February 10, 2025 • 17 mins
This episode explores essential strategies for effective retirement withdrawals, emphasizing the importance of minimizing tax liabilities while maximizing fund growth. Listeners gain valuable insights into withdrawal frameworks, tax implications, and the role of technology in planning for a secure retirement.
• Understanding income and tax strategies while working in retirement
• Examining a real-life case study on withdrawal methods
• Importance of software tools in financial planning
• Different accounts require distinct strategies for withdrawals
• Implications of Required Minimum Distributions
• Strategies to enhance wealth through intentional withdrawals
• The role of part-time income in retirement planning
• Tailoring withdrawal strategies based on individual goals
• The significance of legacy goals in financial planning
• Call for listeners to engage and share their feedback
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Ari Taublieb, CFP ®, MBA is the Chief Growth Officer of Root Financial Partners and a Fiduciary Financial Planner specializing in helping clients retire early with confidence.
“Early Retirement – Financial Freedom” is a podcast produced by Root Financial Partners, an SEC-registered investment adviser. The content provided is for informational and educational purposes only. It should not be interpreted as investment, legal, or tax advice. I may reference planning situations based on real client experiences, but they’ve been simplified for clarity. Always consult your own financial advisor before making decisions.
Listening to this podcast does not create or imply an advisory relationship with Root Financial. Investing involves risk, including the potential loss of principal. Past performance does not guarantee future results. Testimonials and endorsements do not reflect all client experiences and are not compensated. Learn more at our website or by reviewing our Form ADV at https://adviserinfo.sec.gov.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Welcome back to the Early Retirement Podcast.
This is gonna be a greatepisode for you if you're
anywhere from one to five yearsout from retirement, or even if
you're in retirement Now.
If you're really intoretirement planning and you are
beyond five years out fromretirement, of course you can
still listen.
But I wanna be transparent.
This is going to be mostapplicable for those wondering
(00:21):
how do I withdraw money inretirement.
It's pretty simple.
When you are working, you haveW-2 or you're self-employed and
you pay yourself a salary,income is coming in the door and
there's not a ton of taxstrategy you can do to minimize
your bill.
I mean, yes, you can do taxloss harvesting, you can have
mortgage interest and itemizedifferent types of deductions
(00:42):
Like, yeah, there's things youcan do, but it's not like
there's a ton.
The reality is when you retire,that's where the value lies,
because that's when you canwithdraw from certain accounts
over others.
Maybe you have a brokerageaccount and it's got a big gain.
Maybe you have all your moneyin a 401k and you're wondering
should you convert some to Roth?
Should you withdraw more?
What about before SocialSecurity comes in?
(01:03):
So there's more customizationand that's where the value lies.
So today is going to be astep-by-step guide.
I'm going to use a case studyso that you can see a real
example.
Regardless if your numbers aresimilar, the same principle
applies, so you don't have to gowell, that's not me.
I don't have that amount ofmoney.
How am I going to do this?
You could do the same thing ifyou had $10,000.
(01:23):
So I don't recommend retiringwith $10,000, but to each their
own.
No, just kidding.
So the point here is, guys, Iwant to keep these videos fun.
I want to keep it entertaining.
It's educational, fun,informative content.
Please don't go execute anystrategy here without actually
consulting with a financialadvisor, tax preparer, a state
(01:44):
attorney or if you are your ownadvisor.
Just please be smart about this.
Nothing should be construed asactual financial advice.
Now I'm going to be hopping in.
If you are listening on thepodcast app, please continue to
listen.
This is going to be equallyeffective for you, I promise.
If you are watching this onYouTube because I post my
podcast in video form on YouTubeas well you can, of course,
(02:06):
look at my screen and you'regoing to see what I'm working
with.
Now, this is a software tool.
I talk about this often becausesoftware will make your life
easier.
I am an Excel guy.
I'm not amazing at a lot ofthings, but I'm pretty good at
Excel.
This beats Excel.
I prefer a software like thisbecause it's dynamic when you
move one thing, it moveseverything else in a seamless
(02:27):
way.
Now, yes, you can do that inExcel, so it's not like you need
this, but I find it makes yourlife easier.
So the case study that we'regoing to go through today this
is a couple and this couplecurrently has three children,
and they are 51 and 49.
Their kids are from 14 to 18and they we're going to call
them John and Jane.
This is a real couple that Iwork with.
(02:49):
I'm just changing their names.
They have a property worth $3million and they inherited that
property and there's no mortgageon it.
So they had a home.
They sold their home.
They now have $3 million inliquid assets, so net worth
nearing $6 million, and theyhave a traditional 401k that's
got $1.5 million.
They have a Roth 401k that is$152,000.
(03:12):
They have a 457b.
What the heck is that?
It's like a 401k for certaintypes of employees $330,000,
mainly government employees.
They also have a brokerageaccount.
Brokerage account that's what Icall a superhero account that
has nine hundred and thirtythousand dollars now also
inherited.
So when they inherited that,there's no tax implications.
(03:36):
Meaning if, for example, Ibought Apple stock for ten
dollars and it went to a milliondollars If I sold it, there's a
lot of taxes.
Versus if you inherit thatmoney, there's something called
a step up in basis.
So now what happens is thiscouple doesn't have to pay any
taxes 930,000, what's in theirsuperhero account.
That's now the cost basis.
(03:58):
So the cost basis and the valueare the same because they
inherited it.
So if this 930 grows to amillion and they decided to sell
, now there's taxes between930,000 and a million dollars.
Going on, they have a Roth IRAwith 15,000, hsa with 25,000,
and 146,000 in 529s.
(04:18):
Now let me tell you about alltheir favorite foods.
No, I'm just kidding, I'm notgoing to bore you to death.
So, going on here, this is acouple.
They don't hate their jobs.
They're 51 and 49.
They had loosely planned onretiring at 60 and 55.
So let's call it, you know, 10years, five years, and they want
to spend 11,000 a month inretirement.
(04:40):
But of course there's going tobe healthcare and travel and
college and stuff coming up.
So maybe they wanna go to gradschool Not gonna go through
everything because today is awithdrawal episode, but here's
what I want you to know when itcomes to retirement withdrawals,
there's a very, very simple wayof looking at this.
Now, this does not work foreveryone, because everyone's
(05:01):
different Meaning.
If you bought one stockMicrosoft and now it's worth 5
million and you bought it for100,000, yeah, this framework's
not going to be ideal for you,but for most of you, this is
going to apply, and I am goingto give you an example, if you
are that Microsoft person,because a lot of you are those
people.
So the general framework isshould we withdraw from
(05:22):
something that's going to have agreater tax liability or a
smaller tax liability?
Well, obviously we want tominimize taxes, but we don't
want to get crushed later on.
So if you have a brokerageaccount, what that means is you
have the opportunity to paycapital gains tax rates, which
is more attractive than ordinaryincome tax rates.
(05:44):
So if you could pay taxes at 0%, would you rather have zero or
10%, because that's the currentlowest bracket for ordinary
income.
Well, brackets are gonna change, but what we wanna do is go.
If we could pay zero, I'drather do that, which means for
99% of people, it makes sense topull from a brokerage account
where you can pay way less taxesthan pulling from an IRA.
(06:06):
So brokerage number one isunless you have cash or money,
that's just sitting there withno tax liability, and I
encourage this for a lot of myclients.
I'll say if you're retiring inthe next year, let's have a
certain amount of money setaside.
So, no matter what markets aredoing, you know you're going to
be able to travel and doeverything you want to do and
(06:26):
then, if markets do well, we'regoing to sell off enough so that
you have another year's worthof income.
We call it Ro reserves.
Root is the name of the companythat I work for.
This is the name that we use.
So, with that being said,brokerage account number one
unless you have cash, unless youhave a pension, unless you have
rental income, in which casemaybe you don't need as much
(06:47):
root reserves because you haveother stuff that's bringing in
income.
Now, that's number one.
Brokerage account Number two isgoing to be like an IRA, a tax
deferred account.
As that keeps growing in thefuture, you're going to have
RMDs required, minimumdistributions.
Let me show you what that means.
So in this software, when youclick on retirement and I know a
(07:08):
lot of you are listening tothis, but same applies you click
this button, retirement, go tocash flows, there's going to be
a way for you to basically seewhat is your future required
minimum distribution.
So this person right now, thiscouple, they're 51 and 49.
They're not worried about theseRMDs because they don't turn on
until age 75.
So in 2049, their firstrequired distribution would be
(07:33):
$420,000.
Then it becomes 452, then 485,then 522, then 562.
So they might have to be forcedto take out like a million
dollars when they're in their80s.
Well, they might be like wedon't need a million, we're
living off of 10,000 a month now.
If we have 120,000 a monthafter taxes, adjusted for
(07:54):
inflation, we're good.
Well, what you can see here isthis is a problem.
It's a good problem.
So a lot of people will say oh,if I'm going to have these big
RMDs later, why don't I pull formy IRA first?
Because that way less is therelater, so that RMD is not as big
, and I go.
The logic is beautiful.
(08:15):
The issue is you're creatingmore tax liability today.
If you pull from an IRA, that'smore money that couldn't grow
for you otherwise.
And this brokerage account, ifwe just let that keep growing,
well, eventually you're going tohave to pay taxes on it.
So the large kind of value, thediscrepancy here on what you
should do how big are the gainsin your brokerage account?
(08:38):
If you have some really minorgains, well, it might make sense
to actually go.
You know what we're going to,let these grow and then in the
future, when we determine itmakes sense, we're going to sell
a portion of this or we'regoing to actually use this to
give to our children so they getto inherit it.
And that's another step up inbasis.
Awesome.
If there's some really biggains there, you might want to
(09:00):
start selling.
Because the big issue I see ispeople go like this I don't want
to sell because if I sell I'mbasically locking in a loss.
Or you know which?
Yes, if you have a milliondollars and it's worth 900,000
now people don't wanna sellbecause it locks in a loss.
Although what you're doing isyou're now taking 900,000 and
(09:20):
you can invest in whatever youwant.
There's nothing keeping that900,000 from going to 500,000 if
that stock doesn't do well.
And now the rest of yourretirement is very different, so
we always need to go.
What's the risk reward?
The value of having a withdrawalstrategy that's very
intentional is you're minimizingyour tax liability over your
(09:40):
lifetime.
So if you're using a superduper, fancy tax strategy, what
you can see on my screen here ishere's an example of if you're
optimizing how you withdraw yourincome over this person's
lifetime, there would be 3.3million fewer dollars that they
essentially otherwise could havehad.
(10:02):
Otherwise said, there'd be 4.1million more dollars because
they saved $1.3 million in taxes.
So this is a type of softwarethat you can go and play around
with your own projections andsee what's the value of doing
this.
Now, the deceptive thing withsoftware is it doesn't know if
you're going to be changing yourmind.
(10:23):
It's not dynamic.
So if you right now arelistening going, okay, that
sounds good, $4 million more,but like, how the heck does that
happen?
Well, the way that this happensis if you're pulling from the
right accounts and you're saving10% in taxes.
That's not the value.
The value is you just save 10%in taxes.
So now your portfolio can keepcompounding way faster.
(10:46):
Let me give you another analogy.
I had a client that reallywanted to retire, but they
didn't want to do nothing.
They still want to do something.
So some part-time income Nowthat was going to bring in
anywhere from $20,000 to $30,000a year.
And they came to me and saidyou're not going to be that
happy, I'm only going to do thisjob that brings in $30,000 a
(11:12):
year.
I said, look, first of all, I'mreally happy because if you
brought in zero you'd still beokay, but you're missing the
point.
They said okay, explain.
I said if you bring in 30,000 ayear, that's nowhere close to
300,000, like when you were inyour peak earning years and
they're like I know, that's whyI'm coming to you.
I'm like well, you got to flipyour mindset, because 30,000 a
year, if you bring 30,000 in ayear and your $3 million
portfolio, I don't need to sendyou 100,000.
(11:33):
I can send you 70,000 a yearbecause you're bringing in 30.
Well, that's 30,000 moredollars.
That stays in a $3 millionaccount which is going to
compound way faster.
So if you get a 10% return on$3 million, that's $300,000.
If you get a 10% return on 2.7,well, that's $270,000.
(11:56):
So, every single year, if thisperson were to bring in $30,000
a year over 10 years, that's$300,000.
That they allowed me to nothave to send them, which could
have compounded where now,literally, it would be the
equivalent of bringing in$600,000, because that $300,000
over 10 years could easilydouble, and so compounding on
(12:18):
itself.
That's the real value it's allabout what's the pressure we can
take off from the portfolio.
So that's an analogy I'll sharewith a client who's worried
about.
You know, is it really going tohelp if I do part-time income?
And, by the way, I told thiscouple like hey, I don't even
want you to do it, I only wantyou to do it if you like doing
it.
So, from a withdrawal strategyperspective, if we get like a
(12:39):
list, it's always like hey,what's going to minimize the
liability?
Yes, if we pull from cash,there's no liability.
So obviously it's a good option.
But the risk is you pull fromcash and now all of a sudden
hypothetical here your Microsoftstock goes down to 30% in value
.
Well, you'll be kickingyourself going why didn't I pull
from my Microsoft stock when itwas in a good position at the
(13:01):
time?
So you're always going to beatyourself up in some way.
It's not like there's a perfectscience to this General
structure is pull from what'sgoing to create the least tax
liability today and then monitorover time, on an annual basis
or throughout the year.
Really, what's going to be mostefficient For a lot of you it's
pull from your brokerageaccount.
Use that to its full extent,because if you have 300,000 and
(13:26):
that's going to get you threeyears worth of income in
retirement awesome.
That allows your 401k or IRA tokeep growing and you don't pay
taxes on it as it grows.
It's tax deferred, so ifthere's dividends and interest
coming in, you don't have to payany taxes on that today.
And your brokerage account?
You would.
Your Roth IRA that's the lastaccount we ever want to touch.
(13:46):
And here's what I see.
A lot People will go why don'tI pull from my Roth IRA?
Because there's no tax liability.
And you just said two minutesago pull from what's the lowest
tax liability.
Well, the Roth.
I was already taxed on that, sonow when I take the money out,
I don't pay any taxes.
Shouldn't I do that?
No, the answer is no, becausethat's the best account for
(14:09):
tax-free growth.
You want that growing likecrazy.
So if we were to take from it,we're really stopping the chance
of tax-free growth.
But I tell this story onlybecause it's important.
We're at a client that told me.
They said, hey, you know, I ranthrough all the projections and
I get why I should pull fromRoth last, but it looks like I'm
going to like never pull fromit because I have enough money.
My brokerage, my socialsecurity, my pension, my 401k
(14:32):
yeah, it almost is like Roth.
I don't even see why I wouldever pull from it.
I said isn't that great?
And they go no, I said why not?
They said, well, I don't havelegacy goals.
I, I don't have three kids.
I'm trying to leave a ton ofmoney to like this case study
example here.
So how does that change for me?
I said, to be honest, youshould probably spend more money
and they're like great.
So like, should I do a portionfrom my 401k or my Roth?
(14:54):
And that example because theyhad no legacy goals, they
weren't trying to leave assetsto kids or heirs or foundations
For them.
Like, yeah, you should use theRoth IRA and we should think
about what's the best way andtiming.
Now, generally, you still wantto do it last, but there's, you
know, all these different waysto look at planning and everyone
(15:14):
wants to say this is the rightway or this is the right.
It doesn't work that way.
So my step by step guide isyeah, the general framework is
brokerage, then tax deferredaccounts like IRA, 401k, then
Roth last, but it needs to godeeper.
If you have a significantconcentrated position, if you
have a lot of cash on thesidelines that has not been
deployed, if you're going tosell a business.
So, if you're looking for moreof a nuanced approach, use a
(15:37):
software so that you can helpplan or work with an advisor.
Of course, this is what we loveto do.
I hope you guys like this video.
If so, please, guys.
What helps this show grow isyour reviews.
So please be as transparent aspossible, not poppable.
I was thinking about a popsicleRecently.
I've been not that you guysneed the whole story, but I've
(15:58):
been basically making orangejuice fresh I know big deal and
then I will freeze that and havethat as a popsicle instead of
the store-bought ones night andday.
So, if you guys don't mind,please be as transparent as
popsicable Terrible joke, I know.
Make fun of me later and thathelps the show grow.
And then, if you're, of course,watching on YouTube, like share
(16:18):
, subscribe I want to help asmany people as possible retire
early.
Thank you guys for helping medo that.
See you guys next time.
Thank you all, as always, forlistening to the Early
Retirement Podcast.
I love getting to host theseshows and make different content
for you guys every single week.
I've not missed a single weekin years and that is because I
love getting to do this.
Now, please be smart about this.
(16:40):
Before you actually execute anystrategy that you see me talk
about or hear me talk about,should I say Please talk to your
financial advisor, your taxpreparer, your estate attorney.
Please be smart about this.
None of this should beconstrued as financial advice.
This is for fun, educational,informational purposes only.
Once again, just quickdisclaimer here.
(17:01):
Guys, please be smart aboutthis.
Appreciate you listening, asalways, and you can, of course,
submit a question on my website,earlyretirementpodcastcom, if
you, of course, want me toaddress a specific case study or
topic.
I will not promise I can get toit, but I respond to every
single person and if I find itwill be helpful for a lot of
people, I will absolutely makean episode on it, at the very
(17:23):
least give you some insight.
That's it.
Thanks, guys.
Welcome back to the Early Retirement Podcast.
This is gonna be a greatepisode for you if you're
anywhere from one to five yearsout from retirement, or even if
you're in retirement Now.
If you're really intoretirement planning and you are
beyond five years out fromretirement, of course you can
still listen.
But I wanna be transparent.
This is going to be mostapplicable for those wondering
(00:21):
how do I withdraw money inretirement.
It's pretty simple.
When you are working, you haveW-2 or you're self-employed and
you pay yourself a salary,income is coming in the door and
there's not a ton of taxstrategy you can do to minimize
your bill.
I mean, yes, you can do taxloss harvesting, you can have
mortgage interest and itemizedifferent types of deductions
(00:42):
Like, yeah, there's things youcan do, but it's not like
there's a ton.
The reality is when you retire,that's where the value lies,
because that's when you canwithdraw from certain accounts
over others.
Maybe you have a brokerageaccount and it's got a big gain.
Maybe you have all your moneyin a 401k and you're wondering
should you convert some to Roth?
Should you withdraw more?
What about before SocialSecurity comes in?
(01:03):
So there's more customizationand that's where the value lies.
So today is going to be astep-by-step guide.
I'm going to use a case studyso that you can see a real
example.
Regardless if your numbers aresimilar, the same principle
applies, so you don't have to gowell, that's not me.
I don't have that amount ofmoney.
How am I going to do this?
You could do the same thing ifyou had $10,000.
(01:23):
So I don't recommend retiringwith $10,000, but to each their
own.
No, just kidding.
So the point here is, guys, Iwant to keep these videos fun.
I want to keep it entertaining.
It's educational, fun,informative content.
Please don't go execute anystrategy here without actually
consulting with a financialadvisor, tax preparer, a state
(01:44):
attorney or if you are your ownadvisor.
Just please be smart about this.
Nothing should be construed asactual financial advice.
Now I'm going to be hopping in.
If you are listening on thepodcast app, please continue to
listen.
This is going to be equallyeffective for you, I promise.
If you are watching this onYouTube because I post my
podcast in video form on YouTubeas well you can, of course,
(02:06):
look at my screen and you'regoing to see what I'm working
with.
Now, this is a software tool.
I talk about this often becausesoftware will make your life
easier.
I am an Excel guy.
I'm not amazing at a lot ofthings, but I'm pretty good at
Excel.
This beats Excel.
I prefer a software like thisbecause it's dynamic when you
move one thing, it moveseverything else in a seamless
(02:27):
way.
Now, yes, you can do that inExcel, so it's not like you need
this, but I find it makes yourlife easier.
So the case study that we'regoing to go through today this
is a couple and this couplecurrently has three children,
and they are 51 and 49.
Their kids are from 14 to 18and they we're going to call
them John and Jane.
This is a real couple that Iwork with.
(02:49):
I'm just changing their names.
They have a property worth $3million and they inherited that
property and there's no mortgageon it.
So they had a home.
They sold their home.
They now have $3 million inliquid assets, so net worth
nearing $6 million, and theyhave a traditional 401k that's
got $1.5 million.
They have a Roth 401k that is$152,000.
(03:12):
They have a 457b.
What the heck is that?
It's like a 401k for certaintypes of employees $330,000,
mainly government employees.
They also have a brokerageaccount.
Brokerage account that's what Icall a superhero account that
has nine hundred and thirtythousand dollars now also
inherited.
So when they inherited that,there's no tax implications.
(03:36):
Meaning if, for example, Ibought Apple stock for ten
dollars and it went to a milliondollars If I sold it, there's a
lot of taxes.
Versus if you inherit thatmoney, there's something called
a step up in basis.
So now what happens is thiscouple doesn't have to pay any
taxes 930,000, what's in theirsuperhero account.
That's now the cost basis.
(03:58):
So the cost basis and the valueare the same because they
inherited it.
So if this 930 grows to amillion and they decided to sell
, now there's taxes between930,000 and a million dollars.
Going on, they have a Roth IRAwith 15,000, hsa with 25,000,
and 146,000 in 529s.
(04:18):
Now let me tell you about alltheir favorite foods.
No, I'm just kidding, I'm notgoing to bore you to death.
So, going on here, this is acouple.
They don't hate their jobs.
They're 51 and 49.
They had loosely planned onretiring at 60 and 55.
So let's call it, you know, 10years, five years, and they want
to spend 11,000 a month inretirement.
(04:40):
But of course there's going tobe healthcare and travel and
college and stuff coming up.
So maybe they wanna go to gradschool Not gonna go through
everything because today is awithdrawal episode, but here's
what I want you to know when itcomes to retirement withdrawals,
there's a very, very simple wayof looking at this.
Now, this does not work foreveryone, because everyone's
(05:01):
different Meaning.
If you bought one stockMicrosoft and now it's worth 5
million and you bought it for100,000, yeah, this framework's
not going to be ideal for you,but for most of you, this is
going to apply, and I am goingto give you an example, if you
are that Microsoft person,because a lot of you are those
people.
So the general framework isshould we withdraw from
(05:22):
something that's going to have agreater tax liability or a
smaller tax liability?
Well, obviously we want tominimize taxes, but we don't
want to get crushed later on.
So if you have a brokerageaccount, what that means is you
have the opportunity to paycapital gains tax rates, which
is more attractive than ordinaryincome tax rates.
(05:44):
So if you could pay taxes at 0%, would you rather have zero or
10%, because that's the currentlowest bracket for ordinary
income.
Well, brackets are gonna change, but what we wanna do is go.
If we could pay zero, I'drather do that, which means for
99% of people, it makes sense topull from a brokerage account
where you can pay way less taxesthan pulling from an IRA.
(06:06):
So brokerage number one isunless you have cash or money,
that's just sitting there withno tax liability, and I
encourage this for a lot of myclients.
I'll say if you're retiring inthe next year, let's have a
certain amount of money setaside.
So, no matter what markets aredoing, you know you're going to
be able to travel and doeverything you want to do and
(06:26):
then, if markets do well, we'regoing to sell off enough so that
you have another year's worthof income.
We call it Ro reserves.
Root is the name of the companythat I work for.
This is the name that we use.
So, with that being said,brokerage account number one
unless you have cash, unless youhave a pension, unless you have
rental income, in which casemaybe you don't need as much
(06:47):
root reserves because you haveother stuff that's bringing in
income.
Now, that's number one.
Brokerage account Number two isgoing to be like an IRA, a tax
deferred account.
As that keeps growing in thefuture, you're going to have
RMDs required, minimumdistributions.
Let me show you what that means.
So in this software, when youclick on retirement and I know a
(07:08):
lot of you are listening tothis, but same applies you click
this button, retirement, go tocash flows, there's going to be
a way for you to basically seewhat is your future required
minimum distribution.
So this person right now, thiscouple, they're 51 and 49.
They're not worried about theseRMDs because they don't turn on
until age 75.
So in 2049, their firstrequired distribution would be
(07:33):
$420,000.
Then it becomes 452, then 485,then 522, then 562.
So they might have to be forcedto take out like a million
dollars when they're in their80s.
Well, they might be like wedon't need a million, we're
living off of 10,000 a month now.
If we have 120,000 a monthafter taxes, adjusted for
(07:54):
inflation, we're good.
Well, what you can see here isthis is a problem.
It's a good problem.
So a lot of people will say oh,if I'm going to have these big
RMDs later, why don't I pull formy IRA first?
Because that way less is therelater, so that RMD is not as big
, and I go.
The logic is beautiful.
(08:15):
The issue is you're creatingmore tax liability today.
If you pull from an IRA, that'smore money that couldn't grow
for you otherwise.
And this brokerage account, ifwe just let that keep growing,
well, eventually you're going tohave to pay taxes on it.
So the large kind of value, thediscrepancy here on what you
should do how big are the gainsin your brokerage account?
(08:38):
If you have some really minorgains, well, it might make sense
to actually go.
You know what we're going to,let these grow and then in the
future, when we determine itmakes sense, we're going to sell
a portion of this or we'regoing to actually use this to
give to our children so they getto inherit it.
And that's another step up inbasis.
Awesome.
If there's some really biggains there, you might want to
(09:00):
start selling.
Because the big issue I see ispeople go like this I don't want
to sell because if I sell I'mbasically locking in a loss.
Or you know which?
Yes, if you have a milliondollars and it's worth 900,000
now people don't wanna sellbecause it locks in a loss.
Although what you're doing isyou're now taking 900,000 and
(09:20):
you can invest in whatever youwant.
There's nothing keeping that900,000 from going to 500,000 if
that stock doesn't do well.
And now the rest of yourretirement is very different, so
we always need to go.
What's the risk reward?
The value of having a withdrawalstrategy that's very
intentional is you're minimizingyour tax liability over your
(09:40):
lifetime.
So if you're using a superduper, fancy tax strategy, what
you can see on my screen here ishere's an example of if you're
optimizing how you withdraw yourincome over this person's
lifetime, there would be 3.3million fewer dollars that they
essentially otherwise could havehad.
(10:02):
Otherwise said, there'd be 4.1million more dollars because
they saved $1.3 million in taxes.
So this is a type of softwarethat you can go and play around
with your own projections andsee what's the value of doing
this.
Now, the deceptive thing withsoftware is it doesn't know if
you're going to be changing yourmind.
(10:23):
It's not dynamic.
So if you right now arelistening going, okay, that
sounds good, $4 million more,but like, how the heck does that
happen?
Well, the way that this happensis if you're pulling from the
right accounts and you're saving10% in taxes.
That's not the value.
The value is you just save 10%in taxes.
So now your portfolio can keepcompounding way faster.
(10:46):
Let me give you another analogy.
I had a client that reallywanted to retire, but they
didn't want to do nothing.
They still want to do something.
So some part-time income Nowthat was going to bring in
anywhere from $20,000 to $30,000a year.
And they came to me and saidyou're not going to be that
happy, I'm only going to do thisjob that brings in $30,000 a
(11:12):
year.
I said, look, first of all, I'mreally happy because if you
brought in zero you'd still beokay, but you're missing the
point.
They said okay, explain.
I said if you bring in 30,000 ayear, that's nowhere close to
300,000, like when you were inyour peak earning years and
they're like I know, that's whyI'm coming to you.
I'm like well, you got to flipyour mindset, because 30,000 a
year, if you bring 30,000 in ayear and your $3 million
portfolio, I don't need to sendyou 100,000.
(11:33):
I can send you 70,000 a yearbecause you're bringing in 30.
Well, that's 30,000 moredollars.
That stays in a $3 millionaccount which is going to
compound way faster.
So if you get a 10% return on$3 million, that's $300,000.
If you get a 10% return on 2.7,well, that's $270,000.
(11:56):
So, every single year, if thisperson were to bring in $30,000
a year over 10 years, that's$300,000.
That they allowed me to nothave to send them, which could
have compounded where now,literally, it would be the
equivalent of bringing in$600,000, because that $300,000
over 10 years could easilydouble, and so compounding on
(12:18):
itself.
That's the real value it's allabout what's the pressure we can
take off from the portfolio.
So that's an analogy I'll sharewith a client who's worried
about.
You know, is it really going tohelp if I do part-time income?
And, by the way, I told thiscouple like hey, I don't even
want you to do it, I only wantyou to do it if you like doing
it.
So, from a withdrawal strategyperspective, if we get like a
(12:39):
list, it's always like hey,what's going to minimize the
liability?
Yes, if we pull from cash,there's no liability.
So obviously it's a good option.
But the risk is you pull fromcash and now all of a sudden
hypothetical here your Microsoftstock goes down to 30% in value
.
Well, you'll be kickingyourself going why didn't I pull
from my Microsoft stock when itwas in a good position at the
(13:01):
time?
So you're always going to beatyourself up in some way.
It's not like there's a perfectscience to this General
structure is pull from what'sgoing to create the least tax
liability today and then monitorover time, on an annual basis
or throughout the year.
Really, what's going to be mostefficient For a lot of you it's
pull from your brokerageaccount.
Use that to its full extent,because if you have 300,000 and
(13:26):
that's going to get you threeyears worth of income in
retirement awesome.
That allows your 401k or IRA tokeep growing and you don't pay
taxes on it as it grows.
It's tax deferred, so ifthere's dividends and interest
coming in, you don't have to payany taxes on that today.
And your brokerage account?
You would.
Your Roth IRA that's the lastaccount we ever want to touch.
(13:46):
And here's what I see.
A lot People will go why don'tI pull from my Roth IRA?
Because there's no tax liability.
And you just said two minutesago pull from what's the lowest
tax liability.
Well, the Roth.
I was already taxed on that, sonow when I take the money out,
I don't pay any taxes.
Shouldn't I do that?
No, the answer is no, becausethat's the best account for
(14:09):
tax-free growth.
You want that growing likecrazy.
So if we were to take from it,we're really stopping the chance
of tax-free growth.
But I tell this story onlybecause it's important.
We're at a client that told me.
They said, hey, you know, I ranthrough all the projections and
I get why I should pull fromRoth last, but it looks like I'm
going to like never pull fromit because I have enough money.
My brokerage, my socialsecurity, my pension, my 401k
(14:32):
yeah, it almost is like Roth.
I don't even see why I wouldever pull from it.
I said isn't that great?
And they go no, I said why not?
They said, well, I don't havelegacy goals.
I, I don't have three kids.
I'm trying to leave a ton ofmoney to like this case study
example here.
So how does that change for me?
I said, to be honest, youshould probably spend more money
and they're like great.
So like, should I do a portionfrom my 401k or my Roth?
(14:54):
And that example because theyhad no legacy goals, they
weren't trying to leave assetsto kids or heirs or foundations
For them.
Like, yeah, you should use theRoth IRA and we should think
about what's the best way andtiming.
Now, generally, you still wantto do it last, but there's, you
know, all these different waysto look at planning and everyone
(15:14):
wants to say this is the rightway or this is the right.
It doesn't work that way.
So my step by step guide isyeah, the general framework is
brokerage, then tax deferredaccounts like IRA, 401k, then
Roth last, but it needs to godeeper.
If you have a significantconcentrated position, if you
have a lot of cash on thesidelines that has not been
deployed, if you're going tosell a business.
So, if you're looking for moreof a nuanced approach, use a
(15:37):
software so that you can helpplan or work with an advisor.
Of course, this is what we loveto do.
I hope you guys like this video.
If so, please, guys.
What helps this show grow isyour reviews.
So please be as transparent aspossible, not poppable.
I was thinking about a popsicleRecently.
I've been not that you guysneed the whole story, but I've
(15:58):
been basically making orangejuice fresh I know big deal and
then I will freeze that and havethat as a popsicle instead of
the store-bought ones night andday.
So, if you guys don't mind,please be as transparent as
popsicable Terrible joke, I know.
Make fun of me later and thathelps the show grow.
And then, if you're, of course,watching on YouTube, like share
(16:18):
, subscribe I want to help asmany people as possible retire
early.
Thank you guys for helping medo that.
See you guys next time.
Thank you all, as always, forlistening to the Early
Retirement Podcast.
I love getting to host theseshows and make different content
for you guys every single week.
I've not missed a single weekin years and that is because I
love getting to do this.
Now, please be smart about this.
(16:40):
Before you actually execute anystrategy that you see me talk
about or hear me talk about,should I say Please talk to your
financial advisor, your taxpreparer, your estate attorney.
Please be smart about this.
None of this should beconstrued as financial advice.
This is for fun, educational,informational purposes only.
Once again, just quickdisclaimer here.
(17:01):
Guys, please be smart aboutthis.
Appreciate you listening, asalways, and you can, of course,
submit a question on my website,earlyretirementpodcastcom, if
you, of course, want me toaddress a specific case study or
topic.
I will not promise I can get toit, but I respond to every
single person and if I find itwill be helpful for a lot of
people, I will absolutely makean episode on it, at the very
(17:23):
least give you some insight.
That's it.
Thanks, guys.
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