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Episode #536 - Can I Do a Reverse Dollar-Cost Averaging For Withdrawals In Retirement?
Roger: The show is a proud member of the Retirement Podcast Network.
This is the show dedicated to helping you not just survive retirement, boring. No, but have confidence because you're doing the work to really lean in and rock it.
Hey there, Roger Whitney here. By day, I am a practicing retirement planner with over 30 years’ experience. I'm founder of Agile Retirement Management. By night, over the last 10 years, you and I have been on a journey of improving our skills in retirement planning so you can have the confidence to lean in and rock it and feel like you're going to be okay.
Now today on the show, we're going to be answering the question. Is it okay just to simply reverse dollar cost average in retirement from Chris? To answer that question, we're going to put our geek hat on just a little bit. In addition to that, we have an in the news update on IRS guidance related to the 10-year rule and inherited IRAs.
Plus, if that's not enough, we're going to be answering some of your questions, and as always, doing a smart sprint. Now, if you want links to some of the resources that we talk about on the show, so you can dive in a little bit further, sign up for our 6-Shot Saturday email. It's our weekly email where we send a summary of the show and links to resources, like the change in rules on inherited IRAs, so you can easily have access to those.
You can sign up for that at sixshotsaturday.com. With that, let's get on with the show.
PRACTICAL PLANNING SEGMENT WITH A LISTENER QUESTION
Our title question comes from Chris.
Chris asked,
"Is it okay to do reverse dollar cost averaging for withdrawals in retirement? I've not heard this addressed before and would love to hear your insight on this."
This is a great question, Chris, and this gets to the essence of why if you're consuming information on retirement planning or working with an advisor, you want somebody that focuses on retirement planning.
So, to get to your question, Chris, let's set the table and explain what dollar cost average is. Dollar cost averaging is essentially a systematic deposit or withdrawal from an investment. In a normal sequence.
As an example, let's say you're saving in a 401k for retirement. What are you doing? You have your paycheck that comes in, 10 percent comes out, that 10 percent goes into the 401k, and that gets invested in whatever investment selection you had, and that happens in whatever sequence of paycheck you have until you change it. That is dollar cost averaging.
What Chris is asking, can't we just do the reverse of that when we get to retirement? We've built up all this money. Can't I just systematically sell a certain amount to create my paycheck from my investments? Essentially do that in reverse. The answer, Chris, is it depends.
We're going to get deeper than that, though.
In Pillar 2, once you've cast how much you think you need to fulfill your vision, your spending, over your lifetime, you want to do a feasibility test. Account for the social capital that you have, pensions and social security, etc. Any human capital of part time work, and then the rest has to come from your financial capital. You have to assess; do I have enough resources to cover my lifetime spending? That's the essence of a feasibility test. When you do that test, you're going to be put into one of three boxes.
Box number one is you're underfunded, meaning given the assumptions of whatever feasibility test you're doing, we use Monte Carlo scenario for that, is that it doesn't look like you have enough resources to cover the lifetime spending in retirement. That's going to present you with choices to negotiate with yourself to get to a feasible plan if you want to have a safe trajectory.
Box number two, which is where a lot of people are, is constrained. Given the assumptions of the feasibility test, yeah, this should work. The possibility that you're going to have to make some adjustments along the way is pretty decent. You're going to have to be a little bit more agile to respond to bad markets or inflation or life circumstances. So, but it should work. That gives you a different set of choices of how you make that plan resilient.
Box three is you're overfunded, where the feasibility says, oh, it looks like you have more than enough assets to support the lifetime spending of your plan.
If you're in that box, systematic withdrawals, which is reverse dollar cost averaging, become a viable option for you to consider because you have so much excess resources if you have a bear market or spending shock, etc. It should be able to absorb that and not hurt the math of your systematic withdrawals or reverse dollar cost averaging.
If you're in the overfunded category, Chris, yeah, systematic withdrawals or reverse dollar cost averaging is something that you could consider. Whereas if you're constrained and definitely underfunded, it could be a recipe for disaster.
Now, why would that be? Let's look at some basic math, so I'm going to get my geek hat on here. I'm going to do a YouTube video on this that we'll have posted to our channel probably a week or so after this audio episode airs. Just so we can see the numbers, because that's always helpful. But let's just do some simple math.
Let's start with a single cash flow. We have a million dollars at the beginning, and I'm going to use a six-year return sequence of the S& P 500 index. I got this from Yahoo Finance. You can't invest in indexes, investments have risk, you could lose money, consult your advisor, all of that. So, we're going to start right at the beginning of the tech bubble burst, which was 2001. So, I'm going to give you the sequence of returns, okay? 2001, negative 13. 5 percent. 2002, negative 22. 25 percent. 2023, positive 27. 05 percent. 2004. Positive 10.02%, 2005, positive 5.88% in 2006, positive 14.17%. So that was the return sequence from 2001 to 2006.
If you had invested a million dollars at the beginning of 2001, at the end of 2006, you would've had $1,164,394. Lots of caveats here. We're just going to keep this as simple as we can. We don't need to make it complicated to illustrate the point. So that was a return sequence.
Now let's compare that. What happens if those returns happen in reverse? So, we start with the return of 2006, which was positive 14. 17, and then 2005, positive 5. 88 percent, and then so forth, and end with the bad markets of 2001 and 2000. Two, that million dollars, what would you have had at the end if you had reversed the sequence of return and didn't have those bad years at the beginning, but had them at the end? Well, the answer would be with a single cash flow, you have the exact same value because the math just works. You have the exact same value.
What happens if you introduce systematic cash flows in some way? I'm making some simplifying assumptions just to illustrate the point to help Chris see the math behind this. Well, let's assume you have the same million dollars at the beginning, but we introduce an annual cash flow of a contribution at the beginning of the year of 60, 000.
So, first sequence, 2001 to 2006, we go through the first bad two years of negative 13.5% and then negative 22.25% and so forth. At the end of those six years, the 1 million plus the six years of $60,000 a year, which $360,000 would be worth $1,605,614. Now, if we do it in reverse, and again, start with the good years up front and the bad years at the end, we end with 1, 464, 223. So about 10 percent less money if we reverse the order of the returns.
The reason is, you get better returns when you have less money invested. Whereas if you have your bad returns, At the beginning, you get more money working, so when the good returns come, you have more money to go up by whatever percentage the return sequence is.
So, dollar cost averaging, when you're contributing to funds, and you have a long time frame, it definitely works great when you have a long time frame, it's beneficial mathematically, to have more volatile investments that go up and down a lot and to have bad returns early because you don't have a lot of money invested early because you're contributing and then if you have the good returns later, you got a lot more money to go up to lift up. Over time, in theory, you will outperform your actual investment because of the sequence of how you're contributing.
Now, let's get to the essence of Chris's point of reversing the dollar cost averaging dynamic and taking money out systematically. So, let's start with a million dollars again. We're going to assume at the beginning of every year, we're taking 60, 000 out. That would be what, a 6 percent withdrawal rate, if we're going to talk in those terms. And in the first sequence, 2001 and 2, where we have the bad years and then on to 2026, the math starts to get a little scary, right? At the beginning of 2001, we take out our 60, 000 and then we lose 13. 5 percent of our money. At the end of 2001, that million minus the withdrawal, is worth 813, 100. So, our 6 percent withdrawal rate went to a 7. 4 percent withdrawal rate. At the end of that year, we take out our 60, 000, and then we go through 2022, where we lose 22. 25%, and our 800, 000 is gone. 13, 100 minus the second year's withdrawal is now worth 585, 535. Now, if we take our next year's withdrawal of 60, 000, we will go from a 6 percent withdrawal rate to a 10. 25 percent withdrawal rate. Well outside what we're able to do. Fast forward all the way down to 2026, our million dollars with our 360, 000 withdrawals are now worth 667, 173. Those bad years up front when we're doing reverse dollar cost averaging could destroy a retirement plan if you are not overfunded by a decent amount, you don't have enough buffer and all of a sudden you don't have enough resources to cover the expected spending. Go back to our Retirement Plan Live in January of 2023, Rosie.
Rosie started off with supposedly a feasible plan at the beginning of 2022 was taking out money systematically. Bear market happens, and by the end of 2022, when we met her, she had a constrained but feasible plan that was now underfunded. Part of that is the result of this reverse dollar cost averaging.
Now let's reverse the order of those return sequences. So, we start with the good years up front. and the bad years at the end. So, we go from 2026 to 2021. We start with a million dollars. We're taking out 60, 000. At the end of 2006, as the first-year return, we have over a million dollars even after we've taken out our 60, 000 because we earned 14. 17 percent. Our withdrawal rate actually goes down to 5. 6 percent. Next year, we take out at the beginning 60, 000. We earn 5. 88 percent. And our withdrawal ratio is about the same. We're about basically level 1, 072, 774. Next year, we will take out our 60, 000, and then we will earn 10%. And at the end of that year, 2004, the third return in this sequence, we have 1, 114, 254. Again, our withdrawal ratio actually goes down. It's 5. 4 percent now.
Fast forward to the end of 2001, that last year of return in this reverse sequence, we end with 808, 564. 7. 4 percent withdrawal ratio at the end of 2001, but about 17. 5 percent more money than in the first version of this withdrawal sequence where we had the bad years up front. It matters the sequence of return when you're doing dollar cost averaging, and we're not even inflating the 60, 000 for inflation, so we're losing purchasing value even in this simplified example.
The answer is, Chris, that yes, it does matter. Reverse dollar cost averaging can be a strategy if you are overfunded in retirement and have excess capital so you can absorb bad sequences early in retirement. That's one reason why you want to know where you are. Am I underfunded? Am I constrained? If so, how much? Or am I overfunded? You can pick more appropriate strategies to help make your plan resilient, and this is something that Rosie and her advisor didn't do in their example.
That's the basics of reverse dollar cost averaging. Not for everybody, but it's really important. One reason why we build a pie cake where we prefund the early years of retirement. Now, math is still math. If there are no adjustments, if we have really bad returns and there are no adjustments, even with the income floor, the math catches up to you. But the key here is you have so much liquidity. that gives you flexibility to adjust mitigate issues before they become big. That agility, the ability to be agile and make those adjustments from a state of power rather than necessity, is critical to rocking retirement.
IN THE NEWS
In the news today, last Tuesday, the IRS came out with guidance related to the rules around the 10-year rule for inherited IRAs. Back in 2019 with the passage of setting every community up for Retirement Enhancement Act. I love how they named these things. IRS changed the rules for inherited IRAs. It used to be that if you inherited an IRA from a non-spouse, you are required to take out required minimum distributions over your life expectancy. In 2019, they exempted all currently inherited IRAs, but anyone that passed after 2019, and the inheritor would have to deplete that inherited IRA within 10 years. I'm going to an article in planadvisor.com, which we will have a link to in our 6-Shot Saturday email so you can dive deeper down into this. So, when they passed that rule that said if you're inheriting an IRA and you're a non-beneficiary, you have 10 years to empty that account.
The public saw that as, well, we don't have to do it every single year. We could just take it all out at the end. The IRS didn't give a lot of clarity on whether they meant you had to do it every year, or you could just take it out whenever you wanted, as long as it was over the 10 years. Every year since, they've come out with forgiveness for those people that weren't taking it out on an annual basis in terms of penalties and back in February 2022, the IRS issued a proposal that would have required IRA owners to subject to the 10-year rule to take an RMD from the account each year until it was depleted. This caught everybody off guard because that's not how the rule was interpreted and nobody had any clarification.
Well, this is last Tuesday. The IRS notice said that the 10-year rule would not be required in 2024, adding relief that was already made for 2020, 2021, 2023, meaning that if you didn't take a required minimum distribution from an IRA that you inherited from a non-spouse that passed after 2019, you're not going to be subject to any penalties. Well, they extended that again for 2024.
The IRS in that notice also said that they expect to have final regulations. that will be issued saying that you do need to take it out every single year and they believe that those regulations will go into effect on or after January 1st, 2025.
Lastly, the IRS said once those regulations are final, which will require, it sounds like, annual withdrawals from an inherited IRA for somebody that was born after 2020 that was a non-beneficiary or non-spouse, That if you failed to take that required minimum distribution, there'll be an excise tax of 25 percent of the balance that should have been withdrawn, or 10 percent if the error is corrected within two years.
That was reported by Paul Mulholland. Very clear. So, the gist of this is, if you inherited an IRA from someone that passed before 2020, just keep doing what you're doing. You have those required minimum distributions that can be stretched over your lifetime. If you inherited an IRA from a non-spouse that passed after 2019, then, well, you are required to take annual distributions but if you didn't, they've waived the penalty for not doing that. But as soon as they pass these regulations, what supposedly will be in effect in 2025, then you will have to start doing it on an annual basis within the 10-year period. So, you're fine today if you didn't take a distribution for 2023 or 2024, it sounds like, and then once they get their act together and give us guidance, then we'll have to make sure we follow those rules and we'll try to have an update for you.
We have been down this rabbit hole with clients who have inherited IRAs and it's clear as mud so they just keep giving relief because they haven't quite figured out what the rules are going to be.
So, we're okay for 23 and 24 if you have not taken the required minimum distribution. With that, let's move on to answering some of your questions.
LISTENER QUESTIONS
Let's answer some of your questions to help you take a baby step on your journey to rocking retirement. If you have a question for the show, you can go to askroger.me and type in a question, leave an audio question. Just say hi, whatever you'd like, askroger.me.
WHAT SHOULD VICKY DO WITH THE PROCEEDS FROM THE SALE OF HER HOME?
Our first question comes from Vicky about what to do with proceeds.
Vicky says,
"I absolutely love your show and listen to it every week. I've learned more from you in the past year than 25 years with my financial advisor."
Wow, that's pretty cool. Good to hear, Vicky.
"I am 68, soon to be retired. My husband is 86 and collects a pension from IBM. We have social security. We have 300, 000 in a Roth IRA. We have 300, 000 in a retirement fund, like an IRA or 401k, 400, 000 in after tax investments. We are selling our primary home and moving to our second home in Florida. It is completely paid for and we just finished a major remodel in the Florida home. We should clear around 450, 000 from the sale of our primary home in South Carolina, they said.
What should we do with the money? Once we go on our dream vacation, there will be a large amount of money left. Now, one caveat is they have no children and her husband, who is 86, was single when he started his pension. It is a life only pension. So, that will go away when he passes."
I think that is a key element in the answer here, Vicky. As you approach what to do with this 450, 000 proceeds from the sale, obviously you're going to take some out for your dream vacation. Make sure your account for any capital gains tax on that, if there is any. So, you have that money set aside. So, you start to put those numbers as subtractions from the 450, 000.
In this case, I think the way to approach finding out what to do with that 450, 000 after those deductions is to start to build a plan for you, Vicky, because you're going to have this pension go away from IBM. I don't know how large that is. But I think it would be good to have a plan of what happens when your husband passes.
What does Vicky's life look like? What is the base great life cost for living in your home in Florida that's paid for? You got taxes, you have utilities, you have insurance, you have dining out, you have transportation, all those things that you just need to live the life of Vicky. Then you have some aspirational or discretionary spending of some trips, what have you.
Understand what those numbers are, Vicky, for you alone. Also, then you can start to add on to that, well, what income sources will I have when my husband passes? You're going to have your Social Security or Survivor Social Security. Doesn't sound like there's any other pensions involved. So that is going to help offset your base great life and some of your discretionary wants and whatever income sources are there, whatever that income doesn't cover is going to have to come from your Roth IRA, your retirement account, or your after-tax investments. Plus, these proceeds that you have to decide what to do with.
The other thing in this feasible plan, essentially, is what you need to create, Vicky, for Vicky alone, with the assumption that your husband passes today.
Let's just use that as the stress test. What does Vicky's life look like? Does she have enough money? Also, if there is any life insurance for your husband, factor that as an inflow. That will help cover the gap, if any. But we want to get to a feasibility test of what Vicky's life looks like, and that will help determine what to do with this 450, 000 that you have as proceeds.
Obviously, you want to use some of that for the two of you, and God willing, your husband lives a longer and happier, healthy life. But you're going to have potential healthcare expenses for him, but also for you. Then you're going to have you, statistically, on your own at some point. So, you want to build a feasible plan of record in the ways that we've talked about on the show, Vicky.
If you're using an advisor, lean on them to do this. This is their job. It's not about the investment part. It's about, is Vicky, okay? And that will help decide what to do with the 450, 000. Because there's only five things you can do with money.
You can pay off debt. Doesn't sound like you have any. You can spend it. Sounds like you're doing a bit of that on your dream vacation. You can give it away to charity. You can save it as cash, which might be the income floor or the cash reserves that you need for the next five years of spending, or you can invest it. But if you go through this process, the answer will become relatively self-evident. I would lean on your advisor to do this. And if this is not something that they do, I would argue you probably have the wrong advisor. Because they should be able to say, what does Vicky's life looks like once my husband passes, because it's statistically, that's where you're going to go. That's what I would focus on with these proceeds, so you have the reserves and that way you can have some confidence for the two of you to do stuff, but also what your life is going to look like afterwards.
Vicky, not next month, May, but June, we're doing another Retirement Plan Live, where we're going to walk through a very similar process and show how to do a feasibility test. You can check that out in June to see it done. That way you can maybe start taking this step and having your advisor do that as well.
WHAT TO DO WITH A 10-YEAR INHERITED IRA
Our next question comes from Steve related to inherited IRAs.
"I just started taking money from an inherited IRA that must be withdrawn by 2031."
So, it's under the 10-year rule. This person passed away after 2019.
"I am lucky in that I do not need all of that money on a monthly basis to pay for my best retirement life. I'm wondering what others on the RMD cycle of life are doing with excess funds, and what might you suggest doing from a pie cake perspective? I guess I can just fold it back into my brokerage account to pay taxes for my next Roth conversion.
Thanks for all the great information you guys share on a weekly basis."
Well, Steve, sorry for your loss. So, we just went over the five options you have with these funds, Steve, which is spend it, pay down debt, give it away, save it as cash, or invest it for the future. This money is going to have to come out.
Now for 2024, you don't have to take it out this year, at least we won't have the penalty on that. One nuance to that though, Steve, that you do want to consider, just because the IRS has given relief from the penalties over the last three years, and again this year, doesn't necessarily mean you don't want to.
All that's going to do is maintain more money in that inherited IRA that you're going to be, have to take out in larger chunks. between now and 2031, which might cause some downstream tax implications for you. It doesn't necessarily mean, Oh, great. I'll just forget it. Maybe it makes sense to take a little bit of money out of the inherited IRA this year, even though the IRS is going to forgive you on the penalty.
When you have that money that comes out of this inherited IRA, that will be taxable income. I'm not opposed to the idea of using that taxable income to create more taxable income via Roth conversions. Don't know your age here, Steve, but that could be a way of helping you avoid future required minimum distributions by getting some of that money out of IRAs or pretax funds. I'm not necessarily opposed to that. Just realize you're creating even more taxes for yourself, and there might be some downstream impacts in terms of IRMA, or in terms of ACA subsidies, etc.
Another option would be to use these required minimum distributions from the inherited IRA to help subsidize your life, which will allow you to maintain more assets in other accounts that you have, perhaps an after-tax asset, a Roth asset, or an IRA, in order to let those monies continue to grow, and that might change the allocation there, from a pie cake perspective.
Because the key from a pie cake perspective, or an allocation perspective, Steve, is we just want to make sure that We have at least five years of visibility unless you're massively overfunded, so you have prefunded the next five years of money you need from your investment assets. That can come from the inherited IRA. So, you can leave the rest of the money or more of the money in other accounts invested. So, you could just use the inherited IRA money to pay for life and keep the rest of the money invested longer.
I do like the option, assuming that you have a highly feasible plan to explore Roth conversions because that seems like a nice gift you can give to yourself downstream, but I don't have enough information, but I think you're along the right track.
My suggestion would be just thinking through it in an orderly way, and usually these answers become much more apparent.
WHAT IS THE BEST WAY TO FUND BUCKET ONE TO PREP FOR RETIREMENT?
Our next question is on the resilient pillar from John and Donna and echoes a little bit of what we've talked about already, but I think it's good to go through this again. The reason is, and I'm going to go back to a James Clear quote who wrote Atomic Habits, great book, a quote from him that relates to why I think it's good to go through this in a consistent way.
"The only way to become excellent is to be endlessly fascinated by doing the same thing over and over, and I think you have to fall in love with boredom."
-James Clear
A process, a really sound process, which we work at developing and have been for decades. It can seem like it's boring and you always want to try something new because it seems boring, but it's not. That's how you build a mastery journey. That's why this is so important.
John and Betty, they said,
"We're longtime listeners, now part of the RRC, love your podcast. My wife and I discuss every episode over dinner and walks."
Wow. That's exciting. Exciting."
My wife Donna is 55. I am 60. We plan on retiring July 1st, 2026. So, two and a half years. Have significant money in pre, post, and Roth accounts. About 1. 6 million. Invested 80/20 stocks to equities. We both are going to have a pension. I'm receiving a lump sum of about 163, 000 that's going to go into a tax deferred account. We have an accumulation of personal sick leave of about 60, 000. Have an emergency fund."
They provided a lot of financial details. I appreciate the trust. I can't talk to you specifically and review it all, but I appreciate that. Please don't send us your statements. We've had people send us statements and network statements. That's personal information. I'm just a dude on a podcast.
"We are trying to get ahead of things as much as possible.
One task we have on our list in preparing for retirement is to start constructing our bucket number one, which is that first five years of expenses needed. We know what we need for the first five years. If we back out all of our income sources, we're going to need about 350, 000 in that five-year income floor to cover the gap that our income isn't going to cover.
We're currently matching out our 401k, contributing about 18, 000 to our after-tax Roth. We can occasionally contribute to Roth accounts depending on our AGI. The problem is we don't know how best to fund bucket number one. Can we divert the money from our mortgage once the house is paid off? Which is about a year and a half. That would be about 25, 000 a year. We are so confused.
Could you please help us with some best practices related to this?"
So, this is the process, right? They've gone through, obviously they're going through the master class because they have outlined what their base great life is. They know those numbers.
They know the income. They know their resources, they've identified the gap, and to fill this bucket number one, income floor, is about 350, 000. So, they've done a lot of work, John and Donna.
First off, John and Donna assess how funded you are for retirement. Are you overfunded using your feasibility analysis, using the tool that's in the masterclass? If you're massively overfunded or significantly overfunded, you do have the choice of not having five years of an income floor because you have enough margin in the plan that you don't need that much safety.
Another consideration there, I think, John and Donna, is that you have significant guaranteed income sources, and it sounds like they are adjusted for inflation as well, and you may have social security that kicks in later. So, the fact that you have significant guaranteed income, adjusted for inflation, possibly social security later on, and you have financial assets, you may not need to have five years.
You may have the choice of lowering that to two or three years, as long as you're managing this in an agile way and iterating on your plan and looking forward. Just the fact that you're planning probably means that's what Likely. Okay, so don't feel the pressure to have the five years, that $350,000 there all at once.
In fact, you're still two and a half years away, so you could start by just trying to get to half of that. Don't put so much pressure on yourself. It sounds like you have multiple pathways in a plan that is already feasible and relatively resilient with the guaranteed income flows.
Now that said, if you wanted to start building more cash reserves, how do you do it?
I do agree redirecting the mortgage payment once that's paid off towards cash reserves, I think is a good option.
Number two, I think it's a reasonable option to consider slowing down your investments in your 401k, 403b, or 457 so you can build up more after-tax cash because that is definitely where you are light if you were to look at your balance sheet.
Even if you decide not to use that for the income floor, that bucket one, it will help give you more options later down the road. I don't know your tax situation, but that is an area that you can start to slow down if you're saving, especially on a pretax basis. Because of the benefit of pretax savings, obviously the tax benefit today, but is the deferral over a long period of time.
Well, if you don't have much in after tax assets, in two and a half years from now or three years from now, you're going to have to start touching or drawing from your pretax assets, sort of a moot point there. So, you could consider slowing that down as well.
Then lastly, it is okay to have some of your income floor in your pretax assets or even your tax free assets for that matter.
So as an example, Donna, in this case, it's probably going to be John who's 60. As you're building out your pie cake or your allocation to make a resilient plan, it's okay to start reallocating his account for that 350, 000 or some portion of that money with the intent that you'll be drawing from that account at some point in the future.
It doesn't have to be from after tax dollars. The intent of the exercise is to have clarity of how you're going to pay for life, In the near midterm and to give yourself flexibility to adjust as your needs change or your circumstance or preferences change. That's the intent. Whether you fund that by slowing down your 401k or reallocating John's accounts because he can draw without penalty.
Any of those tactics are reasonable. Even the tactic of not having five years but lowering it because you know your plan is overfunded or highly resilient just because of the guaranteed cash flows. Any of those are okay. Virtually none of those, and this is an important point, are one-way decisions. Meaning that as soon as you make that decision, you can't undo it. They're two-way decisions.
The key here, John and Donna, is just to decide one that feels right for you today. Whether that's slowing your 401k contributions, whether that's reallocating your 401k or John's 401k, or saying we're fine just building up three years by reallocating someone's 401k, any of those are fine.
They will give you the resilience that you need, so you can have confidence and then you can adjust this as you walk this journey. So, it's okay to be confused. We're all confused. That's human condition. But I think any of those pathways are reasonable with the facts that you gave us.
A TOPIC SUGGESTION
Our last comment comes from Paul on a topic suggestion.
"Hey Roger, I try to listen to your podcast each week.
As a suggestion, I would like to hear from retirees that are at least 70 years old and have been retired for at least five years. A common premise for each program would be the retiree's impression of their most recent 10 years.
Topic number one from their perspective could be, I wish I had done in the last decade.
Topic number two would be, what I wish I would have known or understood in the last two decades."
Love that idea, Paul. If you are 70 years old or, and, have been retired for five or 10 years, we're going to loosen that up a little bit, and you are willing to share your perspective. Go to askroger.me and send me a note. We can have a chat about doing a listener profile together from somebody that has been retired for at least five years.
Love that idea, Paul. We're going to see if we have anybody that raises their hands to have a conversation with me where we can share their perspective. With that, let's go set a smart sprint.
TODAY’S SMART SPRINT SEGMENT
On your marks, get set,
and we're off to set a little baby step we can take in the next 7 days to not just rock retirement, but rock life.
Alright, in the next 7 days. I want you to evaluate the resilience of your plan. Have you paid attention to the markets, the equity markets? Been a little choppy here recently, but they're pretty high. Markets have been very, very good to us.
This is the time to scrape a little cream off. You've had a good run in the markets. and build your resilient plan. Build some cash reserves to pre fund the next three, four, five, maybe six, seven, eight years of your expected spending from your financial assets.
Markets have been good. If you reallocate to rebuild that income floor or pie cake, you’re going to earn relatively good interest on those funds, via treasuries or CDs or whatever you decide to build that ladder with, and you'll still have money invested in the markets and you'll have, most importantly, clarity on how you're going to pay for life in the near midterm.
This is the time to take a little bit off the table and get a resilient plan before we go through normal market cycles.
CONCLUSION
Thanks for hanging out with me this week. I hope you're enjoying springtime wherever you're at. As always, we're dedicated to focusing on helping you take little baby steps towards rocking retirement. We're not going to talk about products. We're going to try to stay as curious and open minded as we can, because to be honest with you, I am working on my craft via this podcast, so I want to look at things with fresh eyes always.
I appreciate you. being on this journey with me.
The opinions voiced in this podcast are for general information only and not intended to provide specific advice or recommendations for any individual. All performance references are historical and do not guarantee future results. All indices are unmanaged and cannot be invested in directly. Make sure you consult your legal, tax, or financial advisor before making any decisions.