What’s the difference between an income plan and a withdrawal plan, or is there even a difference at all? If you’re not sure, you’re gonna be surprised by the answer because today we’re gonna spend some time talking about why many retirees think that they have an income plan when in reality they simply have a withdrawal plan, and why understanding the difference can dramatically impact the quality and stability of your retirement.

I’m Anthony Saccaro. Thank you for joining us for today’s Providence Financial Retirement show where it truly is all about the income. We are your retirement income source, and this is the place where retirees come for income. Really glad that you’re here, and not only are we going to talk about the difference between an income strategy and a withdrawal strategy, but we’re also going to talk about the components of what makes up a good income strategy.

You might have an income strategy, but it may not be enough. And of course, we’re gonna take your listener questions along the way, as we’ve had some really good questions about this topic as well. So I’m glad that you’re here. I’m glad that you’ve decided to join us today.

Many retirees are told by their financial advisors about the rule of four percent. They basically say all you need to do is you can just withdraw four percent a year from your portfolio and you’re going to be okay. And the reason that they say that is because the market generally averages eight to ten percent a year. And logically speaking, if the market averages eight to ten percent a year and you’re only taking out four percent, you’re gonna be just fine.

But that’s really very misleading because averages themselves can be misleading. Consider this silly analogy. Imagine sitting down in a chair and having one foot in a bucket of ice water and the other foot in a bucket of boiling water. On average, you’re probably gonna feel pretty good, right? But we know that that’s not true because one foot’s gonna be frozen and the other one’s gonna be burning.

Well, the same thing is true of the stock market. The fact that it averages eight to ten percent a year over a thirty or forty-year time period simply means that there are some decades where the market averages no growth at all, followed by some decades where the market might average fifteen to twenty percent. And on average, this means that market averages eight to ten percent a year.

Very true statement. If you happen to be retiring into a decade where the market is averaging fifteen to twenty percent per year, then you’re gonna be just fine. But what if you retire in a decade where the market is going to average zero? There’s gonna be a lot of ups and downs, but what if these ups and downs are washing each other out and there is no growth in the market for that decade-long time period? If you’re making withdrawals of four percent during this time period, then you could be putting yourself in a situation to where you really do have to worry about running out of money before you run out of life later down the road.

And that’s where understanding the difference between an income strategy and a withdrawal strategy really starts to unfold. If you have a withdrawal strategy, which is what most of you have, you’re selling shares, you’re selling principal to get the income you need. And no matter how you slice it and dice it, you’re cannibalizing your principal.

And in those good decades, the rest of your principal grows enough to offset the value of the principal that you had to sell. But in a bad decade, a decade where there’s no growth at all, when you’re selling your principal, that’s coming purely out of your principal. It’s coming out of your portfolio, and you’re decreasing the value of your portfolio every time you make a withdrawal.

And that’s a withdrawal strategy. On the other hand, when you have an income strategy, a good income strategy should be focused on interest and dividend. It’s important to understand that when you spend interest and dividend, it doesn’t affect your principal. You don’t have to sell shares, you don’t have to cannibalize your principal to live off interest and dividends.

Interest and dividends are a renewable resource, and if you spend them this year, they’re gonna be back again next year. It’s almost like the difference between having a wood-burning stove or having solar power. If you have a wood-burning stove, then you’ve gotta chop wood and put the wood in the stove to heat your place. And as soon as you’re out of wood, then you’re not gonna have any more heat.

But if you have a solar panel, you never have to worry about running out of wood because it doesn’t use wood. Unless the sun goes out, you’re always going to have energy. And that’s the difference between having a withdrawal strategy, where you’re essentially chopping wood and hoping you die before the wood runs out, as compared to having a strategy that allows you to live off your interest and dividends, which would be analogous to having a solar panel.

If you have a withdrawal strategy, you might very well have to worry about running out of money before you run out of life. But if you have an income strategy focused on interest and dividends, that worry goes away. And that’s why here on the Providence Financial Retirement Show, we often talk about investing for interest and dividends, so you don’t have to worry about running out of money before you run out of life.

If this concept makes sense and you just wanna learn more about it, we’ve put together an animated video just for you that talks about the concept of investing for interest and dividend. You just have to give us your email address and we’ll email it right on over. To do that, just go to providencefinancialradio.com/video. Again, it’s providencefinancialradio.com/video. Leave us your information and your email address and we’ll get that video on over shortly. You’ll be able to watch it, and you’ll learn about the difference between a withdrawal strategy and a true income strategy.

To claim your free animated video, just go to providencefinancialradio.com/video and we’ll get it right out. You’ll have it shortly.

I’m Anthony Saccaro. Thank you for being with us today here for the Providence Financial Retirement Show. We’re spending our time together today talking about the difference between having a withdrawal strategy and having an income strategy. A withdrawal strategy, in short, says that you’re selling principal to get your income, whereas an income strategy allows you to get your income through interest and dividends without any impact on your principal at all.

We’ve already discussed the fact that many retirees and many advisors believe that because the market averages eight to ten percent a year, if you’re simply withdrawing four or five percent a year from your portfolio, you’re gonna be just fine. And on the surface, that looks good, but when you really dig underneath, there are some dramatic problems with that.

And one of the problems is what’s called sequence of returns risk. In short, what that really means is that the sequence of the returns that you get are gonna have a significant impact as to how much money you’re going to have at the end. If you wind up having a couple of bad years at the beginning of retirement when you start making withdrawals from your portfolio, that’s gonna have a much greater impact on the rest of your retirement than if those bad years occurred at the end of your retirement.

That’s what’s called sequence of returns, and that’s a risk that is not often discussed. And I wanna give you an example. And this is a real-life example using real numbers from the past. Let’s assume that you retired in the year two thousand, and let’s also assume that you had a million dollars when you retired, and all you were doing was taking out five percent a year from your portfolio. That’s fifty thousand dollars a year. Let’s also assume that you did that for twenty-two years. In that scenario, your portfolio at the end of twenty-two years would only be worth three hundred and thirty-seven thousand dollars. That means that if you retired at sixty-five, here you are eighty-seven years old, and you only have three hundred and thirty-seven thousand dollars left.

You don’t have a million bucks. You might have another decade or more of life ahead of you, but two-thirds of your portfolio is gone. The reason is because of the sequence of those returns. When you look at the time period in the stock market from two thousand to two thousand twenty-two, what you’ll notice is that the first three years were really bad. They were all negative in the stock market, and that was a time period where we had the tech crash. In the year two thousand, the stock market dropped by nine point one percent. Two thousand one, the market dropped by eleven point nine percent, and in two thousand two, the market dropped by twenty-two point one percent.

You add those all together, and that’s around a forty-four percent drop over a three-year time period. And because they happened early in retirement, it resulted in you cannibalizing your principal by sixty-five percent over the twenty-two-year period, and your million dollars would have turned into three hundred and thirty-seven thousand dollars because of the first three years were really bad.

What you’re gonna be surprised to learn, though, is the difference in result if all you did was change the order of returns. If we just took that 2000 to 2022 year time period and we flipped the order of returns, meaning that instead of the first three years being really bad, the last three years would be really bad, what would be the difference in the result?

Well, the difference is dramatic. If that were to happen, you still are invested in the same time period, you still start with a million dollars, you’re still taking $50,000 out a year, but all we did was reverse the order of when those bad years happened. Your portfolio at the end of that 22 years would be worth more than $2.1 million. That’s about a $1.8 million difference, and only for one reason and one reason only, and that is you flipped the returns and when they occurred. That’s called sequence of returns risk, and it’s a risk that very few retirees ever consider.

But this is exactly where being focused on interest and dividends comes into play. If you’re living on interest and dividends and you’re not having to sell your portfolio, your principal, to get the income you need, then it doesn’t matter what the sequence of returns are because you’re not having to cannibalize your principal in order to get your income. That entire sequence of return risk goes away because you’re living on interest and dividends.

And the result of that is you’re gonna have the peace of mind that you deserve in retirement because you’re never gonna have to wonder whether or not you’re going to run out of money. If you’re living on interest and dividends, you can’t run out of money before you run out of life.

If you’d like to learn more about that, well, in chapter five of my book, More Life Than Money, I wrote extensively about that difference between investing for interest and dividends or investing for growth. I wanna send you More Life Than Money absolutely free of charge. You just have to let us know you want it, and you can do that by going to providencefinancialradio.com/book. Again, it’s providencefinancialradio.com/book. Leave us your information, and in a few days, a brand-new hardcover copy of More Life Than Money will show right up on your doorstep absolutely free of charge, no cost, no obligation.

To claim your free copy of More Life Than Money, go to providencefinancialradio.com/book and you’ll have it in a few days.

Thank you for continuing to stay with us. You’re listening to the Providence Financial Retirement Show. My name is Anthony Saccaro. We’re talking about the difference between an income strategy and a withdrawal strategy. We’ve already covered the fact that an income strategy allows you to live off of interest and dividends with no impact on your principal. Whereas a withdrawal strategy is forcing you to sell your principal in order to get the income that you need every year.

We’ve already discussed why an income strategy using interest and dividends makes a lot more sense than a withdrawal strategy. There is something that we need to talk about, though, when it comes to your retirement, and that is an assumption that I know a lot of you are making, and that’s this: your taxes are gonna be lower in retirement than they are when you’re working. And that’s an assumption, and I will tell you point blank that that assumption is most of the times false.

I’ve been a retirement advisor for well over a quarter of a century, and I could tell you that less than a handful of times is that really actually true. Most of the times, taxes in retirement are just as much as when you’re working, and sometimes taxes in retirement are even more than when you were working.

And that might catch a lot of you off guard, but it’s really true. When you’re working, you have a lot of deductions that you don’t have in retirement. You might have a mortgage interest deduction, but if you’re retired and your mortgage is paid off, that deduction goes away. You might have a deduction for your kids, but when your kids are grown up, that deduction goes away.

And now you’re also getting Social Security when you’re retired, and you’re gonna be paying tax on that as well. And when you’re retired, you’re also gonna be collecting Social Security, and you’re gonna be paying tax on that as well, and that’s a tax that you never had when you were working. In a nutshell, taxes in retirement are often the same or higher than they were when you were working, even though most of you think the opposite.

There are also a couple of taxes that are specific to retirees that you never even had to worry about when you were working. One of those taxes has to do with the amount of your Medicare Part B premiums. The more you make, the more you’re gonna have to pay for Medicare Part B. Right now, the lowest amount for Medicare Part B is a hundred and seventy-one dollars. But if you make too much money, you might have to pay well over six hundred dollars a person for Medicare Part B. Of course, you didn’t have to worry about that while you were working.

Another consideration is required minimum distributions. If you’re like most retirees, you’ve done a great job of saving, and a lot of that money is in pre-tax retirement accounts. The government doesn’t want you to save pre-tax forever, so at seventy-three years old, they’re gonna force you to start taking required minimum distributions. Those are gonna be withdrawals that are gonna be forced to be taken from your retirement account, and those withdrawals are gonna be added as income on your income tax return, and you’re gonna have to pay tax on that.

This may mean that you may have to pay more Medicare Part B premiums. This also may even put you into a higher tax bracket. And again, that’s a tax that you never had to worry about when you were working. And that’s why I say that many of you are actually gonna wind up paying the same or even more tax in retirement than you were while you were working.

And I’m sure that that’s a new thought to some of you, that retirement can actually be more expensive from a tax point of view than your working years. How do you solve that problem though? How do you make sure that you’re being as tax efficient as possible? Well, there are a lot of ways to do that, but it all boils down to you being proactive instead of being reactive.

And that’s exactly why we put together an animated video that talks about proactive tax saving strategies that you’re going to wanna watch. It’s animated, so it’s really fun, and it’s only seven or eight minutes, but in that time you’re gonna learn about seven different proactive strategies that you can use to lower your taxes, or at least make sure that you don’t get bombarded with taxes when you’re in retirement.

We’re gonna email this video to you absolutely free of charge, and I know you’re gonna wanna watch it. To get this free video, all you need to do is go to providencefinancialradio.com/video. Again, it’s providencefinancialradio.com/video. Leave us your email address and your information and you’ll have this video show up in your inbox shortly. All you gotta do is press play, and I know you’re gonna enjoy the information that you’re gonna learn about how to be proactive with your taxes instead of just reacting to whatever taxes come your direction.

To claim your free video, one more time, just go to providencefinancialradio.com/video and we’ll get it right out. You’re gonna really love watching it.

I’m Anthony Saccaro. Thank you for being with us today, wherever you might be, whether you’re driving or whether you’re listening to this on our podcast, which is available to everyone at providencefinancialpodcast.com. You’re tuned into the Providence Financial Retirement Show, and we’re spending our time today talking about the difference between an income strategy and a withdrawal strategy.

And more specifically, we’re talking right now about taxes and why it is that taxes in retirement might actually be higher than you thought, and higher than even when you were working, which is contrary to what most people believe.

And Karen from Mission Viejo wrote in a question that ties in perfectly to our conversation, and she wrote in this: “Anthony, my husband and I are both 66 years old, and most of our retirement savings are in traditional IRAs and 401Ks. We’ve always assumed we would be in a lower tax bracket in retirement, but now we’re hearing people talk about a retirement tax time bomb. Should we actually be worried about taxes increasing later?”

Well, thank you Karen, for taking time to write in that question, and it’s probably a good time to remind you that if you have a question for me or the Providence Financial Retirement Show, you can ask that question by going to providencefinancialradio.com. Just click on the Ask a Question button and type in your question. Maybe we’ll get a chance to answer it in a future episode, just like we’re now gonna answer Karen’s question.

The question is should we have to worry about taxes later because Karen and her husband have all their money in pre-tax retirement accounts? The answer is yes, you should have to worry about taxes later for a couple of reasons. The first thing that I wanna point out is when you put money into these tax-deferred retirement accounts, they are tax-deferred, they’re not tax-free. All you’re really doing is deferring when you have to pay the tax.

When you put money into a tax-deferred retirement account, like an IRA or 401, you save taxes in the year that you put the money in, but it’s going to increase your taxable income later down the road when the government forces you to take money out. The IRS doesn’t want you to leave that money in there forever. It’s called a retirement account for a reason, and that is that they want you to use it in retirement, and if you don’t need it and you don’t wanna use it, they’re going to force you to start taking it out anyway through required minimum distributions.

It’s their way of knowing that eventually they’re gonna collect taxes, and if you’ve put all your money in retirement accounts, then the larger your retirement accounts grow, the more taxes you’re going to owe down the road. It’s tax-deferred, not tax-free.

You’re probably wondering, then, if there’s anything you can do about it, and Karen, in your situation, the answer is a resounding yes. Because you and your husband are only 66 years old, you have the ability to do some things before required minimum distributions kick in, and one of the things you can do is Roth conversions.

When you do a Roth conversion, what you’re doing is you’re transferring money from your pre-tax retirement account into a Roth IRA. When you make that transfer, you’re going to pay tax on the amount that you transfer, but whatever amount you transfer to the Roth IRA is gonna stay in that Roth IRA and grow tax-free forever.

There’s a couple of immediate benefits for doing that. The first benefit is that you’re gonna pay taxes now at a lower tax rate. Right now, taxes are lower than they’ve been in decades, and we know that over time, taxes are gonna go up. So when you do a conversion today, you’re gonna pay tax on that money at the lower rate, and yet if you don’t do that, then who knows what amount of tax you’re gonna pay later.

And that’s one advantage, is you’re gonna pay the taxes right now when you know what the rate is. A second advantage, though, is that required minimum distributions are never required for Roth IRAs during your lifetime. The implication of this is that when you turn 73 years old, your required minimum distributions are gonna have gone down because you were smart enough to do conversions along the way, and the money that you converted is not subject to RMDs.

So it’s gonna give you a lot more control of your taxes down the road when you become required minimum distribution age. And I’ve found that one of the biggest mistakes that people make is not thinking about Roth conversions until it’s too late, until you’re forced to start taking RMDs, and by then, there’s just a huge headwind that makes Roth conversions a lot less attractive.

Between the ages of 59 and a half and the time you turn required minimum distribution age, there is a huge window of opportunity to do conversions and control the amount of taxes that you pay, and it’s a mistake to just kind of poo-poo that and not even consider it. So Karen, I really hope that helps answer your question.

I realize though too that not thinking about Roth conversions is just one of many mistakes that you as a retiree could make. Retirement’s full of potential mistakes, but you have to know what they are in order to be able to address them, and that’s exactly why I wrote my book, More Life Than Money. I talk about the 10 most common mistakes that I’ve seen retirees make and what you need to know about how to avoid them.

I’m gonna send you More Life Than Money absolutely free of charge. You just have to let us know you want it, and you can do that by going to providencefinancialradio.com/book. Again, it’s providencefinancialradio.com/book. Leave us your information, and we’ll get a hardcover copy of More Life Than Money right out to you.

To claim your free copy of More Life Than Money, just go to providencefinancialradio.com/book and we’ll get it right out. You’ll learn about the most common mistakes I’ve seen retirees make and how to avoid them.

I’m Anthony Saccaro. Thank you for continuing to be with us wherever you might be listening from. You’re listening to the Providence Financial Retirement Show. We are your retirement income source, and this is the place where retirees come for income.

We’re in the middle of a really good discussion. We’re talking about the difference between an income strategy and a withdrawal strategy. When it comes to setting up an income strategy for your retirement, we would be very remiss if we didn’t spend a few minutes talking about Social Security. I think the stats say that something like forty percent of retirees would actually be in the poverty income level if it wasn’t for Social Security.

So this is a pretty big decision, and yet I find that it’s a decision that most of you make hastily. And yet when you run the numbers, the difference between a good decision as to when to start taking Social Security and a bad decision could be the difference of a couple hundred thousand dollars of income that is lost over your lifetime by filing for Social Security at the wrong time.

But there are a lot of differences of opinion. Should you take it at sixty-two? Should you take it at seventy? Or anywhere in between. What’s important to know is that regardless of when you decide to take it, whether you take it at sixty-two or seventy, once you get to about the age of eighty, you’re gonna have taken the same amount.

In other words, you’ll have received about the same amount of total lifetime income once you get to eighty years old, whether you started taking it at sixty-two or whether you started taking it at seventy. And when it comes to financial advisors, the recommendations are all over the board. Some will say, absolutely wait till seventy, and others will say, take it at sixty-two years old.

I was actually listening to a financial advisor recently about this topic and he was essentially saying that the average life expectancy is 83 years old, so if you start at 62 and you die by 83, essentially you would be much better off. And his recommendation was to take it at 62, pretty much no matter what.

What I don’t like about this recommendation, though, is that average life expectancy age of 83. What that means is that some of you will die before 83, and some of you will live a lot longer than 83. And if we knew you were gonna die at 83 years old, then I would agree with him. But what if you live to 93 years old? The math tells us then in that situation, you would be much better off waiting until 70 years old, because you’re gonna have a much larger monthly income.

And if you do live into your 90s, as a lot of you are going to, I think that if you started taking it at 62, you would have probably wished that you would have waited until 70. And if you did start taking it at 70, I think you’re gonna be really glad that you did. And again, that’s just because you’ll get a much larger income by waiting till 70.

That being said, am I recommending that you wait until 70? No, I’m not. I think that no one can definitively say you should take it at 62 no matter what, or you should take it at 70 no matter what. I think it’s really gonna depend on the totality of your situation.

And that’s gonna take us to our next listener question of the day about Social Security, and it comes from David in Huntington Beach, and he wrote in this: “My wife and I are both recently retired at 66 years old, and we’re debating whether we should start Social Security now or wait until 70. We have enough savings to wait, but emotionally it feels strange spending money while delaying benefits. How should we think about that decision?”

And David, thank you for taking the time to write in that question, but that’s a decision and a question that many of our listeners have, which is why we’re going to address it. Now, you mentioned specifically that you’re married, and there’s a couple of benefits that you need to be aware of. First off is the spousal benefit, and that spousal benefit says that if the non-breadwinner spouse, if their Social Security is less than half of the breadwinner spouse’s Social Security, they will automatically get half of the breadwinner spouse’s Social Security.

And that could dramatically re-increase the amount of lifetime income you get just by knowing that one rule. But you have to know about it, because Social Security is not just gonna give it to you automatically. A second benefit has to do with the survivor’s benefit. When one spouse passes away, the surviving spouse is gonna lose the smaller Social Security. And if you delay until 70 years old, that means that when one spouse passes away, because you were smart enough to delay, that surviving spouse is gonna get a much larger amount.

And while I can’t say definitively about your situation whether you should take it now or whether you should wait, it sounds like waiting probably is what’s gonna make the most sense for you. I certainly hope that helps answer your question, David. Thank you for taking the time to write it in.

I’m Anthony Saccaro. Thank you for staying with us here on the Providence Financial Retirement show. We’re in the middle of a really good conversation. We’re talking about the difference between an income strategy and a withdrawal strategy.

And we can’t continue this conversation without talking about Social Security. And yet, I know that a lot of you are struggling with the same question that David has. Should we take it now, or should we wait until 70? From a psychological standpoint, it can be hard to know that you’re waiting on taking Social Security, that you could just make a phone call or go online and file for Social Security now and start having thousands of dollars show up in your bank account.

It could be hard to postpone that until a later date. But mathematically, it may very well make sense for you to do that. And David is not unlike a lot of you that have that ability. You have retirement assets, you’ve got other income sources, and you don’t need to take Social Security, but you want to take Social Security.

Now, if you’re in a situation where you don’t have other retirement resources, you might not have a choice. You’d go broke if you didn’t take Social Security, and that’s a completely different situation. You might have to take Social Security just to live, and that then becomes a situation where you have to do what you have to do.

But if you do have a choice like David, then waiting can be hard, even though it might be the right thing to do. And as I mentioned, if you do wait, you’re gonna get a larger guaranteed income when you start, and you’re also gonna get a larger guaranteed income every year that you’re collecting Social Security.

The larger your income from Social Security, that means that the less you’re gonna need to take from your other accounts in order to survive, in order to live the retirement you want. We already discussed why it may make sense because of the survivor’s benefit, and that is that the surviving spouse is gonna get a much larger dollar amount, a much larger monthly income from Social Security if the breadwinner spouse were to wait.

But there’s two other reasons that I find many of you have just never considered when deciding when to take Social Security. And the first reason is Roth conversion opportunities, and the second reason is lower taxable income before RMDs begin. Let’s talk about Roth conversion opportunities first. If you wanna do Roth conversions and you’re taking Social Security, that acts as a major headwind because your taxes are gonna go up.

You’re gonna have higher taxable income, and that means Roth conversions are gonna be taxed at a higher rate, and they’re just gonna be less attractive. But if you’re not taking Social Security, if you delay Social Security till 70 years old, Roth conversions become more attractive. And you’ll probably save taxes over the long run by delaying Social Security when it comes to Roth conversions.

A second reason to consider delaying until 70 is the tax standpoint. Not only is your Social Security gonna grow by 8% per year every year you wait from full retirement age until you’re 70 years old. But during those years that you’re delaying Social Security, you’re not going to have to pay tax on Social Security. By itself, that means you’re also going to be saving taxes. And that’s something that I can guarantee many of you have never thought about.

In short then, delaying Social Security until 70 gives you a much more attractive Roth IRA conversion opportunity, and it also is going to save you taxes as well. To me, that sounds like a pretty good deal.

Of course, there’s a lot more that goes into Social Security and when to take it than just Roth conversions and taxes. And just like waiting until 70 is not automatically correct for everyone, neither is automatically taking it at 62 years old. It really depends on your entire situation. But let me give you some things to think about.

If you’re 62 years old and you’re single, you don’t have a spouse, and your health is not great, and the odds that you live past 80 or 85 are not great, you probably want to start taking it at 62. Get it while you can. Take it as long as you can. And that’s where health and longevity come into play. Now, if you’re single and 62 years old, and there’s no reason to think that you can’t live into your 90s, you’re probably going to want to wait.

And the reason is because you’re going to only have one income. You’re not going to have two Social Security incomes unless, of course, you get married again. And when you get into your late 80s or 90s, you’re really going to be glad that you waited until 70 to start taking it because your income is going to just be that much higher.

And as you’re probably starting to see, there’s not just one thing to think about when it comes to Social Security. You have to consider your health, your longevity, your marital status, your income needs. All of this matters, not just one thing.

If this all makes sense and you’d like to learn more about Social Security so you can determine for your situation when it’s best to take it, well, in my book, More Life Than Money, I wrote an entire chapter about Social Security. You’ll learn everything you need to know about all the different benefits, the spousal benefit, the survivor’s benefits, and other benefits that we haven’t even talked about.

I’ll send you More Life Than Money completely free of charge. No cost, no obligation. I just want to make sure you have the information that you need to be able to make the best decision for you and your family.

If you want to get a copy of More Life Than Money, all you have to do is go to providencefinancialradio.com/book. Again, it’s providencefinancialradio.com/book. Leave us your information and you’ll have it within just a few days. To claim your free copy of More Life Than Money, just go to providencefinancialradio.com/book and we’ll get it right out.

Not only will you learn what you want to know about Social Security, but you’ll also learn about the other more common mistakes that I’ve seen retirees make and how to avoid them. providencefinancialradio.com/book. That’s the website you need to go to to request a free copy.

Thank you for continuing to stay with us here for the Providence Financial Retirement Show. My name is Anthony Saccaro, and we’re talking about the difference between an income strategy and a withdrawal strategy. As a quick recap, we’ve already talked about income planning versus withdrawal planning. We’ve already talked about sequence of returns risks. We’ve talked about taxes. We’ve talked about Roth conversions, and now we just talked about Social Security and how important making a good decision is to the rest of your retirement.

The question that I wanna turn our attention to now, though, is how should your portfolio change once you retire? That’s a question we get asked a lot, and I wanna answer it. A good place to start is by defining what the goals are in the different phases of life. If you’re twenty or thirty or forty years old, your goal is to accumulate as much as you can, and investing for growth makes a lot of sense. Time is on your side.

You have the ability to dollar cost average, and your portfolio has one singular purpose, and that is to become larger. When you get into retirement, though, your purpose changes. The purpose of your money in retirement is no longer to grow. The purpose of your money in retirement is to start giving you income.

And now your portfolio has a lot of responsibilities that it didn’t have when you were working, when you were in the accumulation phase of life. Your money, your portfolio has to be protected. That’s one purpose. It has to stay protected because you’re not working. You can’t make mistakes in retirement like you could in your working years.

Another objective of your portfolio is to give you income. When you’re in your working years, you’re putting money in, but when you’re in your retirement years, you’re taking money out. And even if you don’t know anything about investments and strategies and all of that is kinda Greek to you, it probably is common sense to realize that the strategies are gonna be different if you’re putting money in and you have twenty years to go versus if you’re in retirement and now you’re taking money out.

They’re two different strategies, or at least they should be. Another purpose of most of your retirement portfolio is also to be protected not only for you, but also as a legacy for your loved ones. I know most of you wanna leave what you have to your kids, or at least some of what you have to your kids, and that’s another purpose of your money.

Whereas when you’re growing up, you’ve got one singular purpose for your portfolio, and that is to grow. When you’re in retirement, your portfolio has a lot of purposes. It’s gotta be protected. It’s gotta give you income. It’s gotta be there as a legacy for your kids, and that just means that the strategy has to change.

The biggest mistake that I see a lot of retirees making is that they don’t change their strategy, and that takes us back to what we talked about in the very first segment of the show, and that is if you stay with the same strategy in retirement that you used to get to retirement. Then you’re gonna be making withdrawals from your portfolio, which means that you’re gonna be cannibalizing your principal.

And if the market continues to grow by double digits, that’s fine. But if the market starts to go sideways, like a lot of professionals, including myself, think is likely to happen, then it could very well put you in a situation to where you have to worry about running out of money before you run out of life.

Why? Because you’re cannibalizing your principal to get your income. And that’s why here on the Providence Financial Retirement Show, we focus on helping you as a retiree get income from interest and dividends. When you’re living off of interest and dividends, you don’t ever have to worry about running out of money because you’re not selling principal, you’re not cannibalizing your portfolio to get the income, and that makes all the difference in the world.

And also, that also affects your psychology. If you’re cannibalizing your principal to get income, you’re always going to wonder if you have enough. When it comes to making decisions, whether you wanna give more money to your kids or whether you wanna take that cruise or fly first class or anything else that might cost you extra money, if you know that you’ve gotta cannibalize more of your principal to do those fun things, you’re probably not gonna do it because you know that you’re in a race against time.

But if you’re living off interest and dividends and you have plenty of interest and dividends to be able to do those fun things, and you know you’re not cannibalizing your portfolio in the process, it makes retirement much more enjoyable because you know that you can spend that money freely. You know that you’re not in a race against time.

And retirement is not all about the math, it’s also about how you feel. And living off interest and dividends gives you the peace of mind that you deserve, and you’re never having to wonder whether you have enough. And that’s why we always talk about living off interest and dividends instead of cannibalizing your portfolio.

Hopefully, that makes sense. If it doesn’t though, and you wanna learn more about this concept of investing for income, we’ve put together a short animated video that talks strictly about how to turn your portfolio into an income stream that you can live off of and never have to worry about running out of money.

I wanna send it to you free of charge. We’ll email it, but we have to know where to send it. And if you wanna watch it, all you need to do is go to providencefinancialradio.com/video. Again, it’s providencefinancialradio.com/video. Leave us your information and we’ll send it right out, and you’ll learn what you need to know to start living off of your interest and dividends and stop cannibalizing your principal.

To claim your free video, just go to providencefinancialradio.com/video and you’ll have it in your inbox shortly, but I know you’re gonna enjoy what you learn.

I’m Anthony Saccaro. I’m really glad that you’re joining us today. If you just hopped on, you’re listening to the Providence Financial Retirement Show, and we’re spending our time together talking about the difference between having an income strategy versus a withdrawal strategy. With an income strategy, you’re living off of interest and dividends, and you’re protecting your principal. But with a withdrawal strategy, you’re actually cannibalizing your portfolio because you’re selling principal every time you make a withdrawal. And in the long run, having a withdrawal strategy might put you in a situation where you have to worry about running out of money before you run out of life.

At a minimum, a withdrawal strategy requires that the stock market or whatever you’re invested in behaves. If the stock market does well, if your mutual funds continue to grow, then a withdrawal strategy is fine. But if either one of those proves not to be true, then you could be putting yourself in a position to have to wonder whether or not you have enough to live.

And I don’t want you to be wondering whether or not you’re gonna be okay in retirement. I want you to know that you’re gonna be okay in retirement, and that’s where a true income strategy comes into place. When you’re focused on interest and dividends, you know you’re gonna be okay. You’re not having to hope that you’re gonna be okay.

If you’ve been with us for the entire Providence show today, you’re probably starting to realize that there’s not just one decision you have to make that is gonna determine whether or not your retirement’s gonna be successful. There are a lot of decisions, and everything affects everything else. Your Social Security and when to take it is going to determine how much income you’re gonna have later down the road.

It’s going to determine how much income your surviving spouse is going to have. It’s also going to affect your taxes. Same thing is true with Roth conversions. If you do Roth conversions, then it’s gonna put you more in control of your taxes than if you don’t do Roth conversions. And at the same time, it doesn’t mean that Roth conversions are right for everybody.

But I find that there’s something that a lot of you have just kind of poo-pooed and not really considered ’cause you gotta pay the taxes. Well, you’re gonna have to pay the taxes at some point anyway, and the question is, do you wanna pay the taxes on the government’s timetable, or would you rather pay the taxes on your timetable? And I think the latter is probably what makes the most sense.

We’ve talked about required minimum distributions and the fact that that’s also gonna affect your taxes as well. It might even affect your Medicare Part B premiums. And if your taxes go up because your RMDs go up and your Medicare Part B premiums go up, you might be forced to take more out of your portfolio than you originally had anticipated.

And once again, that could put you in a situation of having to wonder whether or not you’re gonna have enough. And when you think about all these individual considerations, what you start to realize is that retirement’s kinda like a puzzle. Many of you have a lot or a little bit of knowledge about some of the pieces, some knowledge about Social Security and Medicare and required minimum distributions and taxes, but really difficult time taking all those pieces and putting them together to come up with a very clear picture of retirement.

And I find that most retirees are missing that. I also find that many of you are making decisions about one piece of the puzzle in isolation. It’s not uncommon for someone to tell me that they wanna take Social Security and all the reasons they wanna take Social Security, but without considering the ramifications on the rest of their retirement.

All these pieces of the puzzle have to fit together, and to make a decision about any of these pieces without considering how it’s gonna affect the rest, that’s a big mistake. And in my book, More Life Than Money, one of the things that I teach you is exactly how to take all these pieces of the puzzle and what to consider and how to put them all together so that you have a clear picture of retirement.

If you’d like to get More Life Than Money, I’ll send it to you absolutely free of charge. No cost, no obligation. I just wanna make sure that you have the comfortable retirement that you deserve. And in order to get it, it’s very simple. All you need to do is go to our website. It’s providencefinancialradio.com/book. Again, it’s providencefinancialradio.com/book. Leave us your information, and in a few days, a FedEx truck will pull up in front of your house and hand deliver you a copy of my new book, More Life Than Money. It’s an Amazon number one bestseller in multiple categories for a reason, and I know you’re gonna learn and enjoy the information that you get.

To claim your free copy of More Life Than Money, go to providencefinancialradio.com/book, and we’ll get it right out.

Well, I wanna thank you for joining us today for the Providence Financial Retirement show. We’ve been talking about the difference between an income strategy versus a withdrawal strategy. We’ve talked about Social Security and taxes and Roth IRAs and RMDs, and we answered a couple of your questions along the way. Again, my name is Anthony Saccaro. You’ve been listening to the Providence Financial Retirement Show, where it truly is all about the income. Thank you for taking time to join us. Really glad that you’ve been here. Have a great week, everyone. God bless.

Disclaimer: This transcript is provided for educational and informational purposes only and reflects a general discussion from a live radio broadcast. It is not intended as personalized financial, tax, or legal advice. Individual circumstances vary, and listeners should consult a qualified professional before making decisions.