June 28, 2026 • 41 mins
The Kowal team help plan your retirement
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Speaker 1 (00:00):
It's news talking eleven thirty w I said the Retirement Clinic.
Welcome to the program. Your host is Aaron Kowal from
Creative Planning, of course, formerly the ko Wal Investment Group.
And we say good morning to you, sir, how are you? Aaron?
Speaker 2 (00:16):
I am awesome, good morning? How are you?
Speaker 1 (00:18):
I'm awesome as well, or your father would say since
two thousand and one on the show. What was his
can response? I'm awesome, but I'll get better.
Speaker 2 (00:28):
I'm great, but I'll get better.
Speaker 1 (00:29):
I'm great. But yeah, he's got one of those lines.
He's got to be a great grandfather because he's got
all the bad dad jokes kind of down, you know,
and now he's a.
Speaker 2 (00:37):
Grandfather totally down. Yeah, yeah he is. He is a
great grandfather. And they my kids, my kids roll their
eyes at his lame jokes too. So just like mine,
way way better.
Speaker 1 (00:51):
You's are probably more contemporary, right, So, I mean people
know that Jeff Coowaal is your father, Aaron the Sun,
but I mentioned formally the Kohal Andmen group this show,
we go way back to two thousand and one. You
guys do the market updates every day of the week,
Monday through Friday during the Dan o'donald show three and
five pm news blocks. On Saturday, we get a full
hour to talk about retirement planning and real quickly, just
(01:15):
so you've got some background, here, locations all over Brookfield
on Blue Mount Road, Delafield, Port, Washington, Racine right at
Highway twenty at that exit offices, Nationwide Creative Planning dot Com.
The Retirement Clinic dot com is another great resource, and
we podcast the show as well. You can find all
of those shows archived, or just call simply one number
(01:37):
for all locations two six two five two two forty forty. Aaron,
You've been doing this a long time, and coming up, Jeff,
your father that we just alluded to, is going to
address the Social Security news, this old trust fund, the
stuff that you've been hearing about in the news. He's
got some really good insight on that. Coming up after
the first break, you're talking about retirement paychecks. You've got
(01:59):
an interesting topic erin called the gray zone, and I'm
interested in what the gray zone is.
Speaker 2 (02:07):
Well, the gray zone, Yeah, I've got some I've got
some great topics here. We got gray zone. It's the
five to ten years before full retirement. Uh, and then
I've got another topic to go right into that is
building a retirement paycheck. Uh. And then UH for the
wealth management preservation segment, we're gonna be talking about asset location,
(02:29):
which I'm sure of addressed in the past, but it's
always good to get uh, to get more information, and
you go to a little detailed on that. So I
think you'll like all that.
Speaker 1 (02:39):
I've all sort of asset allocation, but you just said
asset location, so.
Speaker 2 (02:45):
That's something there's a difference.
Speaker 1 (02:46):
There's a difference. Yes, Uh, it does.
Speaker 2 (02:48):
I'm not talking about like having it in the Cayman
Islands or anything like that. You know, it's off right
right right, we're big, we don't. That's not our business
models to help you hide your assets. But it's his
asset location in different accounts, not necessarily geographic. So we'll
(03:09):
get into all that though.
Speaker 1 (03:10):
All good stuff on the Retirement Clinic for the next
hour up until eleven am. Aaron Kowal is here. I'm
Paul Kron forst of course, and as I said, we're
here every Saturday. We did start in two thousand and
one by way of background creative planning. Then it's just
a lot more resources I also say, more tools to
your tuol belt if it comes to taxes or state planning.
All of that stuff now part of what you guys do, Aaron,
(03:33):
The thing that's not changed for you or your clients
are everything else is the same. You've just kind of
expanded with creative planning. You've got offices at the same
locations you do the radio show, and the same advisors.
So it worked out quite well, didn't it well?
Speaker 2 (03:49):
Right? And you know, it's pretty fantastic, actually much better
than I think any of us thought it would be.
The it's all decisions are you know, the investment decisions,
the decisions that we make with here, made by the
advisors local you know, their local calls, local decisions, local company.
(04:12):
It's uh and so it's not a top down thing
at all. But we just have, like you said, we
have a lot more resources at our disposal to help
our clients the same way we have been you know,
over thirty years. Uh and and so we're really blessed
to be able to partner with them and bring their
(04:34):
massive resources to our to our clients. And I think
clients are a lot better off for that, because that's
what it's always been about.
Speaker 1 (04:42):
And again Creative Planning dot com to find out more
about Like I said, license in all fifty states. But okay,
let's let's now start the retirement clinic. And you said
the gray zone. This is gray referred to the hair.
Speaker 2 (04:56):
I knew you were going to say that. No, I
mean maybe, but not in this instance. And you know
it's more on your Okay, it's kind of like a
gray zone. Of these years are critically important as you
get up to retirement. The five to ten year period
(05:18):
leading up to your full retirement age is it's called
the gray zone presents a unique opportunity to set yourself
up for retirement success. And so this is actually from
an article, you know, from just just a few days ago,
actually from mid from June nineteenth from Creative Planning. And
so if you want this, reach out to me, Aaron
(05:39):
dot Coal at Creative Planning dot com. I'm happy to
send this to you. But I think a lot of
this is really great. We're not going to go through
every part of it, but so let's get into it.
So it's understanding the gray zone years. You've spent decades saving, investing,
and building a retirement nest egg. Now you're entering the
(06:01):
gray zone, not the twilight zone. The gray zone a
critical five to ten year window before retirement when your
financial decisions can have an outsized impact on the rest
of your life. As you look ahead to your next chapter,
you may be wondering how to transition from earning a
paycheck to generating sustainable retirement income. You might also be
wondering when to claim Social Security, whether retirement savings are enough,
(06:23):
and how healthcare long term care costs could affect your
retirement lifestyle. The gray zone years offer a significant opportunity
to strengthen your retirement plan, and you're still far enough
away from your target retirement agent. Changes can improve your outcome,
but your timeline is shrinking, so it's important to align
your retirement strategy sooner rather than later. So if you
need help defining your bigger financial picture and goals and
(06:46):
you head towards retirement, our overview of comperhence and financial
planning can be a useful starting point. So there are
unique risks of the gray zone, so several types of
risks become magnified. There's always these risks, Paul, but you
become magnified in the years leading up to retirement, especially
as you transition from building retirement savings to relying on
them for income. So there's market and sequence of return risks,
(07:10):
so market volatility, you know, this is risk of fluctuations
of investment value could harm your retirement assets just before
just after you stop working. I'm going to get into
this a little bit more in the next topic about
building retirement paychecks. I'm we're not gonna get into this
right now. But then there's also longevity and inflation and
(07:30):
expense risk. So longevity risk. You could live twenty five
to thirty years or more in retirement. What does my
dad saying one of his jokes or comments, as you
could screw up and live a long time.
Speaker 1 (07:42):
Right, right, it's right, Or you might say you might
hear that. I've heard this over and over. My dad
lived to or died of a stroke or a heart attack,
and people my family don't live beyond seventy five or
whatever the ages. And then here we are, with advancements
in medicine and everything, right in healthcare, we are living.
So what if you live to be ninety five? He
(08:02):
says a tongue in cheep, But it's it's actually a
very serious issue. Do you have enough money to last
that long?
Speaker 2 (08:08):
Right? Right? You know it is and I have, I'm
sure he has. But I've had clients too that I
don't need to plan for this. I don't need to
plan on living a long time in retirement. My dad
died when he was sixty eight. My you know, grandfather
died and he was fifty five. You know, so I'm
not going to live Well, guess what, someone we're still alive,
(08:31):
and and so we have to make sure that, okay,
what if they don't live a long time? And you know,
but it's also what you know, we make suggestions, You
make decisions, right, so we suggest what you what you
should do. I'll ultimately it's up to you whether you
(08:52):
want to do that or not, and we'll help you
either way. And so, you know, so because you could
live another thirty years of retirement, it also means your
retirement fund needs to last longer than you may expect.
If your retirement expenses are higher than planned, or you
retire earlier than expected, you may increase your risk of
outliving your assets. There's inflation risk, and an unexpected rise
(09:14):
in inflation can reduce your purchasing power and raise everyday
expenses in retirement, especially those related to healthcare, housing, long
term care. Your main inflation was up a little bit.
We've seen this with the Iran war. Is energy costs
have gone up, so sometimes you know, there is that
inflation risk and no way seems well, we don't need
(09:38):
to get political, but there's going to be inflation, I
think for a while. Unexpected expenses, so there's one. There
are large one time costs such as home repairs, family
support needs, to make major medical bills. You can derail
an otherwise solid retirement plan if you don't have adequate
reserves and flexibility built in. Now there's health and employment risks,
(10:01):
so healthcare emergencies. A healthcare emergency, including the need for
long term care, can quickly deplete retirement savings if you
don't have a plan for insurance coverage, out of pocket
costs and caregiving. You know, Pauba, we've talked about it
a lot, that you didn't save your whole life to
give it to a nursing home. You want to make
sure that your life savings isn't going to be depleted.
Speaker 1 (10:21):
That's a great point.
Speaker 2 (10:24):
Yeah, Yeah, you can have a job lost of early retirement.
You may be forced into early retirement due to layoffs,
health issues, or family responsibility. Is giving you a fewer
years to make retirement contributions and build your retirement nest egg.
So a thoughtful retirement plan created during the gray zone
years can help you manage these risks with a combination
of investment strategy, insurance coverage, cash reserves, and asset location plans.
(10:47):
So here's some key planning moves. Five to ten years
before retirement, refine your retirement vision and target date. Start
by clarifying when you'd like to retire, whether you'd like
to see yourself retire fully we're working part time, and
what you want your lifestyle to look like. Your target
retirement age and desired lifestyle will drive how much income
(11:08):
you need, how aggressively you should save during these years,
and how do you structure your investment portfolio. It can
help to put rough numbers around your goals, such as
typical monthly spending, travel plans, charitable giving any support for
children or aging parents. The clearer of your vision, the
easier it is to test whether your retirement savings and
income sources are on track. Here's what we talk about.
(11:30):
A lot pole is stress test your retirement plan. We
would talk about this for a decade or more. The
gray zone is an ideal time to stress test your
retirement plan against different scenarios, such as retiring earlier or
later than planned, experiencing a major market downturn just before
(11:51):
or after retirement, facing higher than expected inflation or health
care expenses, or needing to provide financial support for family members.
Can help you model that how your retirement plan performs
under these scenarios, that you can see whether adjustments might
be needed, for example, increasing your savings, modify your retirement date,
austing your investment mix, or changing your withdrawal strategy. Here's
(12:14):
another good one is maximizing retirement savings and catchup contributions.
If you're in your fifties or early sixties, you may
be eligible to make catchup contributions to workplace retirement plans
and iras, allowing you to contribute more than standard limits allow.
These additional contributions can meaningfully boost your retirement assets during
your final working years, especially if you're behind on savings
(12:36):
or plan to retire early. They also want to increase
automatic hunt.
Speaker 1 (12:40):
I was just gonna say, but that is so important
because how many times have we heard in callers over
the years where Aaron, they say it's too late, you know,
I'm fifty five, I've given up, it's too late to
start a retirement plan, and the responses it really isn't.
It might mean more difficult, but with these ketchup provisions
it is entirely possible.
Speaker 2 (13:01):
Yeah, absolutely with it. There's without going into all the details,
there are certainly ways to do it, and you know,
and yeah, you may need to work longer or save differently,
but we can certainly model that out and plan with you,
you know. So that's that's all certainly things we can
(13:25):
help you with. There's it's important to consider your tax
rate during your working years compared to the tax rate
you may have during retirement. Income from pensions, so security,
IRA distributions and portfolio income should be managed within the
gray zone. Coordinate your solid security strategy so social security
claiming decisions can have a lasting impact on your retirement income,
especially for married couples and high earners. Claiming benefits early
(13:49):
you can't provide income sooner but permanently reduce your monthly benefit,
while delaying benefits can increase your monthly income and offer
stronger protection against longevity risk during the gray zone years,
work with us to evaluate whether to claim early or
at full retirement age or later, how your social security
benefits interact with spousile benefits and survivorship planning, and how
(14:10):
sold security fits alongside pensions and nuities and withdrawals from
retirement accounts. And there's an investment strategy and portfolio alignment,
So reaalitate your portfolio and review asset allocation. We'll talk
about location later, but now I talk about allocation. So
as you know, as you approach retirement, your investment portfolio
may need to shift from purely growth oriented allocation to
(14:32):
one that balances growth with capital preservation and income generation.
Doesn't mean eliminating growth assets, but it may mean reducing
concentration risk and overall volatility. So during the grain zone,
consider reassessing your risk profile lie retirement timeline, not just
your age, ensuring your portfolio is diversed, fight across asset classes,
sectors and geographies, reducing oversized positions in a single stock
(14:56):
or employer stock, and increasing your exposure to investments that
can and support income while still maintaining growth potential. We
can help by designing an ass allocation that aligns with
your time horizon for different goals for example near term
income needs versus long term legacy or charitable objectives. Then
there's your favorite thing to talk about is taxes. Paul
(15:19):
I love talking. Yeah, yeah, you're here, you'll have the taxes.
And on that note, show's over. No, but tax planning
had account strategy in you know, in the gray zone.
So the grayzone could be an ideal time to reduce
your tax exposure and improve your tax diversification across the
accounts editing heading into retirement, work with your advisor with
(15:43):
us to determine whether the following strategic tax related strategies
makes sense for your situation. You know, so build tax
for diversification across accounts. So having a mix of tax defer,
tax free, and tax bill accounts can provide more flexibility
for magic taxes in retirement. For example, tax defert accounts
nutritional four OH one k's iras offer upfront tax deductions,
(16:05):
but taxes are in their income when you withdraw funds.
Tax free accounts the WROTH iras and WROTH for OH
one case can provide tax re withdrawals if certain requirements
are met, giving you a valuable lever for managing your
tax bracket, leader and tax fbile accounts. The brokerage accounts
offer flexibility, potential capital gains, tax treatment, and the ability
to harvest gains or losses strategically. By building tax for
(16:29):
diversification doing degrees zone, you give yourself more options to
draw income and away. It manages your overall tax liability
each year and then consider WROTH conversions and withdrawal sequencing.
So depending on your income level, projective future tax brackets
and required minimum distributions, it can sometimes be beneficial to
(16:50):
convert a portion of traditional IRA or four oh one
K balances to WROTH accounts before retirement. We can help
you evaluate along with it tax professional which we also
have in house. We have tax advisors and NCPs in house.
Speaker 1 (17:06):
That's the beauty of creative planning, right Aaron, A walk
down the hallway, here's this guy tax expert, and we
talk about it all the time Creative planning dot com.
By the way, and I do want to give out
the number because you're talking about roths and things like that.
Two six two five two two forty for any help
or to talk to an advisor at Creative Planning. Sorry
(17:28):
about that, Aaron. I had to sneak it in. You know,
many people call and say, hey, talk for twenty minutes
and never give up the phone number. There you go.
Speaker 2 (17:36):
I don't know if we did two six, two five
to two forty forty. There you go. That's how to
reach us. So, so roth conversions we can help you
evaluate whether partial roth conversions makes sense they're total roth conversions.
And then there's uh. You know, you also have to
coordinate with your social ccurity benefits and how you drop
from different retirem accounts and how you manage taxes can
(17:58):
have a meaningful impact how long your retirement savings may last.
There's healthcare, long term care, and insurance planning. Healthcare is
one of the largest, most unpredictable retirement expenses, especially if
you retire before you're eligible for Medicare, and then I'm
not going to get deep into healthcare. There's a state
planning and legacy considerations. So the gray zone is also
(18:20):
a good time to align your retirement plan with your
estate planning and wealth transfer goals. And as you think
about how your assets will support you during retirement, also
consider how you want to provide for surviving spouse children,
grandchildren are charitable causes. If you plan to move to
a new state retirement, it's critical to ensure your documents
comply with your new domicile. Work with us in your
(18:41):
state planning attorney, which we also have in house to
determine whether you should create or update a last will
and testament, beneficial designations, that retirement counts, insurance policies, finished,
power of returning, healthcare, power attorney, revocable ivan trust, all
those other, all those other needs.
Speaker 1 (19:00):
To Aaron that you mentioned the move, and I just
think we should say how critical this is. That what
we say it sometimes quick and don't elaborate that Creative
Planning is licensed in all fifty states, So if people
do move to Florida or your snowbirds, it could be
anywhere anywhere out of Wisconsin. Your clients need not worry.
Speaker 2 (19:20):
Yes, absolutely, So you know this is how we can
help with us in the final decade. The final decade
before retirement is complex, but you don't have to navigate
it alone. We specialize in retirement planning can help. Uh.
You know, we can help you clarify your retirement goals
and timeline, model, different retirement scenarios and stress tests your plan.
(19:41):
Design an investment strategy and ask allocation appropriate for your
stage of life. Coordinate social security, pension, retirement account withdrawal
strategies and plan for taxes, healthcare, long term care, and
potential legacy goals. Uh. You know we certified financial planners
also planning professionals who say who we a comprehensive approach
to the whole thing. So that is a bit about
(20:04):
the retirement gray zone. Like I said, if you want
this article, uh, send me an email with gray zone
in the title to Aaron dot Coal at Creative Planning
dot com and I'll get it to you. And that
leads to the next Did you have any comments before
we move on to the next topic.
Speaker 1 (20:20):
No, but I do want to You mentioned your email.
Give it out again. That's one of those you know,
how do you get in touch with Aaron Kowali Creative Planning.
Let's give out that email.
Speaker 2 (20:30):
That's Aeron dot cowal a A r O N dot
k o w a l at Creative Planning dot com.
Speaker 1 (20:38):
Well done, and again all over town to meet with
a planner, to meet with Aeronkowall, to talk to aerin
Kowal two six two five two two The good. Now
you've got kind of this segues right into your next topic.
Speaker 2 (20:52):
Erin right, right, right, We've just got a few minutes
to get into it, but happy to get into it.
So it's a retirement paycheck. So there's an accumulation to
distribution mindset shift. And for forty years you've been an accumulator.
Money flows in, you don't touch it, and the market
doing well is unambiguously good. Retirement flips that completely. Now
(21:17):
you have to manufacture a paycheck for a piled assets,
and that pile doesn't come with a paste. I'm telling
you what's safe to spend. The real anxiety isn't just
will I run out of money? It's how much can
I actually take without finding out the hard way. So
there's three frameworks that have merged to answer that, the
bucket strategy, the total return approach, and the dynamic guardrails.
They're not mutually exclusive, but the best plans usually blend
(21:40):
all three. So four percent rule is a reference point,
not a plan. The classic rule thumb says you can
withdraw about four percent of your portfolio and you're one,
then adjust that dollar figure for inflation each year and
have a high probability of lasting thirty years. It's a
useful anchor, but it's a starting hypothesis, not a finished plan.
It assumes a ridge spending path in a specific stock
(22:01):
bond mix that may not be yours. The good news
today is that with bonds yielding around four percent again,
the underlying math is friendlier than it was a few
years ago. The danger is treating four percent as a
guarantee instead of a number of you stress tests against
your own situation there, that is, against stress tests, spending flexibility,
and time horizon. Then their sequence of return risk. Why
(22:23):
does they have this matter? Here's the risk that makes
income planning so important. If the market falls hard in
your first couple of retirement years, while you're also pulling
money out, you're selling shares at depressed prices and locking
and losses, you can never fully recover. Two retirees with
the exact same average return over thirty years can up
in wildly different places based only on the order those
(22:43):
returns arrived. That's how that's why how do I take
income can matter more than what's my return. Every strategy
we'll talk about is really just a different way of
protecting yourself during that vulnerable first five years, so the
bucket strategy the concept you divide your money intouckets by
time horizon. Bucket one is cash and near cash it's
(23:03):
like treasuries one to three years of spending, so a
market crash never forces you to sell stocks just to
buy groceries. Bucket two holds intermediate bonds and conservative positions
for roughly years three through ten, So bucket three and
bucket three is your growth engine stocks money you won't
touch for a decade plus, which gives it time to
ride out and recover from any downturn. And then the
(23:26):
bucket strategy is the appeal in the catch. Psychologically, this
approach is powerful. Where the market tanks, you know your
next few years of spending or sitting safely in cash,
so you're far less likely to panic and sell to
the bottom. You spend from bucket one and periodically refill
it from the others. The catch holding two plus years
in cash creates a performance drag when the market's rise,
(23:46):
and the rules for when to refill the butt the
cash bucket can get fuzzy sell something exactly. When done sloppily,
the refilled decision can quietly turn into market timing, which
is the very thing the strategy was supposed to protect
you from the total return of approach. So the concept is,
instead of segregating money into buckets, you build one diversified
portfolio at your target allocation, say sixty to forty, and
(24:09):
simply sell a small slice each year to fund spending,
rebouncing as you go. You're not chasing dividends or interest specifically,
you're harvesting total return growthless income wherever it shows up. Academically,
this tends to be the most efficient method because every
dollar stays invested at your intended risk level, rather than
sitting idle in cash. The challenge is emotional discipline and
(24:30):
down you're still selling assets to fund spending, which feels
much harder than drawing from a comfortable cash bucket. And
then there's the dynamic guard rails. This is the most
flexible of the three. You set an initial withdrawal rate,
then establish an upper and lower guard rail around it.
If the portfolio grows and withdrawal rate drifts too low,
(24:50):
you give yourself a raise. If markets fall and your
rate climbs too high, you trim spending modestly until your
back and range. The research has shown that response. This
can support a meaningful hire starting withdrawal rate than the
rigid four percent rule, the trade off being that your
income won't be perfectly smooth year to year. Think of
it like this. Think of it like driving. You don't
(25:12):
pick one speed on the on ramp and never look up,
youjust to the road in front of you. In a
strong market, you might take five percent, even bump up
the travel budget. After a rough year, you might skip
the inflation raise or pull back ten percent for a while.
The cuts are usually small and temporary, but what they're
what they're what's protecting you from the slow motion disaster
of overspending straight into a downturn. The hard part is behavioral,
(25:36):
actually cutting back when the rules say, you know to
where people struggle without a written plan or an advisor
holding them accountable. So in practice you'll need an advisor
really to help through this. The strongest plans borrow from
all three and that's where we come in and can
certainly help help you put together this play.
Speaker 1 (25:56):
I like you're driving an analogy, and some people may
need help with their driving too. From the way I
observe people in the freeway, they don't look at the
gap and yes, you must adjust your speed to fit
into the gap so that you merge properly. I see
people looking at their phones driving too fast, too slow.
It drives me nuts. There, I'm just venting, right, me too,
(26:17):
I'm just venting. Yes, just pay attention to.
Speaker 2 (26:22):
Drivers.
Speaker 1 (26:23):
Right next show driving one oh one. That's good stuff
and Aaron full of information. I do want to mention
since we talked, our topics are all about all over
the place, lumpsom, rollovers, taxes, social Security, which after this
quick break, Jeff Cowal will chime in on the latest
news and social Security, whether it's state pletning needs or
(26:46):
roth irais talking about insurance everything call two six two
five two two forty forty locations all over town. As
we mentioned earlier in the show, Brookfield right on Blue
Mountain Road, Delafield Port, Washington, received right at the Highway
twenty exit, and of course, offices nationwide created planning dot
com or check out the Retirement Clinic dot com. Aaron
(27:09):
Kowal a lot more coming up on this Saturday's edition
of the Retirement Clinic. I'm Paul Crownforce News Talk eleven
thirty WYSM HI.
Speaker 3 (27:17):
I'm Jeff Cowal Since we work so much with retirees
and those planning to retire, social Security has always been
a big part of the planning process. But what else
do retirees rely on? This is I thought an interesting
article from Investipedia that caught my attention. Serena Traangele is
(27:39):
the author of that and the title is most retirees
rely on more than Social Security. Here's where their income
comes from. Key takeaway social Security. Mostly older people, especially
those eighty and older, rely more strongly on Social Security
than others do. But it starts out by saying that
(27:59):
you envision relying on social Security during retirement, But the
data shows that older adults tend to depend on the
other income sources as well. About nineteen percent of Americans
sixty five and older rely on social Security for ninety
percent or more of their income, according to a twenty
(28:20):
twenty five congressional research report. Other sources fill in the gap.
That's wages, pension and retirement fund payments, also income from
other assets. According to the analysis, all told, social Security
accounts for thirty percent of income among adults sixty five
and older got that thirty percent or more, with wages
(28:42):
contributed twenty seven percent. Pensions, so people still working after
eight sixty five, pensions and retirement funds twenty four percent,
and income from assets at twelve percent. Many Americans plan
to work well into their sixties, but end up hiring
sooner due to health problems or other setbacks. Again, plan
(29:05):
to work well into their sixties, health downsizing, company relocated,
You just don't want to keep up with the technology anymore.
There are a variety of reasons why you might not
work into their sixties why Americans don't work into their sixties.
But social Security takes down a bigger role as people age.
Social Security account for nineteen percent of income nineteen percent
(29:28):
of income among sixty five to sixty nine year olds,
climbing to forty percent among those eighty and older. To
be sure, many Americas are more likely to rely on
social Security, including lower income households and singled adults. Again,
I thought that this was interesting. Research has consistently shown
(29:49):
that most older adults don't get ninety percent or more
of their income from social Security. Americans tend to underestimate
their income from pensions and retireronment funds. Still, many Americans
are counting on Social Security to anchor their finances in
later life about seventy per And I know there are
a lot of numbers in this, but I think it's
kind of interesting. Seventy percent of US adults survey to
(30:12):
expect to collect Social Security benefits, and thirty two percent
anticipate the payments will be their primary source of income.
That's according to a trans America Center for Retirement Services.
Just kind of wrapping this up and see how it
applies in our practice. Social Security trustees estimate that social
(30:36):
Security is projected to be depleted by twenty thirty two.
That's the Social Security Trust Fund, But payroll taxes cover
about seventy seven percent of the scheduled benefits.
Speaker 2 (30:50):
So again, what.
Speaker 3 (30:51):
That means is that there might be a reduction benefits,
but social Security won't go away. Payroll taxes cover seventy
seven six percent schedule benefits. The Social Security Trust Fund
picks up the difference, but Congress is going to have
to act to make up that difference. Social Security again,
won't go away. It'll be there in some form, especially important,
(31:14):
as important as it is to retirees, and especially as
important as this to politicians who want to.
Speaker 2 (31:20):
Get re elected.
Speaker 3 (31:21):
So again, social Security is an important part of the
planning process. But we do in our practice is that
we do what's called a vision builder. Creative planning is
very good with this. The advisors of fiduciar advisors in
our office are also very very good and very skilled
at this.
Speaker 2 (31:38):
Well.
Speaker 3 (31:39):
It will take a look at reduce it to writing
a list of your assets, so you have an inventory
of all your assets, those that can be used for
retirement and those like your home and other things that
most likely will not be used in retirement. But again
it's important to go through the process reduce it to writing.
The vision builder does that you get an inventory of
all your assets, then take a look at your spending habits,
(32:01):
and you have to make sure that you include inflation.
We use inflation, We use a monstrator return on the
investments and try to project and see whether money's going
to last to age one hundred. Social security is an
important part of that. Any pensions that you have an
important part of that. Any expenses or aspirations or goals
that you have all important part of it. But again
(32:23):
it's important that to reduce it to writing, not just
eyeball and say yeah, I think I can retire, I
think I have enough. Yeah, social Security will help out.
It's important to find out to go to social Security
dot gov social Security dot gov to make sure you
know what your Social Security benefits are, what they're projected
to be, and then you'll be able to figure out
(32:44):
how that fits into the rest of your planning and
how it fits into your overall retirement plan, including the
estate planning, taxes, investments, insurance, and everything else that has
to do with your retirement planning.
Speaker 2 (32:57):
That's it for me.
Speaker 1 (32:58):
Back to you guys the Bare Naked Ladies as we
return with the Retirement Clinic. If I had a million
dollars or hopefully more with inflation, maybe we need more.
This is the weekly segment on the Retirement Clinic. Aaron
Kowal is your host today from Creative Planning, and we
call it the Wealth Management and Preservation Segment. Aaron, you
(33:18):
got some good stuff today.
Speaker 2 (33:21):
Yeah, you know, a million dollars isn't what it was,
you know what it used to be. My wife and
I watched just watch the movie La Confidential. It takes
place in nineteen fifty three and guy gives out fifty bucks.
I'm like, I wonder how muched fifty dollars in nineteen
fifty three be worth today six hundred and twenty four dollars.
Is the equivalent of really bucks in nineteen fifty three.
Uh huh.
Speaker 1 (33:42):
Imagine a million dollars in fifty three. If I had
a million dollars in fifty three, you'd be, oh, my goodness,
is these people are loaded. They've got a million. Now
it's fast forward to twenty twenty six. You're right, it's
just not the same.
Speaker 2 (33:54):
Yep, yep, yep. It's been devalued over the years, for sure.
So but anyways, this that the topic is on asset location.
So it's asset location versus asset allocation. Here's the distinction.
Almost everyone has heard of as allocation in your mix
of stocks and bonds. Far fewer understand asset location, which account,
(34:14):
which account each investment actually lives in, tax bill, tax
for it, or tax free. Once you have meaningful money
spread across all three account types where you hold each
asset can add a surprising amount to your after tax
returns without changing you're without changing your risk one bit.
It's one of the few genuine free lunches in investing
(34:34):
the same portfolio the same risk, but more money kept
purely smarter placement. So why does it matter as wealth
grows when nearly all of your money is in a
four oh one k as the location barely matters. Everything
sits in one tax bucket. But by the time you've
got a few millions spread across a brokerage account, traditional iras,
and a ROTH, those accounts are taxed in completely different ways,
(34:56):
and that's where the opportunity opens up. And other have
suggested thoughtful asset location can add as much as a
half percent point or more per year in after tax return,
sometimes called tax alpha. On a two and a half
million dollar portfolio. Compounding over a couple of decades, even
a few tenths of a percent turns into real six
figure money. That three here are the three tax buckets
(35:20):
quickly so taxbill accounts get taxed every year on dividends
and on gains when you sell, but they enjoy preferential
long term capital gains rate and valuable step up in
basis at death tax. Furt accounts traditional iras four one
case grow untaxed, but every dollar comes out as ordinary
income and its subject to requirement and distributions, and ROTH
accounts grow and come out completely tax free. With no
(35:42):
rm ds during your lifetime. So each bucket has its
own personality. In the whole game is matching each investment
to the bucket where it's treated best. So here's the
core rule. Shield the tax inefficient assets, so assets that
throw off a lot of taxbile income every year, tax
will bonds reates real esly investment trusts, high turnover funds
(36:03):
are best held inside iras or for one case, where
that annual income isn't taxed as it's earned. Tax efficient
TAXI efficient assets broad stock index funds you hold for
years that mostly generate to perd capital gains can't sit
comfortably in a taxable brokerage account. The logic is simple,
shield the things that are at taxed harshly and let
(36:25):
the tax friendly things live where they don't need much shielding.
That one principle drives most of the benefit. So where
so where does the WROTH fit? Then your highest growth
assets Because WROTH dollars are never taxed again, you generally
want your highest expected growth assets living there. Aggressive stock funds,
emerging markets, small caps. If an investment is going to
(36:48):
multiply several times over, you'd much rather that explosive growth
happen in the one account the IRS can never touch. Again,
Stuffing slow growing bonds into a wroth is often a
waste opportunity. You spent your most precious tax free space
on your least dynamic assets. Think of the wroth as
your crown jewel and fill it with your highest octane holdings.
(37:11):
The bond placement nuanced in today's retirement in today's rate environment,
so the classic teaching is bonds belonging in the IRA,
but with bonds yielding around four percent. Again, a high
earner holding taxable bonds in a brokerage account is handing
a meaningful chunk of that yield to the IRS every
year at ordinary income rates. For someone in a top bracket,
(37:31):
municipal bonds held in the taxile count can be the
better answer. Federally tax free income that side steps the
location problem entirely. So the right move really depends on
your bracket. Taxable bonds tucked in the IRA or munis
sitting in the brokerage account. But don't let the tax
tail wag the investment dog. Which I've been saying forever,
(37:53):
a critical caveat, Yeah, a critical caveat is acid. Location
should never blow up your overall allocation. So if you're
chasing perfect If chasing perfect placement leaves you with all
of your stocks in one account and all your bonds
and another, a market swing can throw your true risk
level off target and rebalancing across accounts type account types
(38:14):
carries its own tax frictions you also need. You also
need enough in each type of account to give yourself
flexibility to draw from in different markets and tax years.
Location is an optimization layered on top of a sound allocation,
never a reason just to distort the allocation itself. So
that's there's there's a couple more. There's a let me
(38:35):
just give one more thing that I the RMD time bond.
That allocation helps the fuse here the here's the long
game reason this matters. At two and a half million
and up, a large traditional IRA packed with high growth
assets becomes a requirement distribution problem in your seventies, potentially
forcing huge tax will withdrawals you don't even need and
spiking your Medicare premiums through IERMA two years later, deliberately
(38:58):
parking slower growth assets and the tradition IRA while letting
growth compound, and that ROTH can't keep that future tax
bomb smaller.
Speaker 1 (39:07):
All good stuff. Aeron Kowal is here. I tell you
what Aaron will break. We're gonna come back, and how
to directly reach out to Creative Planning. All the information
around town to reach out to an advisor two six
two five two two forty forty and we'll kind of
wrap up. Today's Retirement Clinic was final comments from Aaron Kowal.
Right after this, It's News Talk eleven thirty wisn great stuff.
(39:29):
As always with Aeron Kohal, Today's Retirement Clinic is wrapping up.
We're back next Saturday and every Saturday morning with Creative Planning. Aaron,
how do I reach out to you off the air?
Speaker 2 (39:41):
Yeah? Absolutely, reach out to us at the Retirement Clinic
dot com, Aaron dot co wal at Creative Planning dot com.
And also two six two five two two forty forty.
That's two six two five two two four zero four.
Speaker 1 (39:57):
Zero located in Brookefield right on Blue Mountain Road, a
great location. Also in Delafield Port, Washington, up in Osauk
County in Racine off Highway twenty in offices at Nationwide.
Aaron kohwaal on behalf of you and everybody at Creative
Planning have a great weekend to our listeners. Monday through
Friday during the Dan o'donald Show, those daily market updates
(40:18):
done by Aaron and the staff at Creative Planning. That's
a three and five pm Monday through Friday with Aeron
Kohal and on Paul Crown Force News up next on
WIS and Milwaukee.
Speaker 4 (40:29):
The preceding program is furnished by Creative Planning and SEC
registered investment advisory firm. Creative Planning, along with its affiliate
United Capital Financial Advisors, currently manages or advises on a
combined three hundred and twenty five billion dollars in assets
as of June thirtieth, twenty twenty four. The host works
for Creative Planning, and all opinions expressed by the host
and or their guests are solely their own and do
(40:51):
not necessarily represent the opinion of Creative Planning. The show
is designed to be informational in nature and does not
constitute investment, tax or legal advice. Different types of investments
involved varying degrees of risk, and there could be no
assurance that the future performance of any specific investment or
investment strategy, including those discussed on the show will be
profitable or equal any historical performance levels. The information contained
(41:13):
herein has been obtained from sources deemed reliable, but is
not guaranteed. If you would like our help, request to
speak to an advisor by going to creative planning dot com.
Creative Planning, tax and legal are separate entities that must
be engaged independently.
It's news talking eleven thirty w I said the Retirement Clinic.
Welcome to the program. Your host is Aaron Kowal from
Creative Planning, of course, formerly the ko Wal Investment Group.
And we say good morning to you, sir, how are you? Aaron?
Speaker 2 (00:16):
I am awesome, good morning? How are you?
Speaker 1 (00:18):
I'm awesome as well, or your father would say since
two thousand and one on the show. What was his
can response? I'm awesome, but I'll get better.
Speaker 2 (00:28):
I'm great, but I'll get better.
Speaker 1 (00:29):
I'm great. But yeah, he's got one of those lines.
He's got to be a great grandfather because he's got
all the bad dad jokes kind of down, you know,
and now he's a.
Speaker 2 (00:37):
Grandfather totally down. Yeah, yeah he is. He is a
great grandfather. And they my kids, my kids roll their
eyes at his lame jokes too. So just like mine,
way way better.
Speaker 1 (00:51):
You's are probably more contemporary, right, So, I mean people
know that Jeff Coowaal is your father, Aaron the Sun,
but I mentioned formally the Kohal Andmen group this show,
we go way back to two thousand and one. You
guys do the market updates every day of the week,
Monday through Friday during the Dan o'donald show three and
five pm news blocks. On Saturday, we get a full
hour to talk about retirement planning and real quickly, just
(01:15):
so you've got some background, here, locations all over Brookfield
on Blue Mount Road, Delafield, Port, Washington, Racine right at
Highway twenty at that exit offices, Nationwide Creative Planning dot Com.
The Retirement Clinic dot com is another great resource, and
we podcast the show as well. You can find all
of those shows archived, or just call simply one number
(01:37):
for all locations two six two five two two forty forty. Aaron,
You've been doing this a long time, and coming up, Jeff,
your father that we just alluded to, is going to
address the Social Security news, this old trust fund, the
stuff that you've been hearing about in the news. He's
got some really good insight on that. Coming up after
the first break, you're talking about retirement paychecks. You've got
(01:59):
an interesting topic erin called the gray zone, and I'm
interested in what the gray zone is.
Speaker 2 (02:07):
Well, the gray zone, Yeah, I've got some I've got
some great topics here. We got gray zone. It's the
five to ten years before full retirement. Uh, and then
I've got another topic to go right into that is
building a retirement paycheck. Uh. And then UH for the
wealth management preservation segment, we're gonna be talking about asset location,
(02:29):
which I'm sure of addressed in the past, but it's
always good to get uh, to get more information, and
you go to a little detailed on that. So I
think you'll like all that.
Speaker 1 (02:39):
I've all sort of asset allocation, but you just said
asset location, so.
Speaker 2 (02:45):
That's something there's a difference.
Speaker 1 (02:46):
There's a difference. Yes, Uh, it does.
Speaker 2 (02:48):
I'm not talking about like having it in the Cayman
Islands or anything like that. You know, it's off right
right right, we're big, we don't. That's not our business
models to help you hide your assets. But it's his
asset location in different accounts, not necessarily geographic. So we'll
(03:09):
get into all that though.
Speaker 1 (03:10):
All good stuff on the Retirement Clinic for the next
hour up until eleven am. Aaron Kowal is here. I'm
Paul Kron forst of course, and as I said, we're
here every Saturday. We did start in two thousand and
one by way of background creative planning. Then it's just
a lot more resources I also say, more tools to
your tuol belt if it comes to taxes or state planning.
All of that stuff now part of what you guys do, Aaron,
(03:33):
The thing that's not changed for you or your clients
are everything else is the same. You've just kind of
expanded with creative planning. You've got offices at the same
locations you do the radio show, and the same advisors.
So it worked out quite well, didn't it well?
Speaker 2 (03:49):
Right? And you know, it's pretty fantastic, actually much better
than I think any of us thought it would be.
The it's all decisions are you know, the investment decisions,
the decisions that we make with here, made by the
advisors local you know, their local calls, local decisions, local company.
(04:12):
It's uh and so it's not a top down thing
at all. But we just have, like you said, we
have a lot more resources at our disposal to help
our clients the same way we have been you know,
over thirty years. Uh and and so we're really blessed
to be able to partner with them and bring their
(04:34):
massive resources to our to our clients. And I think
clients are a lot better off for that, because that's
what it's always been about.
Speaker 1 (04:42):
And again Creative Planning dot com to find out more
about Like I said, license in all fifty states. But okay,
let's let's now start the retirement clinic. And you said
the gray zone. This is gray referred to the hair.
Speaker 2 (04:56):
I knew you were going to say that. No, I
mean maybe, but not in this instance. And you know
it's more on your Okay, it's kind of like a
gray zone. Of these years are critically important as you
get up to retirement. The five to ten year period
(05:18):
leading up to your full retirement age is it's called
the gray zone presents a unique opportunity to set yourself
up for retirement success. And so this is actually from
an article, you know, from just just a few days ago,
actually from mid from June nineteenth from Creative Planning. And
so if you want this, reach out to me, Aaron
(05:39):
dot Coal at Creative Planning dot com. I'm happy to
send this to you. But I think a lot of
this is really great. We're not going to go through
every part of it, but so let's get into it.
So it's understanding the gray zone years. You've spent decades saving, investing,
and building a retirement nest egg. Now you're entering the
(06:01):
gray zone, not the twilight zone. The gray zone a
critical five to ten year window before retirement when your
financial decisions can have an outsized impact on the rest
of your life. As you look ahead to your next chapter,
you may be wondering how to transition from earning a
paycheck to generating sustainable retirement income. You might also be
wondering when to claim Social Security, whether retirement savings are enough,
(06:23):
and how healthcare long term care costs could affect your
retirement lifestyle. The gray zone years offer a significant opportunity
to strengthen your retirement plan, and you're still far enough
away from your target retirement agent. Changes can improve your outcome,
but your timeline is shrinking, so it's important to align
your retirement strategy sooner rather than later. So if you
need help defining your bigger financial picture and goals and
(06:46):
you head towards retirement, our overview of comperhence and financial
planning can be a useful starting point. So there are
unique risks of the gray zone, so several types of
risks become magnified. There's always these risks, Paul, but you
become magnified in the years leading up to retirement, especially
as you transition from building retirement savings to relying on
them for income. So there's market and sequence of return risks,
(07:10):
so market volatility, you know, this is risk of fluctuations
of investment value could harm your retirement assets just before
just after you stop working. I'm going to get into
this a little bit more in the next topic about
building retirement paychecks. I'm we're not gonna get into this
right now. But then there's also longevity and inflation and
(07:30):
expense risk. So longevity risk. You could live twenty five
to thirty years or more in retirement. What does my
dad saying one of his jokes or comments, as you
could screw up and live a long time.
Speaker 1 (07:42):
Right, right, it's right, Or you might say you might
hear that. I've heard this over and over. My dad
lived to or died of a stroke or a heart attack,
and people my family don't live beyond seventy five or
whatever the ages. And then here we are, with advancements
in medicine and everything, right in healthcare, we are living.
So what if you live to be ninety five? He
(08:02):
says a tongue in cheep, But it's it's actually a
very serious issue. Do you have enough money to last
that long?
Speaker 2 (08:08):
Right? Right? You know it is and I have, I'm
sure he has. But I've had clients too that I
don't need to plan for this. I don't need to
plan on living a long time in retirement. My dad
died when he was sixty eight. My you know, grandfather
died and he was fifty five. You know, so I'm
not going to live Well, guess what, someone we're still alive,
(08:31):
and and so we have to make sure that, okay,
what if they don't live a long time? And you know,
but it's also what you know, we make suggestions, You
make decisions, right, so we suggest what you what you
should do. I'll ultimately it's up to you whether you
(08:52):
want to do that or not, and we'll help you
either way. And so, you know, so because you could
live another thirty years of retirement, it also means your
retirement fund needs to last longer than you may expect.
If your retirement expenses are higher than planned, or you
retire earlier than expected, you may increase your risk of
outliving your assets. There's inflation risk, and an unexpected rise
(09:14):
in inflation can reduce your purchasing power and raise everyday
expenses in retirement, especially those related to healthcare, housing, long
term care. Your main inflation was up a little bit.
We've seen this with the Iran war. Is energy costs
have gone up, so sometimes you know, there is that
inflation risk and no way seems well, we don't need
(09:38):
to get political, but there's going to be inflation, I
think for a while. Unexpected expenses, so there's one. There
are large one time costs such as home repairs, family
support needs, to make major medical bills. You can derail
an otherwise solid retirement plan if you don't have adequate
reserves and flexibility built in. Now there's health and employment risks,
(10:01):
so healthcare emergencies. A healthcare emergency, including the need for
long term care, can quickly deplete retirement savings if you
don't have a plan for insurance coverage, out of pocket
costs and caregiving. You know, Pauba, we've talked about it
a lot, that you didn't save your whole life to
give it to a nursing home. You want to make
sure that your life savings isn't going to be depleted.
Speaker 1 (10:21):
That's a great point.
Speaker 2 (10:24):
Yeah, Yeah, you can have a job lost of early retirement.
You may be forced into early retirement due to layoffs,
health issues, or family responsibility. Is giving you a fewer
years to make retirement contributions and build your retirement nest egg.
So a thoughtful retirement plan created during the gray zone
years can help you manage these risks with a combination
of investment strategy, insurance coverage, cash reserves, and asset location plans.
(10:47):
So here's some key planning moves. Five to ten years
before retirement, refine your retirement vision and target date. Start
by clarifying when you'd like to retire, whether you'd like
to see yourself retire fully we're working part time, and
what you want your lifestyle to look like. Your target
retirement age and desired lifestyle will drive how much income
(11:08):
you need, how aggressively you should save during these years,
and how do you structure your investment portfolio. It can
help to put rough numbers around your goals, such as
typical monthly spending, travel plans, charitable giving any support for
children or aging parents. The clearer of your vision, the
easier it is to test whether your retirement savings and
income sources are on track. Here's what we talk about.
(11:30):
A lot pole is stress test your retirement plan. We
would talk about this for a decade or more. The
gray zone is an ideal time to stress test your
retirement plan against different scenarios, such as retiring earlier or
later than planned, experiencing a major market downturn just before
(11:51):
or after retirement, facing higher than expected inflation or health
care expenses, or needing to provide financial support for family members.
Can help you model that how your retirement plan performs
under these scenarios, that you can see whether adjustments might
be needed, for example, increasing your savings, modify your retirement date,
austing your investment mix, or changing your withdrawal strategy. Here's
(12:14):
another good one is maximizing retirement savings and catchup contributions.
If you're in your fifties or early sixties, you may
be eligible to make catchup contributions to workplace retirement plans
and iras, allowing you to contribute more than standard limits allow.
These additional contributions can meaningfully boost your retirement assets during
your final working years, especially if you're behind on savings
(12:36):
or plan to retire early. They also want to increase
automatic hunt.
Speaker 1 (12:40):
I was just gonna say, but that is so important
because how many times have we heard in callers over
the years where Aaron, they say it's too late, you know,
I'm fifty five, I've given up, it's too late to
start a retirement plan, and the responses it really isn't.
It might mean more difficult, but with these ketchup provisions
it is entirely possible.
Speaker 2 (13:01):
Yeah, absolutely with it. There's without going into all the details,
there are certainly ways to do it, and you know,
and yeah, you may need to work longer or save differently,
but we can certainly model that out and plan with you,
you know. So that's that's all certainly things we can
(13:25):
help you with. There's it's important to consider your tax
rate during your working years compared to the tax rate
you may have during retirement. Income from pensions, so security,
IRA distributions and portfolio income should be managed within the
gray zone. Coordinate your solid security strategy so social security
claiming decisions can have a lasting impact on your retirement income,
especially for married couples and high earners. Claiming benefits early
(13:49):
you can't provide income sooner but permanently reduce your monthly benefit,
while delaying benefits can increase your monthly income and offer
stronger protection against longevity risk during the gray zone years,
work with us to evaluate whether to claim early or
at full retirement age or later, how your social security
benefits interact with spousile benefits and survivorship planning, and how
(14:10):
sold security fits alongside pensions and nuities and withdrawals from
retirement accounts. And there's an investment strategy and portfolio alignment,
So reaalitate your portfolio and review asset allocation. We'll talk
about location later, but now I talk about allocation. So
as you know, as you approach retirement, your investment portfolio
may need to shift from purely growth oriented allocation to
(14:32):
one that balances growth with capital preservation and income generation.
Doesn't mean eliminating growth assets, but it may mean reducing
concentration risk and overall volatility. So during the grain zone,
consider reassessing your risk profile lie retirement timeline, not just
your age, ensuring your portfolio is diversed, fight across asset classes,
sectors and geographies, reducing oversized positions in a single stock
(14:56):
or employer stock, and increasing your exposure to investments that
can and support income while still maintaining growth potential. We
can help by designing an ass allocation that aligns with
your time horizon for different goals for example near term
income needs versus long term legacy or charitable objectives. Then
there's your favorite thing to talk about is taxes. Paul
(15:19):
I love talking. Yeah, yeah, you're here, you'll have the taxes.
And on that note, show's over. No, but tax planning
had account strategy in you know, in the gray zone.
So the grayzone could be an ideal time to reduce
your tax exposure and improve your tax diversification across the
accounts editing heading into retirement, work with your advisor with
(15:43):
us to determine whether the following strategic tax related strategies
makes sense for your situation. You know, so build tax
for diversification across accounts. So having a mix of tax defer,
tax free, and tax bill accounts can provide more flexibility
for magic taxes in retirement. For example, tax defert accounts
nutritional four OH one k's iras offer upfront tax deductions,
(16:05):
but taxes are in their income when you withdraw funds.
Tax free accounts the WROTH iras and WROTH for OH
one case can provide tax re withdrawals if certain requirements
are met, giving you a valuable lever for managing your
tax bracket, leader and tax fbile accounts. The brokerage accounts
offer flexibility, potential capital gains, tax treatment, and the ability
to harvest gains or losses strategically. By building tax for
(16:29):
diversification doing degrees zone, you give yourself more options to
draw income and away. It manages your overall tax liability
each year and then consider WROTH conversions and withdrawal sequencing.
So depending on your income level, projective future tax brackets
and required minimum distributions, it can sometimes be beneficial to
(16:50):
convert a portion of traditional IRA or four oh one
K balances to WROTH accounts before retirement. We can help
you evaluate along with it tax professional which we also
have in house. We have tax advisors and NCPs in house.
Speaker 1 (17:06):
That's the beauty of creative planning, right Aaron, A walk
down the hallway, here's this guy tax expert, and we
talk about it all the time Creative planning dot com.
By the way, and I do want to give out
the number because you're talking about roths and things like that.
Two six two five two two forty for any help
or to talk to an advisor at Creative Planning. Sorry
(17:28):
about that, Aaron. I had to sneak it in. You know,
many people call and say, hey, talk for twenty minutes
and never give up the phone number. There you go.
Speaker 2 (17:36):
I don't know if we did two six, two five
to two forty forty. There you go. That's how to
reach us. So, so roth conversions we can help you
evaluate whether partial roth conversions makes sense they're total roth conversions.
And then there's uh. You know, you also have to
coordinate with your social ccurity benefits and how you drop
from different retirem accounts and how you manage taxes can
(17:58):
have a meaningful impact how long your retirement savings may last.
There's healthcare, long term care, and insurance planning. Healthcare is
one of the largest, most unpredictable retirement expenses, especially if
you retire before you're eligible for Medicare, and then I'm
not going to get deep into healthcare. There's a state
planning and legacy considerations. So the gray zone is also
(18:20):
a good time to align your retirement plan with your
estate planning and wealth transfer goals. And as you think
about how your assets will support you during retirement, also
consider how you want to provide for surviving spouse children,
grandchildren are charitable causes. If you plan to move to
a new state retirement, it's critical to ensure your documents
comply with your new domicile. Work with us in your
(18:41):
state planning attorney, which we also have in house to
determine whether you should create or update a last will
and testament, beneficial designations, that retirement counts, insurance policies, finished,
power of returning, healthcare, power attorney, revocable ivan trust, all
those other, all those other needs.
Speaker 1 (19:00):
To Aaron that you mentioned the move, and I just
think we should say how critical this is. That what
we say it sometimes quick and don't elaborate that Creative
Planning is licensed in all fifty states, So if people
do move to Florida or your snowbirds, it could be
anywhere anywhere out of Wisconsin. Your clients need not worry.
Speaker 2 (19:20):
Yes, absolutely, So you know this is how we can
help with us in the final decade. The final decade
before retirement is complex, but you don't have to navigate
it alone. We specialize in retirement planning can help. Uh.
You know, we can help you clarify your retirement goals
and timeline, model, different retirement scenarios and stress tests your plan.
(19:41):
Design an investment strategy and ask allocation appropriate for your
stage of life. Coordinate social security, pension, retirement account withdrawal
strategies and plan for taxes, healthcare, long term care, and
potential legacy goals. Uh. You know we certified financial planners
also planning professionals who say who we a comprehensive approach
to the whole thing. So that is a bit about
(20:04):
the retirement gray zone. Like I said, if you want
this article, uh, send me an email with gray zone
in the title to Aaron dot Coal at Creative Planning
dot com and I'll get it to you. And that
leads to the next Did you have any comments before
we move on to the next topic.
Speaker 1 (20:20):
No, but I do want to You mentioned your email.
Give it out again. That's one of those you know,
how do you get in touch with Aaron Kowali Creative Planning.
Let's give out that email.
Speaker 2 (20:30):
That's Aeron dot cowal a A r O N dot
k o w a l at Creative Planning dot com.
Speaker 1 (20:38):
Well done, and again all over town to meet with
a planner, to meet with Aeronkowall, to talk to aerin
Kowal two six two five two two The good. Now
you've got kind of this segues right into your next topic.
Speaker 2 (20:52):
Erin right, right, right, We've just got a few minutes
to get into it, but happy to get into it.
So it's a retirement paycheck. So there's an accumulation to
distribution mindset shift. And for forty years you've been an accumulator.
Money flows in, you don't touch it, and the market
doing well is unambiguously good. Retirement flips that completely. Now
(21:17):
you have to manufacture a paycheck for a piled assets,
and that pile doesn't come with a paste. I'm telling
you what's safe to spend. The real anxiety isn't just
will I run out of money? It's how much can
I actually take without finding out the hard way. So
there's three frameworks that have merged to answer that, the
bucket strategy, the total return approach, and the dynamic guardrails.
They're not mutually exclusive, but the best plans usually blend
(21:40):
all three. So four percent rule is a reference point,
not a plan. The classic rule thumb says you can
withdraw about four percent of your portfolio and you're one,
then adjust that dollar figure for inflation each year and
have a high probability of lasting thirty years. It's a
useful anchor, but it's a starting hypothesis, not a finished plan.
It assumes a ridge spending path in a specific stock
(22:01):
bond mix that may not be yours. The good news
today is that with bonds yielding around four percent again,
the underlying math is friendlier than it was a few
years ago. The danger is treating four percent as a
guarantee instead of a number of you stress tests against
your own situation there, that is, against stress tests, spending flexibility,
and time horizon. Then their sequence of return risk. Why
(22:23):
does they have this matter? Here's the risk that makes
income planning so important. If the market falls hard in
your first couple of retirement years, while you're also pulling
money out, you're selling shares at depressed prices and locking
and losses, you can never fully recover. Two retirees with
the exact same average return over thirty years can up
in wildly different places based only on the order those
(22:43):
returns arrived. That's how that's why how do I take
income can matter more than what's my return. Every strategy
we'll talk about is really just a different way of
protecting yourself during that vulnerable first five years, so the
bucket strategy the concept you divide your money intouckets by
time horizon. Bucket one is cash and near cash it's
(23:03):
like treasuries one to three years of spending, so a
market crash never forces you to sell stocks just to
buy groceries. Bucket two holds intermediate bonds and conservative positions
for roughly years three through ten, So bucket three and
bucket three is your growth engine stocks money you won't
touch for a decade plus, which gives it time to
ride out and recover from any downturn. And then the
(23:26):
bucket strategy is the appeal in the catch. Psychologically, this
approach is powerful. Where the market tanks, you know your
next few years of spending or sitting safely in cash,
so you're far less likely to panic and sell to
the bottom. You spend from bucket one and periodically refill
it from the others. The catch holding two plus years
in cash creates a performance drag when the market's rise,
(23:46):
and the rules for when to refill the butt the
cash bucket can get fuzzy sell something exactly. When done sloppily,
the refilled decision can quietly turn into market timing, which
is the very thing the strategy was supposed to protect
you from the total return of approach. So the concept is,
instead of segregating money into buckets, you build one diversified
portfolio at your target allocation, say sixty to forty, and
(24:09):
simply sell a small slice each year to fund spending,
rebouncing as you go. You're not chasing dividends or interest specifically,
you're harvesting total return growthless income wherever it shows up. Academically,
this tends to be the most efficient method because every
dollar stays invested at your intended risk level, rather than
sitting idle in cash. The challenge is emotional discipline and
(24:30):
down you're still selling assets to fund spending, which feels
much harder than drawing from a comfortable cash bucket. And
then there's the dynamic guard rails. This is the most
flexible of the three. You set an initial withdrawal rate,
then establish an upper and lower guard rail around it.
If the portfolio grows and withdrawal rate drifts too low,
(24:50):
you give yourself a raise. If markets fall and your
rate climbs too high, you trim spending modestly until your
back and range. The research has shown that response. This
can support a meaningful hire starting withdrawal rate than the
rigid four percent rule, the trade off being that your
income won't be perfectly smooth year to year. Think of
it like this. Think of it like driving. You don't
(25:12):
pick one speed on the on ramp and never look up,
youjust to the road in front of you. In a
strong market, you might take five percent, even bump up
the travel budget. After a rough year, you might skip
the inflation raise or pull back ten percent for a while.
The cuts are usually small and temporary, but what they're
what they're what's protecting you from the slow motion disaster
of overspending straight into a downturn. The hard part is behavioral,
(25:36):
actually cutting back when the rules say, you know to
where people struggle without a written plan or an advisor
holding them accountable. So in practice you'll need an advisor
really to help through this. The strongest plans borrow from
all three and that's where we come in and can
certainly help help you put together this play.
Speaker 1 (25:56):
I like you're driving an analogy, and some people may
need help with their driving too. From the way I
observe people in the freeway, they don't look at the
gap and yes, you must adjust your speed to fit
into the gap so that you merge properly. I see
people looking at their phones driving too fast, too slow.
It drives me nuts. There, I'm just venting, right, me too,
(26:17):
I'm just venting. Yes, just pay attention to.
Speaker 2 (26:22):
Drivers.
Speaker 1 (26:23):
Right next show driving one oh one. That's good stuff
and Aaron full of information. I do want to mention
since we talked, our topics are all about all over
the place, lumpsom, rollovers, taxes, social Security, which after this
quick break, Jeff Cowal will chime in on the latest
news and social Security, whether it's state pletning needs or
(26:46):
roth irais talking about insurance everything call two six two
five two two forty forty locations all over town. As
we mentioned earlier in the show, Brookfield right on Blue
Mountain Road, Delafield Port, Washington, received right at the Highway
twenty exit, and of course, offices nationwide created planning dot
com or check out the Retirement Clinic dot com. Aaron
(27:09):
Kowal a lot more coming up on this Saturday's edition
of the Retirement Clinic. I'm Paul Crownforce News Talk eleven
thirty WYSM HI.
Speaker 3 (27:17):
I'm Jeff Cowal Since we work so much with retirees
and those planning to retire, social Security has always been
a big part of the planning process. But what else
do retirees rely on? This is I thought an interesting
article from Investipedia that caught my attention. Serena Traangele is
(27:39):
the author of that and the title is most retirees
rely on more than Social Security. Here's where their income
comes from. Key takeaway social Security. Mostly older people, especially
those eighty and older, rely more strongly on Social Security
than others do. But it starts out by saying that
(27:59):
you envision relying on social Security during retirement, But the
data shows that older adults tend to depend on the
other income sources as well. About nineteen percent of Americans
sixty five and older rely on social Security for ninety
percent or more of their income, according to a twenty
(28:20):
twenty five congressional research report. Other sources fill in the gap.
That's wages, pension and retirement fund payments, also income from
other assets. According to the analysis, all told, social Security
accounts for thirty percent of income among adults sixty five
and older got that thirty percent or more, with wages
(28:42):
contributed twenty seven percent. Pensions, so people still working after
eight sixty five, pensions and retirement funds twenty four percent,
and income from assets at twelve percent. Many Americans plan
to work well into their sixties, but end up hiring
sooner due to health problems or other setbacks. Again, plan
(29:05):
to work well into their sixties, health downsizing, company relocated,
You just don't want to keep up with the technology anymore.
There are a variety of reasons why you might not
work into their sixties why Americans don't work into their sixties.
But social Security takes down a bigger role as people age.
Social Security account for nineteen percent of income nineteen percent
(29:28):
of income among sixty five to sixty nine year olds,
climbing to forty percent among those eighty and older. To
be sure, many Americas are more likely to rely on
social Security, including lower income households and singled adults. Again,
I thought that this was interesting. Research has consistently shown
(29:49):
that most older adults don't get ninety percent or more
of their income from social Security. Americans tend to underestimate
their income from pensions and retireronment funds. Still, many Americans
are counting on Social Security to anchor their finances in
later life about seventy per And I know there are
a lot of numbers in this, but I think it's
kind of interesting. Seventy percent of US adults survey to
(30:12):
expect to collect Social Security benefits, and thirty two percent
anticipate the payments will be their primary source of income.
That's according to a trans America Center for Retirement Services.
Just kind of wrapping this up and see how it
applies in our practice. Social Security trustees estimate that social
(30:36):
Security is projected to be depleted by twenty thirty two.
That's the Social Security Trust Fund, But payroll taxes cover
about seventy seven percent of the scheduled benefits.
Speaker 2 (30:50):
So again, what.
Speaker 3 (30:51):
That means is that there might be a reduction benefits,
but social Security won't go away. Payroll taxes cover seventy
seven six percent schedule benefits. The Social Security Trust Fund
picks up the difference, but Congress is going to have
to act to make up that difference. Social Security again,
won't go away. It'll be there in some form, especially important,
(31:14):
as important as it is to retirees, and especially as
important as this to politicians who want to.
Speaker 2 (31:20):
Get re elected.
Speaker 3 (31:21):
So again, social Security is an important part of the
planning process. But we do in our practice is that
we do what's called a vision builder. Creative planning is
very good with this. The advisors of fiduciar advisors in
our office are also very very good and very skilled
at this.
Speaker 2 (31:38):
Well.
Speaker 3 (31:39):
It will take a look at reduce it to writing
a list of your assets, so you have an inventory
of all your assets, those that can be used for
retirement and those like your home and other things that
most likely will not be used in retirement. But again
it's important to go through the process reduce it to writing.
The vision builder does that you get an inventory of
all your assets, then take a look at your spending habits,
(32:01):
and you have to make sure that you include inflation.
We use inflation, We use a monstrator return on the
investments and try to project and see whether money's going
to last to age one hundred. Social security is an
important part of that. Any pensions that you have an
important part of that. Any expenses or aspirations or goals
that you have all important part of it. But again
(32:23):
it's important that to reduce it to writing, not just
eyeball and say yeah, I think I can retire, I
think I have enough. Yeah, social Security will help out.
It's important to find out to go to social Security
dot gov social Security dot gov to make sure you
know what your Social Security benefits are, what they're projected
to be, and then you'll be able to figure out
(32:44):
how that fits into the rest of your planning and
how it fits into your overall retirement plan, including the
estate planning, taxes, investments, insurance, and everything else that has
to do with your retirement planning.
Speaker 2 (32:57):
That's it for me.
Speaker 1 (32:58):
Back to you guys the Bare Naked Ladies as we
return with the Retirement Clinic. If I had a million
dollars or hopefully more with inflation, maybe we need more.
This is the weekly segment on the Retirement Clinic. Aaron
Kowal is your host today from Creative Planning, and we
call it the Wealth Management and Preservation Segment. Aaron, you
(33:18):
got some good stuff today.
Speaker 2 (33:21):
Yeah, you know, a million dollars isn't what it was,
you know what it used to be. My wife and
I watched just watch the movie La Confidential. It takes
place in nineteen fifty three and guy gives out fifty bucks.
I'm like, I wonder how muched fifty dollars in nineteen
fifty three be worth today six hundred and twenty four dollars.
Is the equivalent of really bucks in nineteen fifty three.
Uh huh.
Speaker 1 (33:42):
Imagine a million dollars in fifty three. If I had
a million dollars in fifty three, you'd be, oh, my goodness,
is these people are loaded. They've got a million. Now
it's fast forward to twenty twenty six. You're right, it's
just not the same.
Speaker 2 (33:54):
Yep, yep, yep. It's been devalued over the years, for sure.
So but anyways, this that the topic is on asset location.
So it's asset location versus asset allocation. Here's the distinction.
Almost everyone has heard of as allocation in your mix
of stocks and bonds. Far fewer understand asset location, which account,
(34:14):
which account each investment actually lives in, tax bill, tax
for it, or tax free. Once you have meaningful money
spread across all three account types where you hold each
asset can add a surprising amount to your after tax
returns without changing you're without changing your risk one bit.
It's one of the few genuine free lunches in investing
(34:34):
the same portfolio the same risk, but more money kept
purely smarter placement. So why does it matter as wealth
grows when nearly all of your money is in a
four oh one k as the location barely matters. Everything
sits in one tax bucket. But by the time you've
got a few millions spread across a brokerage account, traditional iras,
and a ROTH, those accounts are taxed in completely different ways,
(34:56):
and that's where the opportunity opens up. And other have
suggested thoughtful asset location can add as much as a
half percent point or more per year in after tax return,
sometimes called tax alpha. On a two and a half
million dollar portfolio. Compounding over a couple of decades, even
a few tenths of a percent turns into real six
figure money. That three here are the three tax buckets
(35:20):
quickly so taxbill accounts get taxed every year on dividends
and on gains when you sell, but they enjoy preferential
long term capital gains rate and valuable step up in
basis at death tax. Furt accounts traditional iras four one
case grow untaxed, but every dollar comes out as ordinary
income and its subject to requirement and distributions, and ROTH
accounts grow and come out completely tax free. With no
(35:42):
rm ds during your lifetime. So each bucket has its
own personality. In the whole game is matching each investment
to the bucket where it's treated best. So here's the
core rule. Shield the tax inefficient assets, so assets that
throw off a lot of taxbile income every year, tax
will bonds reates real esly investment trusts, high turnover funds
(36:03):
are best held inside iras or for one case, where
that annual income isn't taxed as it's earned. Tax efficient
TAXI efficient assets broad stock index funds you hold for
years that mostly generate to perd capital gains can't sit
comfortably in a taxable brokerage account. The logic is simple,
shield the things that are at taxed harshly and let
(36:25):
the tax friendly things live where they don't need much shielding.
That one principle drives most of the benefit. So where
so where does the WROTH fit? Then your highest growth
assets Because WROTH dollars are never taxed again, you generally
want your highest expected growth assets living there. Aggressive stock funds,
emerging markets, small caps. If an investment is going to
(36:48):
multiply several times over, you'd much rather that explosive growth
happen in the one account the IRS can never touch. Again,
Stuffing slow growing bonds into a wroth is often a
waste opportunity. You spent your most precious tax free space
on your least dynamic assets. Think of the wroth as
your crown jewel and fill it with your highest octane holdings.
(37:11):
The bond placement nuanced in today's retirement in today's rate environment,
so the classic teaching is bonds belonging in the IRA,
but with bonds yielding around four percent. Again, a high
earner holding taxable bonds in a brokerage account is handing
a meaningful chunk of that yield to the IRS every
year at ordinary income rates. For someone in a top bracket,
(37:31):
municipal bonds held in the taxile count can be the
better answer. Federally tax free income that side steps the
location problem entirely. So the right move really depends on
your bracket. Taxable bonds tucked in the IRA or munis
sitting in the brokerage account. But don't let the tax
tail wag the investment dog. Which I've been saying forever,
(37:53):
a critical caveat, Yeah, a critical caveat is acid. Location
should never blow up your overall allocation. So if you're
chasing perfect If chasing perfect placement leaves you with all
of your stocks in one account and all your bonds
and another, a market swing can throw your true risk
level off target and rebalancing across accounts type account types
(38:14):
carries its own tax frictions you also need. You also
need enough in each type of account to give yourself
flexibility to draw from in different markets and tax years.
Location is an optimization layered on top of a sound allocation,
never a reason just to distort the allocation itself. So
that's there's there's a couple more. There's a let me
(38:35):
just give one more thing that I the RMD time bond.
That allocation helps the fuse here the here's the long
game reason this matters. At two and a half million
and up, a large traditional IRA packed with high growth
assets becomes a requirement distribution problem in your seventies, potentially
forcing huge tax will withdrawals you don't even need and
spiking your Medicare premiums through IERMA two years later, deliberately
(38:58):
parking slower growth assets and the tradition IRA while letting
growth compound, and that ROTH can't keep that future tax
bomb smaller.
Speaker 1 (39:07):
All good stuff. Aeron Kowal is here. I tell you
what Aaron will break. We're gonna come back, and how
to directly reach out to Creative Planning. All the information
around town to reach out to an advisor two six
two five two two forty forty and we'll kind of
wrap up. Today's Retirement Clinic was final comments from Aaron Kowal.
Right after this, It's News Talk eleven thirty wisn great stuff.
(39:29):
As always with Aeron Kohal, Today's Retirement Clinic is wrapping up.
We're back next Saturday and every Saturday morning with Creative Planning. Aaron,
how do I reach out to you off the air?
Speaker 2 (39:41):
Yeah? Absolutely, reach out to us at the Retirement Clinic
dot com, Aaron dot co wal at Creative Planning dot com.
And also two six two five two two forty forty.
That's two six two five two two four zero four.
Speaker 1 (39:57):
Zero located in Brookefield right on Blue Mountain Road, a
great location. Also in Delafield Port, Washington, up in Osauk
County in Racine off Highway twenty in offices at Nationwide.
Aaron kohwaal on behalf of you and everybody at Creative
Planning have a great weekend to our listeners. Monday through
Friday during the Dan o'donald Show, those daily market updates
(40:18):
done by Aaron and the staff at Creative Planning. That's
a three and five pm Monday through Friday with Aeron
Kohal and on Paul Crown Force News up next on
WIS and Milwaukee.
Speaker 4 (40:29):
The preceding program is furnished by Creative Planning and SEC
registered investment advisory firm. Creative Planning, along with its affiliate
United Capital Financial Advisors, currently manages or advises on a
combined three hundred and twenty five billion dollars in assets
as of June thirtieth, twenty twenty four. The host works
for Creative Planning, and all opinions expressed by the host
and or their guests are solely their own and do
(40:51):
not necessarily represent the opinion of Creative Planning. The show
is designed to be informational in nature and does not
constitute investment, tax or legal advice. Different types of investments
involved varying degrees of risk, and there could be no
assurance that the future performance of any specific investment or
investment strategy, including those discussed on the show will be
profitable or equal any historical performance levels. The information contained
(41:13):
herein has been obtained from sources deemed reliable, but is
not guaranteed. If you would like our help, request to
speak to an advisor by going to creative planning dot com.
Creative Planning, tax and legal are separate entities that must
be engaged independently.
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