Retirement Answers

Jacob: 00:01

I wanted to talk about this system, what we've named the River Tree System, and how we do planning. That way, hopefully it gives you an insight or idea of the things that you should be considering or thinking about to help you retire successfully. Welcome to Retirement Answers, a podcast built to answer your most pressing retirement questions. If you're someone who's either thinking about retirement or already in retirement, well, you're in the right place. Hey there, my name is Jacob Duke, and each week I'll be walking through different tips and strategies to help you succeed in retirement.

Jacob: 00:35

So let's go ahead and get started with today's show. Hey friends, welcome back to another episode of Retirement Answers. My name is Jacob Duke, I'm the host here of the podcast, and I wanted to say a big thank you to all of the frequent listeners or those who listen often. It's because of you that I do this. Wanna make sure that I'm helping and putting good content out into the world.

Jacob: 00:58

So, I really appreciate you listening. Hopefully, everything that I've done has been helpful or valuable to you on your retirement planning journey. Also, if you're a frequent listener, maybe you noticed that last week I did not upload or publish an episode. And you might be wondering, oh my goodness, Jacob, what happened? Did he just not wanna do it?

Jacob: 01:16

Getting tired of it? And the answer to those things is no. I definitely wish I could have published an episode last week, but I have good reason for not doing that. And I wanted to share that with you today. So the reason I did not upload last week is because I have launched my new wealth management company called River Tree Wealth.

Jacob: 01:34

And so I've been busy at work, hard at work, getting that done, transitioning current clients over to my new firm. And, just wanted to let you know that that is why I miss, but also I am open for business. So if you are looking for a partner on your retirement planning journey, I'd be more than happy to have a conversation with you, learn more about your situation, and, and also see if I can help in any way. So if you're wanting to learn more about my company and River Tree Wealth in general and the services we offer and how we might be able to help you, what you can do is go to rivertreewealth.com, or you can just click on the link down in the description below, it should be there. So in light of that big news, which I'm super excited about and just the future and, everything that comes with that and all the opportunities that come with it, I wanted to share with you maybe our system, kind of what we've developed as our way of doing planning for retirement.

Jacob: 02:24

And, hopefully these ideas or the way that we do this, number one is, helpful for you or maybe gives you insight into maybe ways that you can do this if you're doing this on your own, or if you're trying to find an advisor, what should you be evaluating? Like what should be the things that they're paying attention to, to help you retire with success? So I wanted to talk about this system, what we've named the River Tree System, and how we do planning that way. Hopefully it gives you an insight or idea of the things that you should be considering or thinking about to help you retire successfully. Now, I've talked through each of these things, individually.

Jacob: 02:58

I've talked through all these ideas and different topics such as investments or income or taxes, all these different, areas of planning individually. But I wanted to kind of walk through how they fit together and maybe the order in which we think about them. So, the first step in all of this is we want to identify your purpose. So whenever you come to us and you're like, Jacob, let's start working together, or I want to get to know you or learn more about how you can help me. The first thing that we're gonna do is have an intro call, and that is really to help get to know each other.

Jacob: 03:28

The next step is to do a discovery session, and the purpose of that is to help identify the why behind your planning. So a lot of people only think about the math side of money or their wealth, And what they forget is they forget about the purpose or the reason or why they're trying to invest better or save more on taxes or find a way to give more to their family. Whatever it might be, like what is the underlying goal? Like what's the reason for having more money or doing this well as opposed to just kind of seeing what happens and hoping it works out, right? So we have to have a reason.

Jacob: 03:59

We want to identify this purpose. And so we do a purpose finder quiz, is hopefully to ask some questions that help us number one, to know you better, but also help you maybe get to know yourself better. Like what are the things that are important to you? Is it to leave as much money as possible to your family? Is it to make sure you take a vacation every other week?

Jacob: 04:19

Is it to spend time at your local charity? Is it to give more to your church? Like, what are the things that you value? And then what we can do is once we have that, we can move to the next step of our system, which is develop an idea of how we can plan for your income. So everybody needs income to live on.

Jacob: 04:36

We all have to have at least, something coming in every month to pay our bills and meet our needs. And so what we wanna do is we wanna identify how much income do you need every month in two different ways. I talked about this in previous episode. We wanna identify your base income needs in terms of how much do you need just to make it and stay alive, like food, gas, shelter, what is the bare minimum amount that you have to have come into your bank every single month to help pay your bills and meet your needs? The next number we wanna figure out is what number do you want to have and live on every single month?

Jacob: 05:08

So those two things could be, hey, need $2,500 a month no matter what to just pay for the things that are basic. Now I might want $7,500 a month to meet my normal needs in terms of standard of living that I like to live or like to do. And so, there's a difference there. There's $5,000 of range. And so what I encourage my clients to do, or people that we're working with how about we find both of those numbers?

Jacob: 05:31

What do you wanna spend? But also how much do you need just to scrape by and make it to the next month? And so that's the income phase. We wanna identify what income need we have, but then we could start developing where is that income gonna come from? Is it all gonna come from our portfolio?

Jacob: 05:46

Do we have tax deferred accounts? Do we have IRAs, Roth IRAs, taxable accounts? Do we have other sources of income such as a pension? Do we have social security either already turned on, or will we turn that on in the future? And if so, at what age?

Jacob: 05:59

And we begin to build out this income timeline. And so we can say, hey, let's say for example, we're 62 today and we want to take our social security at 65 and our pension is going to kick in at 65 as well. That means our income need from our portfolio is going to be $2,000 a month for the rest of our life. And so what we can do is begin to build out this framework around where your income is gonna come from and how much you're gonna need, in different stages of retirement. Early on, midway through and later in life, your income needs will change, how much income you do or don't wanna spend will change.

Jacob: 06:29

And so that is the second phase of the system, is to develop your income plan. Now, the reason that I like to do the income plan second, and the investments third, which is the next part, is because I want our investments in terms of our strategy, our allocations, what we're investing in, I want all of that to be dictated by our income needs. So for example, if someone has a million dollars, it'll say couple one has a million dollars and couple two has a million dollars. One of those couples only needs $1,000 a month from that portfolio, the other needs $6,000 a month from that portfolio. Each of those two people, they have the same amount, let's assume they're the same age, they do not need to be invested the exact same.

Jacob: 07:09

And the reason for that is because if one person needs $1,000 a month and the other needs $6,000 a month, they have different income needs. And so we need to invest their portfolios differently to help meet their specific income needs. So one person, the person with a thousand dollar a month need from their portfolio, they can actually take a more aggressive approach in their investments and think about long term investments in growth over time. Whereas the person needs $6,000 a month, they will need more cash on the sidelines. They will need more fixed income products in their portfolio to help meet their short term income needs.

Jacob: 07:43

Right? So different people require different portfolios, and that's why I like to identify the second step first, which is your income plan, how much income you need and where that's gonna come from, and then we can begin to develop your investment plan. So just know that this is where the buckets come in. I talk about this all the time, my three retirement income buckets, but this is where this part comes in. And just like I talk about in those other videos or podcasts, we want those buckets to be informed based on how much we need.

Jacob: 08:09

And so I wanna make sure that we have two years of living expenses in cash. I wanna make sure that we have three years living expenses in either bonds, fixed income, CDs, treasuries, anything that's producing an income, but is not a stock. And so what this does is it builds out a five year income buffer of money that is not invested in stock. So you have five years of living expenses that's earning interest, and growing maybe just a little bit, but it's readily available. You got two years in cash and money market.

Jacob: 08:38

You've got three years in those fixed income products that have a little bit more risk, but they're still not as risky as stocks so that you can meet your income needs for five years should a market collapse or a market pullback happen. So that's why I like to use the bucket strategy that way. So that's the third step is I wanna make sure that we have, investments in terms of our investment plan in place, but that is always dictated by our income needs. The fourth step is to begin to plan for taxes. And so tax planning is a big part of what we do and making sure that you're not paying more to the IRS than you have to.

Jacob: 09:10

We always want to pay what we should pay, but we never want to leave them a tip. And so, we want to make sure that we plan for taxes in a few different ways. Number one, we want to make sure we do what's called asset location. So, if you have saved for retirement, perhaps you've saved in multiple account types. Maybe you've saved in a Roth account, such as a Roth four zero one ks or a Roth IRA.

Jacob: 09:30

Maybe you've saved into a traditional account, such as a traditional four zero one ks or a traditional IRA, but then also maybe you've saved into a brokerage account. All three of these different account types are taxed differently. They come with their benefits and their drawbacks, but they are just different. None of them are better than another on their own, but depending on your situation, you could use them to your advantage in different ways. So whenever I talk about asset location, here's really what I mean.

Jacob: 09:53

We wanna use the tax type of the account to our advantage whenever we invest in that account type. And so you probably wouldn't wanna have all three of these account types invested the exact same way. And here's why. Let's say you had, all of your fixed income assets in the taxable investment account. Now on its face, that doesn't really matter, right?

Jacob: 10:12

But if we dig deeper, what we can see is any income that those assets are producing for us, that is gonna be taxed as a normal income or a short term capital gain because of the investment type being a fixed income product, such as a bond or a CD or a treasury or some sort of money market is a cash based type of investment. Therefore, any income that's coming from that will be taxed as normal income. Now, if we flip that on the other side, and we say we have all stock or stock funds in that investment account, what's gonna happen is, is most of those dividends that are gonna be spit off of the holdings, that is gonna actually be at a qualified dividend rate or a long term capital gain rate. And so what you do is you get to pay a lower tax rate on that income and you have less income from those dividends from a stock than you would if you had income from a fixed income product such as a bond. So that's just one quick way to lower your tax bill by using that taxable investment account in that way, we can keep going down this road because what happens here is if we have a Roth IRA with money in it, we also probably don't want to have our fixed income products or our slow growth investments in that account because that one grows tax free.

Jacob: 11:20

That means we want to have the, what I call the growthiest investments in that one so that it grows more and builds up a larger tax free gain for us into the future. So that means that if we can, we'd love to have our fixed income or our bond funds in our tax deferred accounts, such as our IRA or our four zero one ks. It's still tax sheltered and those taxes are deferred into the future, which means we don't have to pay those income taxes on the gains or the income that it produces every single year like we would in the brokerage account. And also it is in a, is not in the Roth account, which is that tax free growth. So we wanna hold our stock funds or our individual stocks, whatever you're investing in, we wanna have that in the taxable investment account and the Roth account and leave all the short term, slower growth items or the slower growth investments to your tax deferred account.

Jacob: 12:04

So asset location is one way that we can start planning for taxes, but that's more about like right now this year. Another thing that we can do is think about taxes in the future and how do we lower your overall tax bill throughout the rest of your life, which is I think very important for your retirement plan. I've talked about this in many other episodes, things like the widow's tax strap, IRMA surcharges, social security taxation, all these things are important to lowering your taxes and how we manage that. One of the ways that we can do that is gonna be Roth conversions. And so, Roth conversions are essentially saying, wanna pay my tax now as opposed to sometime in the future whenever I'm forced to take that money out of my tax deferred accounts.

Jacob: 12:41

So, if the math makes sense, and it works out to where we can do that and do that efficiently, what that does is that helps you lower your lifetime tax bill throughout the rest of your life. And so, by doing this, you're gonna lower your social security taxation in the future perhaps, you're gonna perhaps avoid IRMA surcharges, and different things like that. So this falls into the fourth category that we're looking at in terms of our system, which is taxation. We wanna make sure we manage that, monitor that, and plan for those taxes accordingly to help you pay less than you otherwise have to. The fifth step in our system is estate planning.

Jacob: 13:14

Now, would say that estate planning is often forgotten or just kind of overlooked in terms of like, it's just not important enough to think about right now. And I would say that it's not important until you need it. And I've seen many family discrepancies or family disputes, and just kind of in fact, family splits over estate plans not being developed and everyone trying to figure out who gets what, and it's not fun to watch. And so, what I would say is to help your family avoid all the conflict and just avoid any sort turmoil or even waiting or spending a ton of money to get this done, create an estate plan for you and your spouse if you're married. And so, what that does is it helps name the beneficiaries as they need to be named.

Jacob: 13:54

It helps divide up the assets as you would like them to be divided. It helps you avoid probate if you can develop a trust, which I think you should. And so trusts are private. You can send your money to whoever you want whenever you pass away without anyone else knowing, as opposed to most people think if they have a will that I'm good. Well, wills are great and they're very helpful, but they also do have to go through probate, which means that that is a public knowledge thing at that point, meaning you have to go through the court system, which does take time and costs a lot of money.

Jacob: 14:21

And so, I would say that trusts are probably beneficial for 99% of the population, and so it does cost a little bit just upfront to do that, but it's worth the pain of doing that so that you can eliminate any future pain for your family members. So, estate planning is a big deal to us, and we wanna make sure that we do that well and do that right, but it doesn't have to be complicated. So, just know that that's the fifth step in our system, and I think that these steps or different ideas that I've talked about here, these are just the crucial parts of a retirement plan in general. You have to have a purpose. You gotta know where your income's gonna come from.

Jacob: 14:53

You gotta know how you should be investing your assets to help create that income. You need to know where your plan is for taxes. How are we gonna do Roth conversions? Are they even helpful or not? Are Are we gonna do any sort of asset location or manage our investments differently in each account type?

Jacob: 15:07

And then also finally, estate planning. We wanna make sure we have a plan for what happens to our money whenever we're not here anymore so that everyone else can benefit from that, whether it goes to a charity, goes to family, whatever it looks like, we wanna make sure that it is taken care of. So that's the system that we go through. And then next we kind of move into a monitoring and updating stage whenever every six months we're checking in, we're talking through all the different things that have changed or not changed. Hey, what do we need to update?

Jacob: 15:30

What looks like it's out of whack from an income standpoint? Do we need to increase something, decrease something? What about your investments? What needs to be changed there? So that's what I wanna share with you today.

Jacob: 15:39

Number one, I've launched my company, it's called River Tree Wealth. And then finally, I wanted to share with you our system and how we do planning. So hopefully you can use that to your advantage at least in some way. So thank you for tuning in to this week's episode of Retirement Answers. I look forward to getting back to you next week.

Jacob: 15:56

Hey, it's Jacob again, and I wanted to extend a quick offer to you. If you have a question and you would like to have it answered here on the show, please email me at jacobretirementanswers dot net. And I'd love to answer that question for you right here on the show. Also, wanted to remind you that nothing discussed in today's episode is meant to be financial, legal, or tax advice. Retirement Answers is for educational purposes only.

Jacob: 16:19

Thanks for tuning into this week's episode. I look forward to talking with you again next week.