Baseline Retirement Income and Tax Planning | Create a Guaranteed Lifetime Income in Retirement

Baseline Planning:

Mark Elliot: Welcome back to the Retirement Income Show with Troy Sharp, the CEO, and founder of Oak Harvest Financial Group. You can always go to the website to learn more about Troy and the team. We just talked about Chris Paris, the Chief Investment Officer, but there’s a host of people, including Jessica Canella. All that information is on the website, oakharvestfg.com and of course, we talk about the 300-plus videos that are on the YouTube channel. Anything you can think about, financial world, retirement world, it’s a great way for you to do some pre-education on things you need to understand about retirement.

Just check out Troy Sharp and Oak Harvest on YouTube, there’s no cost to do so. Troy is breaking down the retirement success plan today on the program, and it starts with the investment plan, then the income plan, then the tax plan, health plan, and then the estate plan. Of course, social security, that’s in part of the income deal, Medicare that’s in the healthcare part but what if you’re going to retire before Medicare aids?

How are you going to handle that? Then the retirement success plan is always moving along with you because life is always happening so it adjusts as we move, markets go down and so forth. We’ve talked about the investment plan and risk management. Now Troy’s going to do us a quick, I think quicker than maybe planned income plan and tax plan breakdown a little bit so. Troy, you got it.

Troy Sharpe: I’m a big believer in a concept called baseline spending or baseline planning, and this ties into whether or not you have a pension when you take social security and if you choose to add some type of guaranteed lifetime income stream from an annuity. Now, the reason I’m a big fan of this is because, well, first let me explain what it is. Baseline income planning is setting a baseline of guaranteed lifetime income payment for you and your spouse, that covers your basic needs as long as you’re both alive, whether that’s 30,000 a year or 100,000 a year.

I’m a huge fan of whether it’s coming from social security, a combination of social security and a pension, or a combination of social security and an annuity or some combination thereof but those are fully guaranteed contractual for-life income payments and from my experience, working with thousands of people, there is nothing more secure than knowing you have 5,000 a month or 8,000 a month, whatever your number is, every single first of the month or third of the month, being deposited into your bank account.

It creates such freedom to live, to enjoy your savings without the fear of running out because even if everything goes haywire and you spend more of your other savings than you should have, or the market doesn’t perform as expected, you are still going to have as long as you and your spouse are alive, that number deposited into your bank account for the rest of your life. Now, does it all come from social security?

That’s the planning decision. Social security, and I hate when I see this, and I try to address it as much as possible, but too many people are advising you to take social security based on the math. I’m here to tell you, most of the decisions that we should be making in retirement should be based on what puts us into a more secure position. Because if you have income coming in, there is no retirement, first and foremost, without income. This is why income planning is such a critical component of the retirement success plan. The more security we have, and there are studies, this is not just my experience, the more happy we tend to be in our retirement. If we’re constantly worried about the market going up and the market going down and the volatility, and do I have enough?

I had a client once that had $4 million. He’s passed away since, but he would not spend $50 on a stake at the steakhouse. There’s few reasons he was like that. One, he was grew up parents to depression and it was instilled in him for many, many years. He was an aggressive investor and he was always concerned that the next market crash, or the next 9/11, or the next this, or the next that was going to happen, and his $4 million could turn into $1 million. If that happened, he would not have enough money to live the rest of his life. What I’m saying is one of the best ways I found to eliminate that big concern is to have a plan in place, an income strategy in place, through a combination of either social security, a pension, or an annuity.

Something that can give you a guaranteed lifetime income that creates a baseline of guaranteed monthly deposits as long as you and your spouse are alive. When you do that, what I’ve found from my experience is people, they get freed up to invest more aggressively if that’s their choice. They get freed up to spend more comfortably because they know if they spend too much, “Hey, I have this baseline that’s always going to be there for me.” I’m a big, big fan of that. Social security, when we make that decision, is not necessarily about the math. Yes, if you defer longer and live a long time, it’s going to provide you more income.

Let’s say you’re an aggressive investor and we’ve had a good bull run for two years in the market and we expect this year to be really good and you’re making 10%, 15%, 20% a year. Should you take money out of the market and defer social security when you’re only going to a 6% increase on your guaranteed lifetime income there? Well, possibly, but maybe not. How much do you have? What is your spending level? How much does deferring social security versus taking it, how does that interact with everything else in your entire plan? There are arguments for taking social security early. I have advised people to take social security earlier before, at 62 or when they retire at 64.

Sometimes we’ll have a spouse take it early and the other spouse take it later because of either health conditions or the amount of assets they have or the risk tolerance, and the individuality of each spouse. What I’m, big takeaway here is if you look at these choices in retirement as what provides me more security, what gives me more consistent income, guaranteed lifetime income, and if we take social security earlier, maybe we have a pension that’s deferring, that’s going to give us what we call a stacking concept, a guaranteed lifetime income that turns on at a later point. You can do this with a deferred income annuity as well, where if you think of a stair step, the first step is retirement and then five steps later is year five, where you have another guaranteed income triggering.

Then five steps later, when you’re 70, 72, you have another guaranteed income payment coming in. Your lifetime income payments start at 62, you have 4,000 a month, and then 67, you have 6,000 a month and then 72, you have 8,000 a month. That’s a stacking concept using guaranteed lifetime income strategies, whether it’s social security, different timing elections for each spouse using an annuity, incorporating a small portion of your life savings or retirement savings into a contractually guaranteed deferred income annuity or safe growth structure, or a pension.

Most pensions are going to turn on around 65 or when you retire but incorporating that decision, if you can focus on more security, not just the math, I find my experience working with thousands of people over the course of my career that more happiness is the result of that along with the ability to– It opens up more doors for the other monies, the other 500,000 you have, the other million you have, et cetera, et cetera. In addition to that, keep in mind dividend planning and interest planning. We want multiple streams of income for our clients in retirement. Are we looking at real estate, maybe publicly traded in the markets?

What portion of our public market portfolio is exposed to a non-correlated asset, which can also generate interest in dividends? The dividends that we’re investing in, are they dividend growth stocks? If we start out receiving $10,000 a year from our dividends or $25,000 a year, what is the expected or the historical performance of not the asset price, not the stock price, but the company’s history with providing dividend increases? Many people don’t understand this, but dividend growth stocks are a good way to keep up with inflation.

Now, they’re not guaranteed and companies can cut or not increase that dividend payment at any time, but through careful watching and monitoring and understanding the company’s financials, you can have a decent belief that the company is going to continue that dividend philosophy, especially if they stated so and cash flows are good.

Lots of stuff to look at from income planning perspective there. The tax side of things just for the past last couple of minutes here, just understand that we see day in and day out as people come to see us, when we do this tax analysis as part of the retirement success process, we sit down, we walk you through this, we’ll do this analysis for you. Then at some point, when we get to the tax part and you see that if you don’t do anything about taxes, we find oftentimes that it’s 300,000, 500,000 sometimes much more, sometimes it’s less but a tremendous amount of taxes that you could avoid paying by simply planning. Now you’re not avoiding them, you’re planning, which reduces the liability over time.

Give us a call, let’s sit down, let’s have this conversation. Oak Harvest Financial Group 1-800-822-6434, let’s walk you through this process. Let’s get you a retirement success plan, Oak Harvest Financial Group.

Operator: Investment advisory services offered through Oak Harvest Financial Group LLC, Oak Harvest Financial Group is an independent financial services firm that helps people create retirement strategies using a variety of insurance and investment products.

Investing involves risk, including the loss of principal, any references to protection benefits or lifetime income generally referred to fixed insurance products. never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Oak Harvest Financial Group LLC is not permitted to offer and no statement made during this show shall constitute tax or legal advice.

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