Speaker 1 0:02
On today’s show, protecting your retirement portfolio from potential market crashes is all about balancing risk and reward while keeping a long-term perspective. Today on Retire Smart Maryland Radio, we’ll break down key strategies in an easy to follow way.
Announcer 0:21
Welcome in to Retire Smart Maryland Radio with Prashant Sabapathi.
Speaker 2 0:27
Welcome in to Retire Smart Maryland Radio, your host Prashant Sabapathi and John DeFeo. You can find them at Elite Income Advisors. Again, this is all about retirement planning. They’re headquartered in Ellicott City, they have a satellite office in Annapolis. Prashant, an independent fiduciary, and again, importance of having a plan, being ready for your retirement. I’m Morgan Patrick. Each and every week, we go back and forth on so many different retirement topics, and you’re going to have questions about your own situation, how you’re doing with your planning, or maybe you’re not planning yet, you’re just sitting on the portfolio. There’s an opportunity to get on the calendar with elite income advisors. Stay tuned for that. These are complimentary appointments. So today, talking about that retirement portfolio, there’s a lot going on. The market is volatile. We’ve seen a lot of that in recent weeks, so you got to be able to balance risk and reward, so how do you do that? Maybe we talk about that, guys. And before we jump in, let’s get an update on how the week was. Prashant, you go first. Week’s been good, you know, just busy, man, just busy, but it’s good. It’s really good, and that’s because I’ll tell you what, there’s a lot going on, both politically with the government. Yep, there’s a ton going on in the economy now, and I think, for better or for worse, it’s forcing people to reconcile their retirement plans sooner rather than later, and so maybe you’re sitting out there
Speaker 1 2:00
thinking, you know, retirement was still 10 years away, and now I didn’t have to think about it for maybe another four or five years, but look, I think people are being thrown into the retirement planning sphere, and as a result, our office has been busier than ever. I love it, and it’s been really good. Just, I’ll tell you what, it’s nonstop every single day, back to back to back to back appointments, and it’s really cool to kind of get to visit with our audience. That’s pretty sweet.
Speaker 2 2:28
Defeo, Defeo, what? How was your week, bud?
Speaker 3 2:32
About the same, and everything that Prashant just said, 100% agree with mixing in some seminars and workshops as well, trying to get out as much education as we possibly can, so it’s good to be busy. I love it, and hopefully it stays that way.
Speaker 2 2:48
Important to just remember, and both Prashant and John mentioned it, there’s so much that can impact you in retirement, and we’re not doing this in a vacuum, right? So world politics, stateside politics, it’s going to impact what’s going on with your retirement. Very important to have a plan. So, what do we do with our money? Right, let’s talk about that first. Investing your monies, but have an intelligent approach to your risk management. John, we’ll start with you.
Speaker 3 3:17
It’s important to know that not all funds handle risk in the same way, you know, there’s 1000s of different investment funds out there. Some of them are built with strategies to limit the downside losses while still participating in market growth. Some are more meant for principal protection. So, you know, we typically guide clients into looking for funds that adjust exposure based on market conditions, these can be funds like tactical allocation funds, sector rotation funds, so some of these funds actively manage the volatility by shifting between stocks, bonds, cash, depending on the risk level that’s associated with the objective of that fund. So a well-designed risk-managed fund won’t necessarily eliminate the losses entirely, but it can certainly help cushion the blow when markets become ugly. So, what’s the key here? I mean, it’s not just growth, but it’s trying to smooth out the returns over time and keep your portfolio stable in retirement, trying to ensure that you know again things are more consistent, we don’t like the the wild zigs and zags of the market. If we can get in front of that with diversification,
Speaker 2 4:27
balancing the risk, balancing the reward, again, it’s a, it’s a fine line. You need to have a plan, need to work with fiduciaries and map this out. We’re talking about things you can do with your money. This next one, put that money, maybe, and so it’s hedging against any large equity losses, per shot. This
Speaker 1 4:44
is really important, because I always say losses hurt you more than gains help you the closer you get to retirement. So, if you think about that, it’s it’s a theory that’s called loss aversion theory, and that is the impact of. Losing money is far more detrimental than the benefit of gaining money, and so you want to position your money in such a way that allows you to protect against that large downside, whether it’s using things like low volatility funds or low volatility ETFs, you can still have equity exposure, stock market exposure, while limiting some of those bigger losses, another thing to look at is alternative investment opportunities, and maybe even some insurance as a result. So, when I talk about alternative investments, you’re looking at things like commodities, like gold and silver, potentially. Maybe you’re looking at real estate, maybe you’re looking at private equity opportunities. Those things can tend to move in a little bit of a different way, in a more non-correlated way than the stock market, which helps you diversify risk, but I’ll tell you the one I’m really excited about, and that’s the idea of using annuities. Okay, and this is something that has gotten incredibly popular over the last several years. Now, when people hear the word annuity. I think where our mind goes is it goes back to the old annuities that our grandparents used to use, and that was you took a big lump sum of money, you gave it to an annuity company, and in exchange they would give you a monthly income for the rest of your life. Believe it or not, annuities have changed in a major way over the last several decades, and one of the ones that has become more popular is one called a fixed indexed annuity. So, fixed index annuity offers you total principal protection on the downside. So, folks, that means if the market goes down, you cannot lose any money due to that market decline. But then the second thing that happens is that if the market goes up, you have the opportunity to make a percentage of those of those gains, and so we have some upside with absolutely no downside, but Morgan, the thing I like about it the most is that a lot of these fixed index annuities have no fees or charges, and that is so important, because I think when people hear annuity, they start to think of higher fee annuities. Those are not the types of things that we use in our office. So, when we’re talking about portfolio balance, I think it’s really important to have money in the market, maybe in a higher risk status, but then I think it’s equally important to have some of your money totally protected, potentially in a lower risk type of way.
Speaker 2 7:24
Boy, you bring up a really good point. Annuities have been unfairly stereotyped based on annuities of old. It really has changed their customizable opportunity to talk about putting something like that in your portfolio might be a good fit. Well,
Speaker 1 7:40
so you actually said something that’s so true, John. I know we got to get to a break here. Can you just give me, like, and maybe we do this on the other side of a break, because I think it’s worth talking about. Is John, what are some of the different types of annuities out there? Maybe you can list one or two different types of annuities in addition to the fixed index, and then maybe we can cover them on the other side of the break,
Speaker 3 8:00
right? So there are variable annuities, there are fixed annuities, there are immediate and deferred annuities, a mix of all of these put together, and as Prashant mentioned, there are some that are more preferential today than there were years before. So we certainly can talk through the differences of those here after the break,
Speaker 1 8:21
so let’s open up our phone lines, folks. It’s 800-653-8404 We do it every single show on Retire Smart Maryland Radio, 800-653-8404 You dial that phone number, you’ll be able to schedule a free visit with our team of advisors and specialists here at Elite Income Advisors. You come in to visit with us, we’ll take you through a comprehensive planning process. We’ll help you optimize your social security. We’ll perform a risk analysis, and then we’ll put together a lifetime income plan, help you map out that income every year for the rest of your life after accounting for taxes and inflation. That phone number again, 800-653-8404
Speaker 2 9:00
or you can visit Retire maryland.com Retire Smart Maryland Radio. Going to continue on the other side, we’ll talk more about balancing risk and reward when it comes to your retirement. That’s all coming up next, you We are back on Retire Smart Maryland Radio. Prashant Sabapathi and John DeFeo are your hosts. You can find him at Elite Income Advisors. It is a fiduciary firm. Prashant’s been busy, man. He’s been writing books: Physical Health, Retirement, Wealth, and Retire Abundantly. His two books that are out currently. They are headquartered in Ellicott City, and they have a satellite office in Annapolis. I’m Morgan Patrick, and each and every week I get to go back and forth with the fellows, and it’s always about the importance of having a retirement plan, the puzzle pieces that go into that plan. Again, it depends on, you know, where you are in your planning process. Do you need a state and leg. Planning, maybe there’s a safe money strategy to talk about. How are you going to take social security? And yes, there is a strategy to that. How are you going to handle taxes? Because we all know one thing, if there’s one thing we’re almost sure of, taxes are going to go up in the future. So you need to plan for the taxes. We started off the program talking about balancing risk and reward. We’ve talked about putting your money in an intelligent approach to risk management. Maybe that money is somewhere where it’s providing a hedge against large equity losses. And we started off the process talking about the annuity, and Prashant, you wanted John to go more in depth on just the types of annuities. You guys can go back and forth on this, because they have been stereotyped. It’s been unfair over the last five six years, because people think, okay, annuities are bad, but annuities have changed, and there’s a good opportunity to at least have the conversation about maybe it’s a good fit for your portfolio.
Speaker 1 10:56
So, the ones that we see the most often are the fixed annuity, the variable annuity, and the fixed index, and when I see, when I say that we see them, what I’m referring to is when people come into the office, if they have an annuity, it’s typically one of these three types. So, real quick, we’ll go through these, just so that our audience has a baseline knowledge of what we’re talking about here. So, fixed annuity is just a lot like I almost equate it to like a CD, right? You just get a contract length, and that’s going to be x number of years, might be two years, three years, five years, and then you get a stated rate of interest. So let’s say I get a five year annuity, and hypothetically that stated rate of interest that’s guaranteed to me is four and a half percent, that means I’m going to get four and a half percent each and every year for five years. Very simple, very straightforward. Typically not going to have any fees. John, why don’t you talk a little bit about what a variable annuity is, and what kind of consumers need to be looking for if they have a variable annuity or if they’re considering a variable annuity,
Speaker 3 12:04
certainly. So, a variable annuity is a contract that you’re able to participate in the market, so they give you a selection of separate funds to invest in, and again, it has the same risk level as your investments in the stock market, the bond market, whatever you pick. Now, a lot of these annuities come along with what are called riders, so you can pay a fee, an enhanced fee, to have a stable amount of income at some point in your life, or an enhanced death benefit. So maybe you put 500,000 into it, and you can pay a fee over time to increase that death benefit to a higher amount. So these can be beneficial in certain situations, but you have to be cognizant of the fees that are associated with these contracts, because not only are there, you know, fees that are associated with the contract itself for mortality expenses, but you also have those fees for the riders, right, so these can sometimes generate fees of three to 4% which can have a pretty significant drag on the returns of your investments, so understanding where these can actually come into play are very important prior to signing on to one, because they can be extremely difficult to get out of. Yeah,
Speaker 1 13:14
that’s exactly right. And I think the other thing there is, how that contrasts to some of the no fee annuities that I was talking about before the break, like something like the fixed indexed annuity, and I’ll give you a real-life kind of example of a use case for a fixed indexed annuity. We had somebody come in, they had seen our television program, Retire Smart Maryland TV, came into the office, we started to do a plan design for them, they had about $1.4 million and it was all in a retirement account. So, one thing that we knew for certain is when they turned 73 years old, they were gonna have to take minimum distributions out of the account. One of their core concerns was, I don’t want to have to take that required minimum distribution during a down year in the market, I don’t want to see the 1.4 become 900,000 and then be forced to withdraw from that, because Uncle Sam says that I have to withdraw when I reach that age. So, what we did for this gentleman is on the $1.4 million we simply took 700,001 half of it, we deposited it into a fixed indexed annuity, and then we took the other 700,000 and left it in the stock market. Now, what’s going to happen is, when he goes to take that required minimum distribution, if the market is up, we’re going to plan to take that distribution out of his risk money account, because at least we know we’re not selling at a low point, but if the market is down, we’re going to go to his fixed indexed annuity, for which he has not lost any money on, because you can’t lose money in the fixed indexed annuity, and we’re going to take out the distribution that is required. It gives him a safer, smoother ride through the market cycle. He might not get at. Much growth, but what it does give him is it gives that gives him a heck of a lot of peace of mind in how to create a distribution strategy.
Speaker 2 15:08
Retire Smart Maryland Radio, Prashant Sabapathi and John DeFeo with Elite are your hosts. I’m Morgan Patrick. We go back and forth on the topics, and we just finished up with the annuity conversation, but it’s in and around just balancing risk and reward as you’re moving to and through retirement. We’ve talked about putting your money in an intelligent approach for risk management, also provide that money, providing a hedge against large equity losses, and this is something that kind of hits us almost every time we get on the radio, guys. We’re living longer, we’re healthier, which is a great thing, but when you live longer, you need more money. So, along with that, I mean, John, think about this. How do we, how do we grow our money, our wealth intelligently, so we can have that money throughout our retirement?
Speaker 3 15:55
Yeah, I mean, people are certainly living a lot longer, and this means that we’re seeing clients with retirement windows of 2030 even 40 years, so that’s a long time to plan for. So, it’s not just about protecting your wealth, it’s about growing it wisely, right? So, inflation is going to be your biggest enemy in a long retirement, and even low inflation can slowly erode that purchasing power over that long period of time, so what is the solution to the inflation problem that’s investing in assets that grow over time, those growth assets like stocks, dividend paying funds, even growth focused ETFs. So we like to consider the growth aspect as growth with guardrails, right, so putting your money into things like balance funds that have a blend of stocks and bonds that help reduce the volatility while also still compounding your returns. So, a great strategy for that would be something like a fixed indexed annuity. You can almost consider that you know the inability to lose your principal balance is a guardrail in that capacity, so we, you know, again go back to the bucketing strategy that we talk about so many times, where we have assets that are in the growth bucket that the objective is to hedge inflation, leave money to your, your beneficiaries and your heirs, where we have a bucket also that’s safe, secure, the principles protected, and again it allows you to diversify your funds, and you know, again, grow that money in a smart fashion.
Speaker 2 17:26
I mean, you’re balancing risk, you’re trying to, you know, get the rewards, but I mean, it takes planning, and we’re just going over a few things, and look, with everything that’s going on in the world today, Prashant, people are nervous, people are very concerned about everything that’s going to impact them as they move to and through retirement, but at that, you know, even saying that you need to be aware that you still have to be in it, right? You got to have a little skin in the game, you need to have some exposure to risk, I mean, you need to have a principle that’s safe, but you need to have some exposure out there.
Speaker 1 18:00
Yeah, that’s right. I think, look, there’s a tremendous risk to putting all your money in the market, and I think there’s also a risk involved with getting too conservative too soon, because that could put you at undue risk of running out of money for the inflationary reason that John was talking about, and so I think it’s all about balance. It’s not about eliminating risk totally, it’s about managing it wisely. Okay, and so that looks different to different people. I think it’s totally a function of your entire situation. For example, the person that has a pension and social security that covers all their retirement expenses is in a, is it a position where they can be more flexible with how they choose to take risk. If you don’t have a pension, and now you’re going to exclusively rely on your investment portfolio to create your paycheck when you get to retirement, I think you have to be a lot more careful with how you invest that money. You don’t want to take on the big loss at the wrong time, but you also want to make sure that your money is growing in a way that drives that sufficient level of return to retire comfortably. And I think that’s why it’s so important to map all this stuff out. I think so many times people just say, okay, I’m getting a return, and it’s 7% a year, or 8% a year, or 10% a year, but without the proper context to understand whether or not that return is actually sustainable for your retirement, you could be severely missing the mark, and this is what real planning is all about. If you call that phone number that we talked about, it’s 800-653-8404 You’ll be able to schedule that appointment and see exactly where you stand. You might be ahead of schedule, you might be behind schedule, but wouldn’t you like to know that five or 10 years before you get to retirement?
Speaker 2 19:54
And you say this all the time, Prashant, if you call the number and you book an appointment. You’re not agreeing to become a client. This is an opportunity for you to test drive elite income advisors and see if you’re a good fit, and you also say, you know, again, elites not agreeing to take you as a client. This is a real get to know you.
Speaker 1 20:14
That’s exactly right. In fact, when you come in to visit with us, one of the first things that all of our advisors say to anybody we sit down with is, look at any point in the process, if you feel like we’re not the right fit for you, you’ll have the opportunity to just be upfront about that, and we’ll go our separate ways, and we’ll still be friendly. But that being said, we will open up the phone lines. Right now, it’s 800-653-8404 Those phone lines stay open through the entire show. Actually, 800-653-8404 You call that number, schedule that no cost, no obligation visit with our team here at Elite Income Advisors. We have offices in Annapolis, as well as our headquarters are in Ellicott City, Maryland. When you come in, we’ll help you put that concrete written plan together help you optimize social security benefits, evaluate how much risk you’re taking, talk about how inflation or the threat of rising taxes could erode your net retirement income, and how you can combat that through the retirement years of your life. It starts with that phone call, folks, it’s 800-653-8404 You can also schedule your appointment at Retire maryland.com
Speaker 2 21:26
When we get back on Retire Smart Maryland Radio, our hosts Prashant Sabapathi and John DeFeo. We are going to dive into, yes, the T word taxes. Are you worried about it? Are you worried about the impact it’s going to have on your income in retirement, we’re going to talk about it, plus we’ve got a website you don’t want to miss. We’ll explain it. It’s Test My Tax bill.com That’s when we return on Retire Smart Maryland Radio, you Retire Smart Maryland Radio, hosted by Prashant Sabapathi and John DeFeo of Elite Income Advisors, a fiduciary firm. Check them out online, great resource, Elite Income advisors.com that’s Elite Income advisors.com And yes, we have a published author on the program. Prashant has two books out already: Physical Health, Retirement, Wealth, and Retire Abundantly. They’re headquartered in Ellicott City, and they have a satellite office in Annapolis. I’m Morgan Patrick. And each and every week, it’s always the importance of having a plan, being proactive as opposed to reactive. And we give you an opportunity to get on the books, that’s right. Jump on the calendar with Elite Income Advisors. A complimentary appointment, that means you’re leaving the checkbook at home, and you’re not agreeing to become a client. This is a real good way to test drive Elite, get to know the team, see if it’s a good fit. The number to call to grab an appointment at any time is 800-653-8404 that’s 806 5384 38404 So, imagine you’re playing a game of chess, and every move that you make impacts your future position, and if you don’t think ahead, you might get trapped in some way. So, retirement tax planning, kind of the same thing. Without a strategy, you could end up paying for more in taxes than necessary, so a smart tax-free income strategy allows you to legally reduce or eliminate taxes on your withdrawals. We’re talking Roth IRAs, municipal bonds, health savings account, possibly. These are just a few tools that can help you keep, you know, your money, and that’s what this goal is about, having a plan. So retire with a steady income that the IRS can’t touch, how about nice, nice would that be? So, let’s talk about it. What can we do, John? First up, what are the best.. let’s just hit them with this first. What are the best tax-free retirement income sources?
Speaker 3 23:53
Well, there’s.. there’s a number of tax-free retirement income sources, and I think you know, first and foremost, we want to set the stage for why this is important, right? I mean, with the level of national debt that we’re seeing currently, and the trajectory up that you know we are expecting in the future. I mean, it would make sense that tax rates in the future would also be higher. I mean, that’s the camp that we’re in, and you know, in order to plan for a retiree’s successful retirement, we have to look at these tax-free income sources, so my favorite, personally, is the Roth IRA. So, in a Roth IRA, your contributions are taxed upfront, and then any growth or earnings on that down the road are completely tax-free. So long as you hold that account for five years and you’re over the age of 59 and a half, you’re able to tap into those funds without any tax implications. So, it’s a fantastic tool, and again, that’s my favorite. You also have health savings accounts; you might see these abbreviated as an HSA, and these are used for medical expenses. So, if you have a high deductible health plan through your employer, you have access to contribute to a health savings account. There is a maximum limit each year, but. Effectively, it has a triple tax advantage. Your contributions get a tax deduction on it. The growth is tax free, and then your withdrawals are tax free as well. So, you’re able to utilize this money for your medical expenses down the road, especially when those become much more expensive as you get older. You also have municipal bonds, so if you’re a high income earner, you can utilize municipal bonds, which are typically going to be your state and local municipalities that generate these, and these bonds are federally income tax free. So this can have a significant benefit for those who have high incomes in retirement and waive the tax component from the federal fund.
Speaker 1 25:40
Just real quick, just to clarify, that’s the interest on those bonds that’s federally income tax free, right?
Speaker 3 25:45
That’s exactly right. Yeah, the interest on those bonds is federally income tax free, and the, you know, another source of close with this one is loans from your life insurance policy. So, if you have a whole life policy, you’re able to take a loan from that and pay yourself back with interest without having any tax implications on that as well, so these are just a couple of sources that we use with clients, and we encourage to make sure that your income in retirement does have some tax advantage.
Speaker 2 26:13
Okay, so now we kind of have, we’ve got things up on the dart board, so to speak, as far as tax free, how to generate that tax-free retirement income, but we’re not just throwing darts, Prashant. We need a strategy, so how do we develop that strategy to build that tax-free retirement? So, you know, you started this segment, Morgan, by saying it’s kind of like a game of chess, right? And if you notice, I don’t know how into chess you guys are here, but in chess, the best players, they’re not just thinking about their next move, right, they’re thinking several moves ahead, right. And so John just listed out all the different moves that you have at your disposal, and how I think about it is I think about kind of the opening move, the mid game, and the end game, right. And so the opening move might be taking advantage of something like
Speaker 1 27:00
a Roth conversion, and being able to harness some of that tax-free growth. The mid game might be using life insurance as a tax-free asset. We could use something like a whole life policy, we could use something like an indexed universal life policy, but then really it’s about the end game, right, which is when we get to retirement, in what order do we withdraw? How do we manage required minimum distributions along the way? Are we relocating to a tax-friendly state? Right, we have so many clients that work in Maryland, because Maryland is one of the best states in the nation to work and have your career, but so many of our clients are moving across the bridge to Delaware. They move up to Pennsylvania, where income taxes on retirement income are a heck of a lot more favorable. A ton of clients move to the Carolinas, Florida, Texas to harness the tax benefits of moving to those tax-friendly states. So you know, so many different options out there. I think the challenge for most people is trying to coordinate all these different options together and figure out what the right combination of things is for them, and not just what the right combination is, but when to actually implement that.
Speaker 2 28:15
Retire Smart Maryland Radio, we are discussing just the best ways to generate tax-free retirement income. We gave you all the good ones in bullet points, and then also talked about, you know, it’s not just you get them, you got to have a strategy and how they are playing out within your portfolio. And this next one, and if you guys just kind of shed some light, maybe pull back the curtain a little bit for our radio listeners, we get to, because my studio is not in the same place as both John and Prashant. We hook up virtually, so I can see them, and you heard John say that he gets excited about Roths. Well, it’s visible. I mean, when we say Roth, John gets excited, so this is perfect that you get this one. So, how can Roth conversions reduce taxes over time, and put that to good use.
Speaker 3 29:02
Another one of my favorites, so you know, we, this is something that we talk with clients about every single day, and I think it’s a, it’s a great strategy for folks, and know what a Roth conversion is, is simply taking assets in a traditional pre-tax IRA, paying the taxes in the current year, and moving them to a Roth IRA for those assets to grow tax free down the road, so it’s a great strategy, and it’s typically best done in years that you have a lower taxable income. This minimizes the conversion tax cost, so typically the sweet spot for this is between retirement and the required minimum distribution age, so we play a game where we look at the expected income for the year, we look at the tax brackets, and we decide how much it makes sense to convert for the year, and what this does is a couple of things, it reduces the amount of money that’s calculated for your required minimum distribution when you get to age 73 or 75 so every dollar that you’re converting in a current. Year at a favorable tax rate is going to reduce the amount that’s going to have to be taken down the road. It also prevents your beneficiaries from inheriting a large taxable account that could have a negative impact to their own income taxes when you pass away. So those are just some of the advantages, but you know, again, I think that the, you know, the primary consideration here is that you have enough money to pay the taxes. You think that down the road your income tax rates are going to be higher than they are in the current year, but at the end of the day, you know to do something like this, you need to be working with a professional, you need to be working with a tax advisor of some sort to look at this situation, see if it makes sense for you, and then move forward with a plan now. Prashant, what types of mistakes can wreck a tax-free retirement plan? I think that we see this a lot. What are some of the mistakes that we see?
Speaker 1 30:51
So, specifically to what you just talked about, I think people don’t oftentimes realize that there’s a domino effect that happens when you do a Roth conversion. Look, we do a ton of Roth conversions in the office every year, and I think they’re one of the most powerful retirement planning strategies out there. However, there’s a domino effect that comes with it, because John, as you know, you know, you convert to a Roth, whatever you convert counts as income in the year that you convert it, right, which means your tax bracket potentially has the option to go up if you’re adding additional income, but then what about Medicare, right? Medicare premiums are based on what it’s based on your income, right, from two years prior, and so if you did a Roth conversion this year, it could have a domino effect on your medicare premiums in the future, so you know we say it all the time. John just said it. In our opinion, you got to work with a professional, not just a financial professional, but also a tax advisor to make sure that your financial plan, your tax plan is comprehensive, coordinated, and looking out for the potential blind spots, folks. If you’re working with an advisor, and maybe you’ve had someone managing your money for several years, or maybe you work with a tax preparer, and they haven’t talked to you about the benefits of a Roth conversion. If you’re not sure if it’s a good fit for you, if you’re not sure how it would impact you, or whether or not you should be concerned with it. Pick up the phone and give us a call. That phone number is 800-653-8404 That’s 800-653-8404 Schedule that complimentary retirement review today will help you figure out whether or not something like a Roth conversion could be the right thing for your retirement.
Speaker 2 32:39
Again, that phone number, call it now, 800-653-8404 When we return on Retire Smart Maryland Radio, it’s time for scenarios. Retire Smart Maryland Radio, hosted by Prashant Sabapathi and John DeFeo, both of Elite Income Advisors, a fiduciary firm. It’s all about getting you ready for your retirement. They’re headquartered in Ellicott City. They have a satellite office in Annapolis, again helping hundreds of their clients get ready for their retirement. I’m Morgan Patrick. It’s all about the plan. It’s all about being proactive as opposed to reactive, and we’re all about helping. We have complimentary appointments you can call at any time and grab one. You’re leaving the checkbook at home. 800-653-8404 That’s 800-653-8404 All right, scenarios: these happen all over the country. We want you to take these with a grain of salt. We’ll see how the guys handle them, and you might have a scenario that’s similar to one that we go over today, but it’s not exactly what you’re going through. So, make sure you have a customized retirement plan. So, first scenario to you, John, here it is: retired school administrator, 300,000 in a 403 B, considering rolling it over to an IRA. They worry about losing access to 403 b creditor protections. What protections differ between the 403 b and an ira?
Speaker 3 34:11
Yeah, so I think the main difference here is the ERISA protection that 403 b’s and 401 k’s have that IRAs don’t. ERISA is the Employee Retirement Income Security Act, and it sets the minimum standards for employee health plans and retirement plans, and what this does is it gives unlimited protection against creditors, lawsuits, and bankruptcy, with a few exceptions. So, one of those exceptions is divorce, so if you have to split assets into divorce, unfortunately, those assets are not protected by ERISA. You’d have a qualified domestic relation order that would split those assets up. You, if also, if you have a federal tax lien, so maybe you defaulted on your student loans. Those, those types of liens are exempt from that unlimited protection. And then criminal penalties as well. So, those three things are not. Covered anything else, your 401 k 443 b will be protected from now. IRAs have some protection, but it really depends on the state that you reside in. So, in Maryland, they’re generally protected from creditors, but we always suggest double checking with your, your, your state, and you know, ensuring there hasn’t been any updates in legislation. Now, sometimes, especially, you know, with the state of Maryland, you typically can have somewhere around $1.5 million in protection against bankruptcy, specifically. But again, some of those other creditors and issues you need to check with your state on. Now, one other thing I’ll mention is that there are different types of IRAs. These pertain to your traditional style IRAs, but if you have a SEP or a simple IRA, these are awarded the same ERISA protection that a 401 k does, because these are set up primarily for small business owners as an employer plan. One other exception would be a rollover IRA, so if you move your money out of a 401 k or a 403 b into an IRA that’s titled as a rollover that has the same protection against bankruptcy as the 401 k would have, so again, this is pretty convoluted, and if you have questions about your situation, I think it’s important to talk to a professional to make sure that you’re not opening up your assets to creditors and other issues, if that’s something that you might be facing in retirement. So, I think making sure that you’re in front of that is very important.
Speaker 2 36:23
Wow, I feel smarter now. I mean, I really do. I mean, you go over these scenarios, and there’s so many different avenues that you can take, having the right information, having the right guidance when it comes to your scenario, it is vital. So, the opportunity to get on the calendar with elite income advisors is ongoing during the course of this show. You can call 800-653-8404 Grab an appointment right now. You’re not agreeing to become a client. This is an opportunity for you to test drive, get to know Elite Income Advisors. 800-653-8404 All right, Prashant, this one to you. A retiree has been offered a bonus annuity that promises a higher initial balance if they sign up. They’re curious about how this impacts their income, and if there are any drawbacks to consider. What should they investigate before committing to something like this?
Speaker 1 37:14
So we actually use these in some cases in our office. Now it’s got to be the good, a good fit for any particular client. It’s certainly not a one size fits all solution, but we did have a client just put $600,000 into one of these bonus annuities, and as a result, believe it or not, at the time that we did this, we did this with an A plus rated company, and the bonus that they received was 14% When they did, it was $84,000 that went into their account on the very first day. By the way, when they got that bonus, it did not count as income, so they did not have to report it, or they won’t have to report it on their income taxes for the year. Now, of course, any time you’re considering making a decision like buying an annuity or even putting money in the market or evaluating things like life insurance policies, which we’ve talked about a little bit on today’s show, you just want to make sure that that solution fits a specific problem that you are trying to solve for in retirement. Okay, in this particular case, we use this type of annuity to protect the client’s assets. They actually had plenty of money for retirement, and one of their biggest concerns was, I don’t want to go through another 2008 like market and see my $2 million become a million bucks, because they had lived through that and they had suffered quite a bit of emotional trauma with that, and saw their parents and friends not be able to live the way that they wanted, because they lost a lot of money, and so in order to help them protect that, we used a bonus annuity, fixed indexed annuity that offered a bonus on day one to protect their money, still get some upside if the market goes up, but also to capture a large sum of bonus money upfront.
Speaker 2 39:07
Tell you, scenarios get you thinking about your own right. And look, there are a lot of questions you need to get the answers. Working with professionals that do this on a daily basis, a fiduciary firm, it gives you that peace of mind, that confidence as you’re moving towards your retirement. If you’re already in retirement, man, get a second opinion. We’ll give you that opportunity here in just a second. So, here’s another scenario, John. This one to you: we’re staying in the annuity category. A couple is exploring an annuity with a guaranteed minimum withdrawal benefit, the GMWB, to create lifetime income, but worries about the cost of the rider that’s connected. How can they assess if this feature is worth the additional expense?
Speaker 3 39:49
I think this comes down to the necessity for income, right. So, if you’re looking into an annuity product that has a guaranteed minimum withdrawal benefit, it’s probably because you’re looking at. At locking in lifetime income, and you’re not, you know, interested in identifying a distribution strategy yourself, you want to be able to be confident in your lifetime income. So, you know, with that being said, if that’s what you’re looking for, then there’s typically going to be an expense for that, because a lot of times these guaranteed income benefits can pay out more money than you actually put in, right, and that fee that you’re paying for that benefit doesn’t necessarily affect you, because you’re still going to be paid out that same income for the rest of your life. The fee doesn’t get deducted from that amount, it simply takes away from the principal balance that could potentially be going to your beneficiary. So, if leaving your heirs a large legacy and increasing the value of that amount is important to you, and that’s the goal. Then that lifetime income benefit probably wasn’t in your best interest to begin with. So, I think identifying the goal first and foremost is what you have to do, and then obviously you know there are annuities out there that have fees that are egregious, and there are annuities out there that have fees that are more in line with with the market, and I think making sure you choose the right one also is extremely important. All about that,
Speaker 1 41:08
just just add on to that. Just to give another kind of case study example of what we’ve done in our office recently, we had a client come in and had about a million dollars and was looking to retire in about five years time, and what they needed is they needed to create for themselves $4,000 a month of a paycheck in order for them to meet their retirement income goals, and what they didn’t want to do is they didn’t want to see the million dollars become 750 and now still have to need that 4000 a month. So, all we did is we took half a million dollars, took 500,000 put it into an annuity that had this guaranteed minimum income benefit, and now when they retire in five years, it’s going to pay out all of the income that they needed to fulfill their income needs. So, we used half of their money to create 100% of the targeted income that they wanted to generate, which now means the other half of it can be positioned for growth, and so there was a fee associated with that annuity, but in this couple’s mind it was well worth paying, because it accomplished their income goals. If it didn’t accomplish their income goals, then it wouldn’t have been the right thing for them to do. Everyone’s a little bit different. You got to be careful with this, but if you use it properly, could be an extremely powerful tool to guarantee the income for the rest of your lifetime.
Speaker 2 42:32
Final scenario, we’ll hit it real quick. Prashant, to you, 70 year old retiree, 500,000 in investment grade bonds, is concerned about liquidity in the case that they need quick access to the cash, how do different bond types compare in terms of liquidity, and what should they prioritize if they might need cash?
Speaker 1 42:52
I think this just comes back to creating a plan that buckets your money, right, whether using bonds or using cash or using CDs, annuities, investments. I think what it comes back to is this idea of having a comprehensive and coordinated plan, right? Different investments have different tax liabilities, different strategies have liquidity limitations. Like, for example, we’ve talked a lot on today’s show about annuities. One of the downsides to using an annuity is annuities are typically long-term contracts, which you can’t get to all your money all at once, whereas something like an ETF or mutual fund, or even, you know, like a stock, you could turn that into cash relatively quickly. So, I think this is what needs to be considered: is liquidity, is growth, is risk, but all of this needs to be done in a comprehensive and, most importantly, a coordinated way to help you accomplish the retirement objectives that you have set out for. If your advisor is not putting you in that position, if you’re not sure how all of your investments should be working together to create the retirement plan that you deserve after decades of hard work. This will be the last opportunity on today’s show to pick up the phone and give us a call. That phone number, folks, is 800-653-8404 Maybe you’re uncertain about when you can retire, or whether you can retire the way that you want to. Maybe you’ve just been offered a lump sum buyout offer through your pension or through your employer, and you’re not sure where, when to take it, or if you should take it. Give us a call, pick up the phone, 800-653-8404 That first appointment, it’s totally free of cost, it’s just a get to know you session, you get to know us, we’ll get to know you, we’ll help you design that written retirement plan that includes things like a social security optimization report, a pension analysis, an understanding of whether you’re at risk of your tax rate going up in retirement, and most importantly, a risk analysis to make sure that the risk you’re taking is in line with your risk. Capacity 800-653-8404 or you can visit Retire maryland.com Another edition of Retire Smart Maryland Radio in the books for Prashant Sabapathi and John DeFeo. I’m Morgan Patrick. We’ll see on the radio next week.
Announcer 45:25
Annuity guarantees are subject to the claims paying ability of the issuing insurance company. If you withdraw money from or surrender your contract within a certain period of time after investing, the insurance company may assess the surrender charge. Withdrawals may be subject to tax penalties and income taxes. Persons selling annuities and other insurance products receive compensation for these transactions. Products are subject to fees and additional expenses. Any comments regarding safe and secure investments and guaranteed income streams referral into fixed insurance products, they do not refer in any way to securities and investment advisory products. Information presented on this program is believed to be factual and up to date, but we do not guarantee its accuracy, and it should not be regarded as complete analysis of the subjects discussed. Discussion should not be construed as an offer to buy or sell, or a solicitation of an offered buy or sell the investments mentioned, a professional advisor should be consulted before implementing any of the strategies discussed. Investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client’s portfolio. Elite Income Advisors Incorporated is registered as an investment advisor with the state of Maryland, and only transacts business in states where the firm is properly registered or is excluded or exempted from registration requirements. Registration as an investment advisor is not an endorsement of the firm by security regulators and does not mean that the advisor has attained a particular level of skill or ability. You should always consult an attorney or tax professional regarding your specific legal or tax situation.
