Help Me Retire Podcast - Episode 20
- Mike Brown
- Jun 5
- 8 min read
Retirement's new three-legged stool
Show notes:
Looking back... what are the biggest regrets today’s retirees have about their decision to retire? And how can you learn from their mistakes?
The old retirement three-legged stool... Social Security... pensions... and savings... is all but gone... I’ll let you in on the new way people are thinking about getting income to pay their bills once they retire...
And I’ll tell you about a beautiful... cascading waterfall... that seems to come from nowhere... out in the middle of an Idaho desert... and the lessons it teaches us about investing...
That’s what’s on tap in this episode of... the Help Me Retire podcast...
This is the Help Me Retire Podcast… with your host… Mike Brown… Senior Wealth Advisor with Raymond James Financial Services… and head of Brown Family Wealth Advisors…
Mike is the best-selling author of Your Way to True Wealth: How to Make It Happen, Make It Last, and Make It Matter…
He and his team have been helping clients pursue their dreams of financial independence for the past 30 years… and in the Help Me Retire Podcast… he’ll share his best ideas with you…
And now… here’s Mike…
Some new developments that might change your thinking about retirement in today’s episode...
We begin with a new survey from the Transamerica Center for Retirement Studies...
They asked more than 24-hundred people who’ve been retired for a while... about what they regret about the way they went about it... and what they’d do differently if they got to retire all over again...
Here’s what the survey found...
Biggest regret... 76% of today’s retirees... wish they had saved more money while they were working... and saved it on a consistent basis...
68-percent wish they had been more knowledgeable about saving and investing for retirement...
Sounds like they should have been listening to this podcast...
50-percent would have liked more information and guidance from their employers... on how to prepare for retirement...
Next regret... 49-percent of retirees surveyed... say they simply waited too long to start thinking about retirement... especially when it comes to saving money and making it grow...
And the same percentage... 49-percent... say debt was one of the reasons they didn’t save as much money for retirement as they should have...
Here’s another study... this one from the Center for Retirement Research up in Michigan... about when married couples should file for Social Security benefits...
Essentially... the study concludes that the wealthier you and your spouse are... the more you’ll benefit from delaying your Social Security benefits...
This is especially true for so-called “traditional” couples where the husband is older... and makes more money... and the wife has a longer life expectancy...
The reasoning is... that the longer the husband delays Social Security... the larger the benefit his wife will receive... in the form of spousal benefits when the husband dies...
And here’s something we don’t often think about... the report notes that higher-income people... with more education... tend to live longer...
So, if that’s the case for you... if you have a higher income... if you’re a college graduate... and if you’ve taken good care of yourself all these years... then it probably makes sense to put off claiming Social Security benefits for as long as you can... especially if you’re the family breadwinner...
And here’s something we’re seeing... at big banks these days... that you ought to be aware of...
Bank branches are getting smaller... many big branches are closing or getting replaced by smaller... more efficient branches that cost less to operate...
And part of that push for efficiency... has led many big banks to get rid of safe deposit boxes...
Why? They take up a lot of space... they require extra security... and basically... they just don’t generate enough income to justify what it costs to keep them...
So, if you’re looking to open a safe deposit box... and can’t find one at the big banks... industry consultants suggest looking at credit unions... community banks... and regional bank chains...
Some of these are still offering safe deposit boxes... and using them to attract customers from big banks... and online competitors...
Whether you’re already retired... or you’re in the process of planning for it... you’ll need to think about where you’ll come up with the money you need to live on each month...
After World War Two… became popular to think about retirement as a “three-legged” stool…
First leg… Social Security benefits…
Second leg… employer pension plans…
Third leg… personal savings…
Well... the three-legged retirement stool of old... seems like a quaint notion these days…
Social Security...
For about half of married couples in the U-S... and 70% of single retirees... Social Security makes up at least half of their total income...
Around 12% of retirees rely Social Security for 90% or more of their income...
But the system faces serious fiscal challenges…
Likely that future benefits will be…
Less generous…
Taxed more…
And/or we’ll have to wait longer to qualify…
Pensions continue to be phased out…
The number of employees covered by traditional defined benefit pension plans has been declining for decades…
More than 80% of current retirees get pension income right now...
But only about a quarter of people still in the workforce will be getting a pension when they retire...
So... the Social Security leg... and the pension leg... look a little wobbly these days...
That leaves a whole lot of weight on the third leg of that retirement stool… they money we’ve saved and invested on our own…
And that’s causing financial and tax advisors to start looking at retirement in a different way now… and it has a lot more to do with how your retirement savings gets taxed… either when you put it in… or when you take it out…
Today’s three-legged retirement stool might look something like this…
First leg… is the tax-deferred leg…
401-k plans… traditional IRAs…
Typically contribute pre-tax… and your investments grow tax-deferred…
What that means is when you take money out in retirement… money that’s never been taxed… those contributions and matching contributions… all that money gets taxed… typically at ordinary income tax rates…
And don’t forget… at age 73… you’ll have to start taking required minimum distributions… every year…
Second leg… is now what we call... the tax-free leg…
Roth IRAs… Roth 401-ks…
No tax deduction when you put money in them… but they grow tax-deferred…
And when you take the money out in retirement… as long as you follow the rules… such as reaching age 59-and-a-half… and the five-year requirement for having a Roth IRA open…
All that money comes out tax-free… all your contributions… all the dividends… all the capital appreciation… all the compounding for all of those years... comes out to you tax-free…
Third leg… we’ll call the taxable leg…
Investment accounts that have no special tax advantages…
Contributions and withdrawals don’t enjoy any tax benefits…
Pay taxes on dividends… interest… and capital gains each year as you go along…
But beyond that... you won’t owe any tax on this leg when you decide to withdraw from it...
When it comes to paying your expenses in retirement… in a perfect world you’d have a good amount of money in each of these three legs… tax-deferred… tax-free… and taxable…
Withdrawals get taxed differently depending on where you take it…
We have no idea what tax brackets will look like in a few years… or when you retire… whenever that happens to be...
But the more money you have in each leg of this new three-legged retirement stool… the more flexibility you and your tax advisor will have when it comes to optimizing what you pay in taxes every year…
In lower-tax years, for example... your advisor may recommend taking more from your traditional IRA... especially if it won’t kick you into a higher tax bracket...
Also... by reducing the size of your traditional IRA... you’re also reducing the size of those distributions you’ll be required to make once you reach age 73...
And who knows? Tax rates could be higher by then...
In higher-tax years... when you’re trying to keep your taxable income lower... your advisor might recommend taking money from your taxable accounts... perhaps even from Roth IRAs if it makes sense in a particular year...
The goal... is to have more options... more flexibility in where your income comes from in retirement...
And the more money you have in EACH leg of the new three-legged retirement stool... the more options you’ll have...
And the more you could potentially save in taxes...
I’ve spent very little time in the state of Idaho... and I’ve never visited Box Canyon Springs...
But they say there’s a beautiful series of waterfalls there... right out in the middle of the desert...
Pure... cold... crystal clear water... that comes right out of the canyon walls... right out of nowhere it seems...
The water forms an oasis in the middle of the Idaho desert... flowing down into the Middle Snake River... creating gorgeous pools and springs along the way....
So where does all that water come from in the first place? Well, that’s what’s really interesting...
Well... miles away... are what they call the “lost rivers”... which provide fresh water for south-central Idaho farmers and ranchers... also a great place to fish for trout...
Those rivers eventually flow over what’s known as... the Craters of the Moon... which are these massive fields of porous lava... and all that water... mysteriously... slowly disappears into the earth...
And so begins a long, winding journey... the water seeps down into this volcanic... igneous rock known as basalt... which acts as nature’s perfect filter...
Eventually... this crystal-clear water comes bursting out from the sides of Box Canyon... seemingly out of nowhere... in the middle of the Idaho desert...
Do you know how long this journey takes? How long it takes this water to seep down into the earth... before it emerges as a series of beautiful waterfalls in the middle of the desert?
The answer... is... nearly... two... hundred... years...
That’s right... the water spewing from Box Canyon right now... probably started seeping into the earth before the Civil War...
More than half-a-century before Idaho became a state...
When John Quincy Adams was president...
And around the time your great... great... GREAT... grandparents were born...
If that doesn’t change your perspective on the passage of time... nothing will...
So, while you’re in this long-term frame of mind... before you get back to more pressing concerns like tariffs... recessions... and why you can’t find anything to watch tonight on Netflix...
Think about the money you have invested in stocks right now...
We’ve been through a rough patch lately... we’ve had a correction that might turn into something more serious... nobody knows...
We have corrections every couple of years on average... and bear markets seem to come along every five to seven...
In fact... if you’re 60-years old right now... born in the mid-1960s... you’ve seen NINE bear markets in your lifetime...
And yet... stock prices have recovered and reached new highs... every single time...
The S&P 500 is 65-times higher than it was on the day today’s 60-year-old was born... and the dividends those companies pay are more than 30-times higher... despite all those corrections and bear markets...
So, if today’s uncertainty has you rattled... if you’re really stressed about out all of today’s uncertainties... then do whatever it takes to put today’s headlines aside for a moment... and think about the longer term... find out where the S&P closed on the day YOU were born... and where stock prices might be on the day your great-great-great grandchild is born...
And maybe plan a trip to go see those gorgeous waterfalls... in the middle of the desert... in Idaho...
Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC.
Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Brown Family Wealth Advisors is not a registered broker/dealer and is independent of Raymond James Financial Services.
Any opinions are those of Mike Brown and Brown Family Wealth Advisors and not necessarily those of Raymond James. This material is being provided for informational purposes only and is not a recommendation. There is no guarantee that these statements or opinions will prove to be correct. Investing involves risk, and you may incur a profit or a loss regardless of the strategy selected. Past performance is not indicative of future results. Prior to making an investment decision, please consult with your financial advisor about your individual situation.
