At Decker Retirement Planning Inc., Brian Decker has heard this question thousands of times in the last 30 years: “How much money do you need to retire?” The answer—if we haven’t met with you personally—is, “it depends.”
However, if we have met with you personally, you could know exactly how much money you need. In fact, when you meet with us, you may be surprised to find out that you already have enough. If not, you’ll see everything spelled out on paper, and you’ll know how much you still need to put away.
You see, unlike big brokers or bankers, we don’t specialize in speculative investing. We specialize in retirement planning. We are a math-based firm, and we know that your number one concern is making sure you have enough money to last throughout your retirement. So we spend our days running the numbers for people—for you. We work with real numbers based on real facts, which are given to us by you
The Decker Approach to Retirement Planning
When we talk about your retirement plan, we’re talking about an actual customized spreadsheet which contains your real information, showing all your sources of income, your Social Security benefits, your pension income, your rental real estate income, and the income that you derive from your portfolio. We add all of that up, deduct all projected taxes, put in a yearly 3% COLA (cost of living adjustment) and that gives your annual and monthly income.
We tabulate and calculate your plan up to age 100, so that you can see mathematically on paper how much money you can spend so that you don’t run out of money before you die, no matter how long you live.
Which leads to another topic we always cover in a retirement plan.
Planning For the Loss of One Income
There is a big problem to be considered and put into your retirement plan. It’s the number one problem for women, since they often live longer. That is, replacing the income lost upon the death of a spouse.
We help you think this through from his point of view, and hers, because while we can’t predict these events, we can plan for them.
For instance, let’s say that there’s a $70,000 yearly pension being paid to just one of you, and it doesn’t have any surviving spouse clause. And then there’s the fact that even though by law the surviving spouse gets the largest of the Social Security checks, you only get one check once your spouse dies.
You could be looking at the loss of more than half of your income. That’s a big hit. So, we help make sure that you both have the right type and amount of insurance in place. There are new insurance products that can provide income in retirement. We’ll show you the numbers and the options.
Why You Should Always Use an Independent Fiduciary for Retirement
A quick word about numbers and options. A firm like Decker Retirement Planning is not only a specialist in retirement planning, but we are an independent fiduciary. That means that we are not representing any one brand name or specific product line, but instead we have access to a very large universe of financial instruments. In fact, almost all of them. And as a fiduciary, even if it means no money at all to us or our firm, we are required to give you advice which is in your best financial interest at all times.
Independent fiduciaries aren’t hawking one product, or trying to keep moving your money around in the market in order to make commissions on your investments. They are trying to find the best solutions for you. So please, even if you don’t work with us, use an independent fiduciary for your retirement planning.
You’ll Probably Need a Bigger Monthly Budget
How much money do you need to retire? More in the beginning.
People tend to mistakenly think that their expenses will go down once they retire. That’s not our observation or experience at all, quite the opposite. What we’ve seen is that while you’re working, at the end of the day when you go home, you’re tired. You may go out to dinner or something. But when you’re in retirement, it’s a different story. You have all kinds of time and energy, and you want to do all kinds of activities you never had time for. Doing these things costs money—we usually see people’s expenses go up by about 20% when they retire!
That’s why in terms of your budget, we take whatever you’re spending pre-retirement and we multiply it by 1.2 to get an approximation of what you will spend ideally after you retire. And after that, we define what we call “buckets” in your retirement plan, based roughly on your age.
“Buckets” in the Retirement Plan
Earlier we showed how we spell out your income in a retirement plan. But on the right side of the spreadsheet, we spell out your buckets. In these buckets, not only do we have emergency cash set aside, but we show you how you will generate the cash or income to live on each month throughout retirement.
Bucket one is for the first five years of income, roughly ages 65-70. Bucket two is for years six through 10, or ages 71-75. Bucket three is for years 11 through 20, or approximately age 76-85.
All three of these buckets are in principal-guaranteed accounts. That way, when the markets get creamed every seven or eight years, which has been the historical cycle in the stock market, our clients don’t lose money. (The clients that did their planning with us went through the recession in 2008 and didn’t even have to change their travel plans because there was no loss in their first three buckets. There was no loss in their principal-guaranteed accounts for the first 20 years of retirement.)
After age 85, if you numerically didn’t have as much saved as some people, or to hedge against the rising cost of healthcare and the health issues that might arise in your 80s, we may spell out on your plan that we have placed some of your money in risk accounts or risk buckets to help generate gains you can use late in retirement. But even in that risk bucket, we use two-sided strategies / models that are designed to make money in both up and down markets. (They’re called trend-following models. The six managers that we’re using right now collectively made money in 2008 and they made money in 2000, ’01, and ’02.)
“We’re fiduciaries to our clients; we’ve done the research. We’ve gone out to the databases, like Morningstar, the biggest database of mutual funds in the world. And the biggest database of money managers, Wilshire, as well as TimerTrac and Theta. And we find out who has the highest returns, net of fees. As a fiduciary, we’ve done that homework when it comes to the risk bucket of money. You would expect a fiduciary to do that, especially when it comes to retirement money, wouldn’t you? We do it on a regular basis.” – Brian Decker
We’re a math-based firm and we run the numbers to see how much of your money needs to be at risk. Typically, it’s only 20 – 25%. That’s really important for a couple of reasons. First of all, the fees that you’re paying at a bank and brokerage firm are fees for all of your money. When clients transfer to us, they see those fees drop by an average of 70%, because we don’t bill management fees on your savings, checking, or your principal-guaranteed accounts. Remember, as a fiduciary, our job is to look out for your best interests at all times. Some people have so much saved that they need take no risk at all. And furthermore, we don’t require that you keep your risk money with us anyway.
Our job is about helping you create a steady, predictable income that lasts—it’s about how to get income from your life savings. It’s about cash flow through each phase of retirement. It’s mandatory to do the math and spell out a retirement income plan, then review it on a regular basis.
Without Proper Tax Planning, You Might Owe More Income Taxes in Retirement
The typical client we have at Decker Retirement Planning is married, has $1.2 million saved, $800,000 of which (or roughly 75%) is held in deferred-tax retirement accounts, called qualified money. (The other 25% percent of their money is already-taxed money, called non-qualified.)
When you go into the bank and you pull non-qualified money out of your Bank of America or Chase account, there’s no cost to you, there are no taxes taken out. It’s already-taxed money.
But when you pull $1,000 out of a 401(k) or traditional IRA qualified money account, you’re taxed on that money in the year that you draw it out, and it’s taxed as ordinary income based on whatever tax bracket you are in that year.
We put your already-taxed money in the front part of your retirement plan during the first 10 years, and your taxable money in the back of the plan, so that you’re taking out your already-taxed money as your income first. That means that in the first 10 years, your AGI (adjusted gross income), drops to a very low amount, causing your income tax bracket to be very low. (As an added benefit, this also keeps taxation on your Social Security income low.)
We call this placement, and it’s designed as a tax minimization strategy.
Qualified Money First, Possible Conversions to Reduce Taxes Later
The low tax bracket during the first decade of retirement creates a window for us to convert your qualified traditional IRA or 401(k) money to a Roth or already-taxed account if it makes sense, which it usually does. (NOTE: We do this in your risk bucket, not in buckets one, two, or three—those buckets are held in principal-guaranteed accounts.)
As fiduciaries, we want to make sure that we do the right thing, based on solid numbers. Through proper planning, we can help calculate to the dollar how much money you should convert from qualified to non-qualified accounts, and we spread the conversions out over five to seven years, based on the math. For most clients, the conversion accounts allow their money to grow tax-free, can send income back to them tax-free, and pass assets to the next generation tax-free. For most, it affords them the biggest tax-saving strategy in their lifetime.
Many of our clients see six-figure tax savings.
For any qualified money which hasn’t been converted, when you’re 70-1/2 years old, the IRS requires you by law to start pulling a certain amount out of your qualified plans like IRAs and 401(k)s. These are called RMDs, or required minimum distributions, and they can throw you into a high tax bracket if you haven’t planned properly. The rules are complicated, and any RMDs on qualified money that you don’t pull out by December 31st each year are penalized at a very steep penalty—at 50%. (A 50% penalty, plus the tax due on what you didn’t distribute as income.)
It’s not effective, in our opinion, to do what most people do, which is to draw income from their portfolio to meet their monthly needs, and then take a big RMD wad out, usually in the fourth quarter, in order to satisfy their required minimum distributions. When you calculate the taxation, it’s much more efficient to convert money in most cases.
Spending Properly in Retirement
Most people know what their budget is. Some people don’t. So, step one, we can’t help you unless you know how much money you need each month. And based on that, we can tell you if your income plan is going to work or not. And remember, you usually spend more in retirement than when you’re working, at least at the beginning.
“Some clients after working for 40 years and budgeting and saving and paying off their homes (I’m really proud of these people), they scrimp, save, do without, budget, live frugal lifestyles, maybe spend $5 – 6,000 a month. And then they enter retirement, and suddenly now they’ve got $12 – 14,000 a month that they can spend.
And they literally are shocked. So we have to talk them through the process of making that emotional change of thinking that it’s irresponsible to spend money to where now when you’re retired, it’s okay to spend money. This is what you’ve set aside. This is someday. You’ve saved for someday. Today is someday.”
-Brian Decker
We will help you with a retirement income plan, and a distribution plan to ensure proper cash flow. As we review your plan every year, we will see where your assets are at versus where they should be in terms of return rates. And we’re conservative about that. We believe you should take care of yourselves first, just like a flight attendant tells you to put your own oxygen mask on first. Don’t bail out your kids and your grandkids unnecessarily from life’s emergencies and put your own retirement at risk.
But that being said, most of us won’t live to be 100. So when you do have extra (which we will clearly see during our annual reviews), we encourage you to spend those funds to create wonderful, priceless memories, in addition to planning for a legacy* after you are gone. Those memories, like expensive family reunions or cruises or amazing trips to Europe for the whole family, benefit all of you while you are still alive. Do the things on your bucket list while you can, you’ve saved your whole life for this.
So how much money do you need to retire? You can see now why at Decker Retirement Planning we answer, “It depends.” Call us at 855-425-4566 for a personal, complimentary consultation. We have offices in Seattle, Kirkland, and Salt Lake City.
*Learn more about legacy planning here: Estate planning.
