Old Fashioned Values, Expert Knowledge, Genuine Understanding

Do you have an income plan?

Your life savings becomes much more important to you when you lose your earned income.  Consequently, how we draw income from our life savings is crucial to long-term success.  It is as crritical as how we invest our life savings.  Most retirees are drawing one or two major sources of income including Social Security.  However, if you need additional income, it has to come from your life savings and that puts tremendous pressure on the nest egg.

Brogan Financial uses a two-bucket system for retirees.  The first is the safe money you "live-on" and the second is the risk money you "leave-on."  We "leave-on" the second bucket because we are leaving it invested for a minimum of five years, and are not drawing income from this bucket.

With a proper balance of smart risk investments and safe money accounts, you should be able to maintain a certain withdrawal rate from your safe money bucket and not impact principal over time. You should also have the flexibility to increase distributions periodically to offset inflation.

Setting income amounts

While retirement is a time of life to be enjoyed, it is very important that retirees not draw too much from their life savings every year.  The amount will vary based on their needs, amount saved and risk tolerance.  However, the appropriate mix of investing and withdrawing is essential to maintain long-term financial support.  A retiree’s risk tolerance plays heavily into the amount the overall financial plan will allocate each year.

Tax efficient income

It is important for retirees to know that if we draw income out from the wrong place, it can have an adverse effect on our tax return.  Most retirees have two types of money.  One is IRA, 401(k), or other types of retirement account money.  The other is regular money that is not in a retirement account.

When you look at your retirement account balances, remember that you don't really own all that money because most, if not all of it, has never had income tax paid on it.  So, once you pay taxes, you actually keep only a chunk of it.  How you get the money out of that account is what determines how much income or how much money you get to keep.  Any dollar that we take out of our retirement account is fully taxable.

Understanding the tax implications of drawing out moneys from various accounts is important when we structure our income plan.  It could impact our federal income tax, the Tennessee Hall tax, and taxes on Social Security income.  Remember, money that shows up on our tax return could add to the taxes on our Social Security income.

Income in down markets

How you draw income when the market is down impacts long-term security.  You do not want to draw monthly income from accounts going up and down in value; in bad markets, you will compound your losses.

Therefore, it is essential to have safe monies to draw down through difficult markets.  This takes us back to the two-bucket system Brogan Financial uses for retirees.  The safe money you "live-on," and the risk money you "leave-on."

Contact the Brogan Financial office at 865.862.6800 for an appointment about your retirement income.