Beyond the Pension: Building Your Own Retirement Paycheck

Josh Bretl recently spent a weekend at a princess camping trip with his ten year old daughter, Maggie.

Between the rock climbing and the zip lining, he was reminded of a powerful lesson: you don’t remember the uncomfortable wooden bunk beds, but you do remember the conversations and the time spent together.

Retirement is much the same. While the “beds” of the financial world (the market volatility and economic reports) can feel uncomfortable, the goal of a great plan is to move past that discomfort so you can focus on the moments that truly matter.

Navigating the Economic Tipping Point

We are currently facing what many call an economic tipping point. The Federal Reserve recently released its Beige Report, highlighting widespread concerns across the country.

When global events send fuel and grocery prices higher, it is easy for consumer sentiment to pull back. However, Josh explains that a “wait and see” approach is rarely the right strategy for someone nearing retirement.

Timing the market is a fool’s errand because you have to be right twice: once when you get out and once when you get back in. If you are so nervous about short term events that you feel the need to overhaul your investments, it usually means you don’t have a holistic plan in place.

Building Your Own Retirement Paycheck

The retirement landscape has changed drastically since the days of our grandparents. In the early 1980s, the shift began from company provided pensions to personal savings like 401(k)s and IRAs.

This means the responsibility for producing income has shifted from the employer to the individual. As Josh’s dad always said, retirement planning is really just cashflow planning.

The challenge today is figuring out how to turn a lifetime of savings into a reliable monthly paycheck that lasts as long as you do.

The Strategy of Income Blending

One of the most effective tools for creating this personal pension is income blending. This requires understanding your three primary tax buckets:

• The Tax Me Now Bucket: Assets like CDs and mutual funds where you pay taxes on growth as it happens.
• The Tax Me Later Bucket: IRAs and 401(k)s that have yet to be taxed.
• The Tax Free Bucket: This is money, such as a Roth IRA, that can be pulled out without impacting your tax return.

By blending distributions from these different buckets, you can lower your recognized income and potentially reduce the taxes on your Social Security benefits.

Recent legislation, such as the 2017 Tax Cut and Jobs Act, has provided a unique window of historically low tax rates to implement these strategies.