, I don't care, I don't want you know. I'd rather you enjoy your money than leave it to us, so stop sacrificing on behalf of us. So there's a lot of reasons why folks have a fear of spending, but it's definitely there. I see it all the time.

0:05:47 - Speaker 3
Yeah, I mean, and again, how you're raised, that can play a factor and we talked about that. We had some fun on the show. A couple of episodes back about some of those things where just getting over that hump of saying okay, it's okay even when you're shown I know advisors that are like you can lay it out in black and white form but they still struggle spending sometimes and you have to really help nurture them through that mindset change.

So very good information there. Let's go to number three here. Sherry, the risks just in general are, you know, they're just more numerous, they're just everywhere, whether you're if you want to use a sports analogy right, I mean, you're down to the last few minutes of the game, you know, and you're taking extra chances, especially if you're winning, is usually not a good idea. That's why the victory formation is in place in football, for example. You just want to reduce the number of risks that are out there.

0:06:31 - Speaker 4
Exactly you do. And that's again to my point earlier of you can't treat every dollar the same because there's different risks that you need to protect yourself against and the solutions to protect yourself against each of these risks are different. So I tell my clients there's three risks that everyone faces in retirement, the first one being sequence of return risk, which I call retiring at the wrong time. So you retire and then there's a down market. So imagine your portfolio goes down 20% two weeks after you retire. That's not going to feel very good.

And if you were treating your money in decumulation the same as you did in accumulation, your entire portfolio went down. But instead if you were to bucket out your assets and have a portion of it protected and much more conservative investments that protect you against the sequence of return or downturn of the market, you can stomach that downturn much easier and again, your entire portfolio is not subject to that volatility. So protecting against the sequence of return helps to prevent the conversation of your portfolios down 20%. You have to live off of less or get a part-time job because it's just not going to generate enough income for you. The second risk of retirement is inflation risk stuff just costing more, and especially right now, we're hearing a lot about inflation. So you know, $100 today at the grocery store does not buy you what it bought you 10 years ago or 10 years from now, right.

0:08:03 - Speaker 1
Or even last year You're going to get a lot.

0:08:04 - Speaker 2
Yeah right, Exactly.

0:08:06 - Speaker 4
Yes. So inflation stuff just costing more. You're going to need your portfolio to keep up with inflation, so that's its own objective. And then, lastly, longevity risk just living longer than your money. So again, your portfolio is going to need growth to last as long as you do so. Inflation and longevity you need that growth to protect against those two risks. But with sequence of returns risk. You need a more conservative allocation to protect against volatility. So, again, you can't treat all of your assets the same in de-cumulation as you did in accumulation.

0:08:42 - Speaker 3
And Sherry, that last one, the longevity risk. They also call that the risk multiplier. Right, because it just multiplies and amplifies everything else, because the longer we live, obviously, the more those things are going to get compounded.

0:08:54 - Speaker 4
Exactly, I mean healthcare. You're spending more on healthcare, which then also has a higher inflation as well, so absolutely yeah.

0:09:02 - Speaker 3
And so it's one of those things that hopefully, is being looked at and addressed when you're talking about your plan and the longevity of your plan. We had an email question on our last podcast where the gentleman was thinking longevity wasn't in his future and it's like, well, that's one of those things. If you're wrong and you're living longer, all these other things are getting magnified, so you want to make sure you're certainly taking that into account and that's why it's very important to address those. Number three, which was the risks becoming more numerous here on our five things you must know about de-cumulation to retire successfully. So number four, Sherry, focusing on tax consequences obviously very important. Is it kind of like the bucket strategy as well? Is it where we want to have taxes? We want to think about our taxes in different kinds of buckets or different ways?

0:09:44 - Speaker 4
Absolutely yeah. I mean, the way your money is taxed in retirement is also part of the planning process, because a mistake or an oversight many people have is that they think I have a million dollars in my 401k, I'm good. Well, that's true, yeah, but it's really only worth $750,000, maybe because you haven't paid taxes on that money yet.

0:10:08 - Speaker 3
At the current tax rates. At the current tax rates exactly.

0:10:11 - Speaker 4
So it's reasonable to expect taxes that are going to go up, so that's a bigger chunk, and then also, over time, different administrations. Taxes could keep on going up in retirement, so that just means that's more money you have to withdraw from your retirement accounts in order to get you that same dollar amount after taxes, so that taxes take a huge chunk out of your savings and you need to plan accordingly for that. So utilizing Roth IRAs which are funded with after tax dollars and are potentially withdrawn tax-free, is a great tool that could make sense for a lot of clients as well.

0:10:51 - Speaker 3
You know, would it be too bold a statement to say if you're not talking about taxes as part of your retirement planning process, you're doing it wrong.

0:10:58 - Speaker 4
Absolutely, yeah, Absolutely. I say all the time too. You know if you're only thinking about taxes when you're filing your taxes you're not doing any tax planning either. So it's important to be thinking about taxes and planning for taxes throughout the year. To prepare and have a tax strategy. You have to have an income strategy, but part of that is a tax strategy.

0:11:18 - Speaker 3
And see, I feel like that again. That's where some value comes into play when working with a financial professional. Because there's, we're ingrained, right. I mean, after 40 years, we'll just say just hypothetical 40 years of working and filing our taxes every April, that's what we're used to doing. We get our stuff together and we take it to the, you know the tax preparer or the CPA or whatever, and that's the extent of it, right? We don't really get educated or conditioned to understand that there's more things we could do. We get into all these arguments about you know the rich this and the rich that, and it's like there's a lot of tax advantages out there. The code is the code. Are you willing to take the time and pay someone to help you navigate it better? Right, exactly.

0:11:57 - Speaker 4
Exactly, absolutely. And another mistake people make in retirement is they just assume they're going to be in a lower tax bracket. Well, because they're retired. But if you're living in the same house like a question we had last show from a gentleman that wanted to stay in his house if you're living in the same house and your expenses are going to be roughly the same, you're going to need about roughly the same amount of income. So you might not necessarily be in a lower tax bracket and also the tax rates could be higher.

0:12:23 - Speaker 3
And probably will be. I mean, it's definitely one of those things that's on the radar and people are starting to get more concerned about it, and it is one of those financial misnomers that you know we're just automatically going to be in a lower bracket. You may be and it's possible, but you're going to have to do again some planning. So it all comes back to the planning. Well, let's hit the final one here, step five or the fifth area when it comes to our topic this week, and that's just leveraging our lifetime income. What does that mean?

0:12:48 - Speaker 4
You need to continue to have a paycheck when you are no longer receiving one from your employer. So instead of your employer paying you, you now have to pay yourself. So your paycheck has to be replaced, and there are many different ways that your paychecks can now be replaced. So when I'm working with my clients, I'll ask them about I call it their base income. It's money that's coming into them no matter what, every January one when they wake up in retirement. So that could be pensions, social security, annuity income if applicable. And then I have a discussion with my clients how much of that base income do you want to know is coming to you, no matter what? Meaning not market dependent, not investment dependent, and based off of that, that helps to create the plan. Some clients want as much coming into them guaranteed as possible. Some are okay with letting their investments supplement social security. So it's again you need to think about creating paychecks for yourself now and paying yourself in retirement.

0:13:54 - Speaker 3
Yeah, we got to pay our future selves, because it's just a different animal now than it used to be and obviously for prior generations. If you had social security and a pension, you're probably in pretty good shape. You didn't have to save all that much or something nominal probably would get you through. But now we have to. Definitely, the onus is certainly much more on us and we have to do those things. So those are five steps you might want to know or need to know about a decumulation to retire successfully.

A lot of good information this week on the podcast. If you have any questions or need some help or would like to talk through that more about your unique and specific situation, always check out with a qualified professional like Sherry, reach out to her at the website, stop by and you could subscribe to us while you're there on Apple, google, spotify, all that good stuff. Whichever platform you like to use, you can find all the information at GreenwayWealthAdvisorycom. That's GreenwayWealthAdvisorycom for the main page, and then there's also a podcast tab and a blog tab and lots of other good things you can check out as well. A lot of good content. So, sherry, thanks for hanging out and explaining decumulation. If I can talk to us, I appreciate it.

0:14:53 - Speaker 4
Thank you, it was fun.

0:14:54 - Speaker 3
Yeah, absolutely. We'll be back with more on a future episode, so don't forget to subscribe so you can catch those when they come out and get notified, as well as check out those past episodes. And we'll see you next time here on Money Chic with Sherry Rash from.

0:15:31 - Speaker 1
GreenwayWealthAdvisory.