Speaker 2 0:00
As the working years wind down, most retirees feel a twinge of uncertainty. We’ll explore how to secure income, manage rising costs, and live the retirement you’ve earned. Welcome in to Retire Smart Maryland Radio with Prashant Sabapathi. Welcome into Retire Smart Maryland Radio. Your host is John DeFeo. You can find him at Elite Income Advisors, independent fiduciary. Yes, sir. And it’s all about helping you get ready for retirement. They’re headquartered in Ellicott City and a satellite office in Annapolis for your convenience. I’m Morgan Patrick. My pleasure to go back and forth with the advisors at Elite Income Advisors each week, and again, having the plan, being prepared, being proactive when it comes to your retirement. And before we dive in on this latest Northwestern Mutual study, I got to ask, John, how was the week?
Speaker 1 0:57
It’s been great. Yeah, it’s been, you know, busy week in the office, as we usually talk about, you’ll be doing a lot of seminars in the communities, two to three a week, myself, plus some of the other advisors are out there providing that education to the community the best that we can during the summer months, it most of the times gets slower, people on vacation, nobody wants to talk about their financial plan when they could be at the beach, but we’ve actually seen a pretty big influx of folks that are concerned about the new tax law that was passed with the big beautiful bill, they’re concerned about how the budget reconciliation bill coming up in September can affect them, how these new tariffs that are announced to come out the beginning of August probably have already happened by the time this airs, but a lot of these things are, you know, getting our clients into the office, getting new folks into the office, so it’s still been as busy as ever, not slowing down, but not a bad problem to have. It’s been a great week, good weather, so can’t complain.
Speaker 2 1:55
Gonna say 100% agree, people are concerned, there’s a lot going on, and it’s, it’s going to impact you. It’s going to impact your, your retirement, and planning for said impact is, is vital. The opportunity to get on the calendar with elite income advisors is going to be ongoing during the course of this show, and the appointments we do open up, and we’ve got 10 of them. They are complimentary, and when I say complimentary, you’re not paying for it, but it also means there’s no obligation, meaning if you grab one of these appointments, you’re not agreeing to become a client, and they’re not agreeing to take you on as a client. This is an opportunity for you to kind of get to know each other, see if there’s a good comfort level, and if you want to proceed from there, you can certainly do that, but again, we’ll tell you more about those appointments here in just a little bit. So, this new study, Northwestern Mutual, John, they put it out for us. We’ve got it in front of us, and it finds that Americans now believe they’re going to need 1.2 6 million to retire comfortably. And before you go, wow, that’s a lot. Guess what, it’s down 200,000 just from last year, yet still it’s kind of out of reach for a lot of people. Even so, 97% of people aren’t meeting that benchmark. So, what’s more, get this number: nearly 45% of current retirees, you’re already in retirement, you’re worried that you’re going to outlive your savings, and 64% from this survey of the American survey. Now, fear running out of money. Get this, even more than death. Now, these aren’t just numbers. This is the stress behind today’s retirement narrative. We’re going to talk about this today. If you’ve got concerns about where you currently are, when we make the appointments available, jump on it. So this magic number concept, John, do we need to reevaluate there?
Speaker 1 3:50
Yeah, this is a big one. It’s something that we talk about regularly when folks come into our office, and that’s honestly one of the first questions that we get asked. Hey, I’ve built this nest egg. I’ve reached a number, maybe it’s a million, maybe it’s 2 million, maybe it’s 1.26 whatever this new average number is. And we really want to try and retrain the way folks think about retirement, right? Because the number that you have when you get to retirement that is going to be successful is different for everyone, right? Someone could only need a million dollars to retire and live the lifestyle they’d like to live, where someone else might need $5 million right. So, the way that we look at it, it’s all about the income, right. How much income can we generate from that nest egg that we have built up over time? You know, while you’re working, your financial life is really just a function of what we call money in and money out, right. You’ve got your money coming in from your paychecks at work, you’re going out to your bills, you’re doing your best that you can to save along the way, and then when you get to retirement, we would argue that it doesn’t really change so much. Right now, you still need to have a paycheck coming in in some capacity. And you’re still paying bills, you’re still doing things, we would argue, maybe even spending more than when you were working, right, because you’re retired, you’re trying to do all of these things that you haven’t been able to do, so we have to figure out that equation, how to sub, excuse me, how to supplement the income from your paychecks, from the savings that you had, you know, with foundational income sources like Social Security, pensions, you know, how do we ensure that you can do the things that you want to do in retirement? So, maybe it’s a million dollars, maybe it’s $2 million We don’t care so much about the amount, it’s about how much income we can generate out of those sources to meet your expenses and do the things that you want to do, right? So, we’re glad. Sorry,
Speaker 2 5:41
I was just gonna say, I love what you said about the magic number. Everybody’s different, and you have to have that plan that works with your, your magic number. It’s all about retirement. Now, to grab an opportunity, one of our appointments, we’ve got 10 of them. All you’ve got to do is jump on this number, 800-653-8404 We’ve got 10 spots, 800-653-8404 Again, this is complimentary, no obligation. You’re leaving the checkbook at home. 800-653-8404 So, back to it. Northwestern Mutual study again. Interesting numbers. What about confidence versus preparedness?
Speaker 1 6:16
Yeah, I mean, I’d say about 67% of people near retirement say that they’re optimistic, you know, only 44 to 46% of boomers and Gen Xers actually feel prepared. So, there’s a disconnect, you know, between people that are optimistic and people that feel prepared, right? So, you can feel confident about retirement, and that’s fine, but, but actually being prepared and knowing that you will be successful are two completely different things, so we have folks that come in that have kind of mapped out a retirement plan based on a bunch of assumptions, a couple of rules of thumb, right, using the 4% rule, maybe I’ve got a 6040 portfolio, I might take this much, and this is kind of how my retirement plan will work, and although that works sometimes, we much prefer to have a written retirement plan in place that addresses where your income will come from, ensuring that it is certain we don’t want to be taking risk with the assets that we’re taking income from. We’re also going to look into, you know, the risk and all of those types of things, so you know it’s a little bit different. We have to identify where taxes are coming from, we have to identify how to make that income last over time, so that inflation doesn’t erode your purchasing power. Taxes don’t erode your income. You can leave that, you know, money left over to your beneficiaries efficiently. So, you know, we have to ensure, you know, not just that you’re confident, but you are prepared. And having a written retirement plan in place is how we get prepared.
Speaker 2 7:39
We’ve got 10 spots on the calendar with Elite Income Advisors. John, what’s going to happen if they call our number?
Speaker 1 7:46
You’re going to come in, we’re going to have just a conversation, identify what your goals are, what retirement looks like, what retirement will cost you, and how we’re going to fund your lifestyle based on the income sources you have, the assets you saved. We’re going to navigate taxes, we’re going to look at the risk in your accounts. We’re going to ensure that your estate legacy plans are in order. We’ll talk through Medicare, we’ll talk through your life on casualty, we’ll ensure that all aspects of your financial life are in order, and we’ll put that in writing. We’ll make sure that it’s adjusted over time and ensure that you sail into retirement successfully.
Speaker 2 8:18
All right, there you go, folks. We’ve got 10 spots, call now and grab one. They’re complimentary: 800-653-8404 That’s 800-653-8404 Get some peace of mind. There are a lot of people out there that are very nervous, and you might be in that category. Having a plan, having a path to and through your retirement will give you confidence. Here’s the number: 800-653-8404 That’s 800 800-653-8404 We’ll continue this conversation in and around Northwestern Mutual study that we’ve talked about already, again taking a look and reevaluating the magic number, and also talking about confidence versus preparedness. Social Security is up next, it’s in the crosshairs, it’s coming up next, you we are back on Retire Smart Maryland Radio, and joining us to host the show this week, John DeFeo, Elite Income Advisors, where you can find him, and Elite is the power behind the program. They’re headquartered in Ellicott City, satellite office at Annapolis. For your convenience, I’m Morgan Patrick. It’s my pleasure to go back and forth with the advisors each week, but the importance of having a plan, that’s the overall theme, being prepared for retirement. So many of you have done this amazing job for your entire life, you’ve worked really, really hard. You’ve created this portfolio, but that’s not a plan. We’re going to give you an opportunity to talk this out, to start the planning process, and these appointments that we open up during the show. There’s no obligation, there’s no cost to it to get started, so when we. Make that phone number available to you. Get on those appointments, we have 10 each week. Call it our top 10. You can grab one of those when we give you that phone number again. We’ve been talking about Northwestern Mutual, the study finding Americans in the magic number of 1.26 but everybody’s magic number is going to be different. You need to plan that way, right? You don’t just have this number in your mind and go, okay, I’ve hit the number, I’m good to go. You don’t know, you need to have a plan. So, reevaluating the magic number, everybody’s going to be different. Confidence versus preparedness. We’ve talked about this next one, social security, and the timing of taking social security. I mean, there really needs to be a strategy here, John.
Speaker 1 10:43
There absolutely does. This is an extremely important decision that you make when you retire, and once you make this decision, you can’t go back on it, right? You got about a year to take back your social security election. It really is a pain. You know, you know what it’s like trying to get in touch with social security. It’s very difficult to talk to someone, so when you make this election, you want to be certain that it is the best for you, and there’s, of course, a range of different ages that you can elect the benefit, right? 62 being the earliest, where you’re going to take a cut to what your full benefit would be, and then 70 being the latest, where you’re going to get an additional increase to that benefit by waiting, right? So there’s a range between 62 and 70 to take it, and we get that question a lot. John, what is the right age? Is there a golden year? Is there, you know, kind of a cookie cutter approach? And unfortunately, it’s not that simple, right. There’s a couple of things we look at when making social security elections. I think number one is cash flow, right? Can you afford to retire without turning on the benefit, there are some folks that are forced into retirement, whether it be from a medical reason, maybe a layoff, they can’t find the same level of work, and they can’t afford to pay the bills with their, you know, their assets that they have, or other sources of income, so they’re required to take the benefit. There’s also longevity and health, right? So there’s a break even point where delaying the benefit would actually pay out versus taking it early, so if you’re either in poor health or you don’t have longevity in the family, you don’t expect to live well into your 80s, it might be smarter to take it early, right? Maximize the benefit in the short term, whereas if you have the cash flow to fund retirement, you have good longevity, you’re in good health. It might make sense to delay it, right? Another aspect to this is tax planning, right? By taking social security, you’re taking additional income. If you’re, you know, in that position where you want to be doing things like Roth conversions, strategic distributions to take advantage of a preferential tax bracket, and you know, high pre-tax accounts, then there are opportunities where we can, you know, take additional income, and by taking Social Security, you’re reducing the amount of Roth conversion, so we have to look into that, and then, of course, the spouse will benefit, right? There’s a strategy if you’re married on when to take either benefit based on, you know, the survivor benefit when one spouse passes away, you get to keep the higher of the two benefits. So, there’s strategy there as well. So, everybody has a different makeup of when it makes sense to take the benefit. It’s something that we help out with clients and making that election every single day. So, if that’s a question you have, please come in, talk to us. We’re happy to go through what your situation looks like and what the right time could be for you.
Speaker 2 13:22
Tell you the opportunity to jump on the calendar with Elite Income Advisors. It’s ongoing during the course of this show. We have 10 appointments, we call it our top 10, and to grab one, all you got to do is call 800-653-8404 That’s 800-653-8404 These are complimentary, you’re leaving the checkbook at home, and these are no obligation, meaning you’re not agreeing to become a client if you grab one of these appointments, but again, this is about getting you prepared, getting ready. This might be a first step for you, this might be a second opinion for you. Grab one of those appointments now. 800-653-8404 So, back to it, just talking about reevaluating the magic number, everybody’s going to be different, talking about confidence versus preparedness, and also, you know, strategic social security, and how you’re going to take it, when you’re going to take it. This is all from this Northwestern Mutual study, and the numbers are, you know, they’re eye-popping. I mean, because when you think about it, we’re all headed towards retirement. These are things that we need to be aware of, and be on top of. So, this next one: long-term care and health care, just the price alone. John, and I guess you can give us numbers for this market, the DC, Maryland market. We’re talking about a very expensive step when you get into retirement. A lot of people don’t think about health care, but they really need to,
Speaker 1 14:41
certainly, especially as you age, you tend to have more health problems and have to pay for that care. And you know, although it’s great that folks are living longer, we have the technology to extend quality of life. It gets expensive, right? It’s not free. So there’s a report that says that today’s retiree is outspent about $165,000 on health care. Care nursing home care is running, you know, nine to $11,000 a month. I would argue in this area we’ve seen it between 15 and 20,000 for the highest standards of care for folks that are really, you know, far into their long-term care treatment. So, it can be very, very expensive. So, you have to have a plan in place for that, right? If you weren’t fortunate enough to buy a long-term care policy years ago, when they weren’t as expensive, that might be something that you have to self-insure for, right? And I would even argue that those older long-term care policies are becoming very expensive to afford, because the premiums are being increased, as the policies were underwritten poorly back in the day, not to the insurance company’s fault, because I don’t think anybody expected health care costs to rise as significantly as they have over the past 20 years, right. So they’re forced to increase those premiums, they’re very expensive policies to maintain, so a lot of folks are forced to self fund their own long term care and their health care, right. So it’s important to make the right election when it comes to Medicare, part A, part B, your supplemental plans, ensuring that you’re getting the right level of care that you need for your situation. There’s a common misconception that Medicare is going to cover your long-term care expenses, which is not the case. It covers the first 100 days, but beyond that, you’re on the hook, right? And before Medicaid picks in to take on the long-term care, you have to go broke, you have to spend down your assets, you have to spend everything you have, and then you go into a Medicaid facility, which might not be the highest level of care. So, what we typically recommend is having a safeguard for that, right, investing for the long term, you know, having growth in your money, if you can afford it, to put that away for a long-term care event down the road. Otherwise, it’s on you spending down your assets, it’s on your kids to help you out. So, having a plan for that’s important, and we help clients with that every day.
Speaker 2 16:54
We are discussing again just how to secure your income, manage what we are seeing, which is rising costs, and you want to be able to live the retirement that you’ve worked so hard for. Have a plan, and be aware of where these expenses are going to hit you. And again, long-term care, health care, it’s got to be on your radar, it’s got to be in your plan. Sooner the better. Diversification is our next one, John. We’ll jump on this, and again, just the Northwestern Mutual study finding that Americans, they have certain beliefs on how it’s going to go this next one, diversifying your income, and just to guard against the volatility that we see in the market.
Speaker 1 17:34
Yeah, and we are big believers in diversification. I think you should be diversifying your money into different buckets. We’re strong believers that everybody should have a variety of different buckets of money with different goals, right, different objectives. So, you should have at least, you should have a cash reserve bucket, right? We call that our blue bucket, where your, you know, your operational cash is held, you know, six to 12 months worth of your expenses, you know, the money that you’re paying the bills for regularly. We’re not seeking high growth in those accounts, we’re just looking for liquidity and security, right? You should also have an income bucket, right? If you’re someone that your social security, your pensions, your rental income, any foundational income you have doesn’t cover all of your expenses, then you need to take income from your investments. There should be a stable part of that in a what we call a green income bucket, right, where we’re able to fund that for you safely, not have market exposure, and ensure that your nondiscretionary income in retirement is certain, that is a key component to our financial plan, and then finally you should have a bucket of money that is invested in the market, right, we need to take risk in order to have returns to outpace things like inflation, provide a legacy for our kids, grandkids, charities, whatever your desire is, you know, ensure that you maybe have a long-term care bucket. There’s a lot of things that we want to invest for down the road, but we don’t want to take risk in the money that we are relying on to pay the bills, and we don’t want to take risk on the money that we might need to use in the event of an emergency, so there’s different levels of investment that we look at. We want to diversify, and even within those buckets, we want to diversify, right? In the risk bucket, we’re not putting all of your money in one stock, we need to diversify across different sectors, different asset classes, maybe even different types of management styles, right? So we have a lot at our disposal now. We want to make sure that we’re creeping into all different areas and using all solutions possible. Right, we’re not tied down to any one solution. We’re able to really go out, figure out what works best for the client, and make the plan accordingly.
Speaker 2 19:35
Yeah, I mean, if you hear anything in this discussion, it’s everybody’s different. This is the Northwestern Mutual study that basically asking a lot of questions about retirement, and 64% of Americans that were surveyed, they fear running out of money more than death. Have a plan, make sure you’re covered. We’ve talked about a lot today, the magic number, your confidence level, how. You’re going to take social security, don’t forget about health care, and possibly long-term care. Make sure you’re diversified, and the last one we’re going to hit, John, and then we’re going to open up those appointments, and that’s just the power of having a plan, but also having the ongoing advice, working with a fiduciary.
Speaker 1 20:17
Yeah, this is another one of our core ideologies, is that your financial plan should be in writing. It should be something that you can refer back to at any point in time, when you’re concerned about what the economy is doing, what the market’s doing, you know, what your life looks like. You can refer back and say, I have this all mapped out. And then you should also be meeting with your advisor regularly, right? You should be meeting with the fiduciary advisor on an ongoing basis, getting updates to your life, right? Things change over time, your goals change, your financial situation changes, your health changes. So all of those things should be updated on a regular basis. For instance, we meet with our clients about three to four times a year to ensure we’re keeping up with those updates, but also that we’re addressing the changes in the world. Right, there are different laws. This big beautiful bill just change the tax game for the next three four plus years, right? So we have to be keeping up with these different changes in the world and the economy and laws, as well as your lifestyle, and making adjustments to that financial plan along the way. So very important to have that in place, something we do for every one of our clients.
Speaker 2 21:18
It’s about planning, folks, it’s about being prepared. It’s about being proactive. Now’s your opportunity. We have 10 appointments with elite income advisors. John, walk us through what’s going to happen.
Speaker 1 21:29
Yeah, that first appointment is simply a conversation. It’s no obligation. You’re not being sold anything. It’s a way for us to understand who you are and what you want out of your retirement, what you want out of your life. We’re going to go through your income. We’re going to figure out what retirement costs you. We’re going to help you navigate the tax landscape. We’re going to ensure your state and legacy plan are in order. We’re going to make sure that your health care costs are covered, that your liabilities are covered, that all of that is bundled into a plan in writing that we monitor on an ongoing basis, just like we talked about.
Speaker 2 21:58
So, important, jump on this right now. The 10 appointments are complimentary. Here’s the number: 800-653-8404 That’s 800-653-8404 Leaving the checkbook at home, 10 appointments. Jump into our top 10 and grab one of these, no obligation. 800-653-8404 That’s 800-653-8404 When we return, even the seasoned saver out there can stumble in retirement. So, we’re going to uncover some common missteps, so you can avoid them. Retire Smart Maryland Radio, your host John DeFeo. You can find him at Elite Income Advisors, headquartered Ellicott City Satellite Office in Annapolis. Website is a resource, check it out, Elite Income advisors.com that’s Elite Income advisors.com I’m Morgan Patrick. My pleasure to go back and forth with the advisors each and every week, and this week John DeFeo all over it. The importance of just being prepared, being ready for retirement. What does it take? Well, it takes planning. We’re going to give you an opportunity to get on the calendar with elite income advisors, and the appointments we open up through the radio show, they are complimentary, which means there’s no charge. It also means there’s no obligation. It’s almost like you’re going to the dealership and you’re going to test drive a car, you’re not agreeing to buy the car, you just want to see what it’s like. It’s exactly what we’re doing here on the program today. We feel that being prepared for retirement is of the utmost importance. So, listen up. We’re going to get into this topic. Retirement should be, you know, it should be that time to just enjoy what you’ve worked for your entire working life, right? Don’t fret over your finances, but yet many retirees, and you may be in this category, they make some avoidable mistakes. Now, these mistakes can jeopardize the financial security for you in retirement, but also your peace of mind. A lot of stress involved here. So, today we want to kind of dive into some critical errors that highlighted, you know, that have been highlighted by financial experts over the years, and this could impact your retirement as well, so how do we avoid these things? So I throw them at John. We’ll see what he will see what he says. All right, so John, first one, are you spending too conservatively? Is that a thing?
Speaker 1 24:32
It certainly is. And believe it or not, we see this more often than not, where folks are scared to spend more in retirement because they’re afraid of running out of money, right, and there are some folks that are very valid in that, that fear, and they shouldn’t spend more than what they think is the right amount, because they’re right, they might run out of money, but the way that what we found is that there are a lot of folks out there that can actually afford to spend much more than what they’re spending now, there’s just a psychological effect. Fact that that they’re in retirement, they have a fixed income. If they spend too much, you know, they could end up running out of money and living with their kids or eating cat food, as we joke, things like that. So, the way that we look at this is, we have to map it out, right? We have to identify what type of income we can produce from your assets safely over time, and you know, if that is more than what you currently are spending, or what you think you can spend, and we tell you, hey, based on our observations, you can spend much more on a monthly basis or an annual basis. Go out and do it. I mean, you know, if a professional, as such as ourselves, have done the research, we crunched the numbers, we’ve identified that, hey, based on the income that you need, the expenses you have, the assets that you’ve saved, the inflation assumptions, tax assumptions, you can spend this. Go do it. Live that lifestyle. We don’t want our clients to be strapped based on their reservations of spending money. We want you to live a fulfilling retirement. It’s not supposed to be about just surviving retirement. It’s supposed to be about retiring abundantly, right? So that’s our goal. How do we ensure that you can live a fun, exciting life, do all the things you want to do, and do that safely? That is our job. At the end of the day,
Speaker 2 26:15
we are talking about some big mistakes out there that financial experts have identified, and now not only talk about them, but how do you avoid them? So, again, if you’re spending too conservatively, so it falls right into this next one. You’re nervous, you’re scared, as you’ve mentioned before, John. So, guess what? You’ve got all your money on the sidelines, and you’re too conservative, so your investment strategy is pretty much non-existent,
Speaker 1 26:41
right? Right. So you’re probably accustomed to folks that are just way over exposed to the market, heading into retirement, taking way too much risk. But there’s also another side of that equation, and those are folks that are terrified to enter the market. Right, back in the 80s, you could keep your money in safe money, or in safe investments, you could keep it in the bank, you could earn 14% and that would provide you with a pretty substantial amount of income in retirement. Now, that’s not the case, right? We’ve got 4% interest rates that are likely to come down, so retirees are forced to take risk in their investment. So, keeping everything on the sidelines, unfortunately, is going to be detrimental in the long run, because you’re not keeping pace with inflation, you’re losing purchasing power. There is an element to a financial plan that does need to have risk. With that being said, we don’t believe that where you’re generating your income from in the years that you’re taking the income should have risk involved, and that’s why we are strong believers in having different buckets of money for different objectives. Right, you have your bank money for your emergencies, some people feel more comfortable with a higher level of cash, maybe two to three years of expenses, where other folks, and our recommendation is about six to 12 months. So I think that’s an appropriate amount of cash that we’re not looking for high growth on, and then you want to be able to keep money in, you know, some sort of a moderate producing investment to take your income from that doesn’t have the potential to lose money. These can be things like bonds, these can be things like CDs, they can be things like annuities, right? Fixed index annuities, we look at quite often, depending on the plan. Some people, if you need income at the end of the day in order to provide market-like returns with stable income and no downside, so it’s something that we help out with, but again, it just comes down to what your objectives are, what your income needs are. We do see folks that are far too conservative that walk into our office and it’s tough to try and to convince them to get back into the market, but at the end of the day, it is necessary to provide growth, inflation hedges down the road,
Speaker 2 28:41
and if you plan and plan well, there might be an opportunity to get a little bit more of that portfolio working for you, but that’s that’s all part of the planning process. The opportunity to get on the calendar with Elite Income Advisors is ongoing during the course of this show, and all you’ve got to do to grab one of our appointments is call this number 800-653-8404 We have 10 of them. We’ve carved them out. We call them our top 10, and you can grab one. There’s no cost, no obligation. Call the number 800-653-8404 Maybe you’re hitting some of these mistakes, maybe you’re hitting some of these critical errors that people have made in the past, when it comes to their retirement, there is time to course correct. You need to have a plan. 800-653-8404 So, are you in this category? Are you spending too conservatively? Are you too conservative with your investment strategy? Too much of your money on the sidelines. This next one, are you overlooking the tax part of this? Taxes are coming for us, folks. You got to plan for it,
Speaker 1 29:47
certainly. And you know, if you’re like the lot of the folks that walk into our office, you’ve probably saved a lot of your money into a pre-tax retirement plan, like a 401 k, tsp, 403 b, as we were told, while we were. Working over the past 2030 years, your taxes are going to be a lot higher in your peak earning years than when you get to retirement. So, defer the taxes in the 401 k, take it out when you get into retirement at a lower rate, and you’ll be better off, right? And that was the idea for the last, you know, 3040 years, and ever since the 401 k was incepted back in 1978 from the Revenue Act, right, so at this point in time we’re in the third most favorable marginal income tax bracket in history, that was introduced by the Tax Cuts and Jobs Act, where that has been extended now to the big beautiful bill, so if we think that taxes that are an all-time low and you put money into these tax-deferred plans, you know, back when you were working, you know, right now might be an opportunity to take some of that out at a preferential rate. The exact purpose of what we did that for, the problem is, in the next 510, to 15 years, it is highly likely that we’ll see a higher tax code, at least in our opinion, that’s our philosophy, due to the, you know, the increase of the national debt over $37 trillion an inability to cut spending. There has to be an increase to revenue in some capacity. I know that we’ve seen an increase in tariffs, that’s great, but to get that $37 trillion under control, it’s in our opinion that income taxes at some point in time will be higher. It will probably be with a new administration that comes along in future years. So, if that’s the case, we want to be able to take advantage of the current tax code to get in front of that, so if you weren’t able to diversify your assets through Roth IRAs, non-qualified or non-retirement accounts, in addition to your 401 K’s, now might be an opportunity to do that. So, getting on our books, talking through how that might work for you, could be in your favor at this time.
Speaker 2 31:40
I mean, the tax window is now, it’s a limited time, you’ve got a little more time with the latest rulings, the latest legislation that’s passed, but it’s a conversation you probably want to have pretty soon. So, again, taxes is a big one, make sure you’re not making that mistake. Last one we have time for, and we’ll hit it super quick, and that is health care. It’s got to be on your radar.
Speaker 1 32:05
It does. Yeah, and we talked about this for a few moments earlier in the show. You have to have a plan for your health care, for your long-term care. When we build out a monthly income target and figure out how much we want to bring in on a monthly basis after taxes to live the fulfilling retirement lifestyle that you’d like. We build the healthcare cost into that on a monthly basis, right? If you’re over 65 and on Medicare Part B, we build in that premium, maybe the approximate cost of supplemental plans of the copays and deductibles, and anything else that you could be responsible for. We want to build that into the plan, so have a plan for it, map it out, ensure that you are on track to cover those expenses when they arise in retirement.
Speaker 2 32:45
All right, the appointments are available right now. Let me give you the phone number: 800-653-8404 That’s 800-653-8404 As John has said on this show, this is about getting to know you. It’s less about your numbers, but it’s more about you and what you want out of retirement. These are complimentary appointments. We have 10 of them. Call now and secure one, no cost, no obligation. 800-653-8404 That’s 800-653-8404 When we return on Retire Smart Maryland Radio, it’s time for scenarios. We’ve gathered them from around the country, and I will throw them at John. We’ll see if he can catch them and answer them. That’s coming up next. Retire Smart Maryland Radio, hosted this week by John DeFeo, powered by Elite Income Advisors. That’s exactly where you can find John Prashant, Ozzie, the entire team. They are fiduciaries, and it’s all about getting you ready for retirement. They’re headquartered in Ellicott City. They have a satellite office in Annapolis for your convenience. I’m Morgan Patrick, and it’s my pleasure to jump on and talk retirement with the advisors each week, and John, we’ve got scenarios in front of us. These happen all over the country. We’ve gathered a handful of them, we’re going to throw them at you, see what you would do. Want our listeners to remember, these are scenarios you may hear one that’s similar to what you’re going through, but we’ve always said, you know, it’s not exactly what you’re going through. You need to have a customized retirement plan that’s taking into account all the different things going to impact you as you move to and through retirement. We’ll give you an opportunity to get on the calendar with elite income advisors. So, stay tuned for that. We’ll throw out the phone numbers. We have 10 appointments this week. Get them while they last. All right. First scenario: a retiree is considering delaying IRA withdrawals to allow their account to grow, but they’re worried about future tax rates, and we’ve already talked about taxes this week. What factors should they. Consider in balancing growth versus that future tax risk.
Speaker 1 35:05
This is an interesting one. So, you know, number one, there’s obviously different objectives here. There’s, you know, growth as an objective. There are tax mitigation strategies as an objective. You know, we typically don’t want to let one of those drive the other, right. We don’t want to let the tax dog wag the growth tree, or however you would say that. I’m not the best with those types of phrases, but basically, you don’t want to, you know, dictate the growth that you have on your investments be dictated by the taxes you might have to pay. So, you know, if you can have an extra $100,000 in growth, and maybe you have to pay an extra $10,000 in taxes down the road, because you’re, you know, at a higher rate. I mean, you’ve still netted $90,000 in my opinion. Now, one thing they could consider are, you know, Roth conversions, right, moving some of that pre-tax money into a Roth IRA, where it has the potential to grow tax-free. Right, this isn’t a blanket statement for everyone to go out and do Roth conversions, but if they’re in a situation where they feel as though their current tax rate will be lower than their future tax rate, or they have an objective of reducing taxes to their beneficiaries, reducing potential RMDs down the road, then Roth conversions could really help out with this and accomplish both goals, right? You’re reducing the future taxes you pay on that money by converting it to Roth, and you can grow that money and not have to worry about the taxes down the road. So, typically, we even encourage folks to have a higher level of equity exposure in their Roth IRAs, because that’s the last money that you typically want to touch in your lifetime, right? It’s growing tax free that has the benefit to continue to do that. If you pass away and you leave that money to your kids, your grandkids, your nieces, your nephews, they’ll have 10 years that you know they’ll have to take that out by, but they don’t have to pay any tax on it in that period of time, whereas if you leave them that traditional IRA, they have 10 years to take that money out, and they have to pay taxes on all of it within that 10 years. So, it’s a much better way to leave your assets tax efficiently. It allows you to have the tax-free growth, so you don’t have to worry about higher taxes in the future if you’re paying them now. So, that’s how I would say we could potentially accomplish both of those goals, but again, we typically don’t want to let one of those drive the other, if we can.
Speaker 2 37:23
Yeah, it’s so important to get the information, all the information that you can, before you make some really big decisions that are going to impact your retirement. Make sure you have that plan. Now, the opportunity to get on the calendar with Elite Income Advisors is ongoing during the course of this show. We’re in the middle of our scenario portion, but you can grab an appointment right now by calling 800-653-8404 That’s 800-653-8404 Get some peace of mind, kind of figure out where you are in your process. Maybe you’re just sitting on the portfolio, haven’t started planning, or you need that second opinion. Grab one of our appointments right now. There are 10 of them, they’re going to go fast. 800-653-8404 All right, scenario number 250: years old, an investor, 400,000 in cash, debating between buying a fixer upper to flip or purchasing a rental property for long-term income. What fact? factors should they consider to determine which real estate investment aligns better with their overall goals?
Speaker 1 38:30
Well, I think knowing their goals would be helpful. Are they looking for income in retirement? Are they looking for an additional foundational income source, where that’s going to help fund their retirement. Are they looking for a quick, you know, quick profit, fund another project down the road to maybe purchase something large? You know, what is the objective of the purchase? So, you know, you also have to think about tax implications. So, if you buy a fixer upper, you flip it, the profit that you take, in addition to what your call space is for the purchase and the renovations, within a certain period of time, you’re going to have to pay capital gains taxes. Right now, there is a preferential tax rate that comes with capital gains, you know, if it’s a longer term, but if it’s a short-term flip, you might have to pay ordinary income tax on that. So, you have to be careful about the tax implications, also the environment for the housing market that you’re in. If you buy a house now and the housing market crashes after you’ve just fixed it up, then you’ve probably just sunk your investment. So that’s important. Knowing the market very well is, I think, a good idea. There, the rental property, on the other hand, can, as you mentioned, produce long-term income, so that can be a consistent stream of income for you in retirement, where you know maybe you’re taking less out of your investments, you’re not as focused on, you know, what you’re getting from Social Security, so it’s a nice income, but you have to ensure you have tenants, right? You got to keep that rental property booked, and we’ve heard from lots of clients that have rental properties that. It’s tough to do right. It’s tough to vet people truly and ensure that they’re the right fit, that they’re going to continue to pay, that you’re going to keep people in. So, I think it really depends on the goal, the comfort level, you know. Also, with the rental property, you’re responsible for the upkeep, you know, right?
Speaker 2 40:17
You’re landlord, you’re a landlord, right? The
Speaker 1 40:19
AC goes up, you got to fix it, right? The hot water heater is up, you got to fix it, you know. If the renters damage the house while you’re in there, then you have to fix it up before the next come in. So it can be a pretty expensive venture, but could also be quite profitable. So I think it also comes down to your experience, right? You know, we have a lot of clients that are contractors that have flipped houses their whole lives, and they’ve built a real estate portfolio, and they have their niche, right? They either prefer to flip the houses and take the profit, roll it into another one, or they prefer to be landlords and manage the properties. Typically, we don’t see both. Sometimes we do, but it all comes down to your preference, what you want to be doing in your retirement, I mean, most people in their 70s aren’t, you know, 80s aren’t going out there flipping properties, right, and most people don’t want to be a landlord at that age either. So it just depends on your goals, what you want to do, but we do see this pretty often, where folks will have this, you know, this, this addition to their plan, where they’re, you know, flipping real estate or taking rental income.
Speaker 2 41:21
Well, I tell you, I love the scenario part, because you get an idea, man. There are a lot of things that can go on in your life that will become your scenario, and you need to have a customized plan because of that. Now, the opportunity to get on the calendar with the Elite Income Advisors is ongoing during the course of this show, you can grab a complimentary appointment, no obligation appointment, by calling 800-653-8404 Come in and talk about your own retirement scenario. 800-653-8404 Final, final scenario for you, John. Here it is. 60 years old, 500,000 in a traditional IRA, thinking of converting 100,000 to a Roth each year before RMDs kick in. They want to avoid crossing that 32% tax bracket. How should they approach timing to balance taxes with growth potential?
Speaker 1 42:20
Yeah, this is this is one that we work on again just about every single day with our clients, especially when we get closer to the end of the year for calculating the Roth conversions. But in this scenario, there’s a couple of things that stand out to me. Number one, they’re 60 years old, they want to convert $100,000 a year before RMDs start, and they have $500,000 which would mean that you know 65 they should have that converted. Well, their RMD age, if they’re 60 years old, isn’t until 75 they have 15 years to convert this money over into a Roth IRA. So, I don’t know that taking $100,000 over five years is the move, but it could be, depending on what their other income sources are, right, so they want to avoid crossing into the 32% bracket. So we would need to identify what their income from other sources look like, you know, are they still working, are they retired and drawing off of a pension or from their investments? Do you have dividends or interest income or other rental income? What is your income? And then we can identify where they are in the tax bracket, see how much it makes to fill up, and make the recommendation from there. I would say, on a situation like this, we likely wouldn’t recommend doing $100,000 each year, unless they had absolutely no income. We could keep them within a 12% maybe 22% bracket, get it moved over to Roth quickly, which allows for a higher, you know, period of, or a longer period of time that they can grow that money tax free. So, I think you hear us say this a lot. It all depends on the other variables. How much income do they have? What other objectives do they have? What does their cash flow need look like? So, all of that has to come in to making the recommendation, but the thing I think it’s important to understand is that you know everybody’s situation is different. There are folks that have three, $4 million that have that exact same objective, where they want to convert it all before RMD age, they want to stay within a certain tax bracket, and that’s something that that you have to consider. Right, how much can we do each year to keep within a certain tax bracket, ensure that that we’re not paying more than we might down the road, and in addition, look at other benefits that can be affected by taking that income. For instance, Medicare Part B, your premiums are calculated based on your income from the last two years. So, if you do a Roth conversion significant enough to bring you into the next threshold of that premium, then you might end up having to pay more for Medicare for two years, if that’s something you’re willing to do. All this comes into the calculation, but something we help clients with on a regular basis.
Speaker 2 44:50
Scenarios, I tell you, they’re in the books, but it gets you thinking. Now we’ve got an opportunity for you. We’ve got 10 appointments. John, walk us through what’s going to happen if they call the number.
Speaker 1 45:00
Yeah, again, it’s just a conversation. We’re gonna talk to you about what your goals are, what’s important to you. Again, just uncover a little bit about who you are and what makes you tick, right? And then we’re gonna dive into what your foundational income looks like. We’re gonna identify what retirement’s going to cost you. We’re gonna walk through taxes to ensure that you’re not eroding your income by paying more to Uncle Sam, we identify your estate and legacy plan. We’re going to look through your health care costs, ensure all of that is wrapped up into a plan that’s in writing that we monitor and adjust on an ongoing basis.
Speaker 2 45:32
We’ve got 10 spots, 10 appointments. Call now: 800-653-8404 complimentary. Again, no obligation. This is an opportunity for you right now. 800-653-8404 That’s 800-653-8404 Another edition of Retire Smart, Maryland Radio, in the books for John DeFeo. I’m Morgan Patrick. We’ll see on the radio next week.
Speaker 2 46:03
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