Episode Transcript
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Speaker 1 (00:00):
And our phone lines they are open to you if
you've got a question for our retirement planning professionals from
Class Financial. I got whose pickphone gives call six O
eight three two one thirteen ten. That's six SO eight
three two one thirteen ten. Love to have you join
us this week. And of course, speaking of being joined,
we are joined by are retirement planning professionals CJ. Closs
and Eric Schwartz of course coming to us from Class Financial.
(00:22):
Their website class financial dot com. That's Class k l
a A s Financial dot com. Great website to learn
more about Class Financial. You can also listen back to
this in previous shows podcast as well as sign up
for the weekly Market Pulse newsletter that available to you
at classfinancial dot com. Their telephone number six SO eight
four four two five six three seven. No charge for
(00:44):
the initial get to know your appointment at Class Financial.
It will be complementary to you again their number six
oh eight four four two five six three seven And
as mentioned, joining us this morning our CJ. Closs and
Eric Schwartz.
Speaker 2 (00:55):
CJ. How you doing this morning?
Speaker 3 (00:57):
Good morning, Seawan, I'm doing great.
Speaker 2 (00:59):
How are you? I'm doing really good? Good to hear
from you and Eric. How have you been.
Speaker 4 (01:03):
I've been great, Sean. I'm excited for our topic today.
Speaker 1 (01:06):
It's going to be a good one, a sustainable withdrawal rate,
which I feel like and I know we'll get into
this with you guys, but that's probably probably the biggest,
biggest thing that folks wonder about, and we'll get some
answers and we'll walk through it with our friends from
Class Financial this morning. Don't forget if you've got questions,
we've got an opportunity for you to get on the
air right now. It's six eight three two one thirteen ten.
(01:27):
That's six'h eight three two one thirteen ten. One of
the really cool features as well of the program is
the weekly Class Quiz Question of the Week. This week
you'll have a chance to win a fantastic prize from
our friends at Class Financial, a twenty five dollars gift
card to Kabella's little tip if you pay close attention
to the program. Just about every show, the question and
answer come up during the program, so it's definitely beneficial
(01:49):
to pay close attention to the show.
Speaker 2 (01:50):
And before we get.
Speaker 1 (01:51):
Rolling on this week's topic in this week's conversation, let's
actually look back at last week's program and get the
class quiz question the week and answer there as well.
Speaker 4 (02:00):
Yeah, so thank you to everyone for listening as usual,
and congratulations to a winner from last week was Bart,
and Bart knew the answer to the question, which was
true or false Entering retirement with the least amount of
debt will give you the most freedom. The answer to
that is of course true.
Speaker 1 (02:18):
Excellent that I love the name too, So congratulations to Bart.
And of course you can have a chance to win
a twenty five dollars gift cart to Capella's this week.
Just pay close attention. We'll tell you a little bit
later on all the details about winning with the class
Quiz s Clasch week. So, as mentioned, this week're going
to be digging into a pretty darn big topic that
is planning for sustainable with a sustainable withdrawal rate from
(02:40):
your investment in retirement. And I know people are retiring
earlier and we're living longer, so this seems like something
you really need to think about, right, Yeah, But I'm just.
Speaker 3 (02:50):
Trying to figure out if everybody knows why you love
the name of Bart, that's good cool for those who
don't know. Sean loves the Simpsons. So yes, anyway, okay obsessed, Yes,
thanks thanks for calling in virub.
Speaker 2 (03:03):
We appreciate it.
Speaker 3 (03:05):
Okay, yes, so so yes, we're talking about sustainable withdrawal
rates or distribution rates. So this gets into a topic
that I think when consumers think about retirement, one of
their questions becomes, hey, how much should I plan to
draw out of my accounts without running the risk of
running out of money? Said another way, the number one
(03:26):
fear of retirees is running out of money before they
run out of life. And so a big part of
our job is to move towards this topic now, believe
it or not, As you can imagine, their academics are
all over this topic in terms of research and analytics,
and believe it or not, there's a lot of rules
of thumb that the industry abides by that we would
(03:49):
say are a great starting spot, but not a great
ending spot. We'll get into that a little bit more
as we move forward. But cash flow is critical when
you enter retirement. When retirees think about risk, again, that
number one fear is running out of money. So there
are three key factors that we think impact retirement planning,
(04:09):
one being the need for real inflation adjusted cash flow.
Number two the risk of needing to sell investments during
a downturn, and then number three the possibility of decades
of lower than average market returns. These are key factors
that can impact your retirement planning around these sustainable withdrawalrates.
(04:30):
So managing your withdrawal rate to make sure your money
lasts throughout retirement plays an essential role in your overall
retirement strategy.
Speaker 2 (04:42):
Talking this morning with CJ.
Speaker 1 (04:43):
Closs and of course Eric Schwartz, our retirement planning professionals
from Class Financial. Their website Cossfinancial dot com. That's Coss
k l Aasfinancial dot com. A great website and great
resource to learn more about about Coss Financial and of
course learn more about the upper divisions the team, and
of course line up for that weekly Market Pulse newsletter.
(05:04):
So what exactly, CJ, then, would be excuse me, pardon me, Eric,
what exactly would be considered a safe withdrawal rate?
Speaker 4 (05:12):
It's a good question. That's a million dollar question, Sean.
It's it's what we spend a lot of our time
talking to folks about and first of all, just thinking
about a withdrawal rate. It's it's often expressed as a percentage,
and like CJ said, there's a lot of rules that
I'm out there. I'm sure a lot of people have
heard the four percent rule. You can draw out four
percent and be safe. That's a good starting point, not
(05:35):
not exactly where, not exactly something that works for everybody.
But the withdrawal rate or a safe withdrawal rate, is
one that strikes the balance between, you know, drawing money
out and enjoying retirement now, but also ensuring that you
don't run out of money, which, as CJ said, is
one of the biggest concerns we hear from retirees. And
(05:55):
really it's not just about what you need to live.
It also depends on other sources you have, like Social
Security pensions if you're working part time, and it also
depends on your age, special expenses like healthcare before Medicare
kicks in at sixty five, or even your debt load
going into retirement, which is what we talked a lot
about last week. All these things play a role. So
(06:18):
the key is understanding how sustainable your withdrawal rate is,
especially when you factor in inflation and other market conditions
as well.
Speaker 1 (06:28):
Talking this morning with our retirement planning professionals from Class Financial, CJ.
Closs and of course Eric Schwartz. I mentioned the website.
I mentioned of course signing up for the weekly Market
Pulse newsletter. I mentioned you a little bit about some
of the features and some of the cool things, but
of course it's got a great little snapshot of what's
been going on in the marketplace. Also, it has a
link to your most recent podcast. Again, just head on
(06:48):
over to coassfinancial dot com that's coss k l Aasfinancial
dot com for your opportunity to subscribe to the weekly
Market Pulse newsletter and of course learn more about Class
Financial all online.
Speaker 2 (06:59):
Great data.
Speaker 1 (06:59):
Set up that appointment six oh eight four four two
five six three seven. Don't forget that first appointment to
you at costs Financial. It will be complementary, no charge
at six oh eight four four two five six three seven.
Talking this week about a sustainable withdrawal rate from your
retirement investments, and so as we work through these these numbers,
kind of a reasonable withdrawal rate, what's kind of that
(07:21):
area that we're going to look to Eric to avoid
running out of money?
Speaker 4 (07:26):
Yeah, and this is going to come back to our
favorite answer here. It depends right. We love to say
that and we joke about it, but it's true, you know,
And this is why we think it's important that folks
have professionals in their lives to help them plan for retirement.
But your age, your financial situation, and your goals, one
of which is whether or not you want to leave
money behind after you're no longer here. All of these
(07:49):
things factor in. So when we're thinking about, you know,
what is a reasonable withdraw rate? I mentioned there's kind
of those those rules of thumb. While you can draw
out four percent, well, it's a good spot to start,
but it also depends on a lot of things, right.
It depends on how you're invested, right, So if you're
more conservative, the expected return on your investment portfolio is
(08:10):
not going to be as high, which which impacts how
much you can draw out. And you know how much
your portfolio can be expected to replace what you take out,
your retirement timeline, your current age, And I think the
other piece here is the other income sources you have,
because the thing about your withdrawal rate is for a
(08:30):
lot of our clients and a lot of folks out there,
your withdraw rate isn't the same all through retirement. Okay,
so you may have, as I mentioned earlier, you may
have higher expenses earlier in retirement because you're not yet
sixty five, you have to pay for higher medical expenses.
You may not yet have started Social Security. So you know,
(08:51):
it's not uncommon for folks to have a higher withdrawal
rate in earlier in the earlier parts of retirement. That
then reduces later on when they turn on their Social
Security benefits and when they get onto Medicare and lower
their healthcare costs. So for some people, you know, a
three percent or a four percent withdraw rate might be sustainable.
(09:13):
And then for other people, you know, they might be
able to handle a little bit higher with drawrate, maybe
if they retire later or or they have some other
sources of income. But the aim is to stay ahead
of inflation and means and be able to maintain the
lifestyle you want. So just because the market returns ten
percent in a year, doesn't mean you want to take
out the full ten percent, because there will be years
(09:33):
in the future where the market doesn't return ten percent
or maybe has a negative return, and we need to
account for that with the good years as well.
Speaker 2 (09:40):
That's really important to remember.
Speaker 1 (09:42):
I know I as you know, we've kind of look
at where recid memory of how the market's been going,
like oh yeah, no problems like yeah, but I know
we've we've covered those topics in great depth as well
in previous programs. You can always listen back at cossfinancial
dot com. That's cost k l a a s Financial
dot com talk this week with CJ and Eric about
(10:02):
sustainable withdrawal rate from your retirement investments. And so as
we work through some of these some of these areas
of you know what that number is and what's reasonable
those type of things, how much then CG have our
pre retirement income should we then be planning on U
when it comes to to being replaced in retirement?
Speaker 3 (10:23):
Well, I bet you can guess at the answer, Sean.
Speaker 2 (10:28):
Is it? It depends? It depends?
Speaker 3 (10:30):
Yeah, uh, you know, before we get to the replacement percentage,
I just I want to really emphasize that section that
Eric went through. You know, what is the rate? And
everybody wants to know what's the rate or how much
money should I have? And unfortunately, just like anything meaningful
in life, there's subtlety to these answers. And so you know,
(10:52):
we have a lot of tools actually in our organization,
the things that create what are called like guardrail mathematic algorithms.
Speaker 2 (10:59):
Process.
Speaker 3 (11:00):
This is that we can follow to make sure that
if markets hit what are called high standard deviation events
or unlikely events like an eight, that we can make
adjustments as necessary to make sure that people don't run
out of money. But I will tell you I've seen
people in the industry just abide by a rule of thumb.
I'm saying, people who do like what we do, they go,
I don't know four percent at all times, and I'm
(11:22):
just scratching my head, going, whoa that? And it's not
that I don't understand the rule of thumb and just
keeping it simple. But I'll be frank, there's many of
our clients that early on will be pulling ten percent
and then maybe they dropped onto two and then they
go back to up to eight.
Speaker 2 (11:38):
There's people who retire.
Speaker 3 (11:39):
Later on in life who they don't want to leave
money to their children, so we have them at an
eight or nine percent withdrawal. Right, And again, if you
don't know the context of those comments, that could scare you.
But when you build context around those comments, around those
withdrawal rights, suddenly the plan comes to life. So if
you are, if you are just abiding by rules of
(11:59):
Thumb as it relates to withdrawal rates, I would say, warning, warning, warning.
Rules of Thumb were never designed to be custom solutions. Okay,
now to your question, what is the target replacement rate?
So when we say this, everybody think of it this way.
I'm working earning one hundred thousand dollars a year as
a household, let's say myself and a spouse or myself alone,
(12:23):
and then I transition into retirement. So how much of
that income will I need to replace that gross salary
that I had while I was working? How much of
that income will I need to replace in order to
live the same lifestyle? And as I said, it depends greatly.
But let me just tell you one important factor. If
your objective is to replace the same kind of lifestyle,
(12:46):
and if everything else in your life is held constant,
meaning expenses do not change at all, when you enter retirement,
you will need less gross income in retirement than you
did when you were working. Let me repeat that. If
you hold everything else constant in the background, and you're
working as a household earning one hundred thousand dollars a year,
(13:08):
and then you transition into retirement with the exact same
cost structure, you will need less gross income. And a
lot of people scratch their head and go, what are
you talking about? Well, a few things. Number one, you
were probably saving some of that money into a four
to one K plan while you were working. But even
if you weren't doing that, you were paying something called
FIKA taxes that you do not pay when you are
(13:33):
when you are in retirement drawing off Social Security pensions
or retirement accounts. So by definition, you will need less.
The question is how much less, and that answer varies
greatly person by person, especially if think of if you
followed our advice and paid off a mortgage right before
you retired. So listen, we have seen people need thirty
(13:54):
percent of their pre retirement income. We have seen people
need ninety percent of their pre retirement Now, with all
of this rambling out of the way, according to a
twenty twenty four study by Mass Mutual, the average actual
retirement age in the United States is now closer to
age sixty two. So the interesting part about that is
(14:14):
at sixty two, how much do I need to replace?
You don't know, because there could be interesting things that
pop up in the background, which, like Eric mentioned this before,
what if my company was covering health insurance. Now I'm
sixty two, I'm not yet to Medicare at sixty five,
and I've got this potentially expensive Affordable Care Act health insurance.
So listen, if anybody gives you a gimmicky response that
(14:37):
you need eighty percent of your pre retirement income, nobody
knows without doing a detailed analysis of your financial situation.
So even when you hear me talking about this, what
I'm really trying to tell you is do the math.
Sit down with an advisor, do the math to figure
out what it is that you will need.
Speaker 1 (14:55):
Really important conversation, and it's a great conversation to have
as well, and get those plans in. It's never too
early to start that conversation. It's a great dat to
call the folks at cost Financial there telephon number six
oh eight four four two five six three seven. Don't
forget that initial get to know you appointment at COSS Financial.
It is complimentary to you. I got to just pick
up phone game a call six oh eight four four
(15:16):
two five six three seven. You can learn more online
the website coss Financial dot com. That's Coss k LaaS
Financial dot com. And again the telephon number six O
eight four four two five six three seven. Well what
happens when you turn seventy three? We'll get the details
on that and much much more as Money in Motion
with Coss Financial continues next right here on thirteen ten.
(15:37):
Wib A full lines are open at six oh eight
three two one thirteen ten. That's six oh eight three
two one thirteen ten. If you have questions for our
retirement planning professionals from Class Financial love to have you
join us this morning again, telp number to get on
the air six oh eight three two one thirteen ten.
Telphon number for Coss Financial, So easy to remember, that's
six so eight four four two five six three seven.
Speaker 2 (15:58):
I get a lot of folks actually coming up to
me and they say, pray boy here. I just hear that.
Speaker 1 (16:02):
I hear that number in my head constantly. There's a
reason why we do it that way, because it's an
important number. Six eight four four two five six three
seven for Claus Financial lo website Coloss Financial dot com.
That's Coss k l a As Financial dot com. Talking
this week with Eric Schwartz and CJ. Class talking about
the sustainable withdrawal rate from your retirement investments and H
(16:25):
and Eric, excuse me, CJ. As we as we were
just talking that last segment about pre retirement income and
replacing replacing that income in retirement the age seventy three
and people are going seventy three. I don't know that
we've touched on seven three yet. Uh, something does happen there?
And there are rules about taking money out? What do
(16:45):
folks need to know and how does that work?
Speaker 2 (16:47):
CJ.
Speaker 3 (16:49):
Yeah, you're talking about required minimum distributions known as r
mds for short, and some people like to even confuse
it beyond that, to call it mrd's minimum required distributions.
It's all the same thing. It references the age at
which you become required to start pulling out minimum distributions
from your pre tax retirement accounts. Now, there can be
(17:11):
an exception to this if you have an employer sponsor,
if you're still working at a company where you have
pre tax money, you can often defer pulling out that
required distribution of that particular plan. But most people are
retired by seventy three, right, So most people are retired
they've got their money, whether it be in a four
to one K and we'll call it an old non
(17:32):
contributory four to one K four oh, through b or iras.
And when you turn seventy three, you have to start
pulling out these minimum distributions. Now, for those of you
who are listening scratching your heads, going seventy three, I
thought it was seventy and a half, and then I
thought it was seventy two, and then I've also heard
this number seventy five. So yeah, there's some information on
(17:57):
that right now. So if you were born after nine
teteen sixty, your RMD age will be seventy five. If
you were before born before nineteen sixty, and you are
not yet seventy three, then your RMD age will be
seventy three. Now, some of you who are listening on
the air right now, go no, no, no, no, no, I
(18:18):
started drawing at seventy and a half or seventy two.
That's true for you, it was a different age. But
for people now who are turning seventy three, it's seventy three.
And for anybody born after nineteen sixty, which Eric and
I should be raising our hands right now. Our RMD
age will be seventy five. Now rmds. What the heck
are these things? Well, versings. First, you need to take
(18:40):
your first required minimum distribution by April first of the
year after you turn seventy three. This is known as
your required beginning date or RBD. I just laugh at
how complicated our industry makes us. Most of the time.
You do not want to push off your first RMD
(19:03):
to the following year, because every subsequent RMD must be
pulled out by December thirty first. So if you're tracking
with me, let's say I turned seventy three this year,
my required beginning date is April first of twenty twenty
six next year. But if I do that and I
push off my first one to next year, then I
also have to pull next year's by December thirty first,
(19:26):
meaning I will have to double up on rmds in
twenty twenty six and every year thereafter it has to
be out by December thirty first. So listen. Under most circumstances,
talk to your advisor, talk to your accountant. But under
most circumstances, you're going to want to pull out that
first RMD in the year in which you turn RMD age,
which is typically seventy three.
Speaker 1 (19:46):
Talking this morning with CJ. Class and Eric Schwartz, our
retirement planning professionals. They come to us from Claus Financial,
the website claus financial dot com. That's Klaas Financial dot com.
Tel Number six so eight four four two five six
three seven that at first appointment at costs financial Like
it's no conversation, it'll be complimentary to you. Again, they're
number six O eight four four two five six three seven.
(20:07):
So the big why of all of this, CJ is
why does the IRS require us to do our mds?
Speaker 3 (20:13):
Yeah, great questions. So because it is weird, it's like
what what what? What's happening? So I put in money
pre tax, it grows tax deferred, and then like I
get to retirement, they're forcing me to pull money out. Yes,
so I don't want to get too deep into the weeds.
But it actually makes a lot of sense behind the
scenes if you understand this. And here's here's a simple concept.
(20:34):
If money doesn't exit the we'll call it the the
ecosystem of finance. So think of this as I earn
a dollar, I pay income taxes, I use that dollar
to go buy goods and services. I pay sales taxes.
Those people pay a salary for the people that work
at the place where I bought the goods and services.
(20:54):
They pay income taxes they go buy something. My dollar
is in circulation constantly, like all the time, and the
federal government and state agencies and municipalities generate tax revenue
off of that I don't know one hundred times in
a year, like just a bunch. Well, if I remove
that money from the in circulation and I set it
(21:15):
into retirement accounts, well, imagine how much tax revenue is
being lost by state and local governments, by municipalities, by
federal governments. It's massive, And therefore the government has to
in order to remain in business, I shouldn't say in business,
in order to function, they have to figure out ways
(21:35):
to not allow all that money to stay outside of
the taxable circulation for too long. So that's why they say, hey,
I don't care if you need the money or not.
When you turn seventy three or at some age, we
got to force you to start pulling out that money,
because when you pull it out, it re enters general circulation,
it starts getting taxed again. So that's the why. And
then rmds are based on the balance of your retirement
(21:59):
accounts at the end end of the year, or i
should say at the end of the previous year, divided
by your life expectancy from the IRS tables. So there's
a table you can right now go to Google and
just put in an RMD table. It'll pop up. You'll
find some of the some of the recent tables used
for this. But there's a life expectancy factor. So you
(22:20):
take your December thirty first value of all of your
pre tax retirement accounts, you divide it by that life
expectancy table based upon your age, and then it gives
you a number. That number ends up representing about three
point six to three point seven percent of your pre
tax amount has to come out in the first year
you turn RMD age, and that percentage gets larger every
(22:43):
single year you move forward, so effectively, what's happening is
they're forcing you to pull more and more and more
in percentage terms out of your pre tax retirement accounts
every single year you move forward. Now, a couple of
quick things here. Rmds do not apply to roth irays
unless they're inherited, and the reason is because there's nothing
(23:06):
for the irs to get out of forcing you to
pull money out of a roth ira. Remember when money
comes out of roth iras, assuming you're over fifty nine
and a half, there's.
Speaker 2 (23:13):
No tax due.
Speaker 3 (23:15):
Therefore, there is no RMD on roth iras or wroth
for ow and k's as of twenty twenty four. That's
actually a new rule. There used to be rmds on those. Now.
The key here is there is an RMD if you
inherited the roth ira, but there's just not one if
it was your own. And listen, if you don't need
(23:35):
the money. Often people say this is highway robbery. I
don't need the money and I'm pulling it out and
I'm paying taxes. This is terrible. Well, there is a
get out of jail free card, and the get out
of jail free card is you can give all that money,
all that RMD money directly to a charity. This is
known as doing a qualified charitable distribution a QCD. And
(23:57):
you can pull all of that money out give it
directly to charities, and two things happens. It counts towards
meeting your minimum distribution and you don't have to claim
it as as well, you have to file the ten
ninety nine but then just notify your accountant that it
all went to charities and you don't you don't end
up paying income taxes on that. So there is that
get out of Joe free card. But you'll want to
(24:20):
talk to your accountant to make sure you're doing this
all the right way.
Speaker 2 (24:23):
It's a really neat feature.
Speaker 1 (24:24):
And I know we've talked in quite quite great depth
on qcds and what a great powerful tool they are.
And of course you can always listen back to this
in previous shows podcasts. Of course, get caught up on
qcds and other things all at Costs Financial dot com.
That's cost k l a a s Financial dot com.
They're a tell number six oh eight four four two
(24:44):
five six three seven. No charge for that initial getsino
you appointment deck cost Financial. It will be complimentary to
you again, they're number six oh eight four four two
five six three seven. We'll talk about the importance of savings.
We'll also talk about a great question from Scott with
the Money in Motion list the question corner. We will
do all of that next as Money in Motion with
Coss Financial continues right here on thirteen ten. WI b
(25:07):
A talking with our retirement planning professionals CJ. Closs and
Eric Schwartz. Of course they come to us from COSS Financial.
Their website cossfinancial dot com. That's Coss k l a
A S Financial dot com. And they're telephone numbers six
so eight four four two five, six three seven. Talking
about a sustainable withdrawal rate from your investments for retirement,
(25:27):
and you know we've been talking about all these different investments.
What about emergency savings. I'm going to guess that that's important, right, Yeah, you.
Speaker 4 (25:37):
Know, this is something that I often have clients questioned
me about because we you know, we encourage them to
still have liquidity and have an adequate emergency fund even
when they're in retirement. And people will say to me, well, Eric,
what does it matter. I'm I'm retired. I can access
my retirement account if I need, if I need extra money,
or something comes up. There's a couple of reasons why
I would I would encourage people to still have an
(26:00):
urgency fund. Number one, Oftentimes, if you need to take
money from your retirement account, there are there are taxes
due upon drawing money out, which is fine if it's
all part of your you know, your annual income plan.
But if it's additional income that you weren't planning on
taking out, suddenly we're increasing our taxable income, maybe we're
impacting our health insurance premiums. So it's just it's just
(26:22):
good to have an easy fund to access that you
don't have to worry about paying taxes on. And the
other piece of it is as people move into retirement,
there are plenty of changes. They're not going to work
every day, they are, you know, trying to find new
new routines, and there's just a lot of change going on.
So if you can if you can reduce the amount
(26:43):
of things that you need to adjust to, and you
can treat your cash flow the same way you did
like you have all the years you've been working, that
that just really goes a long way and making the
transition to retirement easier. So don't reinvent the wheel just
because you're moving into re rehirement. So aim for aim
for a three to six month cash reserve, three to
(27:05):
six months of living expenses. Remember you're still going to
have unexpected events in retirement, a medical bill, home repair,
any of that can can still come up even though
you're not working anymore. And one thing we do tell
people as they are really closing in in retirement, maybe
in that last twelve months. You know, if you're if
you don't have a lot of liquid cash available, but
(27:28):
you do have quite a bit in your retirement accounts,
you might consider kind of shifting your focus from adding
to the retirement accounts in order to build up that
solid emergency fund before you move into retirement. And the
last piece of this is, as you're looking to build
that emergency fund, don't don't make it complicated. Set up
an automatic transfer from your checking into a high heeled
(27:51):
savings or a money market account. Think of it as
you know the classic pay yourself first and just like
I said, don't don't make it complicate, and help yourself
out as you as you move in on retirement.
Speaker 1 (28:04):
Nobody ever regrets having a little extra money just set
aside for important things that can happen, that is for sure.
As we talk this morning with Eric Schwartz and CJ. Closs,
our retirement planning professionals from class financial website Coss Financial
dot com. That's Coss k l a as Financial dot com.
Great website and one of the great things you can
do on the website is submit a question to be
answered and our Money in Motion listener question corner, and
(28:26):
this week Scott wrote in the following question, he said,
my wife and I are planning on selling our house
when we retire, but we are concerned about the gains
we might experience. Any suggestions on how to avoid taxes
on those gains and see, ja, I'll leave this one
for you.
Speaker 3 (28:43):
Yeah, well, thanks for the question, Scott. Again, everybody feel
free to submit a question on our website and we'll
we'll throw it into these questions at the end. And also,
you know, feel free to call in during the show
if you have a live question. We do always like
to see if anybody can stump us. So, but yes,
when sell selling your primary residence, Scott, there are definitely
some tax benefits that could help reduce or even eliminate
(29:05):
the capital gains tax you might owe. So if you've
lived in and owned your home for at least two
out of the last five years before the sale, you
may qualify for what's called the primary residence or the
home sale exclusion. This allows you to exclude up to
two hundred and fifty thousand dollars of capital gains if
you're single, or up to five hundred thousand dollars if
you're married filing jointly. So for example, Scott, if you
(29:27):
and your wife sell your house and your gain is
less than five hundred thousand dollars, you likely won't owe
any taxes on that amount of gain when you go
to sell it. Now. A couple other quick things. Just
be aware of if you've done any improvements, because some
people say, well, you know I bought it for one
hundred thousand dollars thirty years ago. I'm selling it for
now seven hundred thousand dollars, so you know that's more
(29:49):
than five hundred thousand of gains, So I guess I'm
going to get blown up. Well, couple things, you would
only pay tax on the portions that's over the five
hundred thousand, so it's not that the whole thing becomes taxable.
Number two, keep track of your home improvement expenses because
I'll bet over that twenty or thirty year timeframe in
my example, that you've put some money into the house,
you've probably done some fix ups and maybe replace the roof,
(30:12):
remodeled the kitchen. You get the idea, it is not
only your original purchase, plus all of the improvements that
you've made along the way. And then finally, just for
Scott and everybody else, if you are close to retirement
but not quite yet there, make sure you meet the
ownership and residence requirements to qualify for this exclusion that
I'm talking about. So even if you've rented out your
(30:33):
house for a parade, as long as you meet the
two out of five year rule, you should still qualify
under most circumstances. However, in all of this, talk to
your accountant, talk to your financial advisor, because the penalty
for being wrong on all of this is pretty stiff,
so just make sure you talk to them to know
what to expect when you go to sell your house.
Speaker 1 (30:51):
Great guidance as always, CJ. Class and Eric Schwartz. They
are our retirement planning professionals from Class Financially. You can
learn more online the website Class financial dot com. That's
Class k l aas Financial dot Com. Telephon upper for
the office right here in Madison six oh eight four
four two five six three seven. No charge for the
initial get toino you appointment dec Coss Financial. It will
(31:11):
be complementary to you again their number six oh eight
four four two five six three seven. Go on to
hold on to that telepha number as well. It's time
now for the class quiz question of the week. It
works like this. In just a moment, I'll ask you
the class quiz question of the week. You will then
have thirty minutes from the today's program to call the
Class Financial Office right here in Madison at six oh
eight four four two five six three seven.
Speaker 2 (31:31):
If you are the correct caller.
Speaker 1 (31:33):
First correct caller with the correct answer, you will win
this week's prize, which is a twenty five dollars gift
card too. Kabela's this week's class quiz question the week?
Is this true or false? According to a twenty twenty
four study by Mass Mutual, the average actual retirement age
in the United States is closer to age sixty two.
Is that true or is that false? Telephone number six
(31:55):
oh eight four four two five, six three seven. First
call correct answer win that twenty five dollars gift card.
Toucabella's don't forget as well. That's Class Financial Office right
here in Madison again that number six oh eight four
four two five six three seven. C j Eric Great
chatting with both of you guys, have a great day.
Speaker 2 (32:11):
Thanks Sean, Thanks Sean.
Speaker 1 (32:12):
Doctor Greer comes your way. Next from check out vet
here on thirteen ten w U I b i
And our phone lines they are open to you if
you've got a question for our retirement planning professionals from
Class Financial. I got whose pickphone gives call six O
eight three two one thirteen ten. That's six SO eight
three two one thirteen ten. Love to have you join
us this week. And of course, speaking of being joined,
we are joined by are retirement planning professionals CJ. Closs
and Eric Schwartz of course coming to us from Class Financial.
(00:22):
Their website class financial dot com. That's Class k l
a A s Financial dot com. Great website to learn
more about Class Financial. You can also listen back to
this in previous shows podcast as well as sign up
for the weekly Market Pulse newsletter that available to you
at classfinancial dot com. Their telephone number six SO eight
four four two five six three seven. No charge for
(00:44):
the initial get to know your appointment at Class Financial.
It will be complementary to you again their number six
oh eight four four two five six three seven And
as mentioned, joining us this morning our CJ. Closs and
Eric Schwartz.
Speaker 2 (00:55):
CJ. How you doing this morning?
Speaker 3 (00:57):
Good morning, Seawan, I'm doing great.
Speaker 2 (00:59):
How are you? I'm doing really good? Good to hear
from you and Eric. How have you been.
Speaker 4 (01:03):
I've been great, Sean. I'm excited for our topic today.
Speaker 1 (01:06):
It's going to be a good one, a sustainable withdrawal rate,
which I feel like and I know we'll get into
this with you guys, but that's probably probably the biggest,
biggest thing that folks wonder about, and we'll get some
answers and we'll walk through it with our friends from
Class Financial this morning. Don't forget if you've got questions,
we've got an opportunity for you to get on the
air right now. It's six eight three two one thirteen ten.
(01:27):
That's six'h eight three two one thirteen ten. One of
the really cool features as well of the program is
the weekly Class Quiz Question of the Week. This week
you'll have a chance to win a fantastic prize from
our friends at Class Financial, a twenty five dollars gift
card to Kabella's little tip if you pay close attention
to the program. Just about every show, the question and
answer come up during the program, so it's definitely beneficial
(01:49):
to pay close attention to the show.
Speaker 2 (01:50):
And before we get.
Speaker 1 (01:51):
Rolling on this week's topic in this week's conversation, let's
actually look back at last week's program and get the
class quiz question the week and answer there as well.
Speaker 4 (02:00):
Yeah, so thank you to everyone for listening as usual,
and congratulations to a winner from last week was Bart,
and Bart knew the answer to the question, which was
true or false Entering retirement with the least amount of
debt will give you the most freedom. The answer to
that is of course true.
Speaker 1 (02:18):
Excellent that I love the name too, So congratulations to Bart.
And of course you can have a chance to win
a twenty five dollars gift cart to Capella's this week.
Just pay close attention. We'll tell you a little bit
later on all the details about winning with the class
Quiz s Clasch week. So, as mentioned, this week're going
to be digging into a pretty darn big topic that
is planning for sustainable with a sustainable withdrawal rate from
(02:40):
your investment in retirement. And I know people are retiring
earlier and we're living longer, so this seems like something
you really need to think about, right, Yeah, But I'm just.
Speaker 3 (02:50):
Trying to figure out if everybody knows why you love
the name of Bart, that's good cool for those who
don't know. Sean loves the Simpsons. So yes, anyway, okay obsessed, Yes,
thanks thanks for calling in virub.
Speaker 2 (03:03):
We appreciate it.
Speaker 3 (03:05):
Okay, yes, so so yes, we're talking about sustainable withdrawal
rates or distribution rates. So this gets into a topic
that I think when consumers think about retirement, one of
their questions becomes, hey, how much should I plan to
draw out of my accounts without running the risk of
running out of money? Said another way, the number one
(03:26):
fear of retirees is running out of money before they
run out of life. And so a big part of
our job is to move towards this topic now, believe
it or not, As you can imagine, their academics are
all over this topic in terms of research and analytics,
and believe it or not, there's a lot of rules
of thumb that the industry abides by that we would
(03:49):
say are a great starting spot, but not a great
ending spot. We'll get into that a little bit more
as we move forward. But cash flow is critical when
you enter retirement. When retirees think about risk, again, that
number one fear is running out of money. So there
are three key factors that we think impact retirement planning,
(04:09):
one being the need for real inflation adjusted cash flow.
Number two the risk of needing to sell investments during
a downturn, and then number three the possibility of decades
of lower than average market returns. These are key factors
that can impact your retirement planning around these sustainable withdrawalrates.
(04:30):
So managing your withdrawal rate to make sure your money
lasts throughout retirement plays an essential role in your overall
retirement strategy.
Speaker 2 (04:42):
Talking this morning with CJ.
Speaker 1 (04:43):
Closs and of course Eric Schwartz, our retirement planning professionals
from Class Financial. Their website Cossfinancial dot com. That's Coss
k l Aasfinancial dot com. A great website and great
resource to learn more about about Coss Financial and of
course learn more about the upper divisions the team, and
of course line up for that weekly Market Pulse newsletter.
(05:04):
So what exactly, CJ, then, would be excuse me, pardon me, Eric,
what exactly would be considered a safe withdrawal rate?
Speaker 4 (05:12):
It's a good question. That's a million dollar question, Sean.
It's it's what we spend a lot of our time
talking to folks about and first of all, just thinking
about a withdrawal rate. It's it's often expressed as a percentage,
and like CJ said, there's a lot of rules that
I'm out there. I'm sure a lot of people have
heard the four percent rule. You can draw out four
percent and be safe. That's a good starting point, not
(05:35):
not exactly where, not exactly something that works for everybody.
But the withdrawal rate or a safe withdrawal rate, is
one that strikes the balance between, you know, drawing money
out and enjoying retirement now, but also ensuring that you
don't run out of money, which, as CJ said, is
one of the biggest concerns we hear from retirees. And
(05:55):
really it's not just about what you need to live.
It also depends on other sources you have, like Social
Security pensions if you're working part time, and it also
depends on your age, special expenses like healthcare before Medicare
kicks in at sixty five, or even your debt load
going into retirement, which is what we talked a lot
about last week. All these things play a role. So
(06:18):
the key is understanding how sustainable your withdrawal rate is,
especially when you factor in inflation and other market conditions
as well.
Speaker 1 (06:28):
Talking this morning with our retirement planning professionals from Class Financial, CJ.
Closs and of course Eric Schwartz. I mentioned the website.
I mentioned of course signing up for the weekly Market
Pulse newsletter. I mentioned you a little bit about some
of the features and some of the cool things, but
of course it's got a great little snapshot of what's
been going on in the marketplace. Also, it has a
link to your most recent podcast. Again, just head on
(06:48):
over to coassfinancial dot com that's coss k l Aasfinancial
dot com for your opportunity to subscribe to the weekly
Market Pulse newsletter and of course learn more about Class
Financial all online.
Speaker 2 (06:59):
Great data.
Speaker 1 (06:59):
Set up that appointment six oh eight four four two
five six three seven. Don't forget that first appointment to
you at costs Financial. It will be complementary, no charge
at six oh eight four four two five six three seven.
Talking this week about a sustainable withdrawal rate from your
retirement investments, and so as we work through these these numbers,
kind of a reasonable withdrawal rate, what's kind of that
(07:21):
area that we're going to look to Eric to avoid
running out of money?
Speaker 4 (07:26):
Yeah, and this is going to come back to our
favorite answer here. It depends right. We love to say
that and we joke about it, but it's true, you know,
And this is why we think it's important that folks
have professionals in their lives to help them plan for retirement.
But your age, your financial situation, and your goals, one
of which is whether or not you want to leave
money behind after you're no longer here. All of these
(07:49):
things factor in. So when we're thinking about, you know,
what is a reasonable withdraw rate? I mentioned there's kind
of those those rules of thumb. While you can draw
out four percent, well, it's a good spot to start,
but it also depends on a lot of things, right.
It depends on how you're invested, right, So if you're
more conservative, the expected return on your investment portfolio is
(08:10):
not going to be as high, which which impacts how
much you can draw out. And you know how much
your portfolio can be expected to replace what you take out,
your retirement timeline, your current age, And I think the
other piece here is the other income sources you have,
because the thing about your withdrawal rate is for a
(08:30):
lot of our clients and a lot of folks out there,
your withdraw rate isn't the same all through retirement. Okay,
so you may have, as I mentioned earlier, you may
have higher expenses earlier in retirement because you're not yet
sixty five, you have to pay for higher medical expenses.
You may not yet have started Social Security. So you know,
(08:51):
it's not uncommon for folks to have a higher withdrawal
rate in earlier in the earlier parts of retirement. That
then reduces later on when they turn on their Social
Security benefits and when they get onto Medicare and lower
their healthcare costs. So for some people, you know, a
three percent or a four percent withdraw rate might be sustainable.
(09:13):
And then for other people, you know, they might be
able to handle a little bit higher with drawrate, maybe
if they retire later or or they have some other
sources of income. But the aim is to stay ahead
of inflation and means and be able to maintain the
lifestyle you want. So just because the market returns ten
percent in a year, doesn't mean you want to take
out the full ten percent, because there will be years
(09:33):
in the future where the market doesn't return ten percent
or maybe has a negative return, and we need to
account for that with the good years as well.
Speaker 2 (09:40):
That's really important to remember.
Speaker 1 (09:42):
I know I as you know, we've kind of look
at where recid memory of how the market's been going,
like oh yeah, no problems like yeah, but I know
we've we've covered those topics in great depth as well
in previous programs. You can always listen back at cossfinancial
dot com. That's cost k l a a s Financial
dot com talk this week with CJ and Eric about
(10:02):
sustainable withdrawal rate from your retirement investments. And so as
we work through some of these some of these areas
of you know what that number is and what's reasonable
those type of things, how much then CG have our
pre retirement income should we then be planning on U
when it comes to to being replaced in retirement?
Speaker 3 (10:23):
Well, I bet you can guess at the answer, Sean.
Speaker 2 (10:28):
Is it? It depends? It depends?
Speaker 3 (10:30):
Yeah, uh, you know, before we get to the replacement percentage,
I just I want to really emphasize that section that
Eric went through. You know, what is the rate? And
everybody wants to know what's the rate or how much
money should I have? And unfortunately, just like anything meaningful
in life, there's subtlety to these answers. And so you know,
(10:52):
we have a lot of tools actually in our organization,
the things that create what are called like guardrail mathematic algorithms.
Speaker 2 (10:59):
Process.
Speaker 3 (11:00):
This is that we can follow to make sure that
if markets hit what are called high standard deviation events
or unlikely events like an eight, that we can make
adjustments as necessary to make sure that people don't run
out of money. But I will tell you I've seen
people in the industry just abide by a rule of thumb.
I'm saying, people who do like what we do, they go,
I don't know four percent at all times, and I'm
(11:22):
just scratching my head, going, whoa that? And it's not
that I don't understand the rule of thumb and just
keeping it simple. But I'll be frank, there's many of
our clients that early on will be pulling ten percent
and then maybe they dropped onto two and then they
go back to up to eight.
Speaker 2 (11:38):
There's people who retire.
Speaker 3 (11:39):
Later on in life who they don't want to leave
money to their children, so we have them at an
eight or nine percent withdrawal. Right, And again, if you
don't know the context of those comments, that could scare you.
But when you build context around those comments, around those
withdrawal rights, suddenly the plan comes to life. So if
you are, if you are just abiding by rules of
(11:59):
Thumb as it relates to withdrawal rates, I would say, warning, warning, warning.
Rules of Thumb were never designed to be custom solutions. Okay,
now to your question, what is the target replacement rate?
So when we say this, everybody think of it this way.
I'm working earning one hundred thousand dollars a year as
a household, let's say myself and a spouse or myself alone,
(12:23):
and then I transition into retirement. So how much of
that income will I need to replace that gross salary
that I had while I was working? How much of
that income will I need to replace in order to
live the same lifestyle? And as I said, it depends greatly.
But let me just tell you one important factor. If
your objective is to replace the same kind of lifestyle,
(12:46):
and if everything else in your life is held constant,
meaning expenses do not change at all, when you enter retirement,
you will need less gross income in retirement than you
did when you were working. Let me repeat that. If
you hold everything else constant in the background, and you're
working as a household earning one hundred thousand dollars a year,
(13:08):
and then you transition into retirement with the exact same
cost structure, you will need less gross income. And a
lot of people scratch their head and go, what are
you talking about? Well, a few things. Number one, you
were probably saving some of that money into a four
to one K plan while you were working. But even
if you weren't doing that, you were paying something called
FIKA taxes that you do not pay when you are
(13:33):
when you are in retirement drawing off Social Security pensions
or retirement accounts. So by definition, you will need less.
The question is how much less, and that answer varies
greatly person by person, especially if think of if you
followed our advice and paid off a mortgage right before
you retired. So listen, we have seen people need thirty
(13:54):
percent of their pre retirement income. We have seen people
need ninety percent of their pre retirement Now, with all
of this rambling out of the way, according to a
twenty twenty four study by Mass Mutual, the average actual
retirement age in the United States is now closer to
age sixty two. So the interesting part about that is
(14:14):
at sixty two, how much do I need to replace?
You don't know, because there could be interesting things that
pop up in the background, which, like Eric mentioned this before,
what if my company was covering health insurance. Now I'm
sixty two, I'm not yet to Medicare at sixty five,
and I've got this potentially expensive Affordable Care Act health insurance.
So listen, if anybody gives you a gimmicky response that
(14:37):
you need eighty percent of your pre retirement income, nobody
knows without doing a detailed analysis of your financial situation.
So even when you hear me talking about this, what
I'm really trying to tell you is do the math.
Sit down with an advisor, do the math to figure
out what it is that you will need.
Speaker 1 (14:55):
Really important conversation, and it's a great conversation to have
as well, and get those plans in. It's never too
early to start that conversation. It's a great dat to
call the folks at cost Financial there telephon number six
oh eight four four two five six three seven. Don't
forget that initial get to know you appointment at COSS Financial.
It is complimentary to you. I got to just pick
up phone game a call six oh eight four four
(15:16):
two five six three seven. You can learn more online
the website coss Financial dot com. That's Coss k LaaS
Financial dot com. And again the telephon number six O
eight four four two five six three seven. Well what
happens when you turn seventy three? We'll get the details
on that and much much more as Money in Motion
with Coss Financial continues next right here on thirteen ten.
(15:37):
Wib A full lines are open at six oh eight
three two one thirteen ten. That's six oh eight three
two one thirteen ten. If you have questions for our
retirement planning professionals from Class Financial love to have you
join us this morning again, telp number to get on
the air six oh eight three two one thirteen ten.
Telphon number for Coss Financial, So easy to remember, that's
six so eight four four two five six three seven.
Speaker 2 (15:58):
I get a lot of folks actually coming up to
me and they say, pray boy here. I just hear that.
Speaker 1 (16:02):
I hear that number in my head constantly. There's a
reason why we do it that way, because it's an
important number. Six eight four four two five six three
seven for Claus Financial lo website Coloss Financial dot com.
That's Coss k l a As Financial dot com. Talking
this week with Eric Schwartz and CJ. Class talking about
the sustainable withdrawal rate from your retirement investments and H
(16:25):
and Eric, excuse me, CJ. As we as we were
just talking that last segment about pre retirement income and
replacing replacing that income in retirement the age seventy three
and people are going seventy three. I don't know that
we've touched on seven three yet. Uh, something does happen there?
And there are rules about taking money out? What do
(16:45):
folks need to know and how does that work?
Speaker 2 (16:47):
CJ.
Speaker 3 (16:49):
Yeah, you're talking about required minimum distributions known as r
mds for short, and some people like to even confuse
it beyond that, to call it mrd's minimum required distributions.
It's all the same thing. It references the age at
which you become required to start pulling out minimum distributions
from your pre tax retirement accounts. Now, there can be
(17:11):
an exception to this if you have an employer sponsor,
if you're still working at a company where you have
pre tax money, you can often defer pulling out that
required distribution of that particular plan. But most people are
retired by seventy three, right, So most people are retired
they've got their money, whether it be in a four
to one K and we'll call it an old non
(17:32):
contributory four to one K four oh, through b or iras.
And when you turn seventy three, you have to start
pulling out these minimum distributions. Now, for those of you
who are listening scratching your heads, going seventy three, I
thought it was seventy and a half, and then I
thought it was seventy two, and then I've also heard
this number seventy five. So yeah, there's some information on
(17:57):
that right now. So if you were born after nine
teteen sixty, your RMD age will be seventy five. If
you were before born before nineteen sixty, and you are
not yet seventy three, then your RMD age will be
seventy three. Now, some of you who are listening on
the air right now, go no, no, no, no, no, I
(18:18):
started drawing at seventy and a half or seventy two.
That's true for you, it was a different age. But
for people now who are turning seventy three, it's seventy three.
And for anybody born after nineteen sixty, which Eric and
I should be raising our hands right now. Our RMD
age will be seventy five. Now rmds. What the heck
are these things? Well, versings. First, you need to take
(18:40):
your first required minimum distribution by April first of the
year after you turn seventy three. This is known as
your required beginning date or RBD. I just laugh at
how complicated our industry makes us. Most of the time.
You do not want to push off your first RMD
(19:03):
to the following year, because every subsequent RMD must be
pulled out by December thirty first. So if you're tracking
with me, let's say I turned seventy three this year,
my required beginning date is April first of twenty twenty
six next year. But if I do that and I
push off my first one to next year, then I
also have to pull next year's by December thirty first,
(19:26):
meaning I will have to double up on rmds in
twenty twenty six and every year thereafter it has to
be out by December thirty first. So listen. Under most circumstances,
talk to your advisor, talk to your accountant. But under
most circumstances, you're going to want to pull out that
first RMD in the year in which you turn RMD age,
which is typically seventy three.
Speaker 1 (19:46):
Talking this morning with CJ. Class and Eric Schwartz, our
retirement planning professionals. They come to us from Claus Financial,
the website claus financial dot com. That's Klaas Financial dot com.
Tel Number six so eight four four two five six
three seven that at first appointment at costs financial Like
it's no conversation, it'll be complimentary to you. Again, they're
number six O eight four four two five six three seven.
(20:07):
So the big why of all of this, CJ is
why does the IRS require us to do our mds?
Speaker 3 (20:13):
Yeah, great questions. So because it is weird, it's like
what what what? What's happening? So I put in money
pre tax, it grows tax deferred, and then like I
get to retirement, they're forcing me to pull money out. Yes,
so I don't want to get too deep into the weeds.
But it actually makes a lot of sense behind the
scenes if you understand this. And here's here's a simple concept.
(20:34):
If money doesn't exit the we'll call it the the
ecosystem of finance. So think of this as I earn
a dollar, I pay income taxes, I use that dollar
to go buy goods and services. I pay sales taxes.
Those people pay a salary for the people that work
at the place where I bought the goods and services.
(20:54):
They pay income taxes they go buy something. My dollar
is in circulation constantly, like all the time, and the
federal government and state agencies and municipalities generate tax revenue
off of that I don't know one hundred times in
a year, like just a bunch. Well, if I remove
that money from the in circulation and I set it
(21:15):
into retirement accounts, well, imagine how much tax revenue is
being lost by state and local governments, by municipalities, by
federal governments. It's massive, And therefore the government has to
in order to remain in business, I shouldn't say in business,
in order to function, they have to figure out ways
(21:35):
to not allow all that money to stay outside of
the taxable circulation for too long. So that's why they say, hey,
I don't care if you need the money or not.
When you turn seventy three or at some age, we
got to force you to start pulling out that money,
because when you pull it out, it re enters general circulation,
it starts getting taxed again. So that's the why. And
then rmds are based on the balance of your retirement
(21:59):
accounts at the end end of the year, or i
should say at the end of the previous year, divided
by your life expectancy from the IRS tables. So there's
a table you can right now go to Google and
just put in an RMD table. It'll pop up. You'll
find some of the some of the recent tables used
for this. But there's a life expectancy factor. So you
(22:20):
take your December thirty first value of all of your
pre tax retirement accounts, you divide it by that life
expectancy table based upon your age, and then it gives
you a number. That number ends up representing about three
point six to three point seven percent of your pre
tax amount has to come out in the first year
you turn RMD age, and that percentage gets larger every
(22:43):
single year you move forward, so effectively, what's happening is
they're forcing you to pull more and more and more
in percentage terms out of your pre tax retirement accounts
every single year you move forward. Now, a couple of
quick things here. Rmds do not apply to roth irays
unless they're inherited, and the reason is because there's nothing
(23:06):
for the irs to get out of forcing you to
pull money out of a roth ira. Remember when money
comes out of roth iras, assuming you're over fifty nine
and a half, there's.
Speaker 2 (23:13):
No tax due.
Speaker 3 (23:15):
Therefore, there is no RMD on roth iras or wroth
for ow and k's as of twenty twenty four. That's
actually a new rule. There used to be rmds on those. Now.
The key here is there is an RMD if you
inherited the roth ira, but there's just not one if
it was your own. And listen, if you don't need
(23:35):
the money. Often people say this is highway robbery. I
don't need the money and I'm pulling it out and
I'm paying taxes. This is terrible. Well, there is a
get out of jail free card, and the get out
of jail free card is you can give all that money,
all that RMD money directly to a charity. This is
known as doing a qualified charitable distribution a QCD. And
(23:57):
you can pull all of that money out give it
directly to charities, and two things happens. It counts towards
meeting your minimum distribution and you don't have to claim
it as as well, you have to file the ten
ninety nine but then just notify your accountant that it
all went to charities and you don't you don't end
up paying income taxes on that. So there is that
get out of Joe free card. But you'll want to
(24:20):
talk to your accountant to make sure you're doing this
all the right way.
Speaker 2 (24:23):
It's a really neat feature.
Speaker 1 (24:24):
And I know we've talked in quite quite great depth
on qcds and what a great powerful tool they are.
And of course you can always listen back to this
in previous shows podcasts. Of course, get caught up on
qcds and other things all at Costs Financial dot com.
That's cost k l a a s Financial dot com.
They're a tell number six oh eight four four two
(24:44):
five six three seven. No charge for that initial getsino
you appointment deck cost Financial. It will be complimentary to
you again, they're number six oh eight four four two
five six three seven. We'll talk about the importance of savings.
We'll also talk about a great question from Scott with
the Money in Motion list the question corner. We will
do all of that next as Money in Motion with
Coss Financial continues right here on thirteen ten. WI b
(25:07):
A talking with our retirement planning professionals CJ. Closs and
Eric Schwartz. Of course they come to us from COSS Financial.
Their website cossfinancial dot com. That's Coss k l a
A S Financial dot com. And they're telephone numbers six
so eight four four two five, six three seven. Talking
about a sustainable withdrawal rate from your investments for retirement,
(25:27):
and you know we've been talking about all these different investments.
What about emergency savings. I'm going to guess that that's important, right, Yeah, you.
Speaker 4 (25:37):
Know, this is something that I often have clients questioned
me about because we you know, we encourage them to
still have liquidity and have an adequate emergency fund even
when they're in retirement. And people will say to me, well, Eric,
what does it matter. I'm I'm retired. I can access
my retirement account if I need, if I need extra money,
or something comes up. There's a couple of reasons why
I would I would encourage people to still have an
(26:00):
urgency fund. Number one, Oftentimes, if you need to take
money from your retirement account, there are there are taxes
due upon drawing money out, which is fine if it's
all part of your you know, your annual income plan.
But if it's additional income that you weren't planning on
taking out, suddenly we're increasing our taxable income, maybe we're
impacting our health insurance premiums. So it's just it's just
(26:22):
good to have an easy fund to access that you
don't have to worry about paying taxes on. And the
other piece of it is as people move into retirement,
there are plenty of changes. They're not going to work
every day, they are, you know, trying to find new
new routines, and there's just a lot of change going on.
So if you can if you can reduce the amount
(26:43):
of things that you need to adjust to, and you
can treat your cash flow the same way you did
like you have all the years you've been working, that
that just really goes a long way and making the
transition to retirement easier. So don't reinvent the wheel just
because you're moving into re rehirement. So aim for aim
for a three to six month cash reserve, three to
(27:05):
six months of living expenses. Remember you're still going to
have unexpected events in retirement, a medical bill, home repair,
any of that can can still come up even though
you're not working anymore. And one thing we do tell
people as they are really closing in in retirement, maybe
in that last twelve months. You know, if you're if
you don't have a lot of liquid cash available, but
(27:28):
you do have quite a bit in your retirement accounts,
you might consider kind of shifting your focus from adding
to the retirement accounts in order to build up that
solid emergency fund before you move into retirement. And the
last piece of this is, as you're looking to build
that emergency fund, don't don't make it complicated. Set up
an automatic transfer from your checking into a high heeled
(27:51):
savings or a money market account. Think of it as
you know the classic pay yourself first and just like
I said, don't don't make it complicate, and help yourself
out as you as you move in on retirement.
Speaker 1 (28:04):
Nobody ever regrets having a little extra money just set
aside for important things that can happen, that is for sure.
As we talk this morning with Eric Schwartz and CJ. Closs,
our retirement planning professionals from class financial website Coss Financial
dot com. That's Coss k l a as Financial dot com.
Great website and one of the great things you can
do on the website is submit a question to be
answered and our Money in Motion listener question corner, and
(28:26):
this week Scott wrote in the following question, he said,
my wife and I are planning on selling our house
when we retire, but we are concerned about the gains
we might experience. Any suggestions on how to avoid taxes
on those gains and see, ja, I'll leave this one
for you.
Speaker 3 (28:43):
Yeah, well, thanks for the question, Scott. Again, everybody feel
free to submit a question on our website and we'll
we'll throw it into these questions at the end. And also,
you know, feel free to call in during the show
if you have a live question. We do always like
to see if anybody can stump us. So, but yes,
when sell selling your primary residence, Scott, there are definitely
some tax benefits that could help reduce or even eliminate
(29:05):
the capital gains tax you might owe. So if you've
lived in and owned your home for at least two
out of the last five years before the sale, you
may qualify for what's called the primary residence or the
home sale exclusion. This allows you to exclude up to
two hundred and fifty thousand dollars of capital gains if
you're single, or up to five hundred thousand dollars if
you're married filing jointly. So for example, Scott, if you
(29:27):
and your wife sell your house and your gain is
less than five hundred thousand dollars, you likely won't owe
any taxes on that amount of gain when you go
to sell it. Now. A couple other quick things. Just
be aware of if you've done any improvements, because some
people say, well, you know I bought it for one
hundred thousand dollars thirty years ago. I'm selling it for
now seven hundred thousand dollars, so you know that's more
(29:49):
than five hundred thousand of gains, So I guess I'm
going to get blown up. Well, couple things, you would
only pay tax on the portions that's over the five
hundred thousand, so it's not that the whole thing becomes taxable.
Number two, keep track of your home improvement expenses because
I'll bet over that twenty or thirty year timeframe in
my example, that you've put some money into the house,
you've probably done some fix ups and maybe replace the roof,
(30:12):
remodeled the kitchen. You get the idea, it is not
only your original purchase, plus all of the improvements that
you've made along the way. And then finally, just for
Scott and everybody else, if you are close to retirement
but not quite yet there, make sure you meet the
ownership and residence requirements to qualify for this exclusion that
I'm talking about. So even if you've rented out your
(30:33):
house for a parade, as long as you meet the
two out of five year rule, you should still qualify
under most circumstances. However, in all of this, talk to
your accountant, talk to your financial advisor, because the penalty
for being wrong on all of this is pretty stiff,
so just make sure you talk to them to know
what to expect when you go to sell your house.
Speaker 1 (30:51):
Great guidance as always, CJ. Class and Eric Schwartz. They
are our retirement planning professionals from Class Financially. You can
learn more online the website Class financial dot com. That's
Class k l aas Financial dot Com. Telephon upper for
the office right here in Madison six oh eight four
four two five six three seven. No charge for the
initial get toino you appointment dec Coss Financial. It will
(31:11):
be complementary to you again their number six oh eight
four four two five six three seven. Go on to
hold on to that telepha number as well. It's time
now for the class quiz question of the week. It
works like this. In just a moment, I'll ask you
the class quiz question of the week. You will then
have thirty minutes from the today's program to call the
Class Financial Office right here in Madison at six oh
eight four four two five six three seven.
Speaker 2 (31:31):
If you are the correct caller.
Speaker 1 (31:33):
First correct caller with the correct answer, you will win
this week's prize, which is a twenty five dollars gift
card too. Kabela's this week's class quiz question the week?
Is this true or false? According to a twenty twenty
four study by Mass Mutual, the average actual retirement age
in the United States is closer to age sixty two.
Is that true or is that false? Telephone number six
(31:55):
oh eight four four two five, six three seven. First
call correct answer win that twenty five dollars gift card.
Toucabella's don't forget as well. That's Class Financial Office right
here in Madison again that number six oh eight four
four two five six three seven. C j Eric Great
chatting with both of you guys, have a great day.
Speaker 2 (32:11):
Thanks Sean, Thanks Sean.
Speaker 1 (32:12):
Doctor Greer comes your way. Next from check out vet
here on thirteen ten w U I b i
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