retirement portfolio allocation Archives - ROI TV

How to Maximize Social Security, Roth Conversions, and Retirement Spending Without Losing Sleep

Joe Anderson — Sun, 15 Jun 2025 12:19:54 +0000

Planning for retirement isn’t just about having enough—it’s about making smart decisions to keep more of what you’ve saved. This week’s conversation really drove that home as we tackled Social Security timing, tax-smart Roth conversions, and whether expensive annuities and adviser fees are worth it.

1. The Social Security Puzzle
Richie and Heather from Idaho are facing a common but tricky decision—when to claim Social Security. Richie wants to wait until full retirement age in 2029, and Heather is considering claiming at 62 in 2025. But we walked through the math together and saw that delaying until 70 could significantly boost their lifetime income, especially for Heather’s survivor benefits. Her monthly benefit could grow from $1,830 at 62 to $3,358 at 70. And Richie? From $2,747 to $4,789. That’s a serious increase.

We always remind couples to weigh their Social Security timing against other income sources like IRAs and brokerage accounts. If you draw from those first, you might avoid higher taxes and give your Social Security more time to grow.

2. Strategic Roth Conversions
We also looked at how Roth conversions could help Richie and Heather reduce their future tax burden. Since they’re currently in a lower tax bracket, converting portions of their traditional IRA into a Roth IRA now—up to the top of the 12% bracket—makes a lot of sense. That way, they avoid larger required minimum distributions (RMDs) later and keep their brokerage account liquid for near-term spending needs.

3. Coordinating Retirement Spending and Portfolio Allocation
Their $2.625 million portfolio is in a 60/40 equity-to-fixed-income mix, and they plan to spend $120,000 per year (not including taxes). That gives them a lot of flexibility, but we encouraged them to avoid viewing their accounts as separate “buckets.” Instead, it’s better to manage the entire portfolio as one cohesive plan. For example, they’re withdrawing $50,000 soon to upgrade their travel trailer, and we talked about how to time that without triggering a big tax hit or pulling from equities in a down market.

4. A Cautionary Tale About Indexed Annuities
Rebecca and Sam from Virginia called in with a major regret: a $1 million indexed annuity they bought in 2022. Rebecca was frustrated with the confusing terms and underwhelming growth. We showed them that in many cases, these annuities take 20 years just to break even. While they offer “guaranteed income,” the trade-off is poor long-term performance. They’re now considering cashing out at the $954,000 surrender value—yes, that’s a $50,000 loss, but it may be worth the freedom to reinvest elsewhere.

5. Overpaying for Financial Advice
To make matters worse, Rebecca and Sam’s adviser is charging them 2% annually on their $1.2 million portfolio. That’s $24,000 per year—far above the industry standard of 0.60% to 0.70%. And if that adviser also earned a hefty commission on the annuity sale, that’s a red flag. We encouraged them to get a second opinion from a fiduciary who puts their interests first and charges a fair rate.

6. Don’t Bank on Social Security Tax Reform
Gerri from Phoenix asked about Donald Trump’s proposal to eliminate taxes on Social Security. While it sounds good, we don’t expect it to happen. These ideas tend to surface during campaign season but rarely materialize. We told Gerri to stick to his current strategy of waiting until 70 to claim benefits—because solid, long-term planning beats political speculation every time.

7. Claiming Social Security with a Twist: The Lump Sum Option
Pete Ware chimed in with an advanced tactic: waiting until age 70.5 to claim Social Security and then requesting six months of retroactive payments. That lump sum wouldn’t reduce the ongoing benefit amount, and it would create a full year for Roth conversions without Social Security income inflating the tax bill. It’s a smart move for the right person, but like any strategy, it needs to be part of a broader financial plan.

The Takeaway
Every decision in retirement has a ripple effect. Claiming Social Security early might cost you thousands over time. Overpaying for advice could mean retiring later than you’d like. And an annuity that feels “safe” could quietly erode your nest egg. But with careful planning—especially around taxes—you can make the most of your savings and build a secure, tax-efficient retirement.

Intended for educational purposes only. Opinions expressed are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Neither the information presented, nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Consult your financial professional before making any investment decisions. Opinions expressed are subject to change without notice.

IMPORTANT DISCLOSURES:

• Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC. A Registered Investment Advisor.

• Pure Financial Advisors, LLC. does not offer tax or legal advice. Consult with a tax advisor or attorney regarding specific situations.

• Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

• Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

• All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.

• Intended for educational purposes only and are not intended as individualized advice or a guarantee that you will achieve a desired result. Before implementing any strategies discussed you should consult your tax and financial advisors.

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How I’d Invest Before Taking Social Security: Portfolio Strategies for Early Retirees

James Conole — Wed, 04 Jun 2025 11:34:51 +0000

Retiring before you claim Social Security sounds great but there’s a hidden challenge many people overlook. If you retire at 62 but delay Social Security until 67, your investments need to carry the full weight of your expenses for those five years. And if the market stumbles during that time? Your entire retirement plan could unravel.

Let me walk you through what I’d do if I were in this situation specifically, what Becky (a hypothetical retiree) should consider when facing this exact scenario.

Becky’s Retirement Setup

Becky is 62, with a $1 million 401(k) portfolio and plans to spend $5,000 per month, or $60,000 annually, adjusted for 3% inflation. She doesn’t want to claim Social Security until age 67, so her investments need to fund her lifestyle entirely until then.

The problem? Becky’s entire portfolio is invested in U.S. large-cap growth stocks with an assumed return of 8.5%. That’s great in theory, but what happens if the market crashes during her first few retirement years?

The Withdrawal Crunch

During the five-year pre-Social Security gap, Becky’s portfolio will need to fund all her expenses potentially requiring 6.5% to 8% annual withdrawals. That’s well above the safe withdrawal range, especially in volatile markets.

Here’s the good news: once Becky turns 67 and starts Social Security, her need for portfolio withdrawals drops significantly from 8% to just 3.2% by age 68.

But surviving those first five years without sabotaging the entire retirement plan is the real test.

Why Early Market Losses Can Ruin Retirement

If Becky’s portfolio takes a major hit during those early years, her withdrawal percentage goes up. That’s the danger of sequence of returns risk the idea that losing money early in retirement is much worse than losing money later.

Bear markets typically last between 2.5 and 5 years. That means Becky could easily run into trouble if she doesn’t have a more stable, diversified portfolio to weather that period.

The Right Portfolio Shift: From Growth to Balance

To handle that five-year window, Becky needs around $380,000 to cover her expenses. Some of that say $80,000 might come from dividends (assuming a conservative 1.6% yield after a 20% dividend cut). But that still leaves $300,000 that needs to be safe from market swings.

That’s why I’d recommend shifting her portfolio to a 70/30 mix 70% in stocks, 30% in high-quality, short-term bonds. This gives her some growth, but also a layer of protection to draw from during market dips.

What Does This Do to Her Long-Term Plan?

Yes, moving from 100% stocks to 70/30 slightly lowers potential long-term growth. But here’s the trade-off: it increases her probability of retirement success. Her current all-stock plan has a 73% success rate. With the adjusted portfolio, that number climbs and her plan becomes much more resilient.

Once Becky hits 67 and her withdrawal rate drops, she can consider reallocating for more growth if her financial picture looks strong. But early on, stability matters more than potential.

Key Takeaways for Anyone Retiring Before Social Security

If you’re retiring before claiming Social Security, here’s what you need to know:

Calculate your pre-Social Security gap and make sure you have a stable source of funds to cover it.
Adjust your portfolio allocation to reduce risk during early retirement.
Use short-term bonds or cash reserves to avoid selling stocks in a down market.
Revisit your plan once Social Security kicks in and your withdrawal rate drops.

Retirement isn’t about hitting a perfect number it’s about creating a strategy that holds up when the market doesn’t. For Becky and for anyone else looking to retire before collecting benefits that means making smart portfolio moves now to protect your future freedom.

The post How I’d Invest Before Taking Social Security: Portfolio Strategies for Early Retirees appeared first on ROI TV.

The Formula for Retirement

Joe Anderson — Tue, 27 May 2025 11:54:26 +0000

When it comes to retirement, there are few things more important than having a plan—and the earlier you start, the better. In a recent episode of Your Money, Your Wealth, financial pros we walked viewers through key retirement planning strategies, formulas, and tax moves to help secure long-term financial goals.

The Power of Compound Interest and the Rule of 72

We kicked things off by highlighting compound interest, famously referred to by Albert Einstein as the “eighth wonder of the world.” Unlike simple interest, compound interest grows your money exponentially over time by earning interest on both your initial investment and accumulated interest.

They broke down the Rule of 72, a simple formula to estimate how long it takes for an investment to double. Divide 72 by your expected rate of return: a 7% return means your money will double in about 10 years. But at 2%, it takes a staggering 36 years. Clearly, rate of return and time are your biggest allies.

Start Early, Save Consistently

To drive home the importance of starting early, they compared saving $100 a month beginning at age 25 versus age 35. That 10-year head start could result in an additional $100,000 or more in savings over a lifetime thanks to compounding. Even modest annual increases in savings can have a profound impact on retirement outcomes.

Calculating Retirement Spending and the Shortfall

Next, we explained how to calculate retirement needs. Start with your current expenses and adjust for 3% inflation. Subtract expected income like Social Security, then multiply the annual shortfall by 25 to find your target retirement savings. For example, someone expecting $144,000 in annual expenses with $55,000 from Social Security needs to fund an $89,000 shortfall. Multiply by 25, and you get a $2.2 million savings goal.

Understanding the “Retirement Smile”

Spending in retirement isn’t linear. I want to introduce you to the “retirement smile”: higher spending in early retirement (“go-go years”), a dip during the “slow-go” years, and a rise again due to healthcare costs in the “no-go years.” Many retirees spend more in retirement than they expected, making accurate planning crucial.

Applying the 4% Rule

The 4% rule remains a helpful benchmark. If you retire with $1 million, withdrawing $40,000 per year (4%) gives you a strong chance of not outliving your money, assuming a 6% return. However, the duo stressed that withdrawals should be adjusted dynamically based on market performance and personal needs.

When to Claim Social Security

Social Security claiming strategies also play a huge role. Claiming at age 62 could reduce benefits by 30%, while delaying until 70 can boost payments to 124% of your full retirement amount. We suggested evaluating factors like health, income needs, and whether you’re still working when making this decision.

Reevaluating the Rule of 100

The traditional Rule of 100, which suggests subtracting your age from 100 to determine stock allocation, was challenged. They argued that allocation should reflect individual risk tolerance, goals, and legacy plans. For example, a risk-tolerant investor may opt for more stock exposure, while others may want more cash for security.

Tax Planning and Roth IRA Conversions

One of the most actionable strategies they shared was Roth IRA conversions. With tax rates expected to rise in 2026, converting pre-tax retirement funds now could yield massive long-term savings. Converting in lower tax brackets (like 12% or 24%) today helps reduce your required minimum distributions (RMDs) and future tax bills.

Tax Allocation Across Account Types

Understanding how different accounts are taxed is another key strategy. Use tax-deferred accounts (like IRAs) strategically during low-income years, and prioritize Roth IRAs for tax-free growth. Taxable brokerage accounts provide flexibility but may generate capital gains.

Plan for Longevity

With life expectancy on the rise, couples have a 50% chance one partner will live to 92. We emphasized planning for a longer-than-expected life to avoid outliving your money, especially considering rising healthcare costs.

Use the Retirement Readiness Guide

Finally, the team encouraged everyone to download their Retirement Readiness Guide. It’s packed with practical tools to calculate savings targets, plan withdrawals, and optimize investments for a confident retirement.