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4 Ways We Help Clients Build Their Retirement Paycheck Thumbnail

4 Ways We Help Clients Build Their Retirement Paycheck

Retirement Planning

By Chad Chase, JD, CTFA

Picture this: your ideal retirement. Relaxation, travel, pursuing passions—all with the confidence of a steady retirement paycheck.

Retirement could be right around the corner for you, and that means you’ll soon be able to finally enjoy the fruits of your lifelong labor and unwind. But you might be wondering how to convert your hard-earned savings into consistent income. 

In this article, I explain how our clients can turn their retirement savings into a reliable “paycheck” throughout their golden years.

1. Decide How Much You Can Safely Spend

Knowing how much you can afford to spend is essential before deciding how much to withdraw from your portfolio. Spending excessively based on a general rule of thumb and bearing the risk of running out of money later in retirement are the last things you want to happen. 

When figuring out how much you can afford to spend, there are a lot of factors to take into account, such as long-term objectives, lifestyle costs, anticipated life expectancy, and medical requirements. Working with a professional financial advisor is a smart approach to determining how much you actually need.

2. Understand the Various Withdrawal Tactics

After figuring out how much you can afford to spend, it’s time to consider your options for withdrawal methods. There are a handful of ways to convert your savings into a consistent retirement paycheck:

Comprehensive Approach

Financial advisors who provide both financial advice and ongoing investment management of a client’s assets will often implement the generation of a retirement paycheck as part of the client relationship.

In this scenario, the advisor has guided the client through the creation of a comprehensive financial plan that takes both the client’s retirement income goals as well as the financial resources available to achieve these goals into consideration. Then, within the parameters of the financial plan, the advisor is able to coordinate withdrawals from the client’s investment portfolio in order to produce a retirement paycheck for the client.

As income needs fluctuate throughout retirement, the advisor works alongside the client to make necessary adjustments to the plan in order to meet current needs without putting the long-term plan in jeopardy.

Systematic Withdrawal

The systematic withdrawal strategy, sometimes referred to as a capital preservation approach, provides a simple means of funding retirement. It entails deducting a set amount from the value of your portfolio annually—typically between 3% and 4%. 

This strategy allows for a steady flow of income, but it’s crucial to keep in mind that market swings could have an impact on this strategy. Your principal could decrease more quickly in down years, which could necessitate adjusting the amount you withdraw. 

Still, for retirees looking for a steady retirement paycheck who also have an adequately sized investment portfolio, the systematic withdrawal strategy is a popular choice due to its simplicity and ease of management.

Bucket Withdrawal

The bucket withdrawal strategy accesses your retirement funds using a more divided approach. Several “buckets” with varying time horizons comprise your portfolio, as opposed to a single, fixed withdrawal rate.

You might put short-term, easily accessible funds for immediate living costs in the first bucket. And assets for medium-term requirements could be mixed together in a different bucket. Finally, growth-oriented investments for long-term goals could be placed in a third bucket. 

The first bucket is where most withdrawals originate from, giving your long-term investments time to mature and potentially withstand market downturns. This strategy gives you more flexibility and might even safeguard your long-term savings, but it takes more preparation and continuous supervision to keep each bucket invested and sized correctly.

3. Optimize Tax Efficiency

Most people don’t give tax planning during retirement much thought, but the order in which you take withdrawals from your investment accounts can have a big impact on how long your portfolio lasts. Generally, you withdraw from your taxable accounts first, then your tax-deferred (or pre-tax) accounts, and lastly your tax-free (Roth) accounts.

Withdrawals from a taxable account are taxed as capital gains rather than regular income as long as the investments in the account were held for longer than a year. By withdrawing from a taxable account first, your tax-deferred and tax-free investments have longer to grow.  This approach must be balanced with other considerations; for example, allowing your tax-deferred dollars to grow could result in high Required Minimum Distributions and thus a higher tax bracket once an investor reaches their Required Beginning Date.

Once you’ve depleted your taxable funds, you can start taking withdrawals from your tax-deferred accounts, and finally from your tax-free accounts. Remember to carefully consider the tax implications of each withdrawal.

4. Remember Long-Term Growth

The final issue I want to point out is the power of long-term growth.

Most people incorrectly assume that because you’re retiring, you automatically have to become ultra-conservative with your money, and investing exclusively in cash and bonds to safeguard against market volatility is your only option. While it’s true that your portfolio should become slightly more conservative, you still need assets that can grow long-term instead of solely focusing on income.

The bottom line is that if you want to grow your retirement savings, a smart portfolio is a diversified mix of income and growth-style investments. The specific proportion of stocks and bonds depends on your individual financial goals, risk tolerance, and other factors. 

Reach Out Today!

Our team at CGN Advisors can help you determine the combination of strategies to help produce steady income throughout your golden years. As a fee-only, independent financial planning and investment firm, our highest priority is to help our clients strike a balance between enjoying today while planning for tomorrow.

To schedule a meeting, call (785) 340-3434. We look forward to speaking with you!

About Chad

Chad Chase, JD, CTFA is Managing Principal - Senior Financial Advisor at CGN Advisors, a Fee-Only, financial advisory firm based in Manhattan, Kansas. CGN’s team of financial advisors is made up of native Midwesterners who are passionate about helping clients plan for the future. While prioritizing personal relationships with clients, Chad has a passion for financial education, helping them better understand their situation and why certain recommendations are made. He enjoys getting to know clients and their families and seeing how their partnership helps them realize their goals. To some extent, he’s also a nerd who really enjoys numbers and problem-solving.

Chad obtained an associate’s degree from Butler Community College, a finance degree from Kansas State University, and a Juris Doctor from University of Nebraska College of Law. He is also a graduate of the American Bankers Association Graduate Trust School and has obtained the Certified Trust & Financial Advisor certification from the Institute of Certified Bankers. Prior to entering the wealth management industry, Chad worked in commercial banking for four years in Kansas City and Derby, Kansas, and practiced law in Manhattan. Before joining the CGN team, he served as Vice President & Trust Officer at The Trust Company of Manhattan, Kansas, providing his clients with financial advice, investment management, and trust administration services.

Chad grew up on a 100-year old ranch in Butler County, KS, which he still helps manage and operate. His wife, Segen, is a Manhattan native, a fellow KSU graduate, and a local physician practicing in internal medicine. They have two children, Solveig and Gantt. Both Chad and Segen are accomplished musicians and very active in the local music and art scene. In addition to music, he enjoys golf, basketball, KSU athletics, and traveling. To learn more about Chad, connect with him on LinkedIn.

Investment advisory services are offered through CGN Advisors, LLC, a fee-only SEC registered investment advisor. Tel: (910) FEE-ONLY.

Investing involves substantial risk and has the potential for partial or complete loss of funds invested. Investments mentioned may not be suitable for all investors. Before investing in any investment product, potential investors should consult their financial or tax advisor, accountant, or attorney with regard to their specific situation. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.

The opinions expressed herein are those of certain CGN Advisors, LLC personnel and are subject to change without notice. The opinions referenced are as of the date of publication and are subject to revision due to changes in the market or economic conditions and may not necessarily come to pass. Any opinions, projections, or forward-looking statements expressed herein are solely those of the author, may differ from the views or opinions expressed by other areas of the firm, and are only for general informational purposes as of the date indicated.