Where Should I Pull Funds From First In Retirement?

Рет қаралды 68,158

Күн бұрын

Retirement planning is essentially embarking on a new journey where the paycheck you once relied on disappears, and you're left to create your own income streams. So managing finances during retirement becomes more complex. In this video, I explain the critical aspects of minimizing taxes while ensuring a steady income.
The transition from a steady salary to multiple income sources can be overwhelming, especially if not approached strategically. Here’s a three-step process to guide retirees through this financial maze.
1. Start by understanding your fixed income sources in retirement. These are streams that are not withdrawals from your portfolio but provide a stable foundation.
2. Determine the difference between your fixed income sources and your actual expenses. This shortfall represents the role your portfolio needs to play. If your fixed income covers $45,000, and your expenses are $100,000, the gap is $55,000. This amount becomes the focus of your portfolio's income generation.
3. Understand the types of investment accounts you have: taxable, tax-deferred, and tax-free. While conventional wisdom often suggests spending down taxable accounts first, I propose a more customized approach to minimize taxes. The goal is to strategically withdraw funds from different accounts to optimize tax efficiency.
The decision on where to pull income from isn't just about investment strategy; it's about tax strategy. Here are key considerations for a personalized approach:
- Leveraging Roth IRAs: Allowing Roth IRAs to grow over time is crucial. Contributions might not offer immediate tax benefits, but the tax-free growth becomes valuable with time.
- Managing Required Distributions: A conventional strategy might recommend spending down taxable accounts first, but overlooking the potential tax liability from RMDs could lead to significant issues later on.
- Considering Secondary Tax Effects: Beyond federal and state taxes, retirees should be aware of provisional income affecting Social Security taxation and IRMA surcharges on Medicare.
- Long-term Perspective: Avoid getting fixated on minimizing taxes in a single year. A holistic view of the entire retirement period enables strategic planning for the long term.
In navigating retirement finances, a well-thought-out withdrawal strategy is paramount. By understanding fixed income sources, calculating the income gap, and strategically assessing investment accounts, retirees can create a personalized approach to income generation while minimizing taxes. We’re here to provide a roadmap for retirees to make informed decisions and get the most out of their retirement years.
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⏱Timestamps:⏱
0:00 - Step 1 - know fixed resources
1:54 - Step 2 - know shortfall
2:56 - Step 3 - understand investments
3:57 - General vs customized approach
5:01 - Example of general approach
7:39 - Example of customized approach
9:18 - Considering tax strategy
10:23 - Roth and required distributions
12:20 - Other taxes
13:48 - Keep big picture in sight
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Пікірлер: 102

@miel001 12 күн бұрын

I see you updated the video from 2 years ago. Thank you.

@Laura-kb5sr 4 ай бұрын

Your videos are so clear--thank you!

@cBadArsBiker1579 4 ай бұрын

Thank you for presenting a complex topic in easy to understand terms.

@harveyquinton6303 4 ай бұрын

James you are the voice of response in a complicated world. Always awesome information.

@sandralindsey6270 4 ай бұрын

Excellent post! You have made the options very clear-thank you!

@markb8515 4 ай бұрын

Thanks James for the video! Once again, it was packed with great information.

@BadPhD777 4 ай бұрын

Always AWESOME information James!! Thanks.

@jdial68 4 ай бұрын

Great video.. just absolutely love this to get conversations started on things I didn’t even realize. Thank you

@peteroreilly7105 4 ай бұрын

Fantastic insight presented clearly and succinctly. Thank you.

@rustydegeorge5726 4 ай бұрын

Very helpful information…thank you!!!

@cruisinusa5110 4 ай бұрын

Great job professor!

@johnh2812 4 ай бұрын

Another well explained session. Excellent!

@danielmills3337 4 ай бұрын

Thank you so much for your videos. I'm learning a lot. I'm a US expat living in Japan, and I'm pretty close to early retirement.

@Osborneloto 4 ай бұрын

Very nice video. Clear and articulate. I’m recently retired this is a constant riddle I’m trying to solve.

@Jupe367 4 ай бұрын

This guy is so good.

@MichaelToub 4 ай бұрын

Great Video!

@marycoopman6565 4 ай бұрын

Such vital info!! And for single people with expenses it gets very tricky because of how quickly the 22% tax comes on board.

@MILGEO 4 ай бұрын

I'm glad you have a You Tube channel since I haven't been able to download your Podcasts for some reason. Usually my favorite Podcasts! I think it's something with Google needing an update.

@M22Research 4 ай бұрын

Solid info

@andrewroth9175 4 ай бұрын

Number 1, if anyone has a sizable pretax account at 60 and retired. You should delay SS till 70. Spend down your pretax! Then your SS will not get double taxed.

@PH-md8xp Ай бұрын

Agreed, but what is the definition of “sizable”?

@CTHou13 4 ай бұрын

Your videos are always so helpful. Thank you very much. I would like to hear more about disaster funds and how much I should have in reserves for things like air conditioners in my house that break down, roofs to get torn off from hurricanes, and some smaller items like refrigerators breaking or major car repairs. How do you balance cash on hand versus funds available for disaster planning?

@jeanettebonf631 2 ай бұрын

Thank you

@mwood411 4 ай бұрын

This is one of those strategies where it would be super helpful to show actual case study examples.

@howard6433 4 ай бұрын

For those with sufficient fixed income to support their needs, and are still below the 22% tax bracket: you should consider converting some IRA funds to a Roth IRA to take advantage of the lower 12% tax bracket. This will reduce the tax on your RMDs in the future.

@tomowcaest.5999 3 ай бұрын

Yes, but for how long? Spend & tax then tax & spend!. All will change on 2026 !

@DanielChai-ex3hu 4 ай бұрын

A financial planner is like a roadmap for your retirement funds. They help you decide where to pull from first, ensuring a smooth journey by strategically navigating which sources make the most sense for your financial goals.

@shawnbrennan7526 4 ай бұрын

Some good points, but your videos are much better when you have some comparison graphs to help us visualize the different strategies.

@EvilGenius007 4 ай бұрын

FYI, I really appreciate this content and some of it I would love to share with my retired mother. However, she's a widow and because of her emotional response she's just not going to hear anything after you lay out that the baseline assumption is "married filing jointly." If you ever make a series of videos with single retirees as the baseline I might be able to get her to learn something from those.

@rick_vv7754 4 ай бұрын

Having diversified asset locations (qualified, non-qualified and Roth), provides more options from where to pull funds from each year while in retirement in order to implement more effective tax and IRMAA planning and strategies.

@rickyaz8640 4 ай бұрын

This is as important as your investment allocation and way under-emphasized

@tomowcaest.5999 3 ай бұрын

❤good concise explanation! Now..what about RMDs with a variance annuity AND an ira.. age 73-93? Or better yet, a video on laddered rmds!!😂

@sueyoon4285 4 ай бұрын

Great info.. I'm curious if you have a strategy to minimize taxes inside those taxable accounts though. Although you already paid taxes on your taxable account, the earnings such as interest, capital gains, may be taxable , can you elaborate on strategies inside taxable accounts to be more tax efficient without compromising growth

@IwasRetired 4 ай бұрын

James, you have a very calm, reasonable approach. I'm a DIY retiree and use a DIY Strategic Withdrawal Strategy and a three-bucket portfolio approach that incorporates many of these concepts. I've resisted many of the "rules of thumb" -- such as the 4% rule and the conventional order of operations -- because it always seemed to me that too many "rules of thumb" leads to an "all-thumbs" and clumsy approach to retirement.

@philsanderson7024 4 ай бұрын

My tax liability strategy is to limp across the finish line at 65 with a net worth either at zero or in negative territory. That should keep me firmly in the 10% income bracket and help me to avoid those pesky RMDs later on. Besides, as I've learned from Cousin Eddie - I don't know why they call that stuff hamburger helper. I does just fine by itself.

@graemecowan2467 4 ай бұрын

Good job James, I am taking a lot of IRA money now because RMD will be quite large down the road. Yes paying that tax now bothers me. I also wonder if the FV of the taxes being paid now offsets the higher RMD in the future. James have you ever analyzed this scenario?

@billruprecht7398 Ай бұрын

I get that you get taxed on tax deffered accounts but how do you deal with the planning also of the capital gains on these withdrawals?

@JayRay9999 4 ай бұрын

To make sure you are taking advantage of the lower tax brackets, you can spend your taxable accounts and convert your Trad IRAs/401ks. To make sure you don't run out of money in your taxable accounts, keep most of it in equities and put your cash/bonds in your Trad IRAs/401ks. Equities in your taxable accounts and cash/bonds in your retirement accounts is the most tax efficient strategy.

@williamrogers1219 4 ай бұрын

If a retiree can do their income taxes using a tax software application, they can plan the best places to take retirement income. For example, I run the following tax scenarios: Retired MFJ and Retired Single Survivor as retired single can easily move the surviving spouse to a higher tax bracket.

@onlywenilaugh6589 4 ай бұрын

Course long term capital gains could be zero tax is you keep income around 100K with standard deduction. So it wouldn't make sense to spend that down first either as I would consider it more right before Roth.

@spinnetti 4 ай бұрын

Good stuff. I see there's lots to figure out. Based on this, seems like it would make sense to not save all pre-tax, but but mix with after tax to give more flexibility when you start to draw?

@shawnbrennan7526 4 ай бұрын

Roth is almost always better, though he has other videos that discuss potential mixes.

@RS-jz2yu 4 ай бұрын

James, thank you again. Love the content that you put out for us. Maybe a weird question but here goes. There are maybe five creators of content that I use the term "love your content." That being said, if instead of me hitting "skip" as soon as I can on the little advertisements, I just let them play out, does it help you? I'm willing to let them play if it does. I just don't know the answer. As I am in San Diego also, maybe I will use your firm's services one day. But for now, just wondering if it would help to play the ads.

@normanbasham4436 4 ай бұрын

Your videos help a lot of people, including me. They are well presented and educational. The thumbnail for this video is disturbing and I realize that it probably helps with clicks but I think it erodes from your brand that has differentiated itself from the ubiquitous fear raising click bait videos.

@clbcl5 4 ай бұрын

I just did the math on this today when I finished my taxes. I already had a distribution in 23 from an IRA without any taxes owed. I increased it assuming no changes in 24 until I owed taxes. I also removed the w-2 and just left our S/S income and did the same thing in Ira distribution and found the number to take out before the 1st dollar owed in tax. I have an inherited Ira I have to take out and 7 years till the required rmd. I'm just going to take the maximum I can out and put into my brokerage.

@rickyaz8640 4 ай бұрын

Just withhold from the Ira withdrawals. Something like 10% will keep you out of needing to pay quarterly taxes

@michellem8284 4 ай бұрын

Question: To determine initial tax bracket, would you take the fixed income sources minus your standard deduction?

@heidikamrath1951 4 ай бұрын

Thank you, James! Three years out from retiring and your videos are very helpful. Would I consider that annuities are included in “fixed income” and Whole Life insurance is included in “tax free accounts?”

@shawnbrennan7526 4 ай бұрын

I’m not a pro, but…. Agree an annuity is “fixed income” like SS or a pension, UNLESS it has a limited payout (I.e. 20 years). I would consider any cash value in your Whole Life insurance policy to just be part of insurance or legacy, unless you intend to convert it into another insurance vehicle. I’m not aware of people able to use that cash value without terminating the policy, but perhaps you gave a hybrid of some sort.

@timb6985 4 ай бұрын

Plus if you are a married couple and you let your traditional 401b grow crazy and one of the couple passes away soon after RMD starts, the surviving spouse might have a totally unruly tax bill. Much better to have the money in Roth or even in TAXABLE account because even in a taxable account, half of all the accumulated capital gains are wiped away due to Step-up in basis. I do have a question for you, though. If you have a taxable account and due to accumulated gains, you can't really do much alterations without incurring a large tax bill.. if the holdings within the taxable account generate say $30,000 of dividends and/or distributed gains, should you withdraw all those distributions rather than DRIP-ing them back into the holdings? I know this will reduce your compounding potential but you are already going to have to pay taxes on the distributions so does it make sense to re-invest them?

@jmmysms 4 ай бұрын

Will retire at 65, this year. Will receive max SS for age 65. My plan is to draw down IRA to keep me below IIRMA the first few years to lessen large RMDs and higher IIRMA later. Brokerage account does kick off ST, LT cap gains and dividends that vary year to year. Will be a challenge to balance this. Maybe some Roth conversions when brokerage payments are low.

@shawnbrennan7526 4 ай бұрын

The sooner you do the Roth conversions, the more time you have to recoup the tax hit. Talk to your advisor to run the scenarios, but CONSIDER not taking SS until after you’ve done your Roth conversions.

@byronjacobson6651 3 ай бұрын

How about if you got little cash, on social security. Gotta all $ in ira & roth. Can u propose an example please.

@martinguldner3990 4 ай бұрын

For me 1) taxable brokerage account 2) Social Security benefits 3) distributions from Roth IRA/Roth 401k (other than inherited IRA with 7 years left I have no Traditional IRA/401k).

@randolphh8005 4 ай бұрын

So you payed too much in tax in the past. You want to have at least a small amount of tax deferred money to fill the 0% bracket and probably the 10% bracket, unless you have a pension.

@martinguldner3990 3 ай бұрын

@@randolphh8005 I'm currently in the 12% tax bracket so I don't mind paying my tax up front and being tax-free when I pull out

@rightwingprofessor1356 4 ай бұрын

Remember to consider the value of having Traditional IRA funds, as you age and need additional medical care. Since medical expenses are a primary expenses for senior Seniors, the tax deduction for medical expenses can offset the taxes on IRA distributions!

@70qq 4 ай бұрын

🤘🏻

@amanitephalloide 23 күн бұрын

why are these conversation never present at HR meeting at all companies when they have meeting regarding employees benefits.

@fprintf 4 ай бұрын

So are you saying the entirety of the $50K above the $60K income is taxed at 22%? That doesn't seem right since the 22% should only apply to the excess over the $94,300. But I might be misunderstanding the tax law here and need an education!!

@bryanmurtagh202 4 ай бұрын

You are not missing anything. Only the excess over $94,300 is taxed at the 22% rate.

@DJohnson-od6oj 3 ай бұрын

I get you are a CFP but are you also a certified tax planner or CPA? Same with everyone in your firm?

@dalegg66 3 ай бұрын

We’re gonna spend the first 6 years using cash, my 401k, and my wife’s pension. I don’t want to use all cash because we need to show some income stream to qualify for healthcare programs that don’t require income/asset verifications. My wife’s pension isn’t quite enough. That’s where 401k comes in..just a little-Maybe 3%. I figure after the standard deduction it’s gonna look like we make nothing anyway on taxes. After 6 years we’ll add in my Pension, both of our Social Security and continue taking 401k dividends at 4%..it all begins in a year😊

@davek4206 4 ай бұрын

Great advice but to apply it, I feel I have to create a spreadsheet, pull a lot of numbers and run a pivot. Is there some software that is available?

@Jack51971 4 ай бұрын

What happens if you put $50000 into a dividend paying stock in a Roth 401K. Through your employer? You reinvest the dividends for 5 years in the account. At retirement, you change that reinvest option to take the dividend and not reinvest that payment? Is that dividend payment taxable? So if I had $1 million in a Roth 401k with stocks and I decided to sell these stocks and buy dividend paying stocks only for getting another income stream from dividends....how would these dividends be taxed if any?😮

@shawnbrennan7526 4 ай бұрын

Nothing coming out of a Roth is taxed per se.

@acon2834 4 ай бұрын

So I'm 66 , I have about $2m. Only about 80 k in taxable account, 100k in Roth. Recommendations?

@shawnbrennan7526 4 ай бұрын

Go hire a trusted advisor instead of asking us yahoos on KZfaq! ;)

@Andocus1213 4 ай бұрын

Do roth conversions up to the level where you hit the 22% bracket

@timpierce7128 4 ай бұрын

First

@wilee.coyote5298 4 ай бұрын

4:07 taxable accounts like pensions, savings, CDs, SS, interests, dividends, then tax deferred, then tax free.

@pengmagno7395 4 ай бұрын

So at age 75 it would be financially wise to have a healthy chunk of money in a IRA for QCD, a brokerage account to possibly leave heirs and a Roth IRA for daily living 🤔🤔🤔

@shawnbrennan7526 4 ай бұрын

While QCDs are specific to IRAs, you can give to charity from any vehicle. Of course, it’s easier to plan if you know exactly when you’ll die. ;)

@ericr2zz 4 ай бұрын

Gotta disagree with you, Jim. at 9:16 you state, "Your decision of where you should pull income from first should be driven by your tax situation". That's false. Many financial planners fall into this trap. Your decision should be based on how much money you get to keep. There's a difference. If you withdraw from a Roth IRA, that money could grow tax free for many years. It makes sense to look at the ramifications of taking money out of your Tax deferred accounts and its potential impact on how much money you get to keep over the course of your lifetime. Withdrawing from a Roth IRA could make sense. Basing decisions solely on taxes isn't always the best choice.

@AdrianB7822 3 ай бұрын

Gains on taxable accounts also generate capital gains tax , he makes it sound like it's zero ?

@tomowcaest.5999 3 ай бұрын

It can be zero...!!! When / if u die !!

@Jack51971 3 ай бұрын

Trump tax cuts or Biden tax increases? Who ya gonna vote for?🤔

@tomowcaest.5999 3 ай бұрын

Bernie!😂

@lukehanson5320 Ай бұрын

I'll vote for the one who's not a wannabe fascist dictator.

@carolinecollins2441 Ай бұрын

Taxes are reverting back to what they were priir to 2017, since the Trump tax cuts for businesses are permanent but the tax cuts for individuals were written to sunset after 2025. Has nothing to do with Biden.

@mississippiapple1078 4 ай бұрын

I thought I don't get taxed once i retire and old 😢

@tintinet 4 ай бұрын

Death and taxes- inevitable!

@tomowcaest.5999 3 ай бұрын

Thank u spend n tax & tax n spend politician's!😢

@prebaned 4 ай бұрын

You lost me at, lets assume your expenses are $100K/year. Not what the US average worker makes a year, let alone needs for retirement.

@shawnbrennan7526 4 ай бұрын

These videos aren’t really made for the average worker. But if you focus on the underlying principles he discusses in his videos, you’ll be well above average for net worth even if you aren’t taking in the cash.

@brahmmauer7437 4 ай бұрын

Exactly. He has a tendency to give examples with unrealistic numbers.

@Max-nt7ho 4 ай бұрын

It all depends on which state u retired to.

@tankberserkererer 4 ай бұрын

He specifically said focus on the framework and strategy rather than the numbers he’s using.. he probably picked 100k because it’s an easy number to do math with in terms of percentages and what not.

@ChrisWilliams5605LS 4 ай бұрын

@@brahmmauer7437 Do numbers do not matter. It is an example of the concept that is relevant. Said I have to explain this.

@tinashepherd61 3 ай бұрын

I really like your videos a lot. FYI when you point to upcoming videos they’re not on the screen 🥹 you’re doing a great job I learned more from you and an afternoon than I did trying to talk to four different financial advisors. They’re always trying to sell me some stupid annuity and I just wanna know how to do what you’ve been telling me to do I wish I could meet with you that would be awesome.