I know I say this every time we answer listener questions, but these are some of my favorite episodes of Keen on Retirement. I love hearing from listeners trying to think through crucial financial planning issues and be proactive about their lives. And I'm thrilled that so many folks in our audience took the time to attend our most recent webinar on Retirement Spending, reflect on the info that Keen Wealth's Matt Wilson presented, and send in thoughtful follow-up questions on a wide range of essential topics.
Let's dig in!
1. "If you have overestimated your annual spending amount, should it, or can it, go into a Roth IRA? What about required minimum distributions?”
I will assume that this listener is thinking about a taxable withdrawal or required minimum distribution (RMD) made from a traditional IRA at the beginning of the year. Let's say that withdrawal or RMD is $100,000. Fast forward to December, and you've only spent $70,000. What do you do with the remaining $30,000?
The IRS does not allow you to roll that money back into a Roth IRA. You could reinvest it in a traditional taxable brokerage account. You could earmark it for potentially tax-deductible gifts to family or charitable contributions. Or, in this era of higher interest rates, you could put it in a high-yield savings or money market account.
I recommend scheduling a meeting with your financial advisor to review your spending plan. One potential question to discuss in this scenario: Why did you spend less than planned? If you're comfortably enjoying retirement or relying on other resources, great! But if you're so worried about spending money that you're not tackling your bucket list, replacing your old car, or giving your home quality-of-life upgrades, it might be time to start getting more from your money than just more money.
2. "What is the 4% Rule?"
It's a back-of-the-napkin way to estimate how much money retirees can withdraw from their nest eggs per annum without running out of money. So, if you have $1,000,000 in your retirement accounts, the 4% rule says you can spend $40,000 per year.
The 4% rule is a good starting point for discussing retirement spending. But it's a linear calculation, and your retirement isn't always going to progress in a straight line. We use much more sophisticated calculations and simulations at Keen Wealth to help folks control what we can control and prepare for those unavoidable surprises, from exciting things, like deciding to move abroad, to significant challenges, like a sudden health issue.
3. "Should my annual withdrawal rate adjust based on current market conditions?"
We evaluate that kind of decision on a case-by-case basis. If market volatility is decreasing your likelihood of reaching your retirement goals, yes, we might suggest that some folks pull back on their discretionary spending for a bit. Others might just be able to dip into cash reserves for a few months without really affecting their plan. Older seniors also might not worry as much about the markets because they may have less in equities and don't need their nest egg to last as long, compared to someone who just retired and is looking 20, 30, or even 40 years ahead.
4. "When does Medicare kick in? Do I take Social Security at the same time?"
Medicare and Social Security are important parts of your retirement plan, but taking one benefit does not trigger the other.
You are eligible for Medicare at age 65. You might delay taking Medicare if you can jump on a working spouse's health care plan. Early retirees might also use COBRA or their state's healthcare marketplace to pay for insurance out of pocket until they turn 65.
Social Security eligibility starts at age 62. However, the longer you delay taking Social Security, the larger your benefit will be until you have to start taking it at age 70. Also, until you reach your full retirement age, the Social Security Administration will deduct $1 for every $2 you earn above the yearly earnings limit, which is $21,240 in 2023.
So, if you don't need Social Security to pay your monthly bills or reach another retirement goal, it's usually best to wait and maximize your benefits.
5. “We have typically carried a cash balance of $100,000 or higher at the local bank. Is it wise to carry a large cash balance during retirement?”
There is certainly nothing wrong with having a large cash balance in retirement. Some people just feel more comfortable knowing they have money they can access quickly at their local bank, and we respect that.
• But I would ask some follow-up questions, such as:
• Is there a specific reason you keep that much money in cash?
• What percentage of your total assets does that $100,000 represent?
• Does the account where you keep that cash yield a high interest rate?
• Is keeping that $100,000 in cash rather than putting it in an investment account or spending it helping or hurting progress towards one of your personal retirement goals?
Of course, that last question is the most important, and it's really the key to providing the most complete answers to your retirement questions.
Contact my team at Keen Wealth and let us help clarify any details of your financial plan that you may have. You can also click here to subscribe to our content so you'll know when Matt's prepping his next webinar. And you can email me if you have any questions or topics you'd like us to cover on a future podcast episode.
Bill Keen is a financial advisor with nearly 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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