RICP cheat sheet

Retirement income gap = projected annual retirement expenses minus guaranteed lifetime income (Social Security, defined-benefit pension, annuitized payments); a positive gap must be funded by portfolio withdrawals or additional guaranteed income.

Replacement ratio guideline: plan on 70-80% of pre-retirement gross income; lower-income households commonly need 80-90%, while higher-income households commonly need 60-70%.

Safe withdrawal rate: a 4% initial withdrawal, adjusted annually for inflation, has historically produced roughly 95% success over 30 years with a 50-60% equity portfolio; success is probability-based, not guaranteed.

Fixed-percentage withdrawal: withdraw a constant percentage of the portfolio's current value each year; income fluctuates with markets and the formula never fully depletes principal.

Floor-and-upside strategy: match essential expenses with guaranteed income (Social Security, defined-benefit pension, life annuity, DIA or QLAC) and invest remaining assets for discretionary spending and growth.

Time segmentation (buckets): 0-5 years of spending in cash and short bonds, 5-10 years in intermediate bonds, 10+ years in equities; refill the near-term bucket from longer-term gains.

Dynamic or guardrail withdrawals (Guyton-Klinger): raise withdrawals after strong returns and cut them after losses within preset upper and lower guardrails to extend portfolio life.

Sequence-of-returns risk: a market decline early in retirement combined with withdrawals locks in losses; mitigate with a cash reserve, flexible spending, or a guaranteed income floor.

Annuitization transfers longevity and market risk to an insurer, provides mortality credits, but is generally irrevocable and reduces liquidity and legacy assets.

Social Security full retirement age is 67 for those born in 1960 or later; claiming at 62 reduces benefits by 30%, and delayed retirement credits add 8% per year to age 70 (124% of PIA).

Spousal benefit is up to 50% of the worker's PIA at the spouse's full retirement age; survivor benefit is 100% of the deceased worker's benefit, including delayed credits, if claimed at the survivor's FRA.

Earnings test (2024): $1 of benefits withheld per $2 of earnings above $22,320 before FRA; in the year FRA is reached, $1 per $3 above $59,520; no reduction after FRA.

Social Security taxation: provisional income = AGI + tax-exempt interest + 50% of benefits; thresholds are $25,000/$34,000 for single and $32,000/$44,000 for married filing jointly, with up to 85% taxable.

Required minimum distributions begin at age 73 (age 75 for those born in 1960 or later); the penalty is 25% of the shortfall, reduced to 10% if corrected within the correction window.

Qualified charitable distributions: from age 70½, up to $105,000 (2024) transferred directly from an IRA to charity is excluded from income and counts toward the RMD.

Defined-benefit pension payout options include single life, joint and survivor (50%, 75%, or 100%), period certain, and lump sum; electing a joint and survivor option reduces the participant's benefit.

HECM reverse mortgage: borrower must be 62 or older; the loan is non-recourse, no monthly payment is required, and repayment is due on death, sale, or permanent move; taxes, insurance, and maintenance must be paid.

Medicare: eligibility at 65 with 40 quarters; Part A covers hospital, Part B medical, Part D drugs; IRMAA surcharges use MAGI from two years earlier; custodial long-term care is not covered.

Monitor annually: compare actual spending, portfolio value, effective withdrawal rate, taxes, health, and plan assumptions; update beneficiaries and estate documents.

Recalculate the funded ratio: present value of assets plus guaranteed income divided by present value of planned expenses; a ratio above 1.0 indicates a surplus.

Trigger events for a plan update include death or divorce, a health or long-term care event, job loss, a market decline of 20% or more, tax-law change, relocation, or a pension or Social Security change.

Withdrawal order options: conventional sequence of taxable, then tax-deferred, then tax-free accounts, or bracket-filling that blends sources to level marginal tax rates across retirement.

Roth conversions: pay tax at today's rate for tax-free growth, no owner RMDs, and tax-free heir distributions; evaluate before RMDs begin and against IRMAA thresholds.

Tax torpedo: while Social Security benefits are being phased into taxable income, each additional $1 of income can produce marginal rates near 40.7% in the 12% bracket or 46.25% in the 22% bracket.

Rebalance using withdrawals, dividends, and new contributions first to limit realized capital gains; check allocation drift against the target at least annually.

Guardrails: set upper and lower portfolio or withdrawal thresholds in advance; a breach triggers a planned spending cut or increase rather than an ad hoc decision.

Stress-test assumptions with lower-return, higher-inflation, and long-life scenarios; if success probability falls below the client's tolerance, adjust spending, guaranteed income, or asset mix.