THE “PAY YOURSELF” RULE OF RETIREMENT SPENDING
One of the scariest things about retirement, Donna Fuscaldo admits in a recent Kiplinger piece, is that you stop collecting a regular paycheck. The “Pay Yourself” rule of retirement spending is designed to enable retirees to be proactive instead of reactive with their spending, providing consistency by aligning withdrawals in retirement with the old paycheck mentality.
Daniele Beasley, a Wealth Advisor at Mission Wealth outlines the steps in this “simple” plan, recommending that prospective retirees adding up all their sources of income (Social Security, pension, investment income), considering the effects of inflation, their own longevity, short and long-term market volatility, and taxes (on IRA and pension withdrawals, as well as on the sale of investments), all in order to “create a paycheck” for themselves. “Sure, it requires a few steps,” Beasley comments, but “once you’ve completed them, you’re good to go”. Ironically, The Kiplinger article about being “good to go” ends with a reminder to “revisit your withdrawal rate at least annually to account for changes in market performance.”
Whatever your conclusion as to the likelihood of the “Pay Yourself Rule” succeeding in its goal of “dialing down retirement stress” for your clients, as a financial advisor it will be important for you to include their housing wealth in the planning process. For homeowners envisioning an “aging in place” retirement, for example, a HECM reverse mortgage set up as a line of credit can be the key to “regularizing” their income flow, in fact allowing them to reduce or even avoid ill-timed, tax-triggering, forced withdrawals from both qualified and non-qualified investment accounts.
While your clients’ investment portfolios will always be subject to variations in return, their reverse mortgage line of credit is a “fixed” account, with the as-yet untapped portion of their equity growing at the same rate as the interest being charged on the borrowed portion.
“It all starts with a plan,” Daniele Beasley stated, suggesting that “Your financial advisor or tax professional should be able to help you determine the percentage” for the Pay Yourself strategy, cautioning that “the rate should be reassessed annually to ensure it’s aligned with your current reality.”
For clients anticipating having their home be the centerpiece of their “retirement reality”, consider the prominent role home equity can play in their “pay themselves” future.
David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.org
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