Capitalist Investor

Planning your Retirement Phases: Accumulative vs Distribution, Ep. 248

• Strategic Wealth Partners • Episode 248

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Welcome to this week's episode of the Capitalist Investor, "Planning your Retirement Phases: Accumulative vs Distribution." Join hosts Derek, Tony, and Luke, along with special guest VO, as they delve into the complexities of financial planning for retirement. From the intricacies of the accumulation and distribution phases to the impact of tax efficiency ladders and changing tax laws, our hosts lay out essential strategies for optimizing your retirement savings. Whether you're grappling with whether to choose traditional or Roth IRAs or trying to pinpoint your retirement number, this episode offers valuable insights to help you make informed decisions. Don't miss out on expert advice and forward-thinking discussions that can shape your financial future.

Hello and welcome to this week's episode of the Capitalist Investor. As always, you have me, diamond hands D, and the whole squad here. Tony the tiger, cool hand Luke. What's going on, guys? What's going on, man? Talking. Living the dream. Yeah. All right. We're talking, we're talking financial planning corner. Absolutely. Yeah, a little. So kind of the difference between the accumulation phase and the distribution phase. Phase, obviously a huge financial planning topic. And I think whenever you talk to anyone about investments or retirement planning or anything like this, you really see people's minds go just directly towards rate of return. You see it every single time. Often you see them compare that rate of return to what you can get at like a bank on a CD. Right. It always seems to happen. And all that stuff is super important. But kind of how you're investing, depending on where you are in life, is going to be a huge deal. And really it starts off with how you save, right? What different levels of the, you know, we call it the tax efficiency ladder. Where are you saving and how do you plan to pull that out in retirement? And kind of what, what is the tax impacts going to be on all of that? So what's more, what's harder, the accumulation or distribution? You need one or the other, right? Chicken before the egg accumulation. Obviously you need accumulation before you can talk distribution, right. It's very interesting. Like, you know, the mindset, and I know one of the topics today is once you have accumulated, how to then distribute it. But what's interesting is this, like mindset of the younger generations, they aren't even approaching the accumulation phase. Like, there is no accumulation phase that exists for a lot of people in today's world anymore. So it's interesting what's going to happen 30, 40 years down the road when there is no distribution. I know we don't want to talk too much about that, but something that's interesting is you can talk accumulation all you want, but if people aren't in the mindset of being disciplined enough to accumulate, what happens? And that's something I need to pay attention to the next 2030 years. But from a distribution standpoint, the tax efficiency side, I know one of the topics coming up here in the next episode I think is like Biden tax laws. What I'm interested in is what's going to happen. You save all this money into your iras, you get the tax deductions, you save all this money into the Roth IRAs. It's almost like we're at the point and maybe I'll talk more about this on the next episode. But we're almost at the point where, like, they're trying to change the rules of the game. Like, they're trying to go after your IRA money with RMD's, obviously. But like, Roth IRAs, are they gonna make you forced to take money out of your Roth IRAs eventually? Like, the rules change. That's why the things we talk about today, the things we've talked about ten years ago, it's different on a year to year basis because they're changing. The government is changing rules of the game, right? So we talked about there's accumulation and distribution, accumulations while you're working, you're saving your money, right? So I'm going to say that there's planning for both stages now. On the accumulation side, there is planning. Because I get the question all the time, Tony, I can contribute to my 401k. Do I do traditional or Roth? And I'm like, that's a good question, because you either pay the tax now or you pay the tax later. But I'll also go down one extra layer and say, I believe in Roth IrAs. But when you hit certain brackets, you know, like, I can't predict the future, but I can. I can see what's happening now, and I know how much money I can save if I saved it on a traditional level, and I'd want to try and knock down my income while I'm working. Because if you do do a good job saving, you should not be making as much in retirement as you were when you were working. And what I mean, I guess I don't want to call it making, you know, making as much. I'm saying, like spending on a net or gross level, because I might be making 300 grand when I'm working as a household, but when I retire, hey, everything's paid off. I have everything I need, and maybe I only need 80 grand, 100 grand, you know, and then I'm tying in Social Security, which is a form of, obviously, income. But you're, you may actually be in a lower tax bracket in retirement, so it's just something to think about. Not everyone qualifies. Not everyone's situation is different, but it's something that I think about. I'm like, man, I know what, I know what I can save now if I do traditional versus Roth, and I decide to do traditional right now, but then if you do have a lower income in retirement and you did save on the traditional side, maybe when you retired, there are opportunities to maximize Roth conversions. Again, it's kind of like, what situation are you in? How much are you saving? And I'll never tell you, like, hey, gotta do the traditional over the Roth. I will never say that because I can't predict the future. I don't know where taxes are necessarily going, but do you want to do a blend 50 50? Yeah, sure, go for it. But like, just keep in mind that you will get some type of, you know, what kind of taxes you're saving. Now, it is a micro view. It's not a macro view, but it's interesting. I always go back, I know we're from believers here of Napoleon Hill, a lot of his concepts, and I always go back to one of his main concepts is, is most people in life never start with a goal in mind. They kind of drift through life and just say, if I do this, if I do that, it's going to work out and that's all I need to do. But they start from the bottom up approach and they don't start from the goal approach of, hey, I'm identifying this goal, I'm going to figure out how to get to that goal. Right. And the point hill concept is, if you have that goal in mind, the path will develop itself some way, somehow down the road. All you need to do is come up with a goal in mind. And when it comes to retirement planning, you can just base that goal on what number do you need to make you happy in retirement? Off enough of income. Right. And everyone's different. Everyone has different lifestyles. Sometimes that number is a million dollars, sometimes it's 2 million, sometimes it's 5 million. Right. Especially if you're younger, twenties, thirties or forties, and you're still in your working years of accumulation phase. If you have that number in mind, then you can develop the right strategies to then get to that number. I know I have my number in mind, and I'm going to try to fit the right strategies in that number to get me there as quick as possible so I can eventually pull back. Yep. And you asked an interesting question there too, about what stage is harder, the accumulation or the distribution. Well, this is the financial planning corner. So without a plan, the accumulation phase is going to be very difficult. Right. Because you're just guessing. Right. Putting half of your 401k contributions into Roth and half into traditional seems to make sense. But does it actually. Right. Does it make sense on your situation? And what the plan really does is it shows us where to save. So that in retirement we kind of have an idea of what we need. We have an idea of what our lifestyle needs to be. And then we can basically predict what the taxes will look like based on the makeup of your portfolio. Yeah, maybe it's how my brain works. But I look at the accumulation phase like you're growing your business, your internal business, you're growing. The distribution phase is, okay, you're turning your business into a liquidity event, and now you need to live off of what you've done, growing that business. That's kind of the way I look at it. Because at the end of the day, all you're doing from an investment standpoint, your investment portfolio is really allocating that to businesses in some sort of way. Ownership and businesses. So you're, you're literally a business owner after you get the accumulation phase and you're, you know, you're a business owner, I guess, throughout it, but you're turning yourself into a business in some sort of way. You got to think like a business owner almost. Yeah. I mean, again, like we harp it almost every, every episode, but building a plan is just gonna have you understand, are you a saving enough when it is time for distribution time and accumulation, that, that nice blend. Like are you picking the right retirement age? Because if you pick the wrong age and you retire too early, it could be irreversible. You might not get your old job back making the same amount of money that you were. And then do you have healthy spending habits? Right. Just, you know, like do things are going to change and more as you get closer to retirement. Like I said, things might be getting paid off, you know, and that's. And then when you hit retirement, your budget's actually going to be lower. Like, cause, hey, now I don't have a mortgage payment. Who knows? It's possible, right? So again, the budget is the most important part. On the distribution side, are you spending too much money? Plan's going to tell you that. Accumulation side, are you saving enough money? Who cares about the actual bucket? Like, are you saving enough? Like, that's a, gets a key metric. So the plan is going to tell us that. And then is your vision of retirement doable? Can you should have you retired three years ago or do you have to work additional three years? Again, plan is going to help us determine that. So. All right, any other thoughts and wisdom out there, guys? Well, I just, I'll always throw out the 4% rule. I know it's not generally a rule to live by, but it's something I like to conceptually think about. It's like, okay, if I know I need$200,000 a year to live off of and be comfortable and not have to worry about much. How can I generate a portfolio that does that? Well, technically, in that number, you need $5 million, right? And that's not the thing is, I know today's world. You probably don't need that to live a very comfortable lifestyle. But the way I think about it is when I'm retiring 30 years down the road, I probably will need about $5 million to retire comfortably 30, 40 years down the road. And that's kind of like where I'm looking at. Like, what will I need conceptualized, adjusting for inflation, with a 4% rule to live off of comfortably down the road. And that's the way I think I approach, you know, conceptually, you know, having that goal in mind, that number. That's a very easy way to conceptualize that number. Yep, for sure. And it's never too early to start planning. So where you save your retirement assets to and how you plan to take them out, something you can take a look at at any age, right? So. Well, thanks, everyone, for listening this week. If you guys have any questions, comments, show ideas, hit us up at info Connect and we'll talk to you next time. The opinions expressed in the podcast are for general informational purposes only and are not intended to provide specific advice or recommendations for any investment, legal, financial, or tax strategy. It is only intended to provide education about the financial industry. Please consult a qualified professional about your individual needs.