Author Archives: Gage Paul, CFP®, RICP®, EA

How Are Your Social Security Benefits Taxed?

How Are Your Social Security Benefits Taxed?


Understanding Provisional Income

An important factor when creating your retirement income plan is deciding when to claim your Social Security benefits. However, something that is often overlooked is the potential taxation of your benefits if your income exceeds certain annual limits.

These annual limits are based on “provisional income” which is adjusted gross income​ + tax-exempt interest (which could be interest from municipal bonds and savings bonds)​ + 50% of social Security benefits.

“Provisional Income” Formula Used by the IRS:​

Adjusted gross income​ + Tax-exempt interest​ + 50% of Social Security benefits

If your “provisional income” exceeds the levels shown below, you may owe federal income tax on up to 50 percent or 85 percent of your Social Security benefits. The levels are different depending on your tax filing status, but they are not adjusted for inflation.

Example of the of Taxability Social Security Benefits

For example, a married couple (filing jointly) has $1,000 interest income, $10,000 dividend income, and $4,000 tax-free interest; $30,000 of IRA income; and $30,000 annual Social Security benefits (of which only 50 percent, or $15,000, is used in the formula for provisional income to determine the taxability of Social Security benefits) for a total annual income of $75,000.

Their resulting provisional income is $60,000, which is over the $44,000 income threshold for joint filers, and they could owe taxes on up to 85 percent of their Social Security benefits*. 

The Benefits of Tax-Free Income

Having a source of tax-free assets such as a Roth IRA might help you avoid taxes on your Social Security benefits. Unlike tax-exempt bond interest, qualified Roth IRA distributions are not included in the formula for taxability of Social Security benefits.

This is because you don’t receive an income tax deduction on any contributions made to a Roth IRA. Also, there are no required minimum distributions (RMDs) from a Roth IRA throughout the lifetime of the original owner.

This is unlike traditional IRAs and employer-sponsored retirement plans where you must begin taking required minimum distributions once you reach age 72. These taxable distributions may increase your annual income and could affect the taxability ​of your Social Security benefits once they begin.

An Example of How a Roth IRA Can Reduce the Taxability of Your Social Security Benefits

Going back to the previous example we can illustrate how the use of a Roth IRA may help reduce (and possibly avoid) taxes on Social Security benefits. The only difference to their income in this new scenario is the couple has tax-free income from a Roth IRA instead of taxable income from a traditional IRA.

As a result, their Social Security benefits will not be taxed. Their Roth IRA income is excluded from the formula, and thus their provisional income is only $30,000, which is below the $32,000 threshold for taxing benefits*.


Once you understand how your Social Security benefits are taxed, you can begin exploring opportunities to potentially reduce the taxes you pay. Depending on your income and mix of assets, you may have the ability to better manage your tax liability in retirement.  


*These hypothetical examples are used for illustrative purposes only. Actual results will vary.


Feel free to email us at info@westernreservecm.com with any questions you have. If you would like to schedule time with us to discuss your specific situation click here.


Gage Paul, CFP®, RICP®, EA

Gage Paul is an investment advisor at Western Reserve Capital Management. He works with the firm’s clients to create sustainable financial plans and investment strategies.

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How Will You Order Your Portfolio Withdrawals in Retirement?


As you approach retirement, you should begin taking inventory of the assets you will have available to produce retirement income. You should not only look at the dollar value of each account but also the type of account in which the assets are held. Their classification may help you determine the order when it is optimal to take withdrawals from each account.

3 Types of Retirement Savings Vehicles

There are generally three types of retirement savings vehicles; tax-deferred, potentially tax-free, and taxable accounts. You may have various assets in each account type. I will explain each account type below:

Taxable Vehicles

These include accounts such as Checking/Savings and Brokerage accounts. The principal investment is subject to taxes on interest, dividends, and capital gains as it grows.

Qualified dividends and long-term capital gains are taxed more favorably than ordinary income. The rate at which you are taxed will vary depending on your income and capital gains tax brackets.

Tax-Deferred Vehicles

These include employer plans such as 401(k)s, 403(b)s, and 457s, Traditional IRAs, and Simple/SEP IRAs. Tax on earnings and gains is paid at withdrawal, leaving the investment to grow unhindered.

When you start taking distributions from these plans, they will be taxed at ordinary income tax rates. You must take required minimum distributions (RMDs) each year from tax-deferred accounts once you reach age 72 even if you don’t need the money.

Tax-Free Vehicles

These include Roth 401(k)s, Roth 403(b)s, and Roth IRA’s. The principal investment grows tax-free and is tax-free at withdrawal if the appropriate qualifications are met.

Below is a chart breaking out the different types of saving vehicles:

How to Order Your Withdrawals in Retirement

As stated earlier, your personal mix of assets will be one factor in determining your withdrawal strategy. You should also consider things such as:

Maximizing Tax-Deferral vs. Estate Planning Concerns

One strategy is using funds from taxable accounts first, followed by tax-deferred, and finally, tax-free accounts. The thought behind this is by withdrawing from tax-favored accounts last, you are maximizing the time your retirement assets are growing on a tax-deferred basis.

This may not be the ideal approach if you want to leave assets to beneficiaries. This is because appreciated assets held in a taxable account generally receive a step-up in basis at your death. Assets in retirement accounts do not get this same treatment, and it may make sense, in some cases, to withdrawal from tax-deferred accounts first.

Managing The Tax Liability of Your Withdrawals

Depending on your mix of assets, you may have more flexibility to manage your tax liability. This is because annual thresholds are used to determine your marginal tax rate, the percentage of your Social Security benefit that is taxable, and Medicare Part B & D surcharges.

Having tax-free or taxable assets you can withdrawal from may help you keep your income below these thresholds in a given year.

Another way to manage your tax liability is by “filling up” your current income tax bracket by converting a portion of your traditional IRA to a Roth IRA. By converting, you’ll accelerate the taxation of your traditional IRA because you’re taxed as if you took a withdrawal equal to the amount of the conversion.

By performing Roth conversions earlier in retirement, you could potentially reduce the size of your required minimum distributions from your tax-deferred accounts. This could be beneficial since RMDs can force you to generate a greater tax liability than you would want otherwise.

Roth conversions also make your tax-free asset pool larger, which could allow for more withdrawal flexibility in the future.


There is No One-Size-Fits-All Withdrawal Approach

As with most things in retirement income planning, there is no universal best approach for taking withdrawals. Your specific circumstances should determine which approach you take and should be reassessed if/when your plans change. Having assets in all three types of accounts can prove to be a useful tool in retirement.


Feel free to email us at info@westernreservecm.com with any questions you have. If you would like to schedule time with us to discuss your specific situation click here.


Gage Paul, CFP®, RICP®, EA

Gage Paul is an investment advisor at Western Reserve Capital Management. He works with the firm’s clients to create sustainable financial plans and investment strategies.

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4 Steps to Help You Make Better Retirement Decisions


Being More Decisive in Your Retirement Planning

When planning for retirement there are many tough decisions you must make, some of them being irreversible. With this in mind, it would be prudent to have a decision-making framework to help you make the most of your retirement. 

In Decisive: How to Make Better Choices in Life and Work by Chip Heath and Dan Heath, they discuss how to make more effective decisions. By using their WRAP model, you may be better equipped to face what they call the 4 villains of decision-making.  

The Four Villains of Decision Making

Everyone likely has the intention to make decisions that are in their best interest. What gets in the way of these decisions are what Chip Heath and Dan Heath call the four villains of decision-making.

Narrow Framing

The tendency to see things in binary, black and white, terms.

Confirmation Bias

We seek information to support our current views or recent actions. We want reassurance rather than the truth.

Short-term Emotions

We allow our current feelings to cloud our thinking. We can feel differently about the same choice even if the numbers haven’t changed. Think analysis paralysis.

Overconfidence

We think we know what the future holds but we really are making an educated guess.

Making Better Decisions With the WRAP Process

By understanding what could get in the way of making better decisions, Chip Heath and Dan Heath developed a framework to combat these villains. It is called the WRAP process and includes the following four steps.

Widen Your Options

This is where you broaden your search when looking for the possible options available to you. Narrow framing can cause one to be blind to your choices.

Reality Test Your Assumptions

You seek outside information when reviewing your options. Some of this information is meant to be disconfirming. The confirmation bias leads you to only seek self-serving information. 

Attain Distance Before Deciding

You try to look at the bigger picture and how your choice fits into it. Short-term emotions can cause conflicted feelings and tempt you to make a bad choice.

Prepare to be Wrong

This is where you plan for possible future outcomes and how you will react to those events. Overconfidence can lead us to believe things will play out in a specific way.

An Example of How the Four Villains’ Can Creep into Your Retirement Planning

Someone who is approaching retirement and is considering how they should invest their portfolio.

  • They ask themselves “Should I invest in the stock market or not?” (Narrow Framing)
  • They believe the stock market is too risky for a retiree and seek information to validate their beliefs. (Confirmation Bias) 
  • When making their choice they choose to let their intuitive feelings drive their decision when their situation hasn’t changed. (Short-Term Emotions)
  • They are certain the stock market will not serve them now or in the future. (Overconfidence)

An Example of How to Use the WRAP Process

If they instead used the WRAP process when making the same decision as above:

  • They ask themselves “What are the possible ways I could invest in the stock market? How could I manage the risks I take when investing better?” (Widen Your Options)
  • They review information on the long-term historical returns of stocks and other asset classes. They also seek expert advice and options to understand the pros and cons of investing in the stock market. (Reality Testing Assumptions)
  • They look at the long-term potential of investing in the stock market and how that impacts their retirement plans. They place less weight on short-term market volatility. (Attaining Distance)
  • They test their investment allocation using software that runs their portfolio through many hypothetical future scenarios to see their likelihood of success. They determine if they are comfortable with the probability of things not going as they had hoped. If they aren’t they would need to make adjustments before they make their final decision. (Preparing to be Wrong)

The WRAP process can be useful when making decisions when planning for retirement. While you can still have bad outcomes, the focus is placed on the analysis rather than the results.


Feel free to email us at info@westernreservecm.com with any questions you have. If you would like to schedule time with us to discuss your specific situation click here.


Gage Paul, CFP®, RICP®, EA

Gage Paul is an investment advisor at Western Reserve Capital Management. He works with the firm’s clients to create sustainable financial plans and investment strategies.

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Investing for Retirement


Shifting Your Investing Focus

During your accumulation years, your investing focus was primarily on long-term growth. The main goal for your portfolio is to earn an acceptable average annual return, while the emphasis was put on how much you saved each year.

But in retirement, the demands on your portfolio are likely to be very different. You are now withdrawing money from, not contributing money to, your investment portfolio. This requires a retirement income plan that balances your need for ongoing income with maximizing the likelihood of your savings lasting as long as you and your spouse may live.

What complicates things are the many factors that should be considered when creating your retirement income plan.

Factors to Consider When Creating Your Retirement Income Plan

As you can see, there are many assumptions to be made about future events when creating your retirement income plan. The longer we project into the future the less certain we can be about any outcome. We do not know how long we will live, nor know exactly what our future expenses will be. Also, the performance of the market is anything but consistent or predictable.

Determining Your Required Rate of Return

Now that you have determined how much retirement income you need to generate each year, you must invest in a way that allows you to continue to fill this income gap. Depending on your annual spending level, your investment portfolio will require a certain rate of return to maintain this standard of living over time.

Once you know what rate of return your personal savings need to generate, you can determine the appropriate mix of assets for your investment portfolio to attempt to earn the necessary rate of return. This may mean you pursue growth with a portion of your assets and the degree of risk that accompanies it. 

​How Should You Allocate Your Portfolio?

One way to determine how you should allocate your portfolio is using the Bucket Approach. In this method, you segment your portfolio based on your income needs over time. You would allocate your assets into one of three buckets; Now, Later, and Much Later.

The Now Bucket

Assets in the Now bucket should be in very safe assets such as cash or cash alternatives. Assets in this bucket should be liquid since they will be funding your living expenses within the next 12-24 months.

The Later Bucket

Assets in this bucket will be used to fund your upcoming expenses within the next 5 years. These assets could be placed into high-quality government bonds to potentially generate income greater than cash while minimizing the risk you take.

The Much Later Bucket 

Assets in this bucket are meant to fund expenses that are 5+ years in the future. This portion of your portfolio will likely be invested in the stock market. Stocks have historically provided returns greater than cash however you are taking on additional risks by investing in them.

Because of these risks, the Bucket approach attempts to ensure there is sufficient cash and fixed income reserves on hand in advance of any turbulent market conditions. This might enable you to avoid selling investments during a down market.


Developing and adhering to a sound investment strategy is essential in retirement. This strategy will likely look different than the one you used during your accumulation years. You must find a balance between today’s spending needs and those of the future if you plan on maintaining your standard of living throughout retirement.


Feel free to email us at info@westernreservecm.com with any questions you have. If you would like to schedule time with us to discuss your specific situation click here.


Gage Paul, CFP®, RICP®, EA

Gage Paul is an investment advisor at Western Reserve Capital Management. He works with the firm’s clients to create sustainable financial plans and investment strategies.

If you liked this post, you can subscribe down below. 


Join the Western Reserve Capital Management Newsletter

Inflation’s Impact on Your Retirement


The Power of Compounding

When you are saving for retirement you hope that your investments will grow over time. The sooner you begin saving the more time you will be able to take advantage of the power of compound interest.

This is because you are potentially able to achieve growth on your growth. Not just growth on your initial investment. This may seem hard to conceptualize, but there is an easy way to see how it works.

It is called the rule of 72 and it shows you how long it will take for an investment to double. To perform the calculation you divide the number 72 by the rate at which the investment will increase in value.

The resulting number is how many years it will take for a hypothetical investment to double. The graphic below shows some hypothetical examples to illustrate how the rate of return affects the time of doubling.

The Power of Negative Compounding

The power of compound interest can provide a large tailwind for someone who has many years of saving ahead of them. Unfortunately, for people who are in retirement and are utilizing their personal savings to fund their living expenses, they can potentially have compound interest working against them.

This is because of the impact inflation has on your purchasing power over time. The average annual rate of inflation since 1914 has been approximately 3%, according to the U.S. Department of Labor. This means at 3% annual inflation, something that costs $100 today would cost $200 in 24 years. This potential of negative compounding could have serious implications for a retirement that could last for 30+ years.

Addressing Inflation In Retirement

We can go back to the equation I’ve discussed in prior posts to see what can be done to combat inflation.

Income – Expenses = The Gap

Inflation’s Impact on Your Expenses

We know your expenses will increase in retirement, but everyone is impacted by inflation differently. This is because all goods and services do not increase uniformly.

Different sectors have different inflation rates. Also what you spend money on can shift over time and certain expenses can become a larger percentage of your spending in retirement. Healthcare costs, for example, are expected to increase faster than the average inflation rate.

It is also something that could become a larger proportion of your spending in retirement as you age. With this in mind, it could be prudent to separately account for your healthcare expenses in your retirement spending plan.

Inflation’s Impact on Your Retirement Income

The income you receive in retirement can play an important role in funding your living expenses. This role could be diminished based on the source of the income stream. Not all pensions or annuities are adjusted for inflation. This means they can lose their purchasing power over time.

Social Security, on the other hand, has an annual cost of living adjustment, COLA. This means it increases with inflation. This inflation adjustment is regardless of the size of your monthly Social Security benefit.

If you were able to delay claiming your Social Security, the increased monthly benefit you receive will be adjusted for inflation. This larger monthly benefit could mean a greater portion of your retirement income is less sensitive to a loss of purchasing power. 

Inflation’s Impact on Your Retirement Income Gap

If your retirement income does not cover all your expenses you will need to fill this income gap with your personal savings. This income gap may become larger over time if your retirement income does not increase with inflation.

This widening income may require you to rely more on your personal savings later in retirement. With this being the case, it is important to invest in a way that allows you to maintain your purchasing power.

You may have investments that aren’t decreasing in value in nominal terms but are losing their purchasing power when accounting for inflation. With this in mind, you could look at your portfolio’s real rate of return, meaning adjusted for inflation.

If your current allocation is not keeping pace with inflation you may consider investing a portion of your portfolio in things that can potentially generate returns above inflation.

These investments would be earmarked for the long term. They are meant to fund your future expenses and could experience short-term market volatility.


Inflation is yet another risk you may face in retirement, though its effects may not be felt for many years. With smart planning and prudent investing, there are ways to attempt to mitigate its effects on your purchasing power.


Feel free to email us at info@westernreservecm.com with any questions you have. If you would like to schedule time with us to discuss your specific situation click here.


Gage Paul, CFP®, RICP®, EA

Gage Paul is an investment advisor at Western Reserve Capital Management. He works with the firm’s clients to create sustainable financial plans and investment strategies.

If you liked this post, you can subscribe down below. 


Join the Western Reserve Capital Management Newsletter

Engineering Your Retirement Income


When you retire, this will likely be the first time you are using your personal savings to generate an income. Due to the lack of experience you may, justifiably, choose to proceed with an abundance of caution. This caution may lead you to be more conservative in your approach than you otherwise could be with smart planning.

Advancements in Engineering

Matt Parker discusses a similar phenomenon in his book  Humble Pi: When Math Goes Wrong in the Real World. In this book, he discusses the evolution of bridge design as a result of increased mathematical knowledge and better tools for engineers to use when they are doing their calculations.

He notes the differences in the design of nineteenth and early-twentieth-century structures, built from large stone slabs and massive steel beams. In short-everything was ‘over-engineered’ in an abundance of caution since they were relying on intuition rather than mathematics.

By leveraging calculations and planning we can build structures beyond our intuitions and come closer to the edge of possibility. Certainly, this is not without some risk. As a result, governing bodies establish building codes to ensure there is a sizable margin of safety built-in.

These third parties review and approve the design prior to construction. They take into consideration the demands to be placed on the structure and possible adverse conditions that could be imposed.

Advancements in Retirement Planning

Similar advancements have taken place in the area of retirement planning. Modern software allows you to perform stress tests, run various hypothetical scenarios, optimize the claiming of retiree benefits, and see the impact of the changes you make to your plan.

Unfortunately, unlikely with engineering real-world structures these calculations cannot be made with certainty. While math and physics include scientific certainties and outcomes, the direction of any investment cannot be anticipated, as such, there is no definitive way of knowing whether the predicted outcome will be realized.

Leveraging Retirement Planning Software

When you are approaching retirement, you want to make the most out of the resources you have available to you. By leveraging software you can better prepare yourself to see if your current strategy is feasible or needs adjusting.

While no software or strategy will ensure an outcome with certainty, they can assist in your overall decision-making process. There are many versions of this kind of software available on the internet, and some of them are even free to use.

Often, many of these programs are ‘black boxes’ and you are not able to see the underlying calculations. This then requires you to be certain your inputs are both accurate and reasonable given your circumstances.

Implementing Your Retirement Plan

Once you create your plan, you must then begin doing what the software suggests that you do. This could mean changing your investment allocation, begin saving, or spending X amount of dollars. You will also be responsible for implementing any insurance, estate, or tax planning recommendations, which will often require working with a third party of some kind.

After the upfront heavy lifting is finished, you would then regularly monitor your plan, and make adjustments to your plan when necessary.  

Outsourcing Your Retirement Planning

An alternative to creating your own retirement plan is deciding to work with a financial advisor to create one with you. Working with a financial advisor can help ensure your calculations are correct and your plan is feasible. They can also help to implement the recommendations in the plan and provide ongoing monitoring. 

A financial advisor can also share their experience with those who they have helped before you. They can help you avoid common pitfalls and provide you with actionable insights about your specific situation. 


Retirees today have access to more free information and resources than ever before. The issue today is not access but rather the accuracy of the information and mistakes can be costly. Understanding the information and actually implementing the recommendations from that information are two different skills.   

If you do decide to go it alone, proceed with caution and a healthy level of skepticism. 


*Investing involves risk and the potential for loss of principal.  No one plan will ensure your outcome is favorable.  As such it is important that you understand the risks involved in your plan.


Feel free to email us at info@westernreservecm.com with any questions you have. If you would like to schedule time with us to discuss your specific situation click here.


Gage Paul, CFP®, RICP®, EA

Gage Paul is an investment advisor at Western Reserve Capital Management. He works with the firm’s clients to create sustainable financial plans and investment strategies.

If you liked this post, you can subscribe down below. 


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Preventative Maintenance for Your Retirement Portfolio


I have spoken before on how to rehab your portfolio and return to investing after suffering an investment ‘injury’. In this post, I will discuss the idea of preventative maintenance and how to incorporate these concepts into your investing.

What is Preventative Maintenance?

There is a concept in the training space known as preventative maintenance. This is where you take action before you get injured to reduce the risk of injury altogether. This can include, but is not limited to:

  • Getting enough sleep
  • Proper Nutrition
  • Proper Hydration
  • Allowing adequate time in between training sessions to recover
  • Adapting your training to your current abilities
  • Performing exercises to strengthen potential weak or problem areas
  • Stretching
  • Soft-tissue mobilization work
  • Seeking professional guidance, therapy, or coaching

I wanted to include things that may seem obvious, but are often neglected. Meaning someone may want to pay for expensive treatments or recovery devices, but doesn’t get enough sleep and eat very poorly. Doing the basic things well is a simple concept but difficult to execute consistently.

Doing these things will not guarantee you won’t get injured, since there are factors you cannot control. Preventative maintenance, instead shifts the focus on things you can do that are directly in your control to reduce your risk of injury. 

What is Preventative Maintenance for Your Retirement Portfolio?

When investing for retirement there is a benefit to regularly monitoring your portfolio and making periodic adjustments. This is because over time the composition of your portfolio is likely to change due to the uneven nature of the financial markets. A well-diversified portfolio will have assets that behave differently and growth will not be uniform.

Making many minor periodic adjustments to keep you in line with your long-term investment strategy can reduce the risk of having to make a major investment choice with short-term emotions clouding your decision-making

Three Preventative Maintenance Strategies for Your Retirement Portfolio

1. Revisit Your Purpose for Investing

We feel it is important to have a reason behind your investment strategy. Understanding your purpose can be helpful when there is a lot of uncertainty in the markets.

However, it is possible your priorities could change and you should ask yourself:

  • Is my current strategy still appropriate given any change in circumstances?
  • Am I still investing in a way that is serving my goals?
  • Am I taking too much risk?

2.Review the Asset Allocation of Your Portfolio

Once you revisit your purpose for investing you can look at how your portfolio is allocated. You can view this on an account-by-account basis, but there is also a benefit to looking at the overall allocation of your total portfolio since you likely have stocks, bonds, and cash in a number of places.

I have provided a worksheet you can use to calculate your overall portfolio across all of your accounts.

Once you know your overall asset allocation you can ask yourself:

  • Is my current allocation different than when I created my investing strategy? If so:
    • What do I need to sell and what do I need to buy to get back to this allocation. This concept is known as ‘Rebalancing’ your portfolio.
  • Are you currently taking any money from your portfolio or do you plan on taking any money out of your portfolio within the next 5 years? If so:
    • How much?
    • From which account will these funds becoming from?
    • Do you already have assets earmarked for these expenses?
    • Will there be any tax consequences from these distributions?

3.Investment Due Diligence

The third thing I will discuss is a review of what you are investing in. The specifics of what you are investing in are often overemphasized by the financial media. In reality, your individual investments could be very boring. Meaning your investments could be in low-cost broad-based funds that are well diversified across the financial markets. 

With that being said it is a good idea to review the fees you are paying for your investments and compare what you are investing in with other similar investments to see if their relative performance is adequate.

If you hold active funds or individual investments, this process should be more thorough and more frequent in nature. I will not detail what this due diligence process would consist of since it is outside of the scope of this article.

The Role of a Financial Advisor

The alternative to performing the tasks yourself is working with a financial advisor who would perform these duties on your behalf.

It’s important to find a financial advisor who understands your reason for investing and can communicate their investment process to you in plain English.

There is no single right answer to investing for retirement.

To learn more about how you can optimize your investment and retirement planning needs, click here to learn more about Our Process.


Feel free to email us at info@westernreservecm.com with any questions you have.


Gage Paul, CFP®, RICP®, EA

Gage Paul is an investment advisor at Western Reserve Capital Management. He works with the firm’s clients to create sustainable financial plans and investment strategies.

If you liked this post, you can subscribe down below. 


Join the Western Reserve Capital Management Newsletter

How Large Does Your Nest Egg for Retirement Need to Be?


What is the Rule of 25?

The rule of 25 is a commonly used financial heuristic for calculating how large of a ‘nest egg’ you should save for retirement. To determine your nest egg, you multiply the annual income you will need for retirement by 25. It then assumes you draw 4% from that pool of assets annually.

This idea is based on some retirement research that looked at what a ‘sustainable’ withdrawal rate would be for a hypothetical portfolio with a 30-year time horizon.

This withdrawal rate is not appropriate for everyone, but it is a good place to start when ballparking the size of your nest egg. I will not go into detail on all the factors you should consider when determining your withdrawal rate but have listed some of them below:

  • Inflation Rates
  • Portfolio Returns (Pre and Post Retirement)
  • Retirement Age
  • Expected Date of Death
  • Annual Living Expenses
  • Pensions
  • Social Security Benefits Date
  • Other Sources of Income
  • Taxes

What Will Your Annual Income Needs be in Retirement?

Calculating Your Expenses

In order to know what your income needs will be, you will likely need to look at what you plan your expenses to be in retirement. I have provided a worksheet you can use to calculate your current monthly expenses and what you expect your monthly expenses to be in retirement.

The expenses are broken up into two categories, essential and discretionary:

  • Essential
    • Housing
    • Utilities 
    • Transportation
    • Medical & Healthcare
    • Insurance
    • Taxes
    • Debt Payments
  • Discretionary 
    • Entertainment and Recreation
    • Family Care
    • Charitable Contributions

It is very likely that there will be differences in these expenses between what they are now and what they will be in retirement. The closer you are to retirement, the more you should know what these expenses should be. 

Monthly Expense Worksheet

Once you have an idea of what your monthly expenses will be you can multiply that number by 12 to get your annual income need in retirement. 

Subtract Retirement Income from Your Expenses

From there you can subtract your income you plan to have in retirement:

  1. The annual amount supplied by ‘certain’ sources of income (Social security, pension, annuity, etc)
  2. The annual amount supplied by other income sources (work, rental, property, etc.)
    • *Note these sources can be used when calculating your income required but should not be relied on since they could fluctuate.

Filling the Remaining Income Gap

If your retirement expenses are more than your retirement income, the remaining ‘gap’ needs to be filled by income generated by your personal savings.

You then multiply the annual gap by 25 to calculate the assets needed to generate enough income for a 4% withdrawal rate. 

Comparing the Assets Needed to Your Current Assets

You then subtract the assets needed by your current assets to see the difference.

If your current assets are below the assets required, you can see the assets needed to reach that number.

Rule of 25 Example

Below is an example of someone with $1,000,000 in assets seeing if they meet the rule of 25.

As you can see having a $1,000,000 portfolio doesn’t necessarily make you wealthy. It takes a large pull of assets to generate a sustainable source of income in retirement that could last decades. 

Your assets are only one factor in the calculation. Having additional sources of retirement income or reducing your annual expenses are both ways you could reduce the need for additional assets. If you could reduce your need in retirement by $100/mo., that reduces the assets you need by $30,000. But the math works both ways, if you want to spend $100/mo. more in retirement your nest egg will need to be $30,000 larger.

The Rule of 25 is far from perfect, but it can be a good way to get a rough figure on the size of the nest egg you will need for retirement. The more interesting point for me is that it shows that the amount of assets you have is only one part of the equation, and lowering your expenses or optimizing your other sources of retirement income, can reduce the size of the nest egg you need in the first place.

Knowing that there is no one correct answer to the question, allows for the opportunity for smart planning and a more nuanced discussion of how you can fill the income gap in retirement.


Feel free to email us at info@westernreservecm.com with any questions you have. If you would like to schedule time with us to discuss your specific situation click here.


Gage Paul, CFP®, RICP®, EA

Gage Paul is an investment advisor at Western Reserve Capital Management. He works with the firm’s clients to create sustainable financial plans and investment strategies.

If you liked this post, you can subscribe down below. 


Join the Western Reserve Capital Management Newsletter

Four Undervalued Retirement Strategies


EP05. Undervalued Retirement Strategies The Retirement Rabbit Hole

The Challenges of Reaching the Average Person in Sports Nutrition

In the field of sports nutrition, they face two challenges when developing new products.  

  1. Finding ingredients that work.  
  1. Packaging those ingredients into a product that the consumers understand and are willing to buy.  

It is possible for consumers to read the latest scientific research and implement their findings by purchasing the ingredients online. The average consumer is not likely to do this because the individual ingredients are unflavored and relatively expensive.

This results in a limited audience for these ingredients because their benefit does not justify the time and effort required to study and source them. 

This means new ingredients are not widely utilized until they can be packaged in a way that is appealing and cost-effective to the average consumer. Sports nutrition companies must create a product around the new ingredient and communicate the benefits in a way the average person understands.

They also must ensure their product is effective, reasonably priced, and tastes good to maintain their credibility as a brand.  

The Challenges of Reaching the Average Person Planning for Retirement

Something similar happens in retirement planning. There are strategies that can be beneficial to your retirement plan but are not widely adopted. This can be due to a lack of understanding of the benefits or an uncertainty of how to implement them. 

Unless they are working with a trusted advisor who can explain these concepts in a way they understand, the average retiree will forgo these strategies. An advisor can show how these strategies are combined into an overarching retirement plan and allows them to make informed decisions after seeing the potential benefits.  

The whole is greater than the sum of its parts

Aristotle

Four Undervalued Retirement Planning Strategies 

1. Global Diversification

A globally diversified portfolio is often unappealing given the recent outperformance in the US stock market. This trend could continue, but there is benefit in looking to invest in companies outside of the United States.  

2. Delaying Social Security

For those who have the luxury to postpone claiming their social security, the potential benefit of their financial plan can be massive. Often how it is framed can lead to individuals want to claim it sooner rather than later.  

3. Long-Term Care (LTC) Insurance

There is a high probability you or your partner may need some form of LTC. But people are often hesitant to buy something they may not need or use.

4. Estate Planning

Ensuring your affairs are in order. This may seem obvious, but many people postpone estate planning because they do not want to come to terms with things. It is an advisor’s job to help them through this process.  


These items may not be appealing but can be beneficial when incorporated into your retirement plan. Even if you decide against using these strategies it would be prudent to explore their potential benefits. Following a financial planning process ensures you review your earlier decisions and determine if your position in any area has changed.


Feel free to email us at info@westernreservecm.com with any questions you have. If you would like to schedule time with us to discuss your specific situation click here.


Gage Paul, CFP®, RICP®, EA

Gage Paul is an investment advisor at Western Reserve Capital Management. He works with the firm’s clients to create sustainable financial plans and investment strategies.

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Rehabbing Your Investment Portfolio

Ep 04. Rehabbing Your Portfolio The Retirement Rabbit Hole

Rehabbing an Injury from Training

If you experience injury from exercising, a structured rehabilitation process may be recommended to help facilitate your return to training. The rehab process will include gradual exposure to movements and increasing loads to allow for proper recovery and to rebuild the individual’s self-confidence.

It is not uncommon for someone to be hesitant to resume training due to the fear of reinjuring themselves. While there is always a risk of injury when training there are also health risks from ceasing training that can gradually manifest if exercise is not resumed. 

How to Rehab Your Investment Portfolio

If you were invested in the stock market and sold out of a portion, or all, of your investment portfolio and went to cash the idea of reinvesting can seem daunting. Like getting injured while training, the idea of skipping the rehabilitation process and avoiding training can feel more comfortable in the short-term but can carry long-term consequences.  

Cash is Comfortable

Someone who holds an excessively large proportion of their portfolio in cash is similar to someone who lives a sedentary lifestyle. The potential negative consequences of not putting your cash to work do not manifest themselves until many years down the road when inflation has gradually eroded the purchasing power of that cash.

Investing a portion of your portfolio in stocks does carry market risks but the potential risks may be necessary to fund your future goals. Stocks provide the potential of growth above the rate of inflation and can help you maintain the purchasing power of your portfolio over time. 

How to Rehab Your Portfolio

I have provided a “Portfolio Rehab” process to resume stock investing for someone who has been “injured” by the market. This is not specific investment advice, but rather a framework to be applied regardless of your investing preferences and goals. 

Start with Why  

  • What is your purpose for investing?
  • Is your current portfolio allocated in a manner to allow you to achieve your set purpose?
  • If no, further consideration is needed to determine what changes can be made to give you a better chance of achieving your goals. 

Embrace the process  

  • There will be ups and downs along the way, as investment returns are never linear.  

Manage expectations  

  • Understand that market volatility is always a part of the investing process, and investing can be painful, but “hurt” does not always equal “harm.”
  • The goal is to set realistic returns and volatility expectations. 

Return to Investing  

  • Gradually and systematically increase your stock exposure until you reach your target allocation.
  • Using a systematic process that allows you to reinvest over time helps to remove the emotion from the investing decisions. 

Seek professional help   

  • If you are struggling with the idea of investing, having difficulty finding an entry point into the investing process, or have tried to proceed through this process without success, it is reasonable to seek out assistance from a trusted advisor.
  • This may involve someone local to you, or the team at Western Reserve Capital Management is happy to help. 

The thought of investing in the stock market can seem intimidating but following a systematic process to begin or resume investing in the stock market can be a useful way to increase your equity exposure over time.

The stock market exposes you to additional risks but when these risks are managed appropriately, it can provide you a greater chance of funding your long-term goals.  


Feel free to email us at info@westernreservecm.com with any questions you have.


Gage Paul, CFP®, RICP®, EA

Gage Paul is an investment advisor at Western Reserve Capital Management. He works with the firm’s clients to create sustainable financial plans and investment strategies.