Speaker 1 0:00
You still relying on the 4% rule, a stock-heavy portfolio, or dreams of a pension, you might be planning your retirement like it’s 1995 Today on Retire Smart Maryland Radio, we’ll break down what’s changed and how to future-proof your retirement plan.
Speaker 2 0:20
Welcome in to Retire Smart Maryland Radio with Prashant Sabbath. Welcome in to Retire Smart Maryland Radio, hosted by Prashant Sabapathi and John DeFeo. You can find him at Elite Income Advisors, headquartered Ellicott City Satellite Office in Annapolis for your convenience. And again, it’s always about being prepared for what is going to be your retirement, they’re independent fiduciaries, and I am Morgan Patrick, pleasure to jump on and always get into these discussions, you’re going to think about your own situation, and we know that many of you haven’t started planning, you’re sitting on portfolios and you’re waiting, we’re not sure for what, but you’re
Speaker 1 1:00
waiting, and then there are a group of you that are halfway down the path, you’re a little bit frustrated, need a second opinion. We not only talk retirement, we give you an opportunity to take action on your own behalf. These are complimentary appointments, we’ll explain those and make them available to you during the course of this show. And, as I always do, before we jump into our first topic, Prashant and John, just fill us in, man. How was the week? The week’s been great, you know. Weather’s starting to get a little bit cooler out there, which is always interesting. I think people, oddly enough, we see it every single year when the weather starts to cool down, people start to get inside a little bit more, and thus they start to care about their financial plan a little bit more, right? So I feel like we’ve been really busy around the office, specifically. I think I said this even on last week’s show with federal employees. I mean, still a lot of people that will be exiting the government here in the next couple weeks with everything going on with Doge and DRP and Vera and Rifts and that type of thing. So, all that being said, we’re seeing a lot of federal employees lately, and that’s certainly keeping us busy. In addition to all the seminars we’re doing, John and I were on track, I think, to do by my last count as 128 events in our community, educational, purely educational, free to attend events. We made a commitment to educating our community, putting out as much free info as we could, and so that’s been keeping us really busy. It’s been a great way to interact with our community.
Speaker 3 2:28
John, what about you? Yeah, I think Prashant pretty much summed it up. Getting out in the community is not only fun, but it’s, I think, quite rewarding to be able to get in front of folks and help build those foundational ideas for retirement planning, as Prashant mentioned, the office is getting a lot busier, you know. We haven’t really slowed down in terms of, you know, having days off, but I would say that we’ve had a lot more traction with clients giving us calls, you know, the kids are going back to school, the vacations are done, so it’s back to planning, right. Absolutely, and
Speaker 2 3:00
again, people are starving for information when it comes to their money, how it can work better for them as they move towards retirement. It all takes a plan. Prashant, you mentioned the events. What is the best way for our listeners, if they’re interested in these educational events? What’s the best way that they can find them and sign up for them?
Speaker 1 3:19
Best thing you can do is visit our website, folks. It’s Elite Income advisors.com that’s Elite Income advisors.com We do have an events tab in the top right-hand side corner. Now, that being said, all of our events are pretty much waitlist only at this point. We get full capacity at every single one of these events, it seems like. However, what you can do when you visit the events page is you can express interest in some of the seminars that we have. We have a planning your retirement seminar, it’s a four hour workshop. John does a great job with what we call the retirement master class, that’s about a two hour workshop. I do, as well as John does, social security and income tax planning workshops that are about 45 minutes to an hour long, so you can express your interest, and if we have any open spots on the wait list, we can try to get you into one of our future events. We will be holding events through September and October, but they are all pretty much booked up, so just express your interest, and our team will be more than happy to reach out to you if a spot opens up, and that way you can claim your seat at one of those future events.
Speaker 2 4:26
Okay, and again, just go to Elite Income advisors.com the website at Elite Income advisors.com and click on the events tab, and kind of follow your nose, right? And get signed up if there’s space available, or at least leave a note that you are interested, and they’ll get back in touch with you. So, we went in, we wanted to kind of rewind to 1995 just for a second. Friends is on TV, Alana Morissette was questioning irony and gas. Get this, guys, $1.15 Holy cow, dollar 15 a gallon. Now, back then, a million bucks felt more, more than enough for. Retirement bonds gave you some good yield, and 4% withdrawal rule was was gospel, but now let’s fast forward, we go up 30 years. Spoiler alert, those assumptions don’t hold up anymore. Markets have changed, interest rates have changed, and most importantly, guess what, you’ve changed. And in today’s portion of the show, we’re going to talk about, you know, why your retirement plan needs a 2025 upgrade, and which outdated strategies could leave you running out of money or missing out on lifestyle opportunities that you’ve earned through your working life as you head towards retirement. So, the first one, Prashant, we’ll start with you. Are you planning like it’s a Blockbuster night, but living in a Netflix era? Do you remember Blockbuster, and I, it was a huge weekend thing for me.
Speaker 1 5:43
Yeah, Blockbuster was a big deal. I never forget going to the local Blockbuster, right there on Baltimore National Pike, in Howard County, in Ellicott City, growing up. And you know, when I was a kid, we would not just rent the movies, but we would also rent, like, the video game systems and Nintendo, and all that kind of stuff. So, look, in the 90s, retirement plans were simpler, right? Pensions were common, healthcare was affordable, and the average retirement only lasted about 18 years. And today, it’s not unusual to spend 30 plus years in retirement, like we do a lot of work with the people that worked in the police department and the fire department, several years ago, I think it must have been four or five years ago, I helped an Anne Arundel County firefighter retire, and when he retired, he was 48 years old. Wow, just think about that. If that guy lives to be 90 years old, he will actually spend more time in retirement than he actually spent working, which is like a pretty remarkable thing to think about, and so as you’re thinking about your retirement plan, are you still living in 1995 where you’re using the VCR and the Blockbuster way of doing things, where we’ve moved to a totally different environment, which is what you called, Morgan, I think rightly so. The Netflix era, your financial plan should reflect the Netflix era that we live in. And I think one thing I would go back to, John, is this idea that safe money used to pay something, right? What I mean by that is you used to take your money, put it in the bank, and earn a really nice amount of interest on it, a lot of times 566 and a half percent. Whatever happened to reliable income from bonds and CDs? Just real quick, John, because I know we got to get to a break here in a minute.
Speaker 3 7:32
Yeah, I mean it was much different then than it is today. I mean, we’re in a much lower interest rate environment, and I would even argue that today it’s higher than it has been in the past decade, right? If you look back at, you know, 2020 2019 2018 interest rates were what, 1% 2% you’re getting pennies on the dollar at the bank, so it’s much more difficult for us to create income off of safe money. It’s forcing retirees to take some risk with their money to generate a rate of return that may pace or outpace inflation, so much different game today in terms of how we manage our clients’ assets. We still want to have security and protection where we can, but growth is ultimately important. It’s exactly right, folks. Don’t let a 1990s retirement plan ruin your today and your future. Okay, it starts with that phone call. We’re going to open up our phone lines, just as we do every week on the show. The phone number is 800-653-8404 That’s 800-653-8404
Speaker 1 8:30
If you call that number, you’ll be able to schedule a complimentary retirement strategy session with our team of retirement specialists here at Elite Income Advisors. You’ll be able to sit down with us. We’ll help you build a written income plan for retirement, help you understand where that income is going to come from, how much it’s going to be after considering taxes and inflation. We’ll talk about things like risk in your portfolio, health care costs to make sure that your plan is up to date with today’s rules and laws starts with that phone call 800-653-8404 When
Speaker 2 9:06
we return on Retire Smart Maryland Radio, we’ll continue the 90s discussion. What was then and what is now, and how it has changed, and you need to be aware of it. That’s all coming up next, you Welcome back in to Retire Smart Maryland radio. Your hosts are Prashant Sabapathi and John DeFeo of Elite Income Advisors. The website is a resource, check it out, Elite Income advisors.com that’s Elite Income advisors.com Links the TV show, radio shows in podcast form. There’s an event tab there, and anything that’s coming up. And they are a busy firm, you can find it at the events tab, that’s Elite Income advisors.com These are free seminars, you can get signed up for those if they have space available. They do get crowded, Elite In. Com advisors.com they’re headquartered Ellicott City Satellite Office in Annapolis, and both Prashant and John are independent fiduciaries. I’m Morgan Patrick, and we started off the discussion on the show today about the 90s and how things have changed, and we kind of went back in our memories to Blockbuster and how it’s kind of changed to Netflix, and everything’s on our phone, and we talked a little bit about just making sure that you’re up to speed, and how things have changed. Whatever happened to those, those incomes that were reliable, the bonds and the CDs, that’s where we wrapped up. But now, Prashant, here’s the next one: is the 4% rule still all that, or has it gone the way of the Macarena? And I’ve been to enough weddings where the Macarena was popular, and the last time I checked, I don’t hear that song anymore. By the way, I don’t know what weddings you’re going to, but I feel like I hear it every single time. No, but your point is well taken. It’s kind of outdated at this point. It’s kind
Speaker 1 11:00
of stale, right? Just like the 4% rule is, in my opinion, you know, the 4% withdrawal rule was born from historical data in the 90s, when basically what you did is you, when you retired, you took the full value of your retirement accounts, so let’s say you had a million dollars, you would withdraw 40,000 or 4% per year while remaining invested, and each and every year, you would raise your withdrawal by the inflation rate, and that would give you a good chance of not running out of money. Well, what’s happened is that today it looks like 3.3% is a more sustainable withdrawal rate. It makes me think of this one client who’s been with us for years, but I’ll never forget when he came in to visit with us, he was dead set on the 4% rule, and when I showed him the difference, 4% versus 3.3% it ended up meaning about $7,000 less per year of income, and 7000 on the surface didn’t seem like a lot of money, and so I said, “Hey, I think your plan might work in this case, but to him $7,000 was the total value of his vacation budget for that year, and so doing 3.3% meant that he couldn’t travel the way that he wanted to in retirement, and I think it really hit home when I asked him, would you rather cut that one trip out every year or just adjust your plan now so that you don’t run out later, and he said, Well, what adjustments can we make, and we did some moving around of his money where we could help him create a little bit more income passively through his portfolio, and now he’s able to travel exactly the way that he wants to, despite having to follow a rule of 3.3% as opposed to the 4% that he was expecting to employ when he first came to visit with us. Well,
Speaker 2 12:53
Prashant, just to kind of add to that, that’s why I mean, How important is it to be flexible, be open-minded, review your plan. It is not a set it and forget it.
Speaker 1 13:05
Look, I come from a family of doctors. Okay, that’s where my background was growing up. It was always in science. Both my parents were physicians, my brother’s a physician, my wife is in orthopedic. Like, I grew up around the medical community, and look, I don’t know about you guys, but I still go in for a physical every single year. Why is that? It’s to take account of all the changes that have happened in my life with body composition and stress levels and just my general health every single year. If we’re willing to take that level of care with our health, why wouldn’t we do that with our finances as well? We like to see our clients at least once every year for annual check-ins to see what’s changed, see what laws are different, how tax rules have changed, how the markets change, because ultimately all those things determine your retirement success. You should be evaluating this on an annual basis at least, and doing the proper maintenance, but Morgan, I can’t tell you how many times we visit with folks that say that their advisor is not doing that for them, right? And I think that’s a huge issue, personally
Speaker 2 14:14
huge issue. And listen, you’re out there and you’re like, hmm, I haven’t had that conversation with my advisor, maybe it’s time for a second opinion. We’ll give you the opportunity to grab an appointment there, complimentary with the lead income advisors. All you’ve got to do is call 800-653-8404 and get the full attention, right? 800-653-8404 Going back into the 90s, talking about how things were back then, and then you flash forward 30 years, things have changed. So, John, this next one to you, I mean, inflation. Guess what, the math doesn’t add up now, because inflation is eating away at our retirement. It
Speaker 3 14:54
certainly is, in combination with higher taxes. These are two of the. Biggest eroders of your assets over time, right? I mean, a loaf of bread back in 1995 brand you about $1.15 today, you know, closer to $3.50 I’d say maybe even closer to $5 depending on where you’re shopping. So things have increased significantly, you know. You mentioned earlier the gas was $1.15 a gallon back in 1995 I mean, what are we looking at today? You know, three 350 I mean, at least in this area in Maryland. So it’s something we have to keep in consideration with our financial plans. The cost of living adjustments that we get from Social Security, from our pensions, if you have a federal or state pension, are not quite keeping up with the actual increase of costs of goods and services in the economy, so how do we build that into our financial plan? You have to be tactical, you have to be careful, right. The best way to grow your money, considering you can’t get a reasonable rate of return on safe money at the bank, is through equity exposures, through investing in the stock market, but you also have to be careful about investing in the stock market, right. You can have a lot of risk with your assets if you’re creating income. There has to be a strategy behind it, and that’s what we do in this office, is we map out exactly what we need to put in a red bucket of money that is aligned to the markets that does have risk in it, so you can outpace inflation, you can ensure that your purchasing power is not eroded over time, while also keeping money in, you know, a green bucket to be able to pay your bills and not have to worry about if the market’s down, if you can actually keep the lights on or go to the grocery store. So it’s all about bucketing, it’s all about the strategy that you employ, but it’s extremely important to keep in mind the increase in costs over time with your financial plan.
Speaker 2 16:41
Retire Smart Maryland Radio. You’re tuned to it. We are going back in time to the mid 90s, and how things have changed now, talking about it present day, 30 years later. And if you’re out there sitting on a portfolio, and maybe following some older advice from a family member that probably went through retirement or is going through retirement now, but started back in the 90s, you might be following some outdated pathways. You need to have an adjustment to your plan, or if you don’t have a plan, create one. There’s going to be that opportunity to get on the calendar with the elite income advisors, and we’re just kind of going over how things have changed in 30 years. So, inflation, check that off. What about taxes? Prashant, I mean, retirees, are we underestimating Uncle Sam?
Speaker 1 17:26
I think many people are, because if you look back in to the 90s, marginal tax rates were actually higher than they are today, but look how life was different, right? Retirees back then often had pensions and fewer tax-deferred accounts. What we’ve seen, at least anecdotally in our area in the last decade or so, is that there’s really been this oncoming of what I call the wealth effect, right? And the wealth effect is simply this idea that because pensions have started to go away because social security doesn’t make up quite as big a piece of the retirement income pie chart. People are now saving their own money into pre-tax and tax-deferred accounts like 401 k, 403 b, thrift savings plan, because they’re understanding that they’re gonna have to fund their own income and fund their own retirement paycheck. The trouble with this is that we’re seeing people that have two, three, $5 million of pre-tax retirement accounts. I sat with somebody a couple weeks ago, he had $10 million in pre-tax retirement accounts, only had about a million dollars in post-tax retirement accounts. Now, look, $10 million the guy is going to be fine in terms of having enough money to retire. That’s not really his concern. His concern is on $10 million Every time I take money out of that account, I have to pay income tax. And by the way, that exists whether you have $10 million $5 million dollars or half a million dollars, you have to pay tax every time you start taking money out, and with the national debt being the way that it is, with the way that the government spends money, in my opinion, irresponsibly, I think tax rates have to go up. I could be wrong on that, but most people I talk to think taxes 1520, years from now are going to be a heck of a lot higher than what they are today, and if that is the case, all of that money that you saved before taxes is now at risk in some way, because you might have to pay a higher tax rate on it. Doing proactive planning to reduce or mitigate, or even eliminate some of the tax liability on that money for the future is what you have to be doing. It’s just standard par for the course these days. Yet I still can’t believe how many advisors don’t talk to their clients about taxes. It’s ridiculous to me. It’s one of the biggest expenses you will incur in retirement, and if you are not thinking about it, you are missing the mark, and it will create an inefficiency.
Speaker 3 20:00
In your financial plan, that’s my belief, Shauna. How many times do we hear clients come in that say, “Hey, I’ve got an advisor and they won’t talk to me about the taxes, they’re telling me to go talk to my CPA, right? That’s one of, I think, one of the major complaints we get from folks that come visit us with another advisor when they’re looking for something more comprehensive. So, just to piggyback on that, it’s so important, and it’s a lot of advisors are missing the mark in that.
Speaker 2 20:24
So, real quickly, John, let’s talk a little bit about how we can get out of the cruise control mindset and really dive into dynamic planning.
Speaker 3 20:33
Yeah, absolutely. I mean, retirement today is not just about survival, it’s about thriving, right? We want to live abundantly in retirement, we don’t want to just get by, if that makes sense, right? That means that you have to update your plan regularly, right. We have to adapt to the market conditions, we have to adapt to the regulation changes in the federal and state governments, that can be, you know, different proactive tax strategies, you know, different long-term care planning, looking at your legacy goals, and that changes over time, right. So it’s not a set it, forget it type of plan, you know, like your old cassette tape, where you just had the same 12 to 13 songs that would run on repeat, right. You want to have a more streaming playlist, like Spotify, right, where it kind of runs through different options, you know, based on your preferences, what you’re listening to at the current time, so kind of turn your retirement plan into more of a running Spotify playlist, like then just a stuck on a Discman, right? I think that’s what we’re trying to get at. I know I probably fumbled to that analogy, but you guys know what I’m trying to say, right? We want to have this thing adaptable, we want to be able to make the changes, not just have it stagnant over time.
Speaker 2 21:43
Yeah, it’s about it’s about planning, and it’s about being open to, you know, new ideas, maybe options you hadn’t considered, and a lot of you aren’t working with anybody, you’re just sitting on the portfolio. Prashant, you’ve got spots on the calendar. Tell us about
Speaker 1 21:57
it. That’s right, it’s 800-653-8404 It’s 806 538 38404 Back in the 90s, a million dollars, a pension, and some CDs were all you needed to retire comfortably, but it’s not 1995 anymore, folks. The strategies of the past don’t seem to work quite as well in this day and age. You need to have an income plan that allows you to understand where your income is going to come from, how much it’s going to be, and it needs to be enough for you to live your most fulfilling lifestyle in retirement. If you dial that phone number, 800-653-8404 you’ll be able to schedule your complimentary, so totally free of cost financial planning visit with our team at Elite Income Advisors, 806 53840 538404
Speaker 2 22:43
We will be right back, and you’re listening to Retire Smart Maryland Radio. We are back on Retire Smart Maryland Radio. Your hosts are Prashant Sabapathi and John DeFeo, and they are with Elite Income Advisors, the power behind this program. The website’s a resource, check it out, Elite Income advisors.com links to the TV show, radio shows, and podcast form. Really good information on retirement. Also, there’s an events tab there, you can click on it, any upcoming event, you can see it, and if there’s space, they do get crowded, sign up for it. It’s complimentary, and of course, it’s educational. Elite Income advisors.com headquartered Ellicott City satellite office in Annapolis for your convenience. And both Prashant and John are independent fiduciaries. I’m Morgan Patrick, and we go back and forth on the topics. We give you an opportunity to get on the calendar with Elite Income Advisors, so listen up for that. We start now with this: we all love the idea of tax-free growth. Roth IRAs have become kind of that go-to vehicle for many retirement savers out there, but we wanted to pump the brakes a little bit, just for a second. Just because something is trendy doesn’t mean it’s right for everyone, and I think we could say that about a lot of things, when it comes to planning for higher earners, though. I mean, think about this: you’re on the brink of retirement, or people looking to maybe maximize their charitable impact. The traditional IRA may offer a more strategic path, especially in a rising tax environment, which we have been talking about today. So, we’re going to explore when choosing a traditional IRA over a Roth could mean 1000s more in the pocket, more flexibility in your golden years, and smarter legacy planning. So, if you ever thought, “Hmm, am I missing something with all this Roth hype? This segment, it’s for you. So, Prashant, we start Roth IRAs popular, but are they really tax efficient for high income households?
Speaker 1 24:47
You know, I think perspective is so important when we answer a question like this. We were sitting down, actually, John and I both, we were sitting down with a couple, couple weeks ago, and we asked a question. Question, kind of a rhetorical to every single person that we visit with, and that question is fundamentally 15 years from now, do we think income tax rates are going to be higher or lower? And we’re sitting with a couple, and one of the spouses, like most people, said to us, I think taxes are going to be higher because the national debt is what it is, so on and so forth. The other spouse looked at us and goes, ‘No, I actually think taxes are going to be much lower 15 years from now, and it kind of took me aback. I was taken aback, I was caught off guard a little bit, because, you know, I asked this question to every single person I talked to every single day, and everybody says they think taxes are going to be higher, so I asked him, I was like, why do you think that, I’m just really curious, I’m not saying you’re wrong, and he goes, well, Prashant, I think that the guy who’s in office when they raise taxes never gets reelected again, so I think in order to stay in office, they’re going to actually lower taxes for the future, and I was like, it’s an interesting point, definitely possible, but logically I’m just not sure how that makes sense. So, going back to the question you asked, are Roth IRAs really tax efficient for high-income households? It depends. It depends on what you think your future tax rate is going to look like in retirement. If you think that you might be in the 32 or 35% tax bracket today, and your retirement tax bracket might end up being 22 or 24% then putting your money in a Roth after tax today might not actually be the right thing for you to do. Now, if you’re thinking that taxes are likely to go up because the national debt and the underfunding with Social Security, and a myriad of other reasons. If you think taxes are going to be higher, I’d rather pay 32 or 35% today and never ever have to pay them again. And so perspective is really important here, and this is why it’s important to work with an advisor who is properly philosophically aligned with you. Okay, you don’t want to butt heads with your advisor on the time all the time on something as simple as tax philosophy. Okay, we’re not the best fit for every single person who’s listening to this show, but the ones that we are a good fit typically think that taxes are going to be higher in the future and want to proactively address that by taking action today and doing things like Roth conversion and proactive IRA drawdown, so it’s a very interesting dynamic, but I think that’s how you have to think about that conversation.
Speaker 2 27:31
I want to go back to that conversation you had with the clients, where he said they were going to be low or kind of stay the same, and he’s probably right. I mean, most people that are going to be in office are going to try to do it, but that’s just the continuation of kicking the can down the road. Prashant, you say it all the time. Eventually, you got to pay the piper.
Speaker 1 27:49
That’s that’s right. I mean, I think that’s exactly right. And I think it’s going to take an administration, whoever that is, with a little bit of guts to say that this country has a spending problem. It’s a huge spending problem, and it has a huge income problem as well. It brings in far less income than it spends, and so that has to be reconciled at some point in time. We’ll see who’s going to have the stones to do it. I don’t know, but we’ll get there.
Speaker 2 28:17
We are talking about again choosing a traditional IRA over a Roth, possibly. If you’re a high-income earner, it’s all about education, finding out, you know, what is the best fit for what you’re trying to do with your retirement plan, your portfolio. John, this next one: RMDs burden or just misunderstood?
Speaker 3 28:38
Yeah, I think this really depends on the situation, right. The required minimum distribution is when you’re forced to start taking money out of that traditional IRA, starting at 73 or if you were born in 1960 or later, it’s age 75 where you’re forced to take out, you know, it’s a little less than 4% of your account balance every year, and that percentage increases over time, right. So they’re going to force you to take money out, pay the taxes, and if you’re someone that’s already drawing off of your retirement accounts and utilizing those funds for income, you might satisfy some, if not all, of that RMD in the year that you’re taking those distributions. Where it can really become a problem is for folks that have not been taking distributions from those retirement accounts, and if accumulated a significant amount of money in these IRAs, right? If we think you know somewhere around 4% is that RMD, say that you have $3 million in an IRA, that’s $120,000 of taxable income that you have to take on whatever else is that you’re bringing in, right? So not only can that push you to a higher tax bracket, it can also affect your Medicare Part B premiums, right? So that’s important to understand as well. So you know we have to be cognizant of how that can affect the plan, you know, and effectively how you know the, you know, different strategies you. Have such as QCD, is like qualified charitable distributions, can come into play, but doing things like those Roth conversions that Trishon was just talking about is a great way to get money out of the traditional IRA to create a tax-free vehicle to grow your money and reduce the RMD down the road. So, just depends on who you are when it comes to if it should be a problem or not.
Speaker 2 30:20
Yeah, just looking at traditional IRA Roth, you know, the decision you’re going to make in your planning, what’s a good fit, know what the differences are. If you’re a high earner, you really need to be aware of this. Prashant, I wanted to kind of close up on this topic, talking about maybe there’s a blended strategy, and why choose one when you can have a little bit of
Speaker 1 30:40
both. You know, I was, I was actually just visiting with a business owner, and remarkable stories, guys doing two to 3 million bucks of revenue, pretty much a one man show in tech tech sales, and he’s struggling with this idea of opening a cash balance plan for his business, and if he opens the cash balance plan, it’ll allow him to defer anywhere from, I don’t know, 600 to $800,000 before taxes into this plan. And so the interesting thing about this is, when I hear that question, should I defer that kind of money before tax, what the real question is, is am I going to pay a higher tax in the future or today? And nobody knows that for certain, right? Nobody has a crystal ball to understand exactly what taxes are going to do. And so what we’re going to do is we’re going to employ something like a blended strategy. You don’t have to put all your eggs in any one basket, whether that pertains to your investments, or whether that pertains to how your money is taxed. Oftentimes, the smoothest ride is attained by taking a balanced or blended approach. Many retirees are going to use both traditional accounts and Roth accounts as a part of their dynamic withdrawal strategy. Think of it kind of like a tax diversified portfolio, you can pull from whichever account gives you the most favorable tax treatment in any given year, and by the way, it doesn’t necessarily have to be the same each and every year. Roth IRAs aren’t always the slam dunk, folks, but then again, neither are traditional IRAs. If you call the phone number, it’s 800-653-8404 that’s 800-653-8404 You’ll be able to schedule that complimentary IRA tax strategy session. When you come in to visit with us, it is totally free of cost. It is just a conversation about your situation to see whether or not there are some ideas out there that you could be able to take advantage of that could improve your current and future tax situation. That phone number is 800-653-8404 In addition to the tax conversation, our team of specialists will help you create a written retirement plan where we can help you forecast your income for life, help you understand how much income you’re going to have coming in each and every year, indexed for inflation and after taxes. We’ll also talk about downstream impacts on things like Medicare, health insurance premiums, and risk and return in your portfolio. If you haven’t looked at this in a comprehensive way, give us a call: 800-653-8404 That’s 800-653-8404 Added resource, you can visit Elite Income advisors.com and check out our education center, that’s Elite Income advisors.com
Speaker 2 33:39
When we return on Retire Smart Maryland Radio. It’s time for retirement scenarios. We’ve gathered them from around the country. We’ll throw them at the fellas, see what they come up with. That’s next. Retire Smart Maryland radio hosted by Prashant Sabapathi and John DeFeo. You can find them at Elite Income Advisors. They’re headquartered at Ellicott City Satellite Office in Annapolis for your convenience. The website, it’s a resource we talk about it all the time. Elite Income advisors.com that’s Elite Income advisors.com Again, they’re links to the TV show. We’ve got radio shows, a podcast form, great information on planning, background information on the team. There’s an events tab, anything that’s coming up, you can find out about it. If there’s room, they’re very popular, they get crowded, and they get booked very fast, but check out the events tab. Sign up if you can. If not, get on the wait list. Elite Income advisors.com I’m Morgan Patrick. It’s a pleasure to jump on and talk retirement. And now we’re at a point where we gather these scenarios, and these happen all over the country, and we see what the advisors would do. So, guys. Is first up, John. This one’s for you. They’ve built a $4.5 million portfolio, plus they’ve got a paid off vacation home, but they’re worried about how estate taxes could cut in to what their kids receive as far as an inheritance. How can someone with significant assets pass along wealth efficiently while keeping tax exposure as low as possible.
Speaker 3 35:25
This is a good one. This is something we talk about quite often in our office, and you know, when it comes to estate tax, you know it really is going to apply to folks that, as it stands today, are going to have north of either 15 or $30 million in their estate when they pass away. That’s what the exemption is currently, as it stands. So, if you have more than that, every dollar over the exemption, it’s $30 million for a married couple or 15 million for an individual. Every dollar that you leave to your family beyond that is going to be taxed pretty close to 50% between the federal and state government. So, it’s a pretty significant tax. A couple of ways that we help folks get around this is number one, through gifting throughout your lifetime, you can gift up to $19,000 per year per individual, so you can double that if you’re married per person, without that eating into your gift tax exemption limit as well. You do have to be careful when gifting, because if you gift over the annual exclusion amount, that can actually count towards your estate as well. Those numbers can be considered the same, so you just have to be careful. I think it’s important to talk to an advisor about your situation to see if you’re someone who could be in a situation where a state tax becomes a problem. Another solution is through different types of trusts. Right, there are ways that you can give up access to your money and irrevocable trusts in the short term, you know, provide that to your heirs, maybe a charity, and still live off of the interest and dividends and income from the actual investments while you’re alive. So that’s another way to do it, you know, they’re, you know, of course, spending the money down prior to it getting to your, to your beneficiaries, right? You know, giving money to charities is a big way to do that, through, you know, the quality of the QCDs, the qualified charitable distributions, where you pay money directly to a charity out of your IRA and avoid any income tax, not subject to those gift tax limits, either. So, a lot that you can do in terms of reducing the assets that are subject to the estate tax, but again, it’s really only something that you need to think about if you assume that you might be in a situation where you have over that limit, right? So, that, yeah, there you go.
Speaker 2 37:42
Yeah, I mean, I tell you, and everybody’s got a different scenario, and I know that there are a lot of you out there, and you may hear something on the program that’s kind of what you’re going through, and I say this all the time, make sure you have a customized plan that takes into account, you know, everything that you’re going through, your entire portfolio, and make sure those puzzle pieces fit well together. Everybody’s different. You need a customized plan. Going to give you an opportunity to get on the calendar with elite income advisors, and you can have this conversation. All right, here’s our next scenario. Prashant to you, with just two years to go before leaving work and heading off into retirement, their portfolio took a 15% hit and a market downturn, should they delay retirement, or are there ways to recover without working longer? I think this depends. It
Speaker 1 38:30
all depends on income. Let me explain what I mean. While you’re working, your financial life really just is a function of what I call money coming in and money going out, okay, it’s just paychecks coming in and expenses going out, and of course you try to save as much money for retirement as you possibly can. Now, when you get to retirement, that concept of money in, money out doesn’t really change, it’s still very much so about the money coming in and the money going out, the only thing that changes is where the money in comes from. If it doesn’t come from your paycheck, it’s got to come from somewhere else, whether that’s a pension or social security or these retirement savings. And so, should we delay retirement because we lost money in the market right before we retired? I think, depends on how reliable your income is when you get to that phase of life. Give an example: if you needed $6,000 a month, every single month, to retire the way that you wanted to, social security and pension made up that 6000 Then I would argue you probably don’t need to delay retirement, because losing money, as much as it stinks, it does not necessarily impact the quality of your income and your lifestyle, but that being said, let’s say you needed $8,000 a month to retire, social security and pension only makes up $6,000 per month, which means now from your investment portfolio you. Have to withdraw $2,000 per month, but the $800,000 that you had saved goes down by 15% or 120 and your 800 is worth 650 or I’m sorry, 680 How are we going to feel about withdrawing $2,000 per month, or 20-4000 a year, after we’ve already lost 120,000 to me, that’s a really scary, overwhelming, difficult thing to have to wrap my mind around, and so things like delaying retirement could absolutely be on the table. If I was counseling a client, this is how I would have the conversation. I would also follow that by saying, if there was a way to protect your money and create all the income that you could ever want or need in retirement, wouldn’t you want to know about that before you got to retirement and not after you had gone through the downturn? Folks, these are the problems that we help people solve every single day, because this one, it happened, it happened as recently as 2022 if you retired November of 2021 when the market hit the all-time high, life was good, markets had just come off a great year, and then Russia went to war with Ukraine, and then inflation spiked out of control, the Federal Reserve raised rates, the stock market went down double digits percentage points, bonds went down double digit percentage points, people lost a ton of money, and I think that forced some people who were not properly prepared to delay retirement. You don’t want to find yourself in that position, which is why it’s so very important to get a hold of this today and create a plan proactively for the worst-case scenario. And
Speaker 2 41:39
here on the program, we do open up those positions with elite income advisors, complimentary appointment, and we often say no obligation, and people like, really, I go, no, no, this is very, very true. This is free, you’re leaving the checkbook at home, and you’re not required to become a client if you grab one of these appointments. This is a test drive, and it’s also a test drive for elite income advisors. They’re not agreeing to take you as a client. This is a comfort level. Get together, talk about your retirement. It’s complimentary. Call the number 800-653-8404 That’s 800-653-8404 All right, John, here’s the next one. They’re selling their longtime home, 900,000 and moving into a smaller place, which will free up about 400k after buying the new house. What tax issues should they watch out for before deciding what to do with that extra money?
Speaker 3 42:35
Another conversation we have pretty regularly in our office is folks downsize from the family home into something more manageable for themselves in retirement, so you know one thing that you’d want to identify is what the cost basis of that house was. So, how much did they pay for it? Did you do renovations that you can track and report to the IRS? Determine what the cost of that house was, because there’s the potential for capital gains on the, you know, the increase in value of the home over time, especially, you know, this was bought back in the 80s, when you know the housing market was much lower than what it is today. It’s appreciated significantly. There can be a lot of inherent capital gains now. If they’re a married couple, they’ve been in the house longer than five years, they actually both have that $250,000 exemption on the capital gains, so $500,000 total of the capital gains that they would effectively be able to exempt themselves from, but anything in addition to that could be a capital gain that they might have to pay come tax time. So, I think identifying that’s important, you know, putting some of that money aside for the potential taxes upcoming is important, and then, of course, how we invest that money moving forward is important. If they’re high-income earners at this time, using a more tax-efficient investment strategy moving forward could be important for them to minimize taxes, capital gains, interest, those types of things. Maybe, if they’re not super high earners, a traditional investment strategy could make sense. A lot of things they can potentially do with that money depends what tax issues are looking to avoid. Is it their own? Is it for their beneficiaries? So, a lot that can go into making that recommendation, but I think certainly the capital gains on the sale is number one. They have to look out for
Speaker 2 44:20
scenarios, it gets you thinking about your own. We give you an opportunity to get on the calendar with elite income advisors and come in and talk about that scenario. All right, Prashant, really quickly, if you can, we’ll do this last one. They rely on a pension that never increases with inflation, plus they’ve got social security with prices rising faster than expected. What’s the safest way to make their savings keep pace without taking on too much risk.
Speaker 1 44:44
Okay, let’s make this really simple. Okay, what is the answer to higher expenses? It’s higher income. I know higher income. Morgan, you and I were texting after last week’s show. I’m gonna pull up the text here, not to, not to air it out, but it’s, it’s. It’s all G rated here. I asked you, how many shows have we done, and you responded with the show recorded this week was number 184 which means today’s show is number 185 episodes of Retire Smart Maryland that we have done together, Morgan, and obviously John’s been doing this for some time now, and you know, as we get closer to number 200 it kind of gets me thinking about all the greatest hits of what we’ve talked about, and I think the thing that we always come back to is that the higher the income is, the better the outcome tends to be when we get to retirement, if there’s inflation, it can be solved with higher income. Okay, higher taxes means less net income in your pocket. One way to offset that, put more income in your pocket, right? All these things being said, income drives the outcome in retirement, folks. If you’re not sure where your income is going to come from, how much it’s going to be whether or not you’re going to withdraw it in a tax efficient way. Last opportunity for today’s program to get on the schedule: 800-653-8404 Get on the calendar, put your plan together to retire Smart. That’s 800-653-8404
Speaker 2 46:17
Retire Smart Maryland Radio, it’s all about more income, I think we’ve mentioned that on all 185 shows. Another edition of Retire Smart Maryland Radio in the books for Sean and for John and Morgan. See you on the radio next week.
Speaker 4 46:40
No, we guarantee these 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 through 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 paying ability 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. The program is paid production of Elite Income Advisors,
