As a fiduciary financial advisor in Gainesville, Holland Capital helps you decide how a pension, Social Security and your savings should work together, which one pays first, and how much you can spend each year. We build that income plan first, then invest your savings to support it.
Some retirements come from a single account. Yours may come from several sources, each with its own rules.
A pension that pays a set amount every month. Social Security, which pays more the longer you wait to claim it. A 403(b) or 401(k) you built one paycheck at a time. Maybe an IRA from an earlier job, a TSP from federal service, a spouse’s plan, or money in a brokerage account.
Each one comes with its own forms and its own deadlines. Each is taxed in its own way. None of them tells you how they should work together, or which one should pay the bills first.
The work starts there. What does each source pay, when does it start, and what does the rest of your savings have to cover? Once that is clear, we decide how to invest.
Deciding Which Income Comes First
Your retirement income does not all start on the same day. A pension may begin when you leave work. Social Security may wait several years. Add up what will arrive without selling investments, compare it with what you expect to spend, and your savings have to cover whatever is missing.
That difference is rarely the same every year. If you retire at 62 and wait until 67 or 70 for Social Security, your savings may carry more of the load for several years and much less after that. If your spouse’s pension or Social Security starts later than yours, the picture changes again.
The order you draw from your accounts also changes your taxes. Florida does not tax pension income or retirement account withdrawals, but federal income tax still applies. A pension plus a large withdrawal from a 403(b) in the same year can push more of your income into a higher bracket. Spreading withdrawals out, or converting some pre-tax money to Roth in the years before Social Security and required distributions begin, can lower the total tax you pay over retirement.
Our guide to retirement income planning explains how that schedule is built, and retirement planning covers the rest of our approach.
If Your Pension Comes from the Florida Retirement System
If you work for the University of Florida, a state college, the school district or county government, your retirement plan is probably part of the Florida Retirement System.
You made the first decision years ago, likely in your first weeks on the job. You chose the Pension Plan, which pays a monthly benefit for life, or the Investment Plan, which works more like a 401(k). Some university faculty and administrators chose the State University System Optional Retirement Program instead. You may have added a 403(b) or a 457(b) on top.
By the time retirement is close, the question is what the choice you made years ago means for the income you can build now.
If you are in the Pension Plan, the paycheck is replaced partly by a monthly benefit, and the biggest decisions are when to start it and how it is paid. The plan offers four payment options, from the largest check paid for your life only to smaller checks that continue for your spouse. Once you cash a benefit payment or begin the Deferred Retirement Option Program, known as DROP, that choice cannot be changed.
If you are in the Investment Plan or the optional retirement program, there is no monthly benefit waiting for you. There is an account balance, and it has to become income the same way a 401(k) does: how much to withdraw, from which account, and in what order with Social Security.
A 403(b) or 457(b) usually sits alongside the state plan, with its own rules. A 457(b) from a public employer can generally be withdrawn after you leave without the 10 percent early withdrawal penalty, even before 59½. A 403(b) generally cannot before 59½, unless you leave the job in or after the year you turn 55. That difference can decide which account pays for the years before Social Security.
We put those pieces into one plan, including what your spouse will receive. Our guides to Florida Retirement System planning and University of Florida retirement planning cover the plan details.
How the Portfolio Supports the Income
A pension check that arrives every month changes the job your savings have to do.
If guaranteed income covers most of your basic bills, the portfolio may be paying for travel, gifts and the unexpected. If it covers less, you will be withdrawing from the portfolio more regularly, so the amount you need to take and when you need to take it become part of how the money is invested.
Those facts go into a written investment policy statement, the same kind of document a pension fund works from. It records what the money has to fund and by when, the risk the income plan can tolerate, and the tax rules on each account. The portfolio is managed to that policy, with the goal of the highest return after taxes for the level of risk the plan can live with.
Then we test what happens if the bad market comes early. If stocks fall soon after you retire, can the pension and Social Security cover enough of the bills to give the investments time to recover? If not, we want to know before retirement which spending or withdrawal decisions could change.
A DROP payout or a 403(b) rollover can arrive all at once. We add it to the same plan and the same policy, rather than treating it as a separate account with a separate strategy. With investment management at Holland Capital, the portfolio follows the income plan.
Working with Holland Capital
Holland Capital Management is an independent registered investment adviser and a fiduciary. M. Chad Holland, CFA, CFP® works directly with clients and is responsible for the planning and advice.
If you have a pension estimate, a Social Security statement and recent account statements, they give us a useful place to start. If you do not have everything yet, that does not need to delay the first conversation.
We want to understand when you would like to stop working, what you spend, and which decisions already have a date attached. Then we tell you what we see and what should be decided first.
We work with your CPA and attorney rather than around them, so the income plan, the tax return and your documents agree.
The first conversation is free. If there is work worth doing after that, we will define the scope and cost before you decide whether to move forward.
Our offices are in Charlotte, North Carolina and Winter Park, Florida. We work with clients in Gainesville primarily by video or phone. When an in-person meeting makes sense, we meet by appointment at the Regus center at 300 East University Avenue in downtown Gainesville.
For clients whose investments we manage, accounts are held directly at Charles Schwab in the client’s own name. Holland Capital manages the investments but does not take custody of client assets. If a client ever needs in-person assistance from Schwab, the closest branch is in The Villages at 1048 Lake Sumter Landing.
We work with clients throughout Florida. You can see the other Florida communities we serve here.
Our what we do page explains how a planning engagement works.
RETIREMENT ENGINEERING™
The Order Matters
Five retirement decisions and why timing matters.
Frequently Asked Questions
What Does a Fiduciary Owe Me When Planning My Retirement Income?
When providing financial planning and investment advice, a fiduciary has to put your interests ahead of its own. In retirement income planning, that reaches real choices: when to start a pension, which payment option to take, whether to roll a 403(b) into an account we would manage, and whether an annuity belongs in the plan at all.
Holland Capital acts as a fiduciary when providing financial planning and investment advice. When a recommendation would also increase what we are paid, such as moving money into an account we manage, you hear that from us before you decide.
How Do I Choose a Pension Payment Option?
Start with who depends on the income. The option that pays only for your life gives the largest monthly check, but it stops when you die. Options that continue for a spouse pay less each month, and the reduction depends on both of your ages.
Then look at what else your spouse would have: his or her own pension, the larger of your two Social Security benefits, and your savings. A spouse who would be well covered without your pension may not need the survivor option. A spouse who would not be may need it. Our guide to pension versus lump sum decisions covers a related choice.
I Have an Account Instead of a Pension. How Does It Become Income?
The same way a 401(k) does. You decide how much to take each year, from which accounts, and how that fits with Social Security. Nothing about the account tells you how long it has to last.
You can leave the money where it is, roll it to an IRA, or take withdrawals over time. Each withdrawal from pre-tax money is taxable income, so the pace you choose also sets much of your tax bill. We work out a yearly amount the account can support and revisit it as markets and your spending change.
How Do You Test a Retirement Plan Against a Bad Market?
We run the plan through more than one bad stretch: a large market decline in the first few years of retirement, several years of higher inflation, or both at once. For each one, we look at what would have to give, such as a smaller raise in spending for a few years or a different order of withdrawals.
A pension and Social Security do not fall when the market does. The more of your spending they cover, the less a bad year can change your plan. Our guide to sequence of returns risk explains why a decline early in retirement does more damage than the same decline later.
Can I Work with a Fiduciary Financial Advisor Who Is Not Based in Gainesville?
Yes. The planning runs on documents: your pension estimate, your Social Security statement, your account statements and your tax return. Most of that work happens by video or phone, which keeps meetings efficient, and the planning decisions do not change because our office is across the state.
When an in-person meeting makes sense, we meet by appointment at the Regus center downtown.
Photo: soulbust / Wikimedia Commons / CC BY-SA 4.0, cropped.
