Direct Indexing for Retirees: You May Be Able to Cut Taxes and Keep More in 2025

Erik Bowman • October 28, 2025

Taxes shouldn’t take the biggest bite out of your nest egg

If you’ve saved diligently for decades, the last thing you want is to see a chunk of your gains disappear each April. For retirees and pre-retirees with sizable taxable accounts, capital gains taxes and costly rebalancing can quietly reduce long-term results. Meanwhile, markets are still choppy, and policy and tax thresholds can change. In this environment, strategies that improve after-tax returns — not just pre-tax performance — matter more than ever. One approach gaining traction is direct indexing, which can open more frequent opportunities for tax-loss harvesting while keeping you invested in a diversified way.



In this article, we’ll explain direct indexing in plain English, show how it can help reduce tax drag, and outline when it may (and may not) fit a retirement plan. We’ll also discuss other familiar tools like ETFs, mutual funds, and annuities so you can make informed choices for 2025 and beyond. 

What is direct indexing and how does it affect retirees?

Direct indexing is an approach where you own many of the individual stocks in an index (such as the S&P 500) instead of a single ETF or mutual fund. Because you hold the stocks directly, you (or your advisor’s software) can sell specific positions at a loss to help offset gains elsewhere — a process called tax-loss harvesting — while buying similar (not “substantially identical”) stocks to keep your market exposure. This can potentially improve after-tax returns for investors with large taxable accounts. (Schwab Brokerage)

Why this is timely for retirees in 2025

  • Capital gains still matter. Long-term gains are taxed at 0%, 15%, or 20% depending on your income; higher-income investors may also owe the 3.8% Net Investment Income Tax (NIIT). That’s a meaningful drag if you routinely realize gains from rebalancing or selling high performing assets to fund retirement income. (Kiplinger)
  • Frequent harvesting can add up. Academic work and large asset managers’ research suggest systematic tax-loss harvesting can potentially add roughly 1%–2% in “tax alpha” over time, especially in volatile markets — the kind we’ve seen on and off since 2020. Results vary and can’t be guaranteed, but the concept is well-studied. (CFA Institute Research and Policy Center)
  • The approach is mainstream. Industry analysts project direct indexing assets could approach ~$800+ billion by 2026, reflecting broader adoption and better technology. (Cerulli Associates)

How capital gains taxes actually work in retirement (and why loss harvesting can help)

When you sell investments in a taxable account:

  • Short-term gains (held ≤1 year) are taxed at your ordinary income rates.
  • Long-term gains (held >1 year) are taxed at 0%, 15%, or 20% depending on your taxable income, plus a possible 3.8% NIIT above certain income thresholds ($200,000 single / $250,000 married filing jointly). (Kiplinger)


Tax-loss harvesting lets you realize losses to offset those gains dollar for dollar. If losses exceed your gains, you can generally offset up to $3,000 of ordinary income each year and carry the rest forward. The key guardrail is the wash-sale rule: if you buy the same or “substantially identical” security within 30 days before or after selling at a loss, the IRS disallows that loss. (IRS)



Plain-English analogy: Think of your portfolio like a garden. Even if the garden (the index) is thriving overall, some plants (individual stocks) wilting in the shade can be pruned (sold) to help the rest flourish by reducing the “tax weeds.” Direct indexing gives you more plants to prune individually — without tearing up the entire garden bed.

Direct indexing vs. ETFs and mutual funds

With a broad ETF or mutual fund, you own a single fund, so you can’t harvest losses from particular stocks inside it. You either sell the whole fund (which may realize gains) or do nothing.

With direct indexing, you own many of the index’s individual holdings. That means when some stocks are down — even if the overall index is up — you can selectively realize losses and swap into similar (not identical) names or a different fund in the same sector to stay invested and diversified. Done carefully, this helps preserve your asset mix while banking losses for tax purposes. Research and provider data attribute much of direct indexing’s potential 1%–2% after-tax boost to this flexibility. (CFA Institute Research and Policy Center)

Caution: compliance with the wash-sale rule matters, which is why most solutions use software to scan portfolios and implement trades methodically. (IRS)

Who tends to benefit most

Based on industry practice and the realities of trading costs and complexity, direct indexing typically works better for investors who:

  • Maintain large taxable balances (often low- to mid-seven figures).
  • Regularly realize gains (from rebalancing, asset sales, or concentrated positions).
  • Value customization (e.g., excluding certain industries or offsetting a large single-stock holding).
  • Are comfortable with modest tracking error (your return may slightly differ from the index).



Minimums and pricing vary by provider. For example, one large platform lists a $100,000 minimum with fees around 0.25%–0.40% depending on assets and program specifics. Your total cost also includes your advisory fee. (Schwab Brokerage)

A simple, real-world example 

Suppose your direct indexing portfolio tracks the S&P 500. The market is up 8% this year, but within the index, Stock A is –10%. You (or your advisor’s software) can:

  1. Sell Stock A and realize a capital loss.
  2. Replace it with another automaker or a broad sector ETF (not “substantially identical”) to maintain exposure.
  3. Use the realized loss to help offset gains from trimming Stock B, which has grown beyond your target.



The outcome: you stay invested, your allocation remains intact, and your after-tax result may improve versus holding only a single index fund. 

How direct indexing is implemented (and what to ask your advisor)

  • Holdings selection. Most strategies hold hundreds of the largest names in an index to closely track performance while leaving room to trade.
  • Loss-harvesting cadence. Some providers scan daily for opportunities — research suggests more frequent scans can capture more consistent tax-loss harvesting than occasional reviews. (ETF Database)
  • Tracking error. Expect small deviations versus the benchmark — often a worthwhile trade-off for better tax management.
  • Customization. You can exclude industries, tilt toward dividend payers, or neutralize a concentrated stock from your career. Leading providers highlight these uses. (BlackRock)
  • Charitable gifting. You can donate highly appreciated positions to qualified charities or donor-advised funds and avoid capital gains while potentially deducting fair market value (subject to IRS rules and AGI limits). (IRS)


Where annuities, funds, and cash still fit

Direct indexing primarily targets tax efficiency in taxable equity portfolios. Many retirees still combine it with other tools as appropriate to their needs:

  • ETFs/mutual funds in tax-deferred accounts for simplicity.
  • Fixed annuities or income annuities to create predictable income streams that don’t depend on market returns.
  • Cash/T-bills for near-term spending buckets.



The right mix depends on your income needs, risk tolerance, and tax situation. (Remember: annuities are insurance contracts with specific costs, features, and limitations; not all are right for every retiree.)

Common questions from retirees

“Are harvest losses a free lunch?”
No. Harvesting a loss lowers your tax bill now, but it adjusts your cost basis, which can increase future gains. That said, many retirees spend harvested tax savings, donate appreciated shares, or use the time value of deferral to their advantage. (CFA Institute Research and Policy Center)


“What about the wash-sale rule?”
You generally must avoid buying the same or “substantially identical” security 30 days before/after a loss sale across all your accounts (even IRAs). Professional oversight helps avoid mistakes. (IRS)


“Will this replace my ETFs?”
Not necessarily. Many retirees keep ETFs in IRAs/401(k)s and use direct indexing in taxable accounts where the tax benefits are available.


“How big is this trend?”
Analysts expect direct indexing assets to grow at double-digit rates, approaching the $800B mark by 2026, as technology lowers costs and expands access. (Cerulli Associates)

Actionable strategies to consider for 2025

  1. Map your “tax locations.”
    List accounts by type (taxable, IRA, Roth). Direct indexing typically belongs in         taxable accounts; hold broad funds or income assets where taxes are deferred. This “asset location” step helps prevent working at cross-purposes.
  2. Set harvesting rules — and stick to them.
    Ask how often your portfolio is scanned (daily vs. monthly), what loss thresholds trigger trades, and how replacement securities are chosen to avoid the         wash-sale rule. Consistency is key. (ETF Database)
  3. Coordinate rebalancing, withdrawals, and gifting.
    If you’re selling high performing assets to fund spending, harvest losses first to offset gains. Charitably inclined? Consider gifting appreciated positions to a qualified charity or donor-advised fund to potentially avoid capital gains while taking a deduction (subject to IRS rules). (    IRS)
  4. Right-size the solution.
    Direct indexing involves added complexity and fees. Review         minimums and pricing; many programs start around 0.25%–0.40% of assets, often declining at higher balances. Confirm total costs, including your advisory fee. (Schwab Brokerage)
  5. Plan for “what-ifs.”
    Ask your advisor to model         tracking error, potential tax alpha ranges, and what happens in up and down markets. Discuss coordination with other retirement pieces you may own — such as annuities for income or bond ladders for spending — so the whole plan works together.


Key takeaways

  • Direct indexing gives retirees more ways to harvest losses and help improve after-tax returns without abandoning diversification. (Schwab Brokerage)
  • Taxes can materially reduce returns; long-term gains are 0%/15%/20%, and higher earners may owe the 3.8% NIIT. Know your bracket. (Kiplinger)
  • The approach is mainstream and growing, aided by better software and lower minimums. (Cerulli Associates)
  • It’s not one-size-fits-all: weigh costs, minimums, and tracking error against expected tax benefits. (Schwab Brokerage)
  • In 2025, proactive, tax-aware planning can help you keep more of what you’ve earned.


References (selected)

  • IRS, Publication 550—Investment Income and Expenses (2024) (wash-sale rules and reporting). (IRS)
  • IRS, Topic No. 559—Net Investment Income Tax (NIIT) (3.8% thresholds). (IRS)
  • Kiplinger, Long-term capital gains thresholds for 2025 (rate bands). (Kiplinger)
  • Chaudhuri, Burnham & Lo (2020), Financial Analysts Journal — An Empirical Evaluation of Tax-Loss-Harvesting Alpha. (CFA Institute Research and Policy Center)
  • Vanguard & Parametric, industry research on potential 1%–2% after-tax alpha from active tax management. (Vanguard Advisors)
  • Cerulli Associates, Direct Indexing adoption outlook (assets projected near $825B by 2026). (Cerulli Associates)

IRS, Publication 526—Charitable Contributions (stock gifting rules and limits). (IRS)

Important information & disclosures

This material is for informational purposes only and is not tax, legal, or investment advice. Investing involves risk, including loss of principal. No investment strategy, including diversification or direct indexing, can ensure a profit or guarantee against losses.  Direct indexing strategies may not be appropriate for all investors and can result in tracking error versus the chosen benchmark. Tax outcomes depend on individual circumstances and may change with future tax law. Consult a qualified tax professional about your situation. (It is not possible to invest directly in an index.)

Investment Advisory Services offered through CreativeOne Wealth, LLC, an SEC-registered investment adviser. CreativeOne Wealth, LLC and Bowman Financial Strategies are unaffiliated entities. We are not affiliated with or endorsed by any government agency, and do not provide tax or legal advice. Licensed insurance professional. Insurance and annuity guarantees are backed by the financial strength and claims-paying ability of the issuing company.

Investment advisory services are provided in accordance with a fiduciary duty of care and loyalty that includes putting your interests first and disclosing conflicts. Insurance services have a best interest standard which requires recommendations to be in your best interest. Advisors may receive commission for the sale of insurance and annuity products

Required Minimum Distribution

By Erik Bowman • April 27, 2020
You’re listening to uncommon sense, a podcast by Bowman Financial Strategies. I’m your host, Erik Bowman, and thank you for joining me today. Hi everyone and thank you for joining me today. This is Erik Bowman, owner of Bowman Financial Strategies. Our topic today is required minimum distributions or more commonly known as RMDs. Erik: (00:32) To some of you, it may come as a shock that you cannot keep your retirement funds in your retirement account indefinitely. Generally speaking, you really must start taking withdrawals from your IRA, your simple IRA or your SEP IRA or even your qualified retirement plans such as a 401k or 403B when you reach 70 and a half. Roth IRAs by contrast do not require withdrawals until after the death of the owner. Your required minimum distribution or RMD is the minimum amount of taxable distribution that you must take out of your retirement account each year. Once you reach 70 and a half. Erik: (01:16) The RMD poses all sorts of conundrums for retirees, like how is it calculated? Who calculates it, when is it due? What happens if I don’t take it and what if I don’t want to take it? And the list goes on. Today I’m going to cover the basics of an RMD. Who does it apply to? Calculations and resources to further educate yourself and of course some potential strategies that may alleviate some of the challenges surrounding RMDs, namely taxes. Erik: (01:52) So let’s start from the beginning. When you turn 70 and a half, you are required to take an RMD from your retirement account, an IRA, for example, by April 1st of the following year. For all subsequent years, you must take the distribution by December 31st of that year. For example, if you turn 70 and a half in August of 2020 you must make your distribution by April 1st of 2021. If you choose to do that, you would also have to calculate your 2021 RMD and also take that in 2021. So in actuality, in the first year that you decided to take that RMD, you would actually have to take two distributions. Now you don’t have to delay until April 1st you can take your RMD in the year that you turn 70 and a half. Erik: (02:49) An exception to this rule applies to 401ks, also known as a qualified retirement plan, which is the terminology that’s used to describe an employer sponsored 401k, 403B, 401A, just to name a few. For these accounts, you must take an RMD by April 1st of the year following the year you turn 70 and a half or upon retirement, whichever is later. If you’re still gainfully employed for example, and you have an act of 401k and you’re 72 years old, you don’t have to take an RMD from that qualified plan that you have at that current employer, even though you’re older than 70 and a half. However, once you retire, those RMDs are due by April 1st following the year that you retire. And one really big caveat and a mistake that you do not want to make that is even if you are working and you’re older than 70 and a half, if you have an IRA in addition to your 401k, you still must take your required minimum distribution from that IRA. Don’t make that mistake and I’m going to be talking about the penalties the IRS can impose if you fail to take your RMDs. Erik: (04:07) here are a few other points that may save you some headaches and money in the future. If you have multiple qualified plans or multiple 401k’s, meaning maybe you’ve worked at previous employers and you have simply left your money behind at those various employers 401ks and you have not moved them into IRAs, you must calculate the RMD for each account individually and then take the distribution from each of those respective 401ks by the deadlines. By contrast though, if you have an IRA or multiple IRAs, you can calculate the required minimum distribution for each IRA individually. Add those together and take the total sum of those as a distribution from one of your IRAs. Now, depending on how you’re investing your assets, this may be a beneficial thing to do. It certainly seems a little bit simpler than making a distribution from multiple IRAs. Since 403B’s are considered qualified plans, you might think that the same rule applies. Erik: (05:09) However, it is a little bit different. If you have more than one 403B tax, sheltered annuity account, also known as a TSA, you can total the RMDs from each of those 403Bs and then take them from any one or more of the tax sheltered annuities. So I mentioned penalties a little bit earlier. So let’s gather round and chat about this one. Most people are aware that if you take money out of an IRA before 59 and a half, that you will pay a 10% penalty on that distribution in addition to the taxes. And that’s not fun and should be avoided in most cases. By comparison, if you fail to take your RMD on time, you will pay a whopping 50% penalty to the IRS. Yes, that’s a 5- 0% penalty. So if you were supposed to take $10,000 out and you failed to do that, by the respect of deadline, you would literally owe a $5,000 penalty to the IRS in addition to income tax on the total amount. The IRS wants their taxes and they will get them one way or another. So don’t let this rule catch you by surprise. Erik: (06:27) So let’s talk a little bit about the actual distributions themselves. You actually do have a couple of options. First, if you’ve calculated your RMD for the current year, you can actually opt to take the full calculated amount in one lump sum anytime up until December 31st of that year. The one exception, of course, is your first year of required minimum distributions. You do have until April 1st of the following year, but that is only for year one. Another option is you may also choose to take periodic distributions over the course of the year to meet your obligation. You also want to take into account income, cash flow and expenses to help guide you here. But there could be strategic and tactical reasons why you might want to spread that out on a monthly or quarterly basis over the course of that year as opposed to making one large lump sum distribution. It’s a little synonymous with the concept of dollar cost averaging when you’re buying into stocks and bonds and other investments that you get a better average share price potentially by buying in over time. Same on the way out when you’re making distributions from your IRA. It could be beneficial to take smaller amounts out over a 12 month period and in that case in, if there was a declining market, you may have actually saved yourself some principle over time. Erik: (07:56) Okay, now onto calculations. How do we determine how much you must withdraw each year? No surprise here. It’s not the same every year. It’s kind of complex and it totally depends on your unique situation. The IRS publishes a table called the uniform lifetime table. It’s table three on the IRA RMD distribution worksheet that’s available on our website on this podcast page. For example, your first IRA distribution for the year you turn 70 and a half, requires you to know your exact balance of your IRA or IRAs on December 31st of the prior year. You then take this balance and divided by 27.4. Seems like an odd number but it’s a joint life expectancy number. So by dividing that balance by 27.4 the answer to that equation is the exact amount you must make as required minimum distribution. You need to do this for every single retirement account you have unless one of the exceptions I mentioned or other exceptions that your financial professional mentions may apply to you. Erik: (09:06) In the next year, when you turn 71, you will take the prior year’s 1231 balance and divided by 26.5 and by the time you reach 114 yes, the table actually goes out to 115 and older, you will divide by 2.1. So 2.1 is the divisor for one 14 it drops down to 1.9 when you reach one 15 and stays there if you happen to live longer than that. But what you’ll notice is that each year that goes by, the lower number in this equation gets smaller and smaller, which means the amount of money you have to distribute from your account becomes a larger portion of that account every single year. Erik: (09:53) another exception that we see periodically, it’s not an everyday occurrence, but it could be your situation. So this is an exception to the rules on that table and that is if your spouse is the sole beneficiary of your IRA and he or she is more than 10 years younger than you in this case, the IRA utilizes another table for you to calculate your distribution. The IRS wants more money from you while you are alive so that when your IRA is left to your younger spouse, who by the way can usually take RMDs based on their age and spread that out over a longer period of time. Well, there’s going to be less money in that account to spread over a supposedly longer lifespan of your younger spouse. It’s just another way of the government saying, we would like to ensure that we get these tax dollars sooner than later, but don’t forget that it is a totally different calculation with a different bottom number on that fraction when you’re calculating your RMDs, if your spouse is more than 10 years younger than you. Now there are many, many other rules regarding RMDs. If you’re a 5% owner of a company for example, and you’re still working in that company and you have a 401k, you’re not allowed to continue to delay RMDs, passed 70 and a half. You actually still have to take them per the original rules, but just know that you really should be talking with your financial professional before you solidify any of your RMD calculations or distribution strategy. Erik: (11:30) So relating to strategies, the name of our company after all is Bowman Financial Strategies and we really try to look for opportunities to save our clients money, save them on taxes and just to be efficient when it comes to the distribution of their assets during the retirement stage of their life. So relating to strategies, one of the challenges to a moderately high net worth individual is that you may have a pretty substantial retirement account. When you turn 70 and a half, you’re going to be forced to take a large taxable distribution if that account has grown and you haven’t made any distributions up until then. So for example, if you have a $3 million IRA under current law, your distribution that’s required the year you turn 70 and a half is roughly $109,000. Imagine you began taking your social security benefits at age 64 because you wanted to get it while the getting was good, you are afraid it was going to run out. Erik: (12:26) And that’s a separate topic. So you don’t take any meaningful distributions from your IRA from age 64 to age 70 and a half. Now you find that not only is your social security payment forever reduced because you filed early, but now you’re forced taxation at 70 and a half, maybe significantly higher than it otherwise would’ve been. All this is to say that your social security filing strategy should include understanding how your retirement accounts will be impacted by RMDs and ultimately how much in taxes you may pay by appropriately timing your social security filing, potential Roth conversions and IRA distributions along with distributions from your non-qualified brokerage accounts and other income streams, you may be able to significantly lower your tax burden over the life of retirement. Erik: (13:20) Well, I’m afraid I only scratched the surface on RMDs and all of the moving parts and potential strategies. Suffice to say it is complex penalties can be onerous and there may be strategies available to you that could lower your taxes significantly under the right circumstances. If any of this information is compelling to you and you want to learn more, I would love to hear from you. You can email me at E R I K @bowmanfinancialstrategies.com. That’s E R I K @bowmanfinancialstrategies.com. You can call our office at (303) 222-8034 and just simply schedule an appointment to come on in, have a cup of coffee and allow us to perform some analysis for you. Thanks so much for your time and I hope you have a great day. Thank you for joining me for Uncommon Cents, the Bowman Financial Strategies financial education series. I’d love to hear your feedback on financial topics you would like to learn more about. Just drop me an email at Erik, that’s E R I K @bowmanfinancialstrategies.com or go to the Bowman Financial Strategies website and send me a note on our contact page. In addition, you can always search for topics of interest in my archive on our podcast page at www.bowmanfinancialstrategies.com/podcasts. Have a great day. Disclosure: (14:52) This communication does not constitute federal tax advice and may not be used as such. Please consult a qualified tax professional for tax advice or assistance. In addition, investment advisory services offered by ChangePath LLC, a registered investment advisor, Change Path and Bowman Financial Strategies are unaffiliated entities.

Three Primary Risks in Retirement

By Erik Bowman • April 27, 2020
You’re listening to uncommon sense, a podcast by Bowman financial strategies. I’m your host, Erik Bowman, and thank you for joining me today. Hi everyone. My name is Erik Bowman and I am the owner and founder of Bowman financial strategies. Thanks for taking the time to listen to this podcast. Today, I’m going to be discussing the three primary risks in retirement. Erik: 00:34 At Bowman Financial Strategies, we work every day helping clients who are transitioning from accumulation to distribution to do so wisely and confidently. I’ve seen the success stories, worked with many challenges facing retirees and helped my clients craft income plans they are confident will meet their needs for the entirety of retirement. Importantly, these plans are built to provide stability and to support your standard of living regardless of market conditions. Getting motivated to take the necessary steps to create an effective retirement plan can be challenging. However, not crafting an effective plan can be catastrophic to your retirement. It’s often been said that your retirement outcome is a result of your retirement income and never truer words have been said. You have worked hard, saved during your careers and budgeted wisely, knowing that the day was going to come when you will need to replace your income without working. Now you have an accumulated bucket of money to retire with and the primary goal many times is to maintain your current standard of living you enjoy now plus add in more travel. 00:34 At Bowman Financial Strategies, we work every day helping clients who are transitioning from accumulation to distribution to do so wisely and confidently. I’ve seen the success stories, worked with many challenges facing retirees and helped my clients craft income plans they are confident will meet their needs for the entirety of retirement. Importantly, these plans are built to provide stability and to support your standard of living regardless of market conditions. Getting motivated to take the necessary steps to create an effective retirement plan can be challenging. However, not crafting an effective plan can be catastrophic to your retirement. It’s often been said that your retirement outcome is a result of your retirement income and never truer words have been said. You have worked hard, saved during your careers and budgeted wisely, knowing that the day was going to come when you will need to replace your income without working. Now you have an accumulated bucket of money to retire with and the primary goal many times is to maintain your current standard of living you enjoy now plus add in more travel. Erik: 01:43 Well one method is to invest in the stock market, hope you’re diversified and allocated correctly, and hope to get enough of a return, and hope that the market doesn’t crash and take your retirement with it. At Bowman Financial Strategies, we don’t ever use the word hope in our retirement plans. Our plans are designed to remove anxiety knowing that all three risks in retirement are addressed appropriately. The Bowman Financial Strategies income planning process known as the LiveWell formula focuses on three primary risks in retirement, and every recommendation in our plans directly addresses these primary risks. The risks in order are sequence of return risk, inflation risk, and longevity risk. To further break these down, let’s look at them one at a time. Erik: 02:37 The first risk: sequence of return risk. I also call this early retirement market timing risk. This risk is represented by the risk of significant negative market returns in the early years of retirement. You only have to go back to 2007 through 2009 to witness over a 50% drop in the U.S. Stock market. It’s been over 10 years since that low and the markets have marched steadily upwards since then with very few exceptions. And with markets routinely setting new highs, some would say that the potential for continued growth for the next 10 years is less likely than a significant drop during that same period. If you are just starting retirement and you’re fully exposed to potential market losses like 2009, and many seniors were and are, your future retirement plans may change dramatically requiring an unpleasant adjustment in your standard of living to make ends meet. We seek ways to limit early retirement market timing risk by using fixed or guaranteed rate of return solutions to reduce the exposure to pure stock market. Erik: 03:50 The second primary risk is: inflation risk. And this is really the opposite of the market timing or sequence of return risk because inflation risk is the risk that your assets and income may not get enough of a return and be able to keep up with the ever rising costs of goods and services. If your income never increases or your assets never increase the rate of return, but the cost of a gallon of milk doubles in 10 years, your effective purchasing power has just dropped significantly. Accounting for inflation is critical to a good income plan. By failing to plan for inflation, you may misjudge the amount of money you can spend each year in retirement, finding yourself running out of money a decade sooner than you planned. This leads once again to a catastrophic change in your standard of living if you run out of supplemental income sources like IRAs, in addition to social security and pensions midway in retirement. We typically address inflation risk by having professionally managed stock and bond portfolios for our clients that are appropriately allocated for their timeline and risk tolerance. Erik: 05:00 The third primary risk is: longevity risk. This risk can be further divided into two types of risk, longevity risk associated with income and longevity risk associated with health care expenses. Income risk is the risk of running out of income sufficient to cover your essential expenses in retirement. Having enough guaranteed income to meet your essential needs or a floor of income provides not only a financial advantage but also a psychological one. Your confidence and baseline income allows you to live anxiety free and stick with the long term plans related to your invest-able assets that may be in the stock market that are dedicated to long term inflation protection. The other longevity risk is healthcare risk, which is the risk that you may experience deteriorating health that require the assistance of qualified professionals to help you with the six basic activities of daily living also known as A.D.L.s. Contrary to what many believe, health insurance and Medicare do not pay for long term care expenses. Erik: 06:05 If you don’t have a strategy in place, you are considered “self-insured”, quote unquote. This means that if you experience a health condition requiring assistance with the six activities of daily living, you will need to spend down your assets until you have $2,000 (at least that’s the requirement in most states to be eligible for Medicaid as well as some income thresholds that if you exceed would make you non eligible). But if you even are eligible for Medicaid at some point, then your state Medicaid program may help. And as former president, Ronald Reagan said, “don’t worry, I’m with the government and I’m here to help.” So most people don’t look at Medicaid as the primary route to take care of their health care expenses later on in life if they have the resources to help plan against that risk. Erik: 06:54 Now that we understand the three basic risks, that being: sequence of return risk, (you don’t want to lose a lot of money early in retirement), inflation risk, (we still need to seek growth with our retirement assets because things will get more expensive and over a long 30 year lifespan in retirement or more, things can get significantly more expensive.) And then finally, longevity risk. And that would be the risk associated with assuming that you can figure out how to have guaranteed income streams that will last as long as you live, no matter how long that is, and then the long-term care expenses that are also commonly associated with longevity. Once we gather all of your required information, we then begin using sophisticated financial software to calculate the maximum annual income using agreed upon assumptions and always addressing those three financial risks in retirement. Thanks a lot for joining me today. I truly appreciate your time. If you ever have any ideas of topics that you would like to have me discuss here, please drop us a line. You can send me an email at erik@bowmanfinancialstrategies.com that’s E R I K @bowmanfinancialstrategies.com or you can simply give us a call at (303) 222-8034. And finally you could go to our Facebook page and you can drop us a note there as well. Thanks again for joining me today. I hope you enjoy the rest of your week. Erik: 08:20 Thank you for joining me for Uncommon Sense. The Bowman Financial Strategies financial education series. I’d love to hear your feedback on financial topics you would like to learn more about. Just drop me an email at Erik, that’s E R I K @bowmanfinancialstrategies.com or go to the Bowman Financial Strategies website and send me a note on our contact page. In addition, you can always search for topics of interest in my archive on our podcast page at www.bowmanfinancialstrategies.com/podcasts. Have a great day. Disclosure: 08:56 This communication does not constitute federal tax advice and may not be used as such. Please consult a qualified tax professional for tax advice or assistance. Any references to protection, guarantees or lifetime income refer to insurance products, never securities products. Insurance and annuity products are backed by the financial strength and claims-paying ability of the issuing insurance company. In addition, investment advisory services offered by Change Path, LLC, a registered investment adviser. Change Path and Bowman financial strategies are unaffiliated entities.
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