RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:00:01]
BRIAN: Welcome to Save for Retirement Radio. Where you get the transparency you deserve. With over 35 years of experience in finance and investing, we help you stay up to date on market news and retirement strategies. I’m Brian James Decker, owner and founder of Decker Retirement Planning, and host of Save for Retirement Radio. With me is my co-host and one of the advisors here at Decker Retirement Planning, Clayton Bradshaw.
CLAYTON: Welcome back. We’re excited to be here. We’re gonna pick up where we left off last week. Last week, or on the previous episode if you’re kinda listening through, these are probably pretty fun to binge listen to. And I hope you’re doin’ that.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:00:39]
CLAYTON: But if you haven’t subscribed already, I would encourage you to subscribe. But last week we talked about the pie chart. And we talked about some of the pitfalls of using that strategy. And what we see a lot of retirees running into today. And so, today we’re gonna talk about the counter to that, the distribution plan and the distribution strategy. So, I wanna get into that. As we go through we’re gonna talk about how it can help address those headwinds that that common strategy of the pie chart falls short addressing.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:01:11]
CLAYTON: So, Brian why don’t you talk a little bit about the distribution plan and how it can help address those pitfalls.
BRIAN: I’m excited about this because on one sheet of paper, yes it is a spreadsheet. We’re a math-based firm, so no surprises there. It answers five huge questions. How much can we spend? How much risk exposure should we have? What are my taxes? Tax strategy. How much Roth conversion to have or to do?
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:01:47]
BRIAN: Actually, it keeps going. Liquidity. How much liquidity do I have or need or want in my portfolio? Anyhow, the number one fear of people over 60, we’ve heard for years is running out of money.
CLAYTON: Yeah, running out of money. Am I gonna run out of money before I die? And as you mention that, I know that for some… as I’ve talked to folks and help people plan out their retirements, one of the things that I see when somebody brings me a plan from their other advisor that they’ve been working with. And it’s a big thick booklet with a ton of sheets of paper. And there’s a lot of jargon in there typically.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:02:28]
CLAYTON: And that’s why these distribution plans- that’s one of the reasons why they are so great is because when you open it up, you see right in front of you all of that information. It’s clear. It details it down to the month how much you can spend. And it goes through all of that. And so, for anybody that wants to see what that would look like, or even to see a sample of it, give us a call. And we can send you one. We’ll just email what a sample might look like. We can put one together. And we do that for free all the time. Number is 833-707-3030. Again, that number 833-707-3030 if you’re interested in taking a look at what we’re gonna be talking about today. We encourage you to give us a call.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:03:08]
BRIAN: All right, so let’s dive in on what it is. So, in this spreadsheet, imagine that on the very left side of the spreadsheet is your age. So, we plan to age 100. No, we don’t think that you’ll live that long. But if you do, the money is gonna be there. The next columns, going from the middle to the left, are all your income streams. This is rental real estate if you have that. Pensions if you have that. Portfolio income.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:03:41]
CLAYTON: Social security.
BRIAN: Social security for both. And let’s stop there. Because we’re math based we run, isn’t it 27 pages or so of social security optimization? We wanna make sure that of the hundreds of ways to draw social security, we wanna optimize to the month specific on how you can get the best return on those social security benefits. And when we see the best way to draw social security from the worst. The usual is a couple hundred thousand in additional benefits for people.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:04:17]
CLAYTON: Well, and one thing I wanna add on social security. I think this is important to note because for a lot of people that understand social security. Or have even looked into their options a little bit, typically you’re gonna see that well, if I wait until 70 that’s the best option. So, I don’t need your social security optimization report. But that’s social security in a vacuum. Right? And so, when you look at it in a vacuum, yeah you can see where it’s optimized. But how does it fit with the rest of your income streams? How does it fit with your assets? What’s it gonna do if you wait to draw or if you draw to early?
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:04:51]
BRIAN: Or if you’re married? And a spouse will benefit.
CLAYTON: Right. There’s so many other variables that get taken into account when you look at a distribution plan. And you can see when the actual optimal time to draw social security based on your situation. And you can look at it included with the bigger picture.
BRIAN: Or if you’re divorced. Or your spouse is deceased. So many variables. We wanna make sure you know [COUGH] and are fully confident that you are drawing social security in a way that gives you the maximum benefit.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:05:25]
BRIAN: But anyhow, the income streams of portfolio income, rental real estate, pension, social security. We gross them up, minus taxes. That gives annual and monthly income with a cost of living adjustment to age 100. That is powerful because you see your income streams. I was trained on the pie chart. And I don’t care how smart you are, no person can look at a pie chart and see how much money they can draw in retirement. No one can do that.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:05:59]
BRIAN: And we already talked about the four percent rule, I think in the last couple of podcasts, right?
CLAYTON: Yeah. We covered it. So, if you wanna learn more about what that four percent rule is, check out the previous episode. We talk a little bit more about it in that.
BRIAN: In my opinion, the four percent rule is the most superlative intended. The most destructive financial strategy out there and is responsible for destroying more people’s retirement assets than any other strategy out there.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:06:30]
BRIAN: That’s why in March of 2009, we saw millions of people showing up. Grey haired people. Banks, fast food, greeters at Walmart. They had to go back to work because their retirement was destroyed by the four percent rule that the other guys use for distribution. We don’t use that. We show on a spreadsheet your income streams. We total them up. Minus taxes. Annual and monthly income. With a cost of living adjustment. To age 100. Priceless to know how much money you can draw. When we run that, and Clayton we run that for people before retirement to see if they can retire.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:07:12]
CLAYTON: Yeah. This is one of the best things. And I-for a lot of folks-it works great for people that are already retired. But for people that are planning on when they’re going to retire and have some flexibility. And this is for-generally for a lot of folks that are in their I don’t know, late 50’s. But I’ve done it for people in their 40’s, and I’ve done it for people in their 70’s before. And so, there’s a wide range of ages that this works for. But you can target and set some adjustments. And say all right, I want X number of dollars every month in retirement. That’s what I want ’cause that’s gonna allow me to live the lifestyle that I wanna do. Do my hobbies. Do my volunteering. Whatever. Spend time with grandkids. Whatever the case may be.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:07:51]
CLAYTON: And so, you can see those numbers. And you can pick what that number is. For some people the most important thing isn’t a dollar amount, it’s an age. And they say as long as I’m in this range of money, I wanna retire at 61 or 62 or 65 or 67 ’cause my spouse will be at this point in their life or whatever the case may be. I saw that a lot. And other people it’s I’ve got 10 years left in me. That’s all I can do for work. Or five years. Or I’m gonna get phased out. My department’s getting phased out next year. What does this look like? And so, we can put that together to help people plan ahead.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:08:28]
CLAYTON: To head off any potential issues you can see. All right, my taxes’ll be minimized. I can set everything up the right way. And we can help prepare to set people up for the best possible retirement for those that wanna plan ahead.
BRIAN: Okay, you brought up taxes. A lot of people think that their taxes are gonna drop after retirement. We show them most people have their income either stay the same or actually go higher, the clients that we visit with. And so, their accountant telling them to wait on Roth conversions, which we’ll talk more about in a few minutes.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:09:06]
BRIAN: To wait until after they retire. The accountant is thinking right. But not seeing the data that we have on that client. If your gross income drops after retirement then the accountant’s right. But in my experience, 80 percent of the time, that doesn’t happen. 20 percent of the time, approximately, it does. The other thing that you mentioned, Clayton, is if we do this for people in their late 40’s, early 50’s to see if they can retire? That’s huge. To find out, to know-now the responsibility is on the client to find out how much money they need in retirement.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:09:47]
BRIAN: So, they need to do that math. Once they do that math and they say that they need X to be able to pay their bills. And to do the travel and entertainment. Go to plays. Things that they wanna do. Then we can run the numbers and see when they can retire. That is huge. ‘Cause you can’t look at a pie chart and run those numbers. Then, the second thing is after retirement. Because people are so afraid of running out of money before they retire, they underspend their funds that they’ve saved for.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:10:25]
BRIAN: So, in the income plan that we produce. When they see that they could be spending 12, and they’ve been spending half that because they were afraid. It’s so liberating. I love the… faces light up. Their countenance change. Oh my gosh. So, we haven’t even got to the right side of the income plan yet. But the income stream part lets people know how much money they can draw. And it’s very important pre-retirement, so that they can retire. If you pull the parachute too early, what a tragedy to have to go back to work in your 70’s because you were wrong in when you chose to retire.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:11:08]
CLAYTON: Yeah, well, and I’ve talked to people as well that have gotten near retirement and somethin’ changed, massive, in their life. So, I’ll use the example of divorce. That has come up frequently. That somebody ran into a divorce and it set ’em back. And they thought it was gonna set ’em back 10 years, or 15 or 20 years. Or some thought they would never be able to retire. But there’s a lot of ground you can make up in five to ten-years. And so, it helps people see that they can still be on track to get to the retirement they wanted. Even with a setback that has happened recently. Because the numbers are there, and you can see it.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:11:45]
BRIAN: Yep. So, the left side of the spreadsheet are all income streams totaled up minus taxes. Annual and monthly income with a cost of living adjustment to age 100. Now on the COLA, inflation’s a big deal. We wanna make sure that we adjust the COLA correctly so that we’re not being silly. For example, if we use a three percent COLA and you need 8,000 a month? It doesn’t make sense to have you work longer so that when you’re in your 90’s you get 20,000 a month.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:12:23]
BRIAN: We can spread that. What we do is we push more money to the front of the plan when you’re healthy because there’s three parts to your health in retirement. The go-go years. The slow-go years. And the no-go years.
CLAYTON: Yeah.
BRIAN: So, the go-go years is usually when you retire to mid-70’s.
CLAYTON: It’s the healthy, active travel years.
BRIAN: Right. And then the slow-go years, 75 or so to 90. And the no-go years at 90 plus. You’re not gonna be skydiving anymore. Or skiing, usually. Some people do it, but typically not.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:13:02]
BRIAN: So, we take all that into consideration in adjusting for the planning we do for income. Any other points on income before we switch to the right side of the spreadsheet?
CLAYTON: No additional points. But I just wanna touch on the COLA again. That’s very important because it also can be factored in for Social Security. And we’re conservative about it. And that’s the other side of it as we wanna be conservative because being conservative allows us to have as high a confidence as possible in the plan going forward that if inflation does somethin’ crazy we’ll be able to compensate for it.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:13:40]
BRIAN: Right, good point. Okay, now the right side of the spreadsheet is the portfolio that generates portfolio income. There’s three parts to the portfolio: cash, safe money, and risk. So, cash we have actually top left. We have emergency cash. Emergency cash is cash that shouldn’t be part of the portfolio. It should be there, liquid, ready to go in case you need a new car, the roof goes bad, the water heater goes down. It’s just emergency cash. Everyone’s number’s different.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:14:18]
BRIAN: But like a security blanket, they need that money set aside.
CLAYTON: Yeah.
BRIAN: We also have under emergency cash, any money that you’re gonna be using in the next 12 months shouldn’t be invested in the portfolio. For example, during planning if you’re in the middle of a remodel. Or you think you’re gonna buy a motorhome or something like that. Those major things, we set aside.
CLAYTON: Yeah. I mean I saw a bunch of times you’d have couples that were planning a vacation. They wanted to take all the kids and grandkids on a vacation. So, they’d set aside a big chunk of money to deal with that as well. I mean it’s those kinds of things that you wanna make sure that your discretionary fund is set aside to cover it.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:14:58]
BRIAN: And that’s what we call it, discretionary cash. So, emergency cash, discretionary cash. And then in funding the plan we set aside any capital gains that they might pay for the year. That’s the cash part of the portfolio. And by the way on cash, we subscribe to a database that lets us know what the highest returns are for cash. One to three, three to five, five to seven and seven to ten-year principal guaranteed investments from banks and insurance companies. That is huge.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:15:34]
BRIAN: So, we tell our clients as fiduciaries what the highest returns are for bank. So, right now money market, bank, FDIC cash. Our clients are getting close to one percent. Now [LAUGH] I’m laughing. One percent. People would shoot me if I would say that five years ago.
CLAYTON: I love bringing it up with people to say yeah, you can get one percent. And people are like that’s nothing. Well, one percent…
BRIAN: Did you know what your bank is paying?
CLAYTON: Yeah, one percent right now is more than ten times the national average for commercial banks on savings/checking accounts right now.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:16:13]
BRIAN: Right. So, look at what your commercial bank is paying you. And multiply that times ten. And that’s the number we’re talkin’ about. So, on cash, emergency cash, discretionary cash, capital gain money, we want that money earning one percent. Do we show that earning one percent? No, we’re conservative on all of the numbers that we use for the spreadsheet on portfolio returns for two reasons. One, we wanna make sure that there’s high confidence in their portfolio income. And two, every year when we meet with our clients, we wanna look really smart.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:16:53]
BRIAN: So, we always do better than what we’re projected. But that’s on cash. Anything else we should talk about on cash before we go to the safe money part?
CLAYTON: No, let’s touch on safe money.
BRIAN: And by the way, we’re gonna just touch on the safe money and the risk money. But the next podcast we’re gonna go in deep dives on what those are. In the next podcast we’re gonna go into what options are available for people with principal guaranteed accounts.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:17:25]
BRIAN: The seven to ten-year CD right now, today, is earning .8. It’s less than one percent. Seven to ten-year. The ten-year treasury is now below .5. It’s at .46. So, these are historically low rates. And it’s a tax on retirees because they wanna have some of their money safe. They have to have some of their money safe. So, I’ll just mention this topically. And then we’ll deep dive on this next week in the podcast.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:18:02]
BRIAN: Cash: instead of commercial banks at 0.0, our clients are getting around one percent. So, the first bucket is cash. We combine that bucket one money with emergency cash, discretionary cash, and any capital gain. Bucket two and three are usually one to three and three to five-year money. Right now, we are getting rates on principal guaranteed fixed rates account above three percent. That’s really, really good.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:18:39]
BRIAN: I can’t believe I’m saying that, but that’s really, really good. It’s three times what the money market is. But that’s for those early buckets where we’re just getting them… these are laddered, staggered, principal guaranteed accounts. Now buckets four and five are typically seven to ten-year principal guaranteed accounts. The seven to ten-year CD rate is at .8, we’re averaging over six percent on those right now.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:19:09]
CLAYTON: Right. So, I know you’ve been talking about the different buckets. Buckets one through five. The point of these are just to ladder ’em. And so, the lower number buckets, buckets one, buckets two, those are gonna be in the early years of retirement verses three, four and five. They’re gonna be in the later years of retirement. So, they’re laddered, they’re staggered. I mean generally, that’s just how principal guaranteed accounts function. That you deal with the longer maturities. You’re gonna get a higher rate.
BRIAN: Yep. Now bucket six is a tax-free principal guaranteed account. It’s not for everybody.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:19:40]
BRIAN: But if you qualify for it, the seven to ten-year AAA municipal bond yield, right now today, I looked at it before I came over, is at 1.3 percent, tax free. By the way, why is CD’s for seven to ten year at .8, and tax-free AAA muni is at 1.35? It’s because the credit risk has never been higher for the states. And municipalities are linked at the hip with those obligations. In other words, the risk that your municipal bond is going to pay off is higher right now than ever before.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:20:20]
BRIAN: Because of the states and the financial hits that the states are taking, and municipalities. Because of COVID. So, we’ve seen rates actually go up.
CLAYTON: Yeah. We’d love to talk more about that with anybody that thinks they’ve got some municipal bonds in their portfolio. Because there are a couple of things that are pretty easy to look for if you know what you’re looking for. And so, we can go over that in 15 minutes with you. So, again, give us a call, 833-707-3030 and we can just help you understand a little bit more what’s on your statement. And what to watch for when it comes to those kinds of things.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:20:56]
BRIAN: That’s a great point. On these principal guaranteed accounts with the AAA seven to ten-year rate at 1.3, our clients are averaging paying, net of fee, to age 85 and 90 average over seven percent principal guaranteed on those rates. And then on the risk part of the portfolio…
CLAYTON: So, we touch really quick. We’ve got the cash that we’ve talked about. We’ve got the safe money now that we’ve talked about. The ladder principal guaranteed accounts in the safe money. And now we’re gonna be talking about the risk accounts.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:21:30]
BRIAN: Oh, and I should mention so, one percent and we’re showing one percent. Buckets two and three averaging three, we show two and two and a half on those. When we’re averaging six on buckets four and five, we’re showing three and four. Just to consistently be conservative on those.
CLAYTON: Yeah, and again we’re not tryin’ to shoot for the stars on the plan. We wanna make sure that what we’re showing is easily attainable. And we see that. As we do our annual reviews we’re seeing how our clients are able to benefit from that.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:22:05]
CLAYTON: Because it’s helpful when we can see all right, we’re conservative. That allows everyone to have more confidence in the plan.
BRIAN: Right. And then on the tax-free account when we’re averaging over seven percent. We’re being very conservative on that too. Okay. On the risk bucket. What I love about the risk bucket is a lot of clients come to us with way too much risk exposure. And we trim that back to be about 20, 25 percent. And the reason is because we let that risk money grow for 20 years.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:22:44]
BRIAN: Here’s what I love about distribution planning. So, this is the strategy. And then I wanna hear any other comments that you have. And then we’ll cut it off for this podcast. But two things. On risk, if you start your retirement plan with 800,000, a million five, four million, nine million. Whatever it is, we’ll call it X. If you start with X, your first 20 years of income is coming from principal guaranteed accounts. And this is huge.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:23:19]
BRIAN: In my opinion this is the most important thing we do. It’s the foundational part of our planning. The number one reason that people have to go back to work is because these market crashes that roll through the markets every seven or eight years. So, when you take a 30, 40, 50 percent hit on your portfolio when you’re in your 20’s, 30’s and 40’s, no big deal. You’re getting your paycheck. Not so when you’re retired. That’s the account that you’re drawing money from. From your portfolio income.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:23:54]
BRIAN: So, when you take a 30, 40, 50 percent hit it’s a life changer financially for you in retirement. For our clients, when you’re drawing income from principal guaranteed accounts, huge piece of mind. Because when those markets take those hits, our clients are not effected in their emergency cash. None of their buckets that are principal guaranteed. And our risk accounts are using… and this is a separate database that we use from our principal guaranteed accounts.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:24:28]
BRIAN: We go in the databases like Morningstar, the Wilshire database. Those are the largest databases for money managers in mutual funds. And we even go further and go into couple other databases. And we go through and find the highest returns for risk managers. And for the last 20 years, it’s surprising to a lot of people. These are all computer trend following models. Now that’s jargon, so tell us what that means.
CLAYTON: And for these computer trend following models, the point of it and the benefit that we get is it takes the emotion out of it.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:25:05]
CLAYTON: Because it follows a rules-based approach to trading within the market. And we’ll do another podcast on this topic, so, we’d encourage you… Probably do that not next week but the following week to talk more about that strategy. So, we’d encourage you to tune in to that. But as far as the strategy for the risk bucket. Like you were saying, it’s to grow for 15 to 20 years. And then you can draw some money out to fund a new principal guaranteed account. To then draw income from.
BRIAN: Okay, right. That’s what I was gonna say. So, these are averaging… They didn’t loose money collectively in 2008.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:25:43]
BRIAN: They didn’t loose money collectively in February and March of this year when the markets went down 30 percent. And in 2000, ’01 and ’02 collectively they made money. So, these are very good managers. They’re two-sided strategy. Meaning they’re designed to make money when markets go up. And they’re designed to make money or protect you when the markets go down. Average annual returns are much higher than the six percent that we’re using at the top of that. But here’s the point that I wanted to get back to.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:26:20]
BRIAN: Let’s say that you’re starting your retirement with 800,000. 1.2, 1.5, two and a half, four million, eight million, ten million. Whatever it is, call that X. In the first 20 years, you’re drawing income from principal guaranteed accounts. And if you started with X, you’re drawing one and a half X in those first 20 years because of returns, right? And then, when you get down to year 21, guess what your total account value is. It’s X. You started with X. Drew 1.5X.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:26:58]
BRIAN: And now, 20 years later, you still have X. That is really cool. I love that about the distribution plan. Also, I love that in the first years we’re mathematically using interest to our benefit. Compounding interest. So, in the first few years we’re drawing from the lowest earning accounts. Allowing the highest earning accounts to grow and compound. More than offsetting the gains that we’re making in the bigger accounts.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:27:29]
BRIAN: So, typically in years five and ten you start with X. You’ve spent Y. And in the first five or ten years, X is growing. Even when you’re drawing from the accounts. It’s because we’re drawing from the lower earning accounts. And leaving the bigger money with the higher earning accounts. Okay. Anything else you’d say? We’ve just kinda generally talked about all the advantages of that one plan. We didn’t get into the Roth conversion yet.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:28:04]
CLAYTON: And we’ll talk about that because we wanna do a segment on tax minimization.
BRIAN: Oh, that’s true.
CLAYTON: And that is one of the big strategies. And so, we will cover what Roth conversions look like. We’ve talked about it a little bit before, but we wanna cover it in more detail and go into kinda the specifics. When you should do it. When you should avoid doing it.
BRIAN: How much to do.
CLAYTON: Yeah, how much you should do because when we look at somebody’s portfolio too, and I’ll just say this real quick before we end ’cause we’re about out of time. But when we look at somebody’s portfolio to minimize their taxes, we’re looking at a 20 to 30-year time horizon. And when you’re looking at it that way, it gives you a lot more wiggle room.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:28:42]
CLAYTON: When CPA’s are looking at things, typically they’re trying to just minimize your taxable income for the year. So, they’re lookin’ on a one-year time horizon. We’re looking on a 20 to 30-year time horizon. And so, when looking at it that way, it gives you a lot more wiggle room. There’s a lot more tools that you can use throughout those years to minimize the taxable burden for you, as well as your beneficiaries. But we’ll dive into that a little bit more in another segment. So, today we covered the distribution plan. We talked about how you can see your retirement plan all on one sheet of paper. We are a math-based firm. So, we love seeing it in the form of a spreadsheet.
RR S4 E14 THE DISTRIBUTION PLAN STRATEGY & HOW IT THRIVES [00:29:17]
CLAYTON: But in talking to people, obviously the left-brain logical folks that are out there like us love to see it all laid out on a spreadsheet. But for those that tend to be more of the right-brained, they make their decision more with the heart verses the brain, which is great. These plans still work great for them because they can see all right, I’ve got it all laid out. I know that my kids are taken care of. My spouse is taken care of. And we go through all of those different segments. So, it’s a lot of fun to see, to see the stress test and to address all these potential issues.
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CLAYTON: So, we look forward to having you join us in next week’s show. Again, schedule an appointment with us. We can go over what these distribution plans look like. Our number’s 833-707-3030. We look forward to talking to you next week.
