Creating Income from Assets

You’ve worked hard for years and saved money along the way, but how do you take those retirement savings and turn them into retirement income that will last for 30 years or more?  If you’re already working with Sommers Financial, you know we’ve got you covered and are helping you with a plan.  But let’s break down the details to fully understand how this works.

A few obvious things will be different in retirement. Instead of receiving a single paycheck on a regular basis, you will likely receive income from multiple sources. You will have different types of retirement income. Some will be fixed, like a private pension, and others like social security and public pensions will be inflation-adjusted. Income from your investments, including IRAs and 401ks, will be variable. It is important to consider the taxability of all income sources. For example, you can withdraw money from your Roth IRA tax-free after age-59.5. Income from social security may or may not be taxed; and money from your Traditional IRA/401k is fully taxed upon withdrawal.   

A major focus for us is maximizing your tax-free income through our financial planning process. An intelligent withdrawal strategy has a major impact on the amount of taxes you will pay throughout your retirement years. You may have heard us talk about “filling up your tax bracket”. This simply means we are trying to keep your lifetime income taxed at the lowest rate possible. Because the federal income tax system is progressive, as you move up the income scale, you also move up the tax scale. As you make more money, a tax bucket at a lower rate will fill up, and your income flows over to another bucket to be taxed at a higher rate. By paying less tax, you end up with more money in your (or your heir’s) pocket. Our goal is to have you withdraw your retirement income so that you never rise above your current tax bracket into a higher tax bracket. 

One of the most difficult things for you might be determining how much income you will need in retirement. The question is “What do I spend now; and will I spend the same, more, or less in retirement?” Once you determine a monthly dollar amount you need/want to live on, the rest of the retirement planning process falls into place. Your required monthly retirement income minus any pension and social security benefits equals the income you need to generate from your investments.  

We help schedule withdrawals from your investment accounts in a blended way to keep you in the lowest tax bracket possible, while taking into consideration many things like Required Minimum Distributions (money required to come out of your Traditional IRA/401k accounts), tax-loss harvesting, relocation to a state with lower income tax, tax-law changes, and charitable giving, just to name a few.  

We plan for the things we know, we are flexible with the unknowns, and we refine the process over time.  Connect with us if you’d like to learn more about how we can add massive value to your retirement years.