Financial Strategies for Households Focused on Preserving Wealth in Retirement

Most consumers and advisors incorrectly believe the most important part of planning for their retirement revolves around their asset statements, that their portfolio is the most important part of planning. At retirement, or planning for retirement, the single most important area of your plan is what we call your “Golden Retirement Budget”, because this process documents how much money you need each month in each budget category. By knowing how much your monthly budget is, we can then work on designing a plan that creates enough net after-tax income to meet and exceed your Golden Retirement Budget.

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We have found the overwhelming majority of firms, over 99%, do not build comprehensive written retirement income plans. Peak Financial is one of the few firms we have found that builds comprehensive customized written retirement income plans that include 30 years of income planning, income tax planning, risk planning, fee planning, legacy planning, with complete disclosure and transparency.

Correct. You can only get this time-tested proven step-by-step system from Peak Financial. The Peak Financial Worry-Free Retirement Roadmap is a documented 16-Step process for your retirement success:

Step 1. Initial Consultation

Step 2. Introduction Meeting

Step 3. Roadmap Overview

Step 4. Data Collection

Step 5. Income Needs Assessment

Step 6. Risk Tolerance Analysis

Step 7. Asset Allocation Plan

Step 8. Retirement Income Plan

Step 9. Social Security Optimization

Step 10. Income Tax Control

Step 11. Net Monthly Excess Cash Flow

Step 12. Fee Management

Step 13. Legacy Analysis

Step 14. Comprehensive Written Retirement Income Plan

Step 15. Plan Refinement

Step 16. Ongoing Plan Support and Accountability

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If your monthly budget is $10,000 and you only bring in $10,000 of net monthly after-tax income, you will still worry every month. We define financial freedom as creating “net excess cash-flow”, which is the amount of money you have left each month after paying your income taxes and after you’ve paid for everything in your budget. So, if your budget is $10,000 per month, we want to create a written retirement income plan that provides you $13,000 or $14,000 or even $15,000 of net after-tax monthly income. This type of plan would create $3,000 or $4,000 or even $5,000 of “net excess cash-flow.

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At Peak Financial, we define risk as how much you could possibly lose in a market decline and then how much you need to earn simply to recover. Another way to look at risk is to ask yourself right now, at this time in life, would you benefit more from a +50% gain or be hurt more from a -50% loss? To date, 100% of the people we have met with stated they would be hurt more by a -50% loss. Suffering a large loss in retirement significantly increases your chances of running out of money during retirement.

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Investing for the highest returns will cause you to assume the highest level of risk and potential large principal losses, with significant volatility. If your portfolio has a high degree of volatility and risk, the amount of income you can potentially withdraw safely decreases significantly. If your portfolio has a low degree of volatility and risk, the amount of income you can potentially withdraw safely, without the fear of running out of income, increases dramatically.

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Before retirement you go to work, and every two (2) weeks you get paid, like clockwork, you could count on it. But everything changes once retired, because you no longer are going to work and no longer receiving your paychecks. So, the number one (1) goal for your successful retirement has to be to create as much guaranteed lifetime income as possible to replace your paychecks. In retirement you want to get paid like you were still going to work, without having to go to work.

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We use a proprietary three (3) test process to determine the best time for you to take your Social Security benefits. In the vast majority of tests we have ran, the analysis show it is usually better to take your Social Security benefits as early as possible as long as you are retired at any age or age 67 or older and still working. Do not take your Social Security benefits until a customized analysis can be ran for you.

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It is true when you were working you probably netted 50% after all your paycheck deductions. This is because when you were working you paid into Social Security, into a retirement plan, into a 401(k), 403(b), 457, and had miscellaneous other deductions. If your gross income was $240,000 per year, which is $20,000 per month, your bet income after al deductions was probably around $10,000. Almost every consumer thinks they will lose -50% of their gross income when they retire unless they do everything they can to REDUCE their income. We think the biggest mistake you can make is to try and minimize your income. We think you should try and maximize your income. Why? Because your average rate for combined federal and state income taxes will most likely be far lower than you thought. Here’s an easy clear-cut hypothetical example:

Let’s say your retired, bring in $60,000 of joint Social Security income and take out $180,000 per year from your IRA, providing the same $240,000 of gross as when you were working. Assuming you live in California, the high income tax state, you would not be projected to lose -50% of your gross income, you would be projected to only lose -18% of your gross income for federal and state income taxes, allowing you to keep 82% of your gross income as net income. *This calculation was done by a former Enrolled Agent with the IRS for 30 years, a current Accredited Tax Advisor®, a current Certified Financial Planner®, and who acts as a Fiduciary for every one of his advisory clients.

So, if you make the $240,000 in retirement, you will net 82%, which is $196,308 per year which is $16,359 per month after paying all your federal and state income taxes. How does this happen? In retirement, you will no longer be paying into Social Security, no longer be paying into retirement, no longer paying into 401(k), 403(b), 457, and will only be paying federal and state income taxes out of your gross income. In this example, the federal and state income taxes are estimated to be 18% of your total income, leaving you with 82% of net after-tax income. If we build a plan for you, we will include an income tax-analysis to show you what your estimated average federal and state income tax rate will be and what your estimated net monthly after-tax income will be.

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A 60% stock fund and 40% bond fund portfolio has a significant amount of volatility and potential for principal loss. For example, during the 2008 Financial Crisis this type of portfolio would have had close to a -40% loss, while the S&P 500 Index dropped over -50%. Whether you lose -50% or -40%, a portfolio with that much volatility cannot provide a steady flow of dependable income that is guaranteed to last for as long as you live. If you are taking a high level of income out of these types of assets there is a high probability you could run out of money.

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We have found for the majority of clients it is a better overall income tax strategy to take IRA distributions out earlier than age 73, because:

1. If you defer taking distributions until age 73, you will have more money in your IRA that the government will force you to take required distributions from. A higher IRA balance at age 73 calculates out to higher IRA Required Minimum Distributions for the rest of your life.

2. If you take out IRA income distributions as early as possible, and spread them out over your entire life, you can create a lower average taxable IRA amount per year for the rest of your life.

3. If you defer taking IRA distributions, you will have more money in your IRA, and if you pass away and leave money to anyone other than your spouse, the IRA funds have to be completely distributed in no more than ten (10) years. Can you imagine having to take out your entire IRA balance over ten (10) years or less? You want to avoid this.

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We have found it is rarely beneficial to enact a Roth conversion to guarantee you will pay less income taxes on your IRA accounts, because:

1. You will pay federal and state income taxes on the full amount of the Roth conversion in a single year.

2. You will be hoping that the income taxes you pay in the future will be significantly higher than current income tax rates.

3. If you instead created a plan that distributes a more even amount of taxable IRA distributions over your lifetime, the total income tax bill on your IRAs could very well be lower than completing Roth conversions.

4. I will never advise my clients to pay income taxes not just “hoping” they will pay less income taxes in the future. I have a significant amount in tax-deferred IRAs and I have never, and plan on never, converting any of my IRAs to Roth accounts.

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As long as your income will never run out, and as long as you aren’t getting killed with income taxes, it is our planning philosophy that you should always take out as much income as possible. You need to shift your income mindset and think about how you felt about income when you were ages 40 to 60. During your working years, you wanted to make as much income as possible, you never would have turned down a $50,000 or $100,000 raise to your income back then just so you wouldn’t have to pay income taxes. You would have taken the increased income, paid your income taxes, and had more money to spend or save net of taxes. You need to look at your retirement income plan the exact same way.

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Unless you have a document provided by your financial professional that shows all the fees you are paying, both direct (fees you see on your statements) and indirect (fees you don’t see on your statements), you cannot and should not believe what they have stated verbally. Remember, The Golden Promise states “if it’s not in writing, don’t believe it.

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We have found that the more you plan in retirement to safeguard your assets from large losses and create a high level of lifetime income, the higher probability you will leave money to your beneficiaries.

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This is the whole premise of The Golden Promise, you must have an actual plan in writing in your hand before you ever invest your money.

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You should never trust any verbal promises or assurances from anyone, everything about your money must be in writing to minimize the chance you will make a mistake.

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You should never trust any verbal promises or assurances from anyone, everything about your money must be in writing to minimize the chance you will make a mistake.

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When Peak Financial provides you your customized comprehensive retirement income plan, in your planning binder, you are not committed to anything and there is no cost to you whatsoever. You get to take the binder with your complete customized comprehensive retirement income plan home with you to review and analyze. Our entire process is designed to put the least, and preferably no, pressure on you as we take you thought the educational and planning process. We know this sounds too good to be true, but, Peak Financial strictly follow our rules and process because:

1. We want to show you we care for and respect all our clients.

2. By not putting pressure on any of our prospective

clients, we have found that more of them have become happy, lifelong clients.

3. People that become our clients are far more willing to give us referrals because they know we will not put any pressure on their friends, colleagues, and family.

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The tasks, planning, strategies, and expertise of accumulating assets for retirement has nothing to do with creating a secure and successful retirement income plan. When you accumulate assets, you will typically be willing to take a moderate to high amount of principal risk to try and earn a higher rate of return, you don’t need income from your assets, and time is on your side. Those things no longer apply when you are retired or within five (5) years of retirement. We have found that only a small fraction of financial professionals and consumers have the experience, knowledge, and desire to create a retirement income plan to reduce large stock market losses and create guaranteed lifetime income. This is exactly what Peak Financial does.

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We think the worst advice anyone can ever give you is to tell you to keep your emotions in check when making financial decisions. At Peak Financial, we find this to be terrible advice because every financial decision you make is emotional such as:

• Buying a home.

• Deciding on medical insurance.

• Going on vacation.

• Paying for kids and grandkids’ college.

• Retiring.

• Creating a budget.

• Positioning assets to reduce risk and stress.

• How to replace your paychecks.

• Setting up a retirement income plan so you don’t have to worry about running out of money.

At Peak Financial, we encourage you to embrace the fact that every decision you make about your money will be guided by emotions. Because of this fact, our goal is to help you make correct financial decisions that will provide you with the corresponding positive emotional outcomes rather than making mistakes that will hurt you with their corresponding negative emotional outcomes.

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The Peak Financial Worry-Free Retirement Roadmap will improve your education and understanding about your money, it will put you back in control of your finances, it will help you to worry a lot less about your money, and it will stir up a bunch of emotions such as:

• Relief that you now actually have a retirement income plan that is in writing.

• Pride that you now understand your money better than you have in your entire life.

• Confidence that you will be financially secure throughout your retirement.

• Abundance as you have more income than you need to spend each month.

• Triumph that you’ve succeeded in building enough wealth to guarantee a wonderful, successful retirement.

• Satisfaction that you can live the retirement lifestyle you had always planned and hoped for.

• Eagerness to start the phase of your retirement where you aren’t as scared to spend some of your money.

• Empowerment that you can control your money and never have to “hang in there” and “ride it out” again.

• Freedom to do as you please—it’s your money, and it’s never going to run out.

• Optimistic that you have done everything humanly possible to have a successful retirement.

• Gratitude & Surprise that Peak Financial fulfilled more than what we promised to do for you!

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It is thought Albert Einstein coined the phrase “if you keep doing the same thing over and over again, and you expect different results, this is the definition of insanity”. The big rules for your successful retirement are:

1. You can’t do the same things with your money in retirement like you did when you were younger and still working.

2. You must have everything about your money and plans for retirement documented in a customized comprehensive written retirement income plan.