The Grand Unified Theory on a Happy Retirement, Part 2 – Principles 6-12

A quick recap of the first principles covered in the previous episode. #1 Mitigate longevity risk with an income annuity. #2 Your income annuity only needs to cover your basic lifestyle expenses. #3 Your income annuity needs to have a guaranteed lifetime income feature, inflation protection, liquidity, and a death benefit feature. #4 Cover discretionary expenses with your stock market assets in your LIRP. #5 Always draw your guaranteed lifetime income from your tax-free bucket. #6 Your LIRP must have a chronic illness rider.

The seventh principle is to use a time segmented investing approach to grow your assets safely and productively during the time when you are doing your piece meal Roth conversion. If you leave your money in your stock market portfolio you expose yourself to a sequence of return risk. Time segmented investing is about having bonds mature in the year when you know you will need the income and allows you to mitigate the sequence of return risk.

Whatever money that isn't going into your LIRP or annuity should be going into an aggressive stock market portfolio. Since you have the luxury of taking money out of your LIRP and guaranteeing your lifetime expenses, you can take much more risk in the stock market.

You need to have multiple streams of tax-free income, none of which show up on the IRS's radar, but all of which contribute to you being in the zero percent tax bracket. Preferably between four and six streams of tax-free income, each with unique benefits.

Don't take social security until you're ready to draw income from your guaranteed lifetime income annuity. Outside of a short expected lifespan, you should be putting off social security as long as you can, at least until you've paid off your piece meal internal Roth conversion.

Identify the ideal balances in your taxable and tax-deferred bucket and shift everything else systematically to tax-free. In a rising tax rate environment, there is an ideal amount of money to have in your taxable and tax-deferred bucket. As of right now, you have six years to reposition your money into the tax-free bucket.

Get all your asset shifting done before tax rates go up for good. You have to know what your magic number is and how much money you need to shift to tax-free between now and 2026.

Understanding these principles will shield you from longevity risk and tax rate risk. Unless you have the ability to mitigate both risks in the same financial plan, you are going to have a very hard time being fully at peace with your retirement plan. Nobody wants to have to keep constantly looking over their shoulder in retirement.