Speaker 1 0:01
A financial independence isn’t just about amassing wealth, it’s about gaining the freedom to live life on your terms. Today on Retire Smart Maryland Radio, we’ll explore what financial independence truly means and how you can achieve it, regardless of your income.
Speaker 2 0:21
Welcome in to Retire Smart Maryland Radio with Prashant Sabapathi. Welcome into Retire Smart Maryland Radio. Your host is Prashant Sabapathi, and you can find him at Elite Income Advisors, independent fiduciary, a published author, couple of books already to his credit, fiscal health, retirement, wealth, and retire abundantly. They are headquartered in Ellicott City and a satellite office in Annapolis for your convenience. Check out the website, it is a resource, Elite Income advisors.com Again, Elite Income advisors.com I’m Morgan Patrick. It’s my pleasure to jump on and go back and forth on retirement with the advisors each and every week, it’s about the importance of having the plan, being prepared. And before we dive in on financial independence, Prashant, I got to ask you, How’s the week?
Speaker 1 1:12
The week has been great. I haven’t been here on the show the last couple weeks, excited to share that we had the birth of our first child recently, and so it’s been, it’s been awesome just getting to go through parenting from the very beginning, and you know, it’s, it really having a kid really just changes your perspective on, certainly does on life, and so we had a really cool show on financial independence lined up today, and I think there’s a lot of what I’ve been through in the last couple weeks here since since he was born that we can kind of relate to, and so this will be a really interesting show, but I’ll tell you what, it’s been awesome being a father is great, and just looking forward to it.
Speaker 2 1:58
Well, we here at the show, and everybody in Maryland, Washington, D.C. area, we congratulate you and your wife. Always, it is a, it is a big step in life, but it’s, it’s so exciting, and it does get you thinking about planning for the future and planning for your son’s future, and, and again, it gets back to what we do each and every week, and that is, make sure you’re ready for what is going to be your endgame, your retirement. You want to be able to enjoy it. So, this financial independence you mentioned, now the images you know of early retirement, think about it, lavish lifestyles might come to mind. However, to be had this independence is about more than just the money, it’s about freedom, it’s about security, and the ability to make the choices that align with your values, so in this portion of the program we wanted to kind of dive in to the essence of financial independence, provide some practical steps, kind of help you attain it. So take some notes on this, and I’m going to ask you this question right off the top, Prashant. Me, what does financial independence truly mean? I think it’s really about having enough resources to cover your lifestyle without having to rely on work, you know. I’m reminded of one of my good friends, she’s a public school teacher in Baltimore, right, and she never made six figures, even to this day she doesn’t, but she got into investing very young, in her early 20s. By the time she was 30, she was able to buy a rental property. By the time she was 35 she bought another rental property.
Speaker 1 3:30
And by the time she turns 50 years old, she’s not quite there yet, but by the time she turns 50 years old, we think that she’s going to be in a really good position to be financially independent, meaning she’s not gonna have to work, work and rely on her teaching income to cover her lifestyle, because her real estate and her investments will be able to pick up some of the slack, and I think a lot of that just has to do with planning with a true purpose behind, you know, what you’re working towards, and it’s really interesting when our baby was born, the first thought that came to my mind about our situation was not, do I have enough money to deal with this, it was really, do I have enough time in my schedule to be able to live life with this kid the way that I want to, right, and so to me financial independence is not just about having a large bank account or having a bunch of investments, it’s really to have the flexibility to be able to live life the way that you want to without having to rely on your job for that income, and I think that’s what financial independence means, and so much of what we do at Retire Smart Maryland and at Elite Income Advisors is helping people not just find out what financial independence means to them, but ultimately figuring out how we can help people achieve it. And I tell you, what it’s so incredibly fulfilling.
Speaker 2 4:54
I tell you, you say it often on the program, and John DeFeo, one of your fellow advisors. Says the same thing, you know, it is about, you know, having, you know, financial independence, but living life on your own terms, right? You dictate those terms. If you have a plan, you’re going to be in a better position to do that very thing. So, again, we’re talking about financial independence. What’s the role? What’s the next question for you? What’s the role of passive income to achieve this independence?
Speaker 1 5:24
Look, I look at passive income as income that you don’t have to work for, so whether it’s investment income, whether it’s rental properties, whether it’s annuities that pay you kind of like a pension, all of these things give you an income that you’re not actively working for, to me, what it does is it provides you freedom, right? If you don’t have to trade time for income, it ultimately gives you the freedom to live life the way that you want to, and so when we get into retirement and you know we’re looking at where our income is going to come from, it’s all about diversification. You want to have income that’s coming from things like maybe dividends. You want to have income that can come to you passively, maybe through rental income or, you know, real estate income. Maybe you do want to have something like an annuity, which gives you a fixed payment every single month, no matter what’s going on in the stock market, having diversification not just surrounding your investments but surrounding your income is ultimately what gives you the freedom to be truly financially independent, and so passive income is a big part of it, but there’s so many different types of passive income out there, it’s just a matter of figuring out which of those types could be the best fit for you and your situation. Yeah,
Speaker 2 6:46
we talk about it all the time on this program. You know, having a plan doesn’t mean you’re going to go into elite income advisors and they are sitting in front of three drawers, A, B, and C, and they look at you and go, “You look like a C, and they pull out the C drawer, and they bring out this cookie cutter plan, and they slam you into it. That’s not how it works. Everybody’s different. Everything that’s going to be coming at you is going to impact you in retirement as you plan for retirement and get into retirement. You’re going to be different from anybody else. So, you got to have that customized plan. All right, so the next one is just being aware, being up to speed on everything, the importance of financial literacy, along with the planning part,
Speaker 1 7:26
it’s such a huge piece of it, right? Like achieving financial independence requires more than just earning a lot of money, it demands financial literacy, strategic planning, and a lot of discipline, a heck of a lot of discipline over a long period of time, and so you want to increase your financial literacy. I think that’s why it’s so important to partner with an advisor that’s not just there to tell you what to do, but to help educate you on the blind spots that you might be incurring, and so financial literacy is important. Also, I think overcoming common misconceptions about wealth is really important, you know. I think a lot of people believe that a high income automatically leads to financial independence, but lifestyle inflation, or as the kids are calling it, lifestyle creep these days, or poor financial habits, that is what can ultimately derail you. Look, folks, if you are inspired to take control of your financial future, work towards true financial and financial independence. Pick up the phone and give us a call. We’ll open up our phone lines. That phone number is 800-653-8404 It’s 800-653-8404 You dial that number, you’ll be able to schedule a complimentary visit with our team at Elite Income Advisors. It’s just a conversation about your situation and what steps you could be taking to make sure you are on the track to the retirement that you deserve after 2030 4050 years of hard work. It starts with that phone call. Take action today: 800-653-8404
Speaker 2 9:00
106 538404 When we return over Tire Smart Maryland Radio, Vanguard’s latest How America Saves report is out. We’re going to take a look at it, and you’ll be shocked, you We are back on Retire Smart Maryland Radio, hosted by Prashant Sabapathi. You can find him at Elite Income Advisors, headquartered Ellicott City Satellite Office in Annapolis. Website, a resource, Elite Income advisors.com And again, always about the importance of being ready for retirement. He’s an independent fiduciary. I’m Morgan Patrick, and it’s my pleasure to jump on and talk retirement. And we’re going to get into this Prashant 2025 edition of Vanguard’s How America Saves report, providing valuable insight into retirement savings and behaviors of nearly 5 million Americans. American workers, and again, for retirees and those approaching retirement, just understanding these kinds of trends is crucial for making informed decisions about financial security in the later stages of life. So we are approaching retirement, and these are some important things to remember. And the first one we want you to do is basically kind of define and understand what average versus median savings
Speaker 1 10:25
is. Yeah, so the average 401 k balance increased by 10% in 2024 reaching $148,153 and that’s primarily due to strong market performance, right? So, remember, an average is looking at everybody and then dividing by the number of people that were studied, whereas the median stood at just 38,001 76 and of course the median is just the midpoint of all of the participants in the study, and so with that being said, numbers can be very misleading. I think one of the things that’s really important is living in the DC, you know, Howard County, Montgomery County, Prince George’s County areas. We’re in a really affluent part of the country. I mean, it’s certainly, if you’re like in Loudoun County in Virginia, I think I read something that Loudoun County was either the first or the second richest per capita, and so why does that matter? It matters because the requirement to save for retirement for folks in our area tends to be higher than than other parts of the country, right? If you’re, you know, we talked to my good friend Gary Thurman, who’s out in Chattanooga, you don’t need three four or $5 million to retire comfortably in Chattanooga, Tennessee, right, but in Loudoun County in Virginia and Howard County in Maryland, you do need that kind of money for a lot of people to fulfill the income requirements. So, while it is interesting to look at the averages in the medians, most of the people that come in to visit with us? They’re what I would call the millionaire next door, right? They’ve worked for 3040 years, they’ve amassed $1,000,000.02 million dollars, $3 million in their 401 k, and they’re concerned about making that money stretch for the rest of their lifetime and managing some of the tax liability that comes with it over the course of their lifetime, so a lot of different strategies at play here that need to be juggled to create an efficient retirement plan, but the first part of that plan is making sure you are doing everything that you can to grow your nest egg to a big enough number that allows you to retire smart and retire comfortably when you get there.
Speaker 2 12:39
We are going over Vanguard’s how America saves report again, a look at a comprehensive look at the trends in retirement savings. Take some notes, learn from this, and again, you know, for this part of the country, we’re talking about high earners, we’re talking about people that are going to have to have that kind of money as you move into retirement to be able to, you know, just with the standard cost of living in this area, it’s going to be high, so you got to be able to afford it. So we are, let’s just say, for this next one, Prashant, we’re approaching age 50, right, and we’re looking at retirement, we can see it on the horizon, importance of this next one, and again, this is a trend, just make sure you’re utilizing catch-up contributions, because when you hit 50, you can push the accelerator to the floor.
Speaker 1 13:25
That’s right, you can add more money into things like Roth IRAs, IRAs, 401 K’s, employer-sponsored plans, simply by being over the age of 50 years old. A lot of people who are not working with an advisor that’s on top of it don’t know about this, or if you’re kind of just a do-it-yourselfer, a lot of people aren’t aware of the catch-up contributions. You can save a heck of a lot more money just by being over the age of 50 years old. What’s really interesting, Vanguard study said that, despite being eligible, only 16% of participants actually made catch-up contributions, and so people always ask me, How can retirees or pre-retirees ensure that you’re actually maximizing the benefits of your plan features, especially when you have things like multiple retirement accounts, and to me this comes back to having a coordinated, comprehensive plan in place, right? You have to be intentional about what you’re doing. I think the idea of just winging it and figuring it out as you go is not good enough, in my opinion. As you get closer and closer to retirement, I’ll tell you what I talk a lot on the radio about who’s a good fit for our firm, and who we tend to be a good fit for. I’ll tell you, what the best clients that we have, and the ones that tend to be the most successful, are the ones that are committed to following a system and a process that allows them to be successful. Like, I can’t tell you how many times I’ve met with people. That make a lot of money, they have the ability to save a lot of money, invest a lot of money, but somewhere along the way life gets in the way, and they just never take action. It’s the I would 10 out of 10 times I would rather work with somebody who makes a little bit less money but is committed to following a process and a system that allows them to amass wealth over time, then work with the super ultra high income earner that won’t stick to a plan, and so the people that are great fit for us and we’re a great fit for them, they’re the ones that can create a plan, stick to it, and really follow it throughout the course of their lifetime,
Speaker 2 15:37
and think about it too, I mean, it’s a personal journey, it’s your money, and a lot of people have a really hard time, Prashant, with saying, you know, what, I’m gonna let somebody take a look at what’s going on, I’m gonna let somebody maybe advise me on a different direction or a possible direction, that’s a real big step for a lot of people out there,
Speaker 1 15:55
you know, I’m really glad you brought that up, because I think a lot of people don’t want to be told what to do, and I get that, because look, I don’t want to be told any more than anyone else what to be, what to be doing on an ongoing basis, and so one of the things that we talk about is that when we engage with our clients, it’s not that you come in to visit with us and then we tell you what to do, and then you must do it in order to be successful, that’s not really how things work, because we understand human psychology, and humans don’t take well to that type of direction. When you work with your advisor, listen, whether it’s us or it’s anybody else, you want it, in my opinion, to be a partnership, right? I think when we work with our clients, I always say it’s my job and my team’s job to bring as many good ideas to the table as we possibly can. You are welcome to accept or reject those ideas, but at least evaluate them and know what your options are. What kind of worries me about our populace as a country is how many people just don’t even know what opportunities they have, and thus they never get the opportunity to take advantage of them because they’re not properly educated, and so when you come in and visit with us, you’re not agreeing to become a client, we’re not even agreeing to take you as a client, but one of the things that we will do together is we’ll figure out whether or not we’re the right partners to give you good ideas that you can properly evaluate, and then you decide for yourself whether or not you should implement them.
Speaker 2 17:23
You can grab an appointment at any time by simply calling 800-653-8404 We have 10 this week, 10 open availabilities, that’s 800-653-8404 It’s complimentary, again, you’re not paying for it, you’re not obligated to become a client. And guess what, Prashant and his team, they may not take you as a client. This is a test drive, but see if you’re on track for retirement. 800-653-8404 And I love what you said there, it’s about fit, it’s about comfort. You know, it’s not like you’re going to come in to elite income advisors and they’re going to put you on this path and say see ya. No, no, they’re gonna walk with you down the path. This is about your retirement, and your path is different from anybody else’s. So, make sure you have it customized. So, back to Vanguard, how America saves the trends that are out there. We’ve talked about the catch-up contribution, we’ve talked about the difference between average and median savings, and what is out there. We’ve had this discussion about automatic enrollment before on the program, so I want to, you know, yeah, we understand that you want to make sure that that’s happening and it’s part of it, and we’re all going to be able to save more because of it, but this next one I think is very crucial, because there are so many people out there that are just sitting on portfolios, Prashant, something happens, and in the last three four years, a lot of things have happened to people, and they feel like, you know, what, I’ve got the money in my retirement account, I’m gonna go get it now. Here’s the, here’s the problem: navigating the hardship withdrawal when it comes to your accounts, you got to be careful here.
Speaker 1 18:56
Yeah, 2024 saw that hardship withdrawals increased to 4.8% that was up from 3.6% in 2023 That is a huge, huge jump. That’s like a 30% increase in hardship withdrawals, just over a one year basis. And it kind of makes sense, right? On the on the backs of higher inflation, you know, lower wage growth. I think what you’re finding is that people are struggling. Some people are a lot of our clients tend to be a little bit more affluent, but for the ones that are trying to just eke it out month to month, saving for retirement becomes a huge issue, and sometimes having to tap into your 401 k funds to fund an emergency is a big deal. And so people always ask us, what alternatives are out there that retirees can consider before actually tapping into that 401 k, and I think this really highlights the importance of having an emergency fund in place. Right, 37% of Americans lack $400 just $400 in liquid savings, which is. In turn makes them 13 times more likely to tap into retirement funds for emergencies. Folks, just remember your retirement account should be used for just that, for retirement, not necessarily for emergencies. And I think this is why it’s important to create a comprehensive and coordinated plan that not just takes into account investments and 401 ks and social security and taxes, but also that addresses things like, hey, when that emergency happens, because we know that it will happen in some form, some fashion. How are we going to deal with it? You have to be prepared for that type of thing, because if you’re not, it’s the type of thing that could potentially derail the previous five 710 years of hard work in saving for your golden years of life.
Speaker 2 20:47
We hit one more of these, Prashant. They’re going to open up those appointments, and people can get some help. Vanguards, how America saves, going into some trends that we’re seeing out there, diversification investment options. There’s a good sign here, it’s not high enough, but the numbers look pretty good. People are diversifying. Yeah,
Speaker 1 21:05
this was really interesting. The report highlighted that 67% so nearly two thirds of participants are in professionally managed allocations, and so you think about things like target date funds. Now, these funds offer convenience, they might not actually align with every single retiree’s risk capacity or their future income needs, and so you have to be able to assess your options, understand which options are the right ones for you, specifically for your plan, because ultimately what’s best for your coworker or your brother-in-law or your best friend may or may not be the best thing for you folks. The numbers in the Vanguard report tell a story, but your retirement should tell your story. Let’s translate all these stats into a strategy that fits your life, your goals, whether you need help in maximizing catch-up contributions, consolidating old 401 K’s or managing market volatility. Come on in, have a free conversation with our team, and let’s figure out whether or not we’re even the right match to help you build the plan that you deserve. That phone number is 800-653-8404 that’s 800-653-8404 Complimentary appointment to talk about your retirement readiness today. 800-653-8404
Speaker 2 22:27
We’ll be back with more Retire Smart Maryland radio after this. Retire Smart Maryland Radio, hosted by Prashant Sabapathy. You can find him at Elite Income Advisors. They’re headquartered in Ellicott City, and they’ve got a satellite office in Annapolis for your convenience. He’s an independent fiduciary, published author, Physical Health, Retirement, Wealth, and the second book, Retire Abundantly, is out there, and it’s all about helping you get ready for retirement. I’m Morgan Patrick. It is my pleasure to jump on and talk retirement, the importance of having a plan, being proactive as opposed to reactive, and just being ready. And we know for a fact the percentages tell us that a lot of you are just sitting on portfolios, you’re working, you’re doing well, you’re putting your monies away, but what happens when you get to retirement’s door? Are you ready? Well, if you’re just going to withdraw from your accounts, that’s not a plan, folks. You may run out of money in retirement. How would you even know how much gas is in your tank? You don’t want to run out of gas in retirement. So, we’re going to talk about this even more in this portion of the program, you’re close to retirement, Prashant, and there are a number of things that you really need to just have on the front burner, right? It’s not simmering on the back of the stove, it’s on the front, you’re very aware of it, and that is, make sure you know once you have, you know, your, you know, cash reserve, you’ve got your emergency fund, you’ve looked at your asset allocation, and you’re good there, and you’ve also maxed your contributions that are going into your accounts as you’re approaching retirement. Now you’ve got to focus in on some other things. What about health care?
Speaker 1 24:17
You know, I think when you get to retirement, two of your biggest expenses are going to be health care, and of course, taxes, income taxes, all right. And healthcare expenses are going to be a significant part of your retirement plan. There’s some estimates out there that suggest that a 65 year old couple retiring in 2025 may need approximately, wait for it, 319,000 Morgan, $319,000 to cover health care expenses throughout their retirement. Okay, now Medicare’s trust fund projected to be depleted. Obviously, there’s a spending bill that you know just got passed through Congress. We’ll see what happens there, but. I think one thing you have to look at is, are you proactively planning for potential out-of-pocket healthcare expenses, and do you know whether or not your Medicare supplement plan or Medicare Advantage plan, if you’re using an Advantage plan, is giving you the type of coverage that you actually need when you get to retirement. You know, I had so many people asking me questions about Medicare, and I’m not a licensed Medicare expert, and so I wasn’t able to go into the depth with folks that I would like to. So one of the things that we’ve done, and this is a recent addition to our practice, is we’ve brought in really highly qualified gentlemen, his name is Wes Lindquist, he’s a Medicare specialist, he’s licensed to do Medicare, and what he does is he sits down with our clients and he evaluates their health care situation. If you don’t know whether or not a Medicare Advantage plan or a Medicare supplement plan or taking maybe retirement benefits through your former employer is the best option for you, our team will sit down with you and help you understand those types of things, and that is the type of planning, proactive planning, that could end up saving you from a huge out of pocket expense down the road, or might just end up saving you a bunch in premiums over the course of your retirement, and so you want to make sure you have a good, solid, airtight health care plan, Medicare plan in place, and unfortunately, when it comes to something as complicated as Medicare, Morgan, I mean, you talk to advisors all over the country, but their clients just don’t even know where to start when it comes to Medicare, because there’s so much information out there that you don’t know what’s good information and what’s not, and so that’s why we’ve tried to streamline that process. Well,
Speaker 2 26:40
and if you have this plan, and again, I agree, it’s like if you’re late to this and you’re approaching retirement, and you’re going to dive into the pool of the internet and AI, and throw in some questions about Medicare, and what you should do, be prepared to drink from a fire hose. Oh yeah, because you’re going to get smacked with it now. If you’re working with a professional, if you’re working with an advisory team that has the bases covered for you, that has these types of conversations on a daily basis. I mean, that’s the confidence we talk about with retirement planning, knowing that you’re, you know, you are the focus of a team approach when it comes to your retirement plan, so again, you’re close to retirement. Things you need to be aware of, you’ve got to make sure healthcare is on your front burner, and that 319,000 for a couple 65 making their way to retirement, $319,000 just on health care. Well, here comes the backside of that, and that’s long-term care, Prashant. And a lot of people aren’t thinking about
Speaker 1 27:46
it. Yeah, approximately 70% of individuals over 60-five years old require some form of long-term care on average. Okay. Average cost of a private room in a nursing home: $116,800 per year. Okay, and the thing is that is just the national average. We know in our area, with cost of living being higher, and institutions like Johns Hopkins and great medical systems, as close as they are to us, that cost can even be higher than that. I’ve shared the story of my mom several times. It feels like weekly I talk about mom on this show, but mom had dementia. She was diagnosed when she was 57 years old. She lived to be 65 and by the time she passed away in March of 2024 our family was spending anywhere from 10 to $12,000 every single month, almost like clockwork on mom’s care, and so we estimated that over the eight years of her diagnosis, we estimated that our family spent somewhere between three quarters of a million and a million dollars out of pocket in taking care of her, and I oftentimes think about what if that happened to someone who wasn’t properly prepared. Thank goodness, my family was prepared, and a lot of that had to do with my dad, did a great job in planning, and with his income, and that I’m in the business. But what if you just didn’t know how to get prepared for it? These are the types of things that I think people stay up at night worrying about, and these are the types of things that my team helps people figure out each and every day. Now, I’m not saying there’s an easy solution to every one of these problems, but look, wouldn’t you rather be able to talk about the solution rather than just have it have the problem hit you in the face and you not be prepared at all? I think we can’t just ignore these things, bury our head in the sand, and hope that it all works out. I think you have to have a plan in place for how you deal with
Speaker 2 29:43
it. Yeah, I mean, there comes a point where you got to stop kicking the can down the road, and you got to look at it as what it is. I mean, you need to plan for it. You’re gonna have to figure out a way to pay for it. I mean, it’s going to be expensive if you go down this category, down this road, but go with a. Plan, and again, we say it each and every week, very important to do so. You’re headed towards retirement. We’re just going over a few things. Don’t forget healthcare, don’t forget long-term care, tax diversification, another big one, because a lot of what we’ve done in our working life is in tax-deferred accounts.
Speaker 1 30:18
That’s exactly right, and what you’re going to start to see is a domino effect, and it’s a really nasty, nasty domino effect that happens. So, let’s say that you’re withdrawing from your portfolio. Let’s say you did an awesome job saving money, and you have 2 million or $3 million saved in your retirement accounts. As you know, every time you tap into that 401 k or IRA, you of course have to pay taxes, income taxes, federal and state, when you take that withdrawal. Now let’s say you need to increase those withdrawals because of a health care expense or because of a long-term care expense, and now instead of taking out, hypothetically, the 3000 a month that you were taking out, you now need to get to 8000 or 9000 a month. Well, the simple fact is you can’t just increase your withdrawal to 9000 a month because you haven’t accounted for the tax liability associated with a withdrawal like that. In order to net 9000 a month, do I now have to withdraw 1213, 14,000 a month? And if I withdraw that kind of money, does that potentially increase my tax bracket? Does that potentially increase the probability that I’ll run out of money one day, because my withdrawal rate just skyrocketed? I think these are the types of things that we have to get prepared for, because your health care plan ultimately could have an impact on your long-term care plan. Both of those things could have an impact on your tax plan one day, and so tax diversification is a huge, huge piece of this, and it all flows down to your estate plan as well, and what’s left at the time that you pass away, so look, if you’re in your 50s or your late 40s or your early 60, retirement isn’t decades away at this point, it’s right around the corner. The steps that you take now can and might even will, you know, define your lifestyle for the next 30 years, and so you have to get a plan in place to deal with health care, to deal with long term care, and I think most importantly to deal with minimizing your taxation over the course of your retirement. If you haven’t thought about that, or your advisor has not talked to you about the importance of minimizing your tax liability and planning for long term health expenses in retirement, folks, pick up the phone, give us a call, schedule that no-cost introductory conversation with my team at Elite Income Advisors. That phone number is 800-653-8404 that’s 800-653-8404 You dial that number, schedule that appointment, come on in, visit with us. Let’s just have a conversation about where you’re at and figure out what steps you should be taking to make sure you’re on track for the retirement that you deserve.
Speaker 2 33:08
When we return on Retire Smart Maryland Radio, we are going to have scenarios for Prashant. Now, he’s been away, he’s had some stuff, some personal stuff going on, baby arrive, all that good stuff. He’s been a little distracted, but now we’re going to throw some scenarios at him. We’ll see what he comes up with. That’s next on Retire Smart Maryland Radio. We are back on Retire Smart Maryland Radio. Your host is Prashant Sabapathi. You can find him at Elite Income Advisors. I say this each week. Check out the website, it is a resource, Elite Income advisors.com Prashant is an independent fiduciary. They’re headquartered in Ellicott City, and they have a satellite office in Annapolis for your convenience. I’m Morgan Patrick. Again, my pleasure to jump on talk retirement. And now we’re at the scenario portion of the show. Now, these happen all over the country, out on the left coast, in La La Land. They happen in the middle of the country, Chicago, Illinois. They happen up in New York, and they also happen right here in Washington, DC, and the Maryland surrounding area. So, folks, take these with a grain of salt, but remember everybody has a different scenario. And if you’ve got questions about where you currently are with what you’re doing and what’s going on in your life, grab one of our complimentary appointments when we make them available. All right, so first scenario per shot is this: they want to start gifting around 20,000 per year to each of their two adult children to help them now as opposed to later. How do you balance generosity with making sure they don’t jeopardize their own financial security in retirement? Yes, you
Speaker 1 35:00
know, I love this question, because I’m actually going through this right now. My, so you know, I shared that we just had our first baby, but my brother also just had him and his wife just had their first baby, raining babies. My little beautiful niece was born five days after my son, and now what’s happening is my dad immediately goes into grandparent mode, right? Yeah, so now he’s like, well, how do I set these kids up, these grandkids up for college, and how do we put money away in a brokerage account? So he wants to gift money to the to the grandkids, and it’s awesome, but look, the question was, how do we balance generosity, you know, with making sure that we don’t jeopardize our own financial situation. To me, it’s very, very simple. It all comes back to your income. Okay, if you have all the income that you could ever want or need to retire the way that you want to, then everything else can be used to fulfill the other goals that you have, so I’ll give you an example. Let’s say you needed $10,000 a month to live on, and if you had $10,000 a month coming in from social security, from pensions, from annuities, from investments, if you had that like clockwork every single month with a high degree of probability, you can live life to its fullest. All we have to do is dedicate enough of your portfolio to always provide you that $10,000 a month. I just went through this with a client, their number was 10,000 they had saved $3 million All we did is we took a million bucks of their money, and we put it into a vehicle that’s going to give them about 6000 I’m sorry, $6,000 a month, and that’s 6000 plus their pensions and social security, get them to the 10,000 they need, and that’s with certainty, and so we use 30% of their portfolio, roughly 1/3 of their portfolio to satisfy 100% of their income needs, which means the rest of their money, that other $2 million that we didn’t touch, can be used to do all the discretionary gifting and travel and spoiling their kids and grandkids that they want to do, and that’s only because they have certainty surrounding their income. I call it income security, and to me, in my opinion, income security is the key to being able to have financial independence, which is what we talked about in the first segment.
Speaker 2 37:34
Well, it’s having a plan, you know, sleep better at night, can’t take all the stress out of it, but certainly can relieve a whole bunch of it. Have a plan. Get on the calendar with the Elite Income Advisors. The complimentary appointments, we have 10 of them. Call the number 800-653-8404 Talk about your retirement scenario again. It is yours, it’s unique to you. 800-653-8404 No cost in these appointments. You’re leaving the checkbook at home, and there’s no obligation. You’re not required to become a client if you grab one of these appointments. It is a test drive, 800-653-8404 All right. Next up, their combined estate is now approaching 12 million, and they’re concerned about potential future changes in the estate tax exemption, what planning strategies might help them stay ahead of possible tax law changes while protecting the family wealth?
Speaker 1 38:30
This one is one that we get remarkably often in our office. You know, we have so many people that have amassed a tremendous amount of wealth. Obviously, being in the DMV is a great place to earn an income and start a business, and a lot of our clients start those businesses, sell those businesses, and have several million dollars of wealth amassed, and so two things come to mind for me, Morgan. Number one is the importance of having a concrete estate plan in place, a lot of times, this is going to include things like trusts, specifically irrevocable trusts that can take money and remove it from your state altogether. So that’s one way to help offset some potential future estate tax liability. A second thing to do is to look at the, you know, the tools like life insurance policies. Life insurance policies can not only be a great wealth transfer tool, but could be a great tool to help account for some of the estate taxes that could be owed upon death, especially if the government does reduce the estate tax exclusion, and so look, if you’re in a situation where you’ve amassed 1020, 30, $50 million more or more of wealth, this is something that has to be on your radar. If you’re in that position, you not only need to have a good estate plan. Attorney, but you need to have a good professional advisor, financial advisor that understands how to deal with high net worth individuals that are in the 2030 $50 million range. We see it quite often, and we do have some clients that are dealing with this type of thing on an ongoing basis,
Speaker 2 40:17
and there are a lot of you out there that haven’t thought about the planning process, and if you learn anything from this show, it is that there’s so much that goes into it. Make sure you’re dotting the i’s, crossing the t’s, and you have a plan as you are approaching your retirement. Be proactive. All right, so next scenario is this: 55 year old, 500,000 in a thrift savings plan, interested in withdrawing without penalty using the age of 55 rule, but they’re unsure about how much to take out each year. How can they calculate a sustainable withdrawal amount that aligns with their spending needs?
Speaker 1 40:54
I think this one has to come back to understanding how much risk versus reward is in your portfolio, okay, so like there’s been numbers floated out there in the past, whether it’s 4% per year or 3% per year, but you got to remember those things are just rules of thumb, they’re not in any way intended to be personalized advice for any particular person, and so it’s easy to be able to say hey, 4% on 500,000 that gives me enough income to maybe last me hopefully 2530 years into retirement, but the thing is, what happens if you need more than 4% Right? I mean, if you, if you really, really think about it, what is 4% on 500,000 It’s just $20,000 a year. Well, if you’re 55 years old, you’re not eligible to take social security just yet. So, how far is $20,000 a year actually going to take you? I don’t know too many people that can live on that kind of income, and so the higher the withdrawal rate goes, the higher the probability is that you might run out of money. And so, this is why it’s so very important to build out multiple streams of income to help propel you into retirement. We talked about passive income in segment one, we talked about dividend income, we talked about annuities. These are the types of things that can ultimately help supplement your income in retirement, but a true withdrawal rate should be dependent on the risk in your portfolio, the potential for a reward in your portfolio. Most importantly, the amount of income that you’re actually going to need to live life to the fullest. When you get there, there’s so many different moving parts. It’s hard to give a cookie cutter answer. That’s just typically not what we do here. It’s all about your individualized situation.
Speaker 2 42:38
Yeah, it’s customized. You’re going to get an opportunity to get on the calendar here in just a little bit, so stay tuned. Final scenario, here it is. Retiree considering converting part of their traditional IRA to a Roth IRA to reduce future tax burdens, but they’re unsure how this might impact their tax bracket this year. How should they evaluate if the conversion is the right move?
Speaker 1 42:59
It’s all about where you think your future tax rate is going to be. Right, I think consensus, talking to people, is that 20 years from now, I think a lot of people think tax rates are going to have to be higher to spending, despite what’s going on with the big beautiful bill that’s passing through Congress, that may end up on the president’s desk any day now, as of this recording, anyway, which would, in theory, make permanent the Tax Cuts and Jobs Act, the Trump tax cuts from 2017 Despite all of that, I think people think taxes are going to be higher at some point in the future, and so when evaluating whether or not a Roth conversion is the right thing for you, I think you have to look at, do I think my future tax rate or my current tax rate is going to be higher? If you think that your future tax rate is going to be higher, or it’s likely to be higher than your current tax rate, paying the taxes today to do a Roth conversion, so that you never have to pay them again, could very well be the right thing for you to do. Now, if you’re convinced that maybe these tax cuts pass, and they stay permanent, and if you think your current tax rate is going to be higher than your future tax rate, you might not convert, and you might withdraw as you originally planned to when you started that 401 k. What I can’t stress enough is that everyone’s plan is different. So often I have people come in, and they say, “Hey, my golf buddy did a Roth conversion, and that got me thinking that I should definitely do one too. And then we evaluate their situation, and what we find is it’s actually not in their best interest to do that. And so, my point is, everybody’s situation is different. You can’t do cookie cutter when it comes to your retirement, because your retirement is not going to be like anyone else’s. Folks, if you have been thinking about the best, most efficient way for you to retire, it starts with creating a comprehensive, coordinated written plan. The phone number is 800-653-8404 Last opportunity for today’s show to get. Into the calendar again, that phone number 800-653-8404 Write that number down, dial it whenever you’re ready. Our operators are standing by. You’ll be able to book that complimentary, no-cost appointment with our team at Elite Income Advisors. You come in to visit with us, or you schedule a virtual call. All we’re going to do is talk through your situations and talk through the things that you are concerned about, whether it is income and retirement, how to collect social security, how to make sure that you don’t run out of money, or how to manage your tax liability, or your state at some point down the road. Those are the things that we’re going to talk about. It starts with your phone call 800-653-8404
Speaker 2 45:40
Welcome back, Prashant. Congrats again on the birth of your son, retire Smart Maryland Radio. This edition is in the books. I’m Morgan Patrick for Prashant. We’ll see on the radio next week.
Speaker 3 46:00
Nobody 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 a 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 refer only to the fixed insurance products. They do not refer in any way to securities or investment advisory products. Information presented on this program is legally 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 offer to buy or sell the investments mentioned. Professional advisors 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. Investment advisory services offered through Elite Income Advisors Incorporated, a registered investment advisor located in Ellicott City, Maryland. The firm only conducts business in states and jurisdictions in which they are properly registered or exempt from registration requirements. Registration is not an endorsement of the firm by securities regulators and does not mean the advisor has achieved a specific level of skill or ability. Content should not be viewed as personalized financial advice. Insurance and duty products are sold separately through Retirement Planning Services Incorporated. Neither firm is affiliated with or endorsed by the Social Security Administration or the IRS. Social Security, Medicare, pension, and tax rules are subject to change at any time. Insurance and annuity products are sold separately to Retirement Planning Services Incorporated. President Ozer Culhagil, Prashant Sabapathi, and Jonathan DeFeo receive commissions for the sale of insurance products as insurance agents for Retirement Planning Services Incorporated. Insurance and annuity product guarantees are subject to financial strength and claims payability of the issuing insurance company. Morgan Patrick is not a client of or affiliated with Elite Income Advisors. However, he has a financial incentive to promote our services because he was compensated for his work on Retire Smart Maryland programs and paid production of Elite Income Advisors.
