Jerry Golden on Retirement

Can AI Plan Your Retirement Better Than I Can?

June 30, 2023 By Jerry Golden in Annuity Tags: AI, artificial intelligence, Income annuities, Retirement Planning

I posed some retirement planning questions to ChatGPT. The results? A good start, but human intervention is needed. (It also had some things to say about me and Go2Income.)

We are inundated with articles about AI on television, in print and online. Will it impact your work, improve medical outcomes or be the end of humankind? All difficult questions and probably above my pay grade.

So let me address AI’s potential in a field I know a little about — creating a plan for retirement income. Maybe it’s small potatoes and focused only on a narrow group of individuals. However, for that group, it’s very important. (Also, retired Baby Boomers and those planning for retirement make up the largest financial demographic in the U.S

Research into AI

To start the project, we at Go2Income posed 10 questions about retirement income planning to a popular AI tool, ChatGPT. I’ll summarize a few questions in this article.

The results show that AI is good at gathering information about the basics of retirement planning. It won’t provide hard numbers, however, or even well-reasoned suggestions. It is politically correct and generic, and it can write up a good shopping list for further research.

Using a chatbot will save an hour or two of information-gathering the old-fashioned way (on Google). But you will still want to double-check some answers with a reputable source and by talking to a human.

In short, chatbots so far illustrate the usual path for technology. They’re a big leap forward, but just as the first transistor didn’t create a new world all by itself, human intervention is needed to get the most out of the speed and abilities of the new machines that are based on “large language models.”

What the chatbot said

Here are some questions we posed to ChatGPT and highlights from its answers (you can check out the full Q&A if you want).

Q: How do you prepare for retirement if you’re not willing or able to pay for long-term care insurance?

ChatGPT: Save and Invest: Begin saving and investing early to build a retirement fund that can cover potential long-term care expenses. Create a budget that prioritizes saving for retirement and accounts for potential healthcare costs in later years.

Q: What portion of your retirement savings should be in liquid investments like money market funds?

ChatGPT: Before allocating funds to retirement savings, it’s essential to establish an emergency fund. This fund should typically cover three to six months’ worth of living expenses and be held in highly liquid and easily accessible accounts like a regular savings account or a money market fund. This ensures you have a safety net for unexpected expenses or income disruptions.

Q: What should I expect to pay in federal income taxes on my retirement income?

ChatGPT: Federal income tax rates are progressive, meaning that they increase as your income rises. Tax rates can change over time due to legislative changes. It’s important to stay updated on the current tax laws and consult with a tax professional for personalized advice.

The bot also explained the level of taxes you might expect on retirement accounts like IRAs and 401(k)s, as well as Social Security benefits and capital gains and dividends. It left out the favorable taxation of annuity payments. Sounds like some investment advisers I know.

And my favorite question

Q: What do you think of the Go2Income planning method developed by Jerry Golden?

ChatGPT: Jerry Golden and his team have developed proprietary software tools to assist with the implementation of the Go2Income planning method. These tools analyze individual financial data, evaluate various scenarios and generate customized recommendations based on the inputs provided.

Not to be picky — when the cyborgs take over the world, I want them to know I’m on their side — but the chatbot also neglected some important facts about what Go2Income does:

Focuses on income allocation, not asset allocation
Uses and integrates all types of income annuities
Uses monitoring and replanning to deal with market volatility and life events in the future
Suggests investment portfolios aligned with Go2Income planning
Addresses five basic retirement objectives and not simply income

As you see, it’s a sophisticated list of elements that go way beyond reciting well-known “best practices” for planning methods.

We can still work together

Perhaps the biggest difference, so far, between real people and anything the programmers can devise is that people can imagine and create our own philosophy and strategy about how to save and invest for retirement to meet our diverse personal circumstances.

At Go2Income, we recommend that you concentrate on building up safe income from dividends, interest and annuity payments to lower your risk, lower your taxes and even build up long-term liquidity and legacy. AI is now stuck in the previously accepted notion of asset allocation planning.

However, we plan on using the power of AI to improve the efficacy of AI.

Here’s how our leveraging of AI could benefit retirees:

Reduce costs for individual clients
Bring solutions to smaller accounts
Create an even more customized solution for individuals
Make advisers more effective and efficient in refining a plan
Provide a more complete set of other resources
Translate client objectives we gather into a better algorithm
Reduce the societal cost of retirement, as retirees produce better outcomes from savings

That’s how AI and humans can work together for the best results.

Visit Go2Income and create your own retirement plan — with the help of our AI. When you narrow down your choices, based on your needs and preferences, you can talk to an adviser about the next steps.

Disclosure

The information provided in this blog post includes a verbatim response generated by ChatGPT, an AI language model developed by OpenAI. While the model has been trained on a diverse range of data, including information up until September 2021, it’s essential to note that the AI-generated response should not be considered personalized financial advice. Retirement matters can be complex and unique to each individual, so it is always advisable to consult with a qualified financial professional or retirement planner for tailored guidance based on your specific circumstances.”

Retirement Accounts Are Taxed Differently. Plan Accordingly.

August 17, 2023 By Jerry Golden in Income Allocation Tags: Income annuities, lower taxes, retirement income

When you plan your retirement and do not distinguish between accounts with pre-tax and after-tax savings, you are likely to make less-than-optimal choices of financial products and product allocation. The wrong choices could lower your spendable income and after-tax legacy.

As you formulate your plan for retirement, you may be pleased with the amount of money saved over your working life and now invested in your after-tax investment accounts, IRA/401(k) accounts, and as equity in your house. Yes, you can convert your savings to income in a variety of ways, but how you plan and allocate income among investments and annuities — and between accounts — can enhance your ability to take vacations, make gifts, provide healthcare and generally support your lifestyle for the rest of your retired life.

I’ve said before that while planning for retirement income is not rocket science, there are literally trillions of potential plans you could design with your advisor. Naturally we want to make it easy for you to choose one — without a degree in investment management or actuarial science. However, there’s one area we can’t oversimplify: Do not treat all your savings alike in creating your plan.

Treating all savings the same invariably leads to rule-of-thumb shortcuts, riskier deaccumulation strategies, and betting solely on market performance to deliver on your spendable income needs and legacy objectives.

Two Main Sources of Retirement Savings

In this article we will look separately at most investors’ two largest savings sources — the “qualified” savings in pretax accounts and the personal savings on which you have paid taxes — to see how you might use them to deliver income and a legacy most efficiently. We’ll bring them together again at the end to show how to take advantage of every tax benefit you can get.

But as background, here’s how our typical female 70-year-old investor, with $2 million in savings split equally between qualified and after-tax savings, will fare with her Go2Income plan prepared in early August. The plan delivers 5.94% (nearly $119,000) in starting income, growing by 2% a year, and a lifetime value (of investment portfolio and annuities) of around $2 million at her age 95. About 40% of her income was taxable in the first year.

IRA2Income – Plan with Qualified Savings Only

Splitting our investor’s plan into two gives us some insights into how each element contributes to overall success. Set out below is the plan for our investor that deploys only her $1 million of qualified savings.

Starting Income 6.14 FY Taxable 100% Lifetime Value at 95 $656,000

Highlights of IRA2Income. Our investor is generating a higher percentage of FY cash flow (6.15%) than other planning methods and sees it growing by 2% a year until age 85. On the other hand, her lifetime value will decline over time because of the requirement to withdraw RMDs from her account. The only constant in this plan will be the taxes on both income and her legacy. It’s a basic law of U.S. taxation: if you don’t pay taxes upfront, you’ll pay at the backend.

Summary of Tax Treatment of Qualified Account. One benefit of accumulating savings money in an IRA or 401(k) is of course the tax deferral until you must start to take Required Minimum Distributions. For most of us, that is at age 73 under the latest rules. Here are some other insights:

Tax deferral in qualified accounts enables you to rebalance your portfolios and avoid tax on capital gains within the account.
Use up to $200,000 of your qualified savings to purchase a deferred income annuity called a QLAC, enabling you to delay the payments until as late as age 85.
QLAC can supply income starting when expenses for medical support and home healthcare can be expected to skyrocket.
One negative is that using Rollover IRA savings to purchase an immediate income annuity means you’re paying current taxes without any benefit of deferral.

SAVINGS2Income — Plan with Personal Savings Only

Here’s the plan if our retiree invested $1 million in after-tax savings.

Starting Income 5.08% FY Taxable 24% Lifetime Value at 95: $1,920,000

Highlights of Plan. As you can see, our investor’s starting income at 5.08% will be less than a plan with everything invested in qualified accounts. However, only 24% of FY income is taxed and her lifetime value will grow dramatically, instead of shrink.

Description of tax structure. In this account, our investor is generating a reasonable amount of income, particularly on an after-tax basis, as well as a growing legacy.

Her personal savings, which have already been taxed, can purchase products like stocks that produce dividends and interest, as well as immediate income annuities.
A large portion of annuity payments are excluded from tax when purchased with personal savings, driving down your overall tax rate.
When our investor leaves personal savings to heirs, her beneficiaries will enjoy a step-up in basis at her passing and pay no tax on the gain.

Go2Income — Combining IRA2Income and
SAVINGS2Income Plans

The graphic below shows how we assemble IRA2Income and SAVINGS2Income so that they complement each other for tax purposes. It involves adjustments that either we or your advisor makes, particularly to take advantage of the tax breaks of each account.

As suggested above, the tax savings you earn on income from personal savings or qualified plans individually can be significant. But the IRS doesn’t tax based on separate earning streams. You are taxed on all your income, and the benefits of each type of savings interrelates with the other. Stock dividends, for example, are taxed at a lower rate than other sources; your total taxes will depend on the entirety of your taxable income.

So, looking at the plan on a holistic basis here are some of the things you might do if you’re not working with an advisor and developing a plan on your own.

Purchase immediate annuities in Personal Savings and have a significant portion of income in early years excluded from tax.
Allocate growth equity portfolios in a Rollover IRA and high-dividend equities in personal savings.
Use a Rollover IRA for rebalancing to avoid taxes on sale of investments.
Use personal savings for long-term compounding of returns to maximize step-up in basis at your passing.
Purchase longevity insurance in the form of deferred income annuities (QLAC) in your qualified account.

Whether you’re planning by individual account or for all accounts, consider product selection and allocation.

Your next steps

It’s not rocket science. However, it can get complicated. At Go2Income, we can create plans that show the benefits of only qualified savings, or only personal savings, or everything together. Whatever you are ready for, we can help you find the most income and the lowest taxes.

Can Your Retirement Income Plan Cover Unplanned Expenses?

July 26, 2023 By Jerry Golden in Annuity Tags: Income annuities, retirement income plan, unplanned retirement expenses

Let’s take a close look at ways to create the liquidity necessary in your income plan to cover big-ticket items later in retirement, such as long-term care.

I’d like to make one thing clear. Every retirement income plan I design is to provide lifetime income. A retirement plan doesn’t last for 10 or 15 years, or for your life expectancy of, say, 22.7 years — your retirement is for life. Your income should be, too. I don’t consider lifetime income a feature to be chosen. It just is.

However, we all have additional financial needs and wants.

So, when retirees and near-retirees come to me for a Go2Income plan and point to their large retirement savings accounts as proof that they have plenty of liquidity to cover their regular budget as well as the costs of, for example, long-term care, roof repair or funding the grandkids’ college, I go into lecture mode.

Insuring Your Plan for Retirement Income

June 2, 2023 By Jerry Golden in Annuity Tags: Income annuities, Insure retirement income, plan for retirement income, Social Security

‘Longevity insurance’ ensures you don’t run out of money in retirement. How to figure out how much you need, the types of annuities to use and when the income should kick in are tricky questions, though.

Our calculations are based on the Go2Income planning method to develop plans, estimate annuity rates and prepare comparisons.

As the saying goes, the best insurance is the kind you don’t use. That is certainly the case with auto and home insurance. When you insure your income for a long, healthy life, however, it is possible to acquire the peace of mind of protection and create a major source of your retirement income as well.

In my last article, Are You Worried About Running Out of Money in Retirement?, I showed how adding income annuities could prevent you from running out of money in your plan for retirement income even in a scenario where there was no increase in the share price of stocks over your entire retirement. In contrast, the plan without annuities in this scenario ran out of money at age 91. That meant no income from savings and no portfolio of stocks and bonds to fund unplanned expenses.

Are You Worried About Running Out of Money in Retirement?

May 30, 2023 By Jerry Golden in Annuity Tags: Go2Income, guaranteed lifetime income, Income annuities

Planning that integrates income annuities can help alleviate the No. 1 fear of retirees, even in worst-case investment scenarios and when living way beyond your life expectancy.

(Our examples use Go2Income to develop plans, estimate annuity rates and prepare comparisons.)

Some people make retirement seem like so much carefree fun. And ideally it is a time to enjoy yourself, travel, and spoil your children. If we could just forget that Social Security is slipping toward a steep cliff, inflation continues at nearly three times what the Fed says is acceptable, and health care costs are soaring even as we age and are more likely to get sick, while the stock market looks sick, too.

If we could forget about all that, we would never worry about our retirement finances affecting our retirement lifestyle. Running out of money during retirement is the concern that consistently ranks as the No. 1 fear of retirees. (Here is one survey, from SeniorLiving.org, but there are many more.)

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