In today’s podcast, we’re going to talk about three things that can help you make your money last in retirement. The first thing you need to do is you need to really be careful to make sure that you minimize any tax you need to pay. Now, all of us are going to have to pay taxes. Most of us have saved most of our retirement in an IRA or a 401(k) or a 403(b) or those kind of things that have been tax deferred. In other words, we didn’t pay the tax on them when the money was going in. As the money was growing through our lifetime, we didn’t pay the tax. Now we have to pay the tax as we begin to take that money out, particularly after 59 and a half as we go through retirement.

So one of the things you need to consider and minimize your taxes is maybe you need to do some Roth conversions. Very simply, and it’s more complicated than this, but if you’re in the middle of a tax bracket, and you’re always going to be in the middle of that tax bracket, why not take $20,000 or $30,000 or $40,000 more and harvest that out? Because that tax bracket through the years is probably going to go higher. Why not take some more money out, pay the tax on it, and convert that over into a Roth IRA, where you never pay the tax again? Not in your lifetime, not in your spouse’s lifetime, not in your heir’s lifetime. You never pay the tax again. So you really need to check out Roth conversions.

Now, some of the big box firms don’t do Roth conversions because once you take a certain amount of money and you pay the tax on it, they don’t get to bill you on as much. We do Roth conversions at our place because as a true fiduciary, it helps you to pay as little as you’re legally required to pay in taxes. Another thing you can do is you can strategize your withdrawals. If you’re bumping up to the very top of a tax bracket, maybe instead of taking money out of an IRA to go to Europe or to fix the motor home or to buy a new refrigerator and going into the next higher tax bracket, maybe what you need to do is take the money out of an after tax account that’s already been taxed in its basis and you’re only going to get taxed on the capital gains of whatever you pull out of there. Can save you a lot of money on taxes.

So tax efficient withdrawals are really important. In fact, if your total income is less than $96,000, you can take money out of an after tax account and suffer a little capital gain, and until you reach $96,000 of total taxable income, you’re paying 0% tax on those capital gains. That’s my favorite tax bracket. So when it comes to saving money in retirement, making sure your money goes as long as it can. You really got to be careful when it comes to taxes. Number two, another way you can make your money last in retirement, and don’t kill the messenger here, you might want to work a little longer. Pick up a little part-time work or sometimes full-time work. Sometimes people retire and they’re really bored with retirement, so they want to go back to work.

But more than that, most people just pick up a job. I know a lot of people who work at a home improvement store or they work doing something they like to do and they pick up a part-time job, and every dollar you make from that part-time job is $1 less that you have to take out of retirement account. So you might make your money last longer by working a part-time job. It’ll get you out of the house, it’ll get you some social interaction, it’ll get you out with other people. There’s all kind of things that happen. Statistics show that 43% of the people in their seventies are still working. So don’t think when you walk away from your job in retirement and you’re no longer working full-time that you’re done. You might want to work part-time.

Some of the people that we work with go back and they do consulting, and they may do that on a 1099, in other words, as an independent contractor to the company where they worked or they might even… I’ve got one guy who set up his own consulting firm. He’s making more money now in “retirement” than he ever did when he was actually working. So a part-time job doing some consulting. And then there may be some of you who are out there and you say, I’ve always wanted to do that. Okay, fulfill your dreams. How much time do you have left to do that? Go do what you want to do. And I call that passion work. Okay? Go do something you’re passionate about. I know one guy who retired from a school district here in Southern California and he’s working as an administrator in the church where we used to attend.

So do something you’re passionate about, but you may, in order to make your money last longer, want to work some part-time in retirement. The third way to make sure that your money lasts in retirement is be aware of this big cloud called inflation. It might rain on your party if you’re not careful. If you need $6,000 a month in Southern California, that’s not unusual where we live. Other parts of the country, it’s not unusual either. If you live 20 years in retirement at 3% inflation, just 3% inflation, instead of needing $72,000 a year, in that 20th year, you’re going to need right at $130,000 to buy the same amount of value that you did 20 years earlier for $6,000 per month. It’s really important that you consider inflation.

Now, let’s talk about pensions. A lot of people still have pensions, maybe one in six you still have pensions, but most of those pensions are flat or at the most, they have a 2% rise maximum on the cost of living rates. Well, eventually you’re going to get a little further behind and a little further behind over a period of years to inflation if you don’t stay up with inflation. You’re going to need more money in the future than you need now to buy the same amount of stuff. You have to consider inflation. Now, that’s where true financial planning comes in. Are we going to turn on a larger and a larger flow? Do we have a way of taking more money from other streams of income? I don’t know what illustration you like the best? Do we have other faucets that we can turn on down the road when we need them?

For those of you who are married, what happens when one of you passes away and you lose? Yes, it’s the lower social security, but you’re going to have to replace that income, let alone the inflation that’s going to continue every single year. So your income flow, is it going to stay up with inflation? The third really important thing you need to watch when it comes to making sure your money lasts throughout your retirement. So let’s recap three more ways to make sure your money lasts during retirement. Remember, the number one fear of people 58 years of age and older is running out of money in retirement.

Three more things we talked about today. Be careful for your taxes. They can steal your dream. You might want to work part-time. It’s really important that you consider that. And you better be aware of inflation. It’s been asleep for 40 years, but in the last two or three years, it woke back up and it’s making a big difference on retirement money. Now, these are just three of the things. There’s probably 37, if you understand what I’m saying, that need to go into a real retirement plan. If you want to check out the ones that we talked about in our last show, then check out Part 1 and you can go back and you can find those. And if you want to see, you say, what is in a real retirement plan? What does it address? Then check out our “How to Build a Retirement Plan” video and watch a whole show on what’s in a real retirement plan.

Hey, thanks for listening. I’m Tom Mosley. I promise you every week I’ll do my best if you’ll give me eight to 10 minutes to increase your financial knowledge. And if you liked what you’re learning today, like our channel and subscribe to it. And if you want to see how we work with our clients, go to our website and you’ll find all about us and some of our previous podcasts as well.