So You Were a Good Saver, Now What?


You've worked all these years and diligently saved as much as possible along the way. You've side-stepped temptations to spend frivolously and embraced the delayed gratification of investing in your future.

I'm not sure how you learned to do it, but I suspect you were taught by your parents the value of saving, and you watched how they controlled their spending all throughout your childhood. They probably never seemed to spend money on anything fun. And as an adult, you may have even wondered how your peers, neighbors, and colleagues were doing it. They sure looked like they were spending more than they should have been.

Well, you've got a lot to be proud of in what you've just accomplished. Congratulations! There are millions of people who would do anything to have the same fortitude you have as they prepare for their later years.

A question for you: did you realize that you need a completely different set of skills to manage your spending plan in retirement? The right tool set will allow you to successfully minimize taxes and reduce the odds of exhausting your portfolio later on in your life.

Here's some detail on the items we'll address in your spending plan:

  1. Which buckets of savings should you spend first? Start with spending your brokerage, revocable trust, joint account, or taxable savings first. We'll be sure to only sell investments that have long-term gains, and we'll generally identify the positions with the lowest gains first before selling the ones with larger gains.
  2. How do required minimum distributions (RMDs) play into this planning? If you've already started required minimum distributions (at age 70 1/2 for a rollover IRA), then those must be one of the first sources of cash for your regular spending. Delay any sales or withdrawals from other accounts until your RMDs are satisfied. We'll place your required distribution in a cash account and distribute the balance out to you as needed throughout the year.
  3. We'll estimate dividends and interest from taxable accounts so that we can budget those into your available cash for regular spending.
  4. We'll leverage rebalancing opportunities to replenish cash. As markets move and necessitate rebalancing of your investments, any cash deficiencies can be satisfied by slightly increasing any sales or decreasing purchases.
  5. We'll avoid buying your fixed income (CDs, Bonds, TIPs) in brokerage, trust, joint accounts, or any other taxable savings. This is a common mistake to be sure you avoid. Though the interest seems like a great tool in funding your spending needs, you're likely to achieve higher after-tax returns by hiding interest from fixed income inside of a retirement account. Furthermore, if your fixed income is hidden in retirement accounts, that means your equity investments are held in taxable accounts where we can take advantage of loss harvesting, cost basis step-up, and potentially lower capital gains taxes.
  6. We'll manage your blackout period (the time after retirement when you're no longer earning an income, but before social security and RMDs kick in). This gap in earned income provides a great opportunity to proactively take other income that you might not otherwise do on your own, such as from and IRA. You're leveraging low tax brackets and reducing the amount that will figure in to your RMD calculations later on.

There's plenty for us to do. Let's get started...