Speaker 1 0:02
It’s great to save money, but true wealth preservation goes way beyond that. It’s all about making smart choices that keep your finances healthy and secure, both now and in the future. Today on Retire Smart Maryland Radio, we’ve got eight ways to preserve your wealth. Stay tuned.
Announcer 0:22
Welcome in to Retire Smart Maryland Radio with Prashant Sabapathi.
Speaker 2 0:29
Welcome in to Retire Smart Maryland Radio. Your host, Prashant Sabapathi. You can find him at Elite Income Advisors, independent fiduciary. They are headquartered in Ellicott City. They’ve got a satellite office in Annapolis for your convenience. I’m Morgan Patrick, and each and every week I have the privilege of going back and forth with Prashant on retirement topics, the importance of having a plan, being proactive as opposed to reactive, and getting ahead of this. And again, we do this each and every week. We also give you an opportunity to get on the calendar with Elite Income Advisors. The appointments make available today for our radio listeners are complimentary. That means you leave the checkbook at home, you’re not agreeing to become a client. This is an opportunity for you to educate yourself on where you are when it comes to your retirement planning. And some of you haven’t started, look, you’ve saved really well, you’ve got these great portfolios, but you don’t have a plan. And then there’s another group of you that are halfway down the path, and you’re working with someone, but you’re frustrated, it’s okay to go and get that second opinion. So, before we dive in on how the wealthy stay wealthy, Prashant, how was your week?
Speaker 1 1:33
Hey, Morgan, good to be with you. Week has been awesome, I mean, always awesome around the office, but especially when we get into what I call planning season, right, and so planning season is when we take inventory of our entire plan, and we really start to be proactive about things like tax planning, legacy planning, especially anytime we’re heading into year end, or a lot of times people start that process in the very beginning of the year, you know, that’s when we really start to dive in, and so we’re busier than ever. I feel like every single appointment time slot is taken on my calendar, but that’s why we’ve been an awesome team of advisors and their support, and has just been just been fantastic.
Speaker 2 2:18
I tell you, this day and age, we go and we find our favorite podcasters. If somebody’s pretty successful in a certain area that we’re excited about or we’re interested in, we’ll go listen to that podcast. Wouldn’t it be nice if we could take a look at what certain people are doing that are successful and maybe successful also at retirement and kind of learn from that? Wouldn’t that be nice? Wouldn’t it be nice? It wouldn’t be nice. It would. So, how about the wealthy? Let’s, let’s focus in. How do the wealthy stay wealthy? And we’ve got some, some tips for you. We got some categories, and you can add this to your playbook and see, you know, how this is going to fare for you. All right, so the wealthy are staying wealthy by first and foremost creating a financial plan. For Shawn,
Speaker 1 3:06
that’s actually exactly right. It’s a funny story. I was visiting with somebody just last week, and when they came in, you know, one of the first things I asked people when they come into the office is what compelled you to actually make this appointment and kind of take that next step, potentially with your financial planning, and they said for years all I’ve done is accumulate investments, and all I’ve ever talked to my advisor about is investments. How are my investments performing? How much risk am I taking? Where are opportunities to make money, etc. etc. But we’ve never created a real plan, and I asked them, I said, What does a real plan mean to you, like what would you need to see in order to feel truly comfortable, and they said, Well, I’ve never talked to them about taxes, I’ve never talked to them about Medicare, I’ve never talked to them about how to leave a proper legacy, and those are like the top three things that they said, and then I said, what about long term care and life insurance, and those types. We’ve never talked about these things, right. And so, when I think about creating a financial plan, there’s different kind of levels and aspects to that. The very first step is to identify your objectives. Okay? What are you actually saving for? Are you saving for retirement? Are you saving for a down payment on a house? Are you saving for college for your kids or your grandkids? Identify your objective first. Number two, assess your current situation. How much do you earn? How much do you spend? How much do you owe? What assets do you have? And then from there, once you identify, once you assess, then we can develop strategies. How are you going to bridge the gap between where you are now and where you want to be, and that could be looking at things like debt reduction, investing, budgeting. And then once you get that plan implemented, make sure you’re doing maintenance on it. I can’t tell you how many times people put a plan together and then they just don’t ever revisit it. Well, your life. Changes the market changes, your financial situation will change. You have to do constant and regular maintenance on your financial plan.
Speaker 2 5:08
I mean, think about it. We often say that phrase, ‘don’t set it and forget it. I mean, this is your money, this is your retirement, so you need to make sure you’re hitting those reviews, and if you have to pivot, if you have to adjust, you certainly do that. We are going over just how wealthy people stay wealthy. How are they doing it? Giving you a cheat sheet, so they’re creating a financial plan, diversifying the investments. Now, if you’re in one spot heavy, that’s a problem, so making sure you’re diversified and make sure you understand what diversified means.
Speaker 1 5:45
Yeah, and I think that’s a good point. You have to really understand what true diversification is, and so to me it means a couple of different things. You get the traditional definition of diversification, which is spreading your risk around, don’t invest everything in just one company or one sector of the economy, and you do that by exploring different asset classes, you might have stocks, you might have bonds, real estate, mutual funds, ETFs, commodities, etc. But when my team talks about diversification, we actually take this one step further, and that is have some diversification of management style. Okay, so what I mean by that is, let’s say you put your entire investment portfolio in the hands of just one money manager. Well, what you’ve done is you’ve effectively said to that money manager, I’m going to ride with you whether you get it right or you get it wrong, but one thing we know about the market is that markets change very quickly, and no money manager is ever going to get it right 100% of the time. So, instead of putting all the money with just one money manager, does it make sense to have different money managers each managing a piece of the portfolio, but doing so with different data, different ideologies, different styles, and by the way, this style of financial management I think is becoming a heck of a lot more popular, and you can do that oftentimes working with just one advisor that oversees all of the money manager, so true diversification means a lot of different things. I think you have to define what diversification is to you and how it’s going to help you be successful. Okay, we’re going to talk more about what the wealthy are doing to stay wealthy on the other side of the break, but let’s go ahead and open up our phone lines. We do this every show on Retire Smart Maryland, the phone number, folks, is 800-653-8404 That’s 800-653-8404 When you dial the phone number, what you’re going to be able to do is schedule a no-cost visit with my team of retirement specialists here at Elite Income Advisor. So, when you call in 800-653-8404 have your calendar in front of you and be ready to schedule that appointment. You can either schedule it for a virtual appointment or in one of our offices in Ellicott City or Annapolis. Now, when you come in to visit with us, all we’re doing is having a conversation about your financial situation. We’ll help you identify your goals. We’ll help you address and assess your current situation, and then from there, we’ll analyze it all for you and help you develop strategies to increase your retirement income, reduce your risk, and examine the tax liability that is embedded in your financial plan. It all starts with that phone call. It’s totally free of cost to anybody who schedules that appointment. That phone number again is 800-653-8404
Speaker 2 8:51
Coming up on Retire Smart Maryland Radio, we’re talking about how the wealthy are staying wealthy. We’ve already discussed creating that financial plan and diversifying your investments, and coming up next, maintaining a healthy cash reserve. That’s just the start, right here on Retire Smart Maryland Radio. We are back on Retire Smart Maryland Radio. Your host, Prashant Sabapathi, Elite Income Advisors, where you can find him, and you can check out a great resource website, Elite Income advisors.com Easy to remember, rolls off the tongue, Elite Income advisors.com Independent fiduciary, yes, he is, and published author, a couple of books, physical health, retirement wealth, and also retire abundantly. Want to remind you, too, Elite is headquartered in Ellicott City and a satellite office for Elite Income Advisors in Annapolis. I’m Morgan Patrick, and each and every week it’s Retirement Topics. We walk the walk, but we also talk the talk, that means. Means there’s an opportunity for you to get on the calendar with elite income advisors, complimentary appointments, you’re leaving the checkbook at home. We’ll tell you about those as we move through this portion of the program. So, I already discussed today on how the wealthy are staying wealthy, they’re creating that financial plan. It’s a great step, diversifying their investments and making sure they understand what diversification is when it comes to their situation now maintaining a healthy cash reserve slash emergency fund per shot. This is an absolute must,
Speaker 1 10:31
and it really depends on your individual circumstances, but a good rule of thumb is to aim for three to six months of your living expenses set aside in a very safe place, like a bank account or a money market, not something that has too much risk, or really any risk. So that when you have an emergency, and we know that those things always come up when you have an emergency, you don’t have to put it on a credit card, you don’t have to pay interest, you don’t have to take on debt in order to service an emergency, so the key points here: aim for three to six months of your living expenses in a safe place, keep it very accessible in a readily available account, and then replenish it as needed. Right, so if you end up spending some of the money in your emergency fund, just replenish it over the course of the next month or two, so that you can build back up, and that’s going to be your safety net, so that nothing can really throw
Speaker 2 11:30
you too off track. We are discussing how the wealthy are actually staying wealthy as they move to and through retirement, they’re creating a financial plan, they’re diversifying their investments, they have that healthy cash reserve, and as Prashant just pointed out, not only do they have it, if they have to dip into it, they’re replacing it as quickly as possible, so that cushion is still there. So this next step, and listen, the wealthy are staying wealthy for a lot of reasons, and this is a big one, they’re minimizing their taxes. I know we’re going to get into this, but again, Elite Income Advisors recognizes the importance of just understanding the tax impact. They have created a new website, Test mytaxbill.com Prashant, you can tell us about the website, but also talk about just the importance of, you know, minimizing your taxes.
Speaker 1 12:18
Yeah, when we talk about minimizing taxes, Morgan, it’s minimizing tax now versus minimizing tax later, and doing each of those requires a fundamentally different strategy, depending on which one you want to pursue. So, let’s talk first about minimizing taxes in the current year. In order to do that, you could do things like maximize contributions to your 401 K’s, your IRAs, and even your health savings accounts, as well as claim deductions and credits, which is just very simply taking advantage of any tax breaks that you’re eligible for. You might also consider things like tax efficient investment, things like municipal bonds, index funds, a lot of those things could be more tax efficient than actively managed funds, but I think where the planning side of this really comes into effect is how to reduce your future retirement tax bill, because all of that money that you saved in 401 k IRA TSP in pretax assets, you’ve never paid those taxes, and it, what happens if tax rates go up? Okay, the federal government has over $35 trillion of national debt right now. What happens if, in order to service that debt, they raise taxes? When they do that, the tax rate on all of that money in your retirement account could go up, and so that’s why we created this website. It’s www.testmytaxbill.com that’s testmytaxbill.com And what it is, it’s actually a very cool, easy to use, very simple calculator that allows you to put in your approximate IRA or pre-tax retirement account balances, you can put in an anticipated rate of return on your investments, and you can run a report right from the website, and it’ll be emailed to you in a PDF, and that report will give you at least an idea of what kind of future tax liability could be embedded within those retirement accounts, and then it could show you how taking advantage of reallocating some of that money to a tax-free status through use of something like a Roth conversion, how much that might be able to actually save you in future tax liability. It’s a really good exercise to go through, but Morgan, one further comment on this is, I don’t think people place enough importance on tax planning. I think too many people just say I’m always going to have to pay my taxes, and so what can I really do about it? Well, think about this. Let’s say you’ve saved a million bucks. And your plan for years was to always pay a 20% tax rate when taking that money out, and you were going to withdraw 40,000 or 4% of your account every year. Well, after taxes, that 40,000 nets down to 32,000 and let’s say 32,000 gave you the lifestyle that you wanted to have, great, but now what happens if instead of paying 20% tax rates go up to 30% When you’re taking that 40,000 out, you’re not netting 32 you’re netting 28 right? And if 28 is not enough to fulfill your lifestyle, what do you have to do? You got to take more money out, and if you take more money out, it puts you at unnecessary risk of running out of money, and in order to combat that risk, you have to make more money, which means you have to take more risk with your investment. So it’s this nasty domino effect that higher taxes could have on your retirement plan, yet so many people don’t think about it, and furthermore, their advisors don’t do a good enough job educating them on how to plan for it. We have to start thinking about this in a more productive way.
Speaker 2 16:08
Yeah, you gotta, you gotta put taxes on that front burner, have that discussion, make sure you are planning for it as you move to and through retirement. We are learning from the wealthy and how they stay wealthy. So, I hope you’re taking notes. We’re giving you the cheat sheet. Create that financial plan, diversify those investments, maintain that emergency fund, that cash reserve, minimize the taxes. And remember, testmytaxbill.com great resource website for you. testmytaxbill.com and we want to make sure you understand. Look, we get on here and we talk about all these things you should be doing, and you’re like, well, what’s the next step? Well, the next step would be to sit down and talk about your individual situation. We have complimentary appointments with elite income advisors, and all you’ve got to do is call this number: 800-653-8404 that’s 800-653-8404 The Retire Smart roadmap will be put together for you. There’s no cost to this. There’s no obligation beyond agreeing to become a client if you book one of these appointments. So, grab one right now, kick the tires. 800-653-8404 So, back to how the wealthy are staying wealthy, just a checklist. And here’s the next one. Take care of what’s going to happen after you’re gone. Draft a will. Prashant,
Speaker 1 17:30
yeah, real quick on this. The will is a document that’s really going to outline how you want your assets to be distributed after your death. And one thing you may also consider is the potential of doing something like a trust, right, because a trust can offer greater control over asset distribution and may provide some other tax benefits. Right now, you do have to see, you know, a qualified estate planning attorney to get these types of things done, but a lot of times having a what I would call a really rock solid estate plan allows you to bypass the probate process, and by far that’s the number one concern that some of our clients have when it comes to legacy planning, is how do I avoid probate, right, because probate can be a long, drawn-out, expensive process. When you get something like a trust done, it could relieve a lot of that stress and anxiety for your loved ones when they inherit some money. So that’s a, that’s a good thing to do. You’re going to go want to visit with a qualified, licensed estate planning attorney to help you through that process.
Speaker 2 18:41
Again, the wealthy are staying wealthy, and they’ve got a checklist for you. They’re creating a financial plan, they’re diversifying their investments, they’re maintaining that emergency fund, minimizing their taxes, having that tax plan within their retirement plan, drafting will, possibly forming a trust. Again, have those types of discussions. This next one’s interesting, and you can jump all over this, Prashant, using insurance to manage risk.
Speaker 1 19:08
Yeah, this is a good one, because if there’s anything that I’ve learned in helping the, you know, probably several several 100 people that me and my team have helped retire over the last decade, plus one thing I’ve learned is that losses hurt more than gains help. Okay, at some point protecting your downside becomes a lot more important than trying to chase upside, and so think about all the areas where there’s risk in our life, right? So one type of insurance, life insurance, which is going to give you protection, give your family protection in the event that you pass away too soon. Health insurance, going to give you protection if you have a major health event, that’s not going to cost you 1000s and 1000s of dollars if you have the correct insurance. Disability insurance, if you can’t work, it’s going to replace a portion. Of your income, property insurance protects your home, your belongings from damage and loss. Two other types: personal liability insurance. If you get sued for something like a car accident or negligence at your house or something like that, liability insurance could be a good thing. But here’s the one that not enough people are talking about, mortgage. All right, it’s what I call income insurance. Okay, and income insurance is this concept. It is that while we are working, our financial life is all about money in and money out. Okay, your paycheck comes in, your expenses go out, and you try your best to save as much money as you can, but when you retire, that doesn’t change. It’s still about money in and money out, but what changes is where the money in actually comes from. But we don’t have a plan in America today for how we are going to create our income, our paycheck in retirement. So that’s why use of income insurance primarily through the use of things like annuities, give us the opportunity to create a stable, guaranteed paycheck that we can always depend on, no matter if the market’s up, down, or sideways. It is by far one of the most powerful retirement planning tools at our disposal. Yet advisors and clients don’t do a good enough job, in my opinion, exploring them, which is why it’s really important that you work with a specialist, and that’s what we’re going to give you the opportunity to do, is pick up the phone and give us a call, that phone number is 800-653-8404 that’s 800-653-8404 if you’re not sure where your retirement plan stands, if you’re not sure how to minimize taxes or diversify investments, or whether or not you’re a good fit for something like income insurance, pick up the phone and give us a call. Schedule that complimentary visit. Now, when you come in to visit with us, you are not agreeing to become a client. I can’t stress that enough. You are not agreeing to work with us, and you’re not under no obligation to do business with us. When you come in, all we’re going to do is have a conversation about your objectives, your situation, and then my team is going to help put a plan together for you, totally free of cost, to identify your red flags and make sure that you’re on track for the retirement you deserve, that phone number again, 800-653-8404 When we return on Retire Smart Maryland Radio, we’ve got five critical areas you need to be aware of as you near retirement. Don’t go anywhere, you
Speaker 2 22:47
Retire Smart Maryland radio hosted by Prashant Sabapathi, Elite Income Advisors, where you can find him in Ellicott City headquarters, and Annapolis is a satellite office for your convenience. Now, Prashant is an independent fiduciary, helping hundreds of his clients get ready for their retirement. It’s all about having that plan. I’m Morgan Patrick. Get the opportunity, the privilege to sit in with Prashant each and every week, and and talk about just the importance of being ready, being proactive when it comes to your retirement, having that plan put together for you, a customized plan. And we also give you an opportunity to get on their calendar each and every week, and these are complimentary appointments. You’ll hear Prashant talk about a little bit later. Retire Smart roadmap put together for you again, complimentary, leaving the checkbook at home, and you’re not agreeing to become a client if you book an appointment. It’s a great way to kind of test drive elite income advisors. We’ll tell you about that as we move closer to the end of this segment. So, listen, there are plenty of questions that a lot of people have as they get closer to retirement. So, we’ve got five critical areas you need to be focused on if you are pretty close. Let’s say 10 years out, five years out, you’re really seeing it come up in front of you. It’s on the horizon. We’ve talked about taxes already today, and we’re going to tell you more about Test mytaxbill.com but taxes, and Prashant, you have put a big spotlight on taxes on this show this week, because a lot of people are, you know, they just have come to the conclusion that they’ve got to pay taxes, they’re going to pay taxes, but you can really plan for this.
Speaker 1 24:21
Yeah, and you break it down into a couple different areas, in my opinion. Number one is start to be strategic about how you’re going to actually withdraw from your retirement account, so you want to consider which accounts to draw from first, whether that’s tax deferred, like for one case IRAs, versus things like tax-free accounts, like Roth IRAs, to optimize your tax liability each and every year, and that comes hand in hand, by the way, with having an income plan that maps out your income each and every year for the rest of your life. So, you want to consider which accounts to draw from first. Second thing to consider is state taxes. Okay, we. Know Maryland has some pretty high state income taxes, if you’re considering relocating, like so many of our clients do, and they’re moving to the Carolinas and Tennessee and Florida and Texas and things like that for the tax benefits. If you’re considering relocating, you have to factor in how state income taxes, property taxes, estate taxes vary from your current location. For most of our audience, that’s going to be DC, Maryland, Virginia. And then consider tax-efficient investments. Okay, within your retirement accounts, and even after-tax accounts, you want to favor investments that potentially generate less taxable income. Certainly, in non-retirement accounts that could be things like municipal bonds, dividend paying stocks that still have favorable tax treatments, a lot of different options there. Bottom line, you just have to coordinate this into a plan that makes sense for you.
Speaker 2 25:51
All right, well, retirement, it’s on the horizon, you’re coming up on it pretty quick, and these are critical areas you need to be aware of and plan for. Obviously, taxes, this next one again, so very important, not just income, but multiple income streams.
Speaker 1 26:09
We talk on this show, I feel like every single week about the importance of understanding your paycheck. Okay, and so replacing that paycheck when you get to retirement is, in my opinion, the single biggest driver of retirement success. Okay, knowing where your paycheck is going to come from and with what level of certainty that paycheck is going to be there for you. So, let’s talk through some different streams of income. Number one is Social Security. Okay, we want to understand our estimated benefits and how to optimally claim our benefit for our specific situation. Number two is pensions. If you’re fortunate enough to have earned a pension, you want to know what kind of terms it has, how it integrates with the rest of your income, and you also want to understand what happens at pension for your spouse’s benefit if you pass away, first number three is retirement accounts. You want to develop a withdrawal plan, a distribution plan that actually balances your needs with the potential of your longevity, but what it comes down to, Morgan, is what I call ROI, right? And in our industry, in the financial industry, we’ve always been taught that ROI means what it means, return on investment. Right? Right, to me, when you get to retirement, ROI means something totally different, and that is reliability of income. Okay, there is nothing more important than having a high ROI, high reliability of your income stream and your paycheck when you get to retirement. If your advisor claims to be a distribution advisor, retirement advisor, but has neglected the conversation surrounding where your paycheck is going to come from, I think you have to question whether or not you’re working with the right specialist. That’s just my opinion, and we’ve helped a lot of people retire, and the foundation of our most successful retirees is a strong foundational income.
Speaker 2 28:07
You’re locked in to Retire Smart Maryland Radio, hosted by Prashant Sabapathi, powered by Elite Income Advisors, and we are going over critical areas you need to be aware of, be in tune to as you get closer to retirement, you know, how are you going to handle taxes? That tax plan for your overall retirement income, where are the income streams? How are you going to best handle that? This next one, and we don’t really think about this, Prashant, because as we’re getting closer to retirement, which is kind of where this window is, we’re excited, right? Go-Go years, we’re going to leave our job. We’ve been working at it for our entire lives and saving for our retirement, and we get so fixated on the go-go and the travel, and maybe moving closer to the grandbabies, downsizing, changing, you know, where we live. You know, maybe we’re going to relocate. What about medical? This is one that really needs to be part of that critical area we’re thinking about.
Speaker 1 29:04
You have to plan for potentially significant medical expenses, especially with the threat of rising health care costs. So, three key points here. Number one is Medicare. Okay, you got to understand how Medicare works, what it’s actually covering for you, how much it’s going to cost you, and what are your supplemental options? Things like Medicare supplements, Medigap, Medicare Advantage plans. You got to understand that, unfortunately, not too many advisors are talking about the healthcare side of this thing. The second aspect is long-term care. Look, as someone who has lived through a long-term care situation with my own mom, we were paying $12,000 a month. It felt like by the end of her life, before she passed away, 12 grand a month was outgoing. Just take care of mom in our home. So, if you have to incur six, 810, $12,000 a month of additional expense, how. Are you going to deal with that? That is so much money, even if you’ve done a great job saving money. 10, $12,000 a month is a ton of additional expense. You got to have a plan for long-term care. And then number three is health savings accounts. I think these are one of the most powerful health care planning tools out there, because what it does is you get a tax deduction for putting money into an HSA. The money gets to grow tax deferred, and if you use the money for health care expenses, you get to withdraw it tax free. It’s what we call a triple tax free benefit, yet not that many people use them. Now, you have to be eligible, you have to have a high deductible health plan, but if used properly, these can be one of the most powerful health care planning tools out there for you to take advantage of
Speaker 2 30:45
today on Retire Smart Maryland Radio. Just hitting some critical areas in this portion of the program. As you near retirement, you’ve got to have your focus, you’ve got to be locked in on these. How you’re going to handle taxes? Where’s the income stream coming from? The medical part of this, make sure you’re considering, you know, long-term care possibilities. The fact that you’re going to be spending more with, with your, you know, when you talk about medical care, the costs are going up. So, make sure that’s part of the discussion. The last one we have time for, as far as things that you need to be aware of, and that’s just investments. I mean, this is this is what your retirement is based on. This is what your plan is going to be based on. So, this is an area you cannot ignore. Yeah, that’s exactly right. So, the first aspect
Speaker 1 31:30
of this is balancing growth and preservation, or sometimes it’ll be called growth and income, and to me one way to do this is actually by using what we call a bucketing strategy. Okay, it’s a bucketing strategy, and the reason we call it bucketing is we have different buckets of money designed to do different things. So, in our office, we classify it into what we call the green bucket and the red bucket, and that’s, you know, it’s kind of cool because that’s what all of our clients refer to it as, but the green bucket is our safe and secure money. Our red bucket is our risk money. So, quick example, because I know we got to get to a break here, is I was meeting with a radio listener, and they were going to work for six more years, and what we determined is that they needed to be able to withdraw in six years’ time about $75,000 of income out of their portfolio to meet their retirement lifestyle. Okay, so what we did is they had about $1.8 million We took 750,000 of that 1.8 and we actually put it into a green bucket, a safe and secure account that generated income, and in six years’ time that 750,000 will generate for them guaranteed $75,000 a year of income, and now because they’ve built that guarantee into their paycheck and their retirement plan, they can put the rest of their money into risk assets designed for growth. Folks, if your advisor has not talked to you about bucketing your money, or you’re not sure how to generate income, reliable income from your retirement portfolio. Pick up the phone, give us a call. It’s 800-653-8404 totally free of cost appointment to come in and visit with us. Visit with our team of specialists, get that retirement plan put together, so that you can have the security that you deserve for the rest of your lifetime.
Speaker 2 33:22
Retire Smart Maryland radio will continue on the other side. We’ve got retirement scenarios. I’ll throw him at Prashant, and we’ll see what he comes up with. Don’t go and wait. Well, Welcome back into Retire Smart Maryland Radio. Your host is Prashant Sabapathi. You can find him at Elite Income Advisors. They’re headquartered in Ellicott City. They have a satellite office in Annapolis for your convenience. Prashant is again an independent fiduciary, published author, a couple of books already, physical health, retirement, wealth, and retire abundantly, helping hundreds of his clients get ready for their retirement, and that’s why we do this show. We’re here to help. It can be overwhelming. There’s a lot that goes into it, and we know that a lot of you out there are just sitting on your portfolios. Maybe you’re intimidated, maybe you know your finances are so personal, you just haven’t thought about, you know, sharing a little bit, working with a fiduciary, having this mapped out, kind of lean in to someone that can walk with you down this path to retirement. Doesn’t that sound good? I mean, having a partner, having a coach that can help you as you make your way to your retirement, not just to your retirement, all the way through your retirement. Make sure you have a plan. I’m Morgan Patrick. And now’s time for scenarios. Prashant, I will give you the scenario and just kind of give us an idea of what you might do. All right, here’s the first 140. year old switching jobs has 120,000 in their 401 k uns. Sure, if they should leave it in their former employer’s plan, roll it over to an IRA, or transfer it to their new employers for 1k What kind of options do you think they have here?
Speaker 1 35:11
I love this scenario, and I love it because it is so common in this day and age, with people switching jobs more frequently in pursuit of more income, better benefits, better pay, etc. So, let’s talk about this. My biggest thing, when it comes to making financial moves, is every financial move you make, especially with regards to your retirement situation, should have a clear-cut purpose behind it. I think, in this day and age, we are told that when we switch employers, just roll your 401 k over, either roll it over into the next employer or put it into an IRA, but why is that? And to me, it’s always check the incentives, right? If an advisor is telling you to do that, what are the advisors’ incentives for giving you that advice? So my kind of general train of thought is you should only make a move with that money, or really any money, if it furthers your financial objectives in a concrete way that you can articulate, either it’s going to help you create more income, rolling it over gives you more growth, or it gives you less risk, like all those things are valid reasons to roll it over, but before you make that decision, you should have a comprehensive evaluation of why that is going to further your financial objectives.
Speaker 2 36:29
Scenario is always interesting, but always remember, too, you may listen to the show and hear a scenario one day and go, you know what, that’s kind of what I’m going through. Remember, it’s not exactly what you’re going through. Make sure you have a customized plan that takes into account all your different puzzle pieces. All right, here’s the next scenario. A person with a large sum in a traditional IRA wants to reduce RMDs by transferring funds into an annuity. They’re uncertain about which type of annuity might fit this goal and how to minimize their RMDs effectively.
Speaker 1 37:01
Yeah, this one is really interesting, because on the surface, what you might find is that use of something like a traditional income annuity, or fixed annuity, fixed index annuity, or multi year guaranteed annuity doesn’t actually help you in reducing RMDs, however, there is one type of an annuity out there, and it’s actually called a QLAC, a qualified longevity annuity contract, QLAC, and what that is, is the type of deferred income annuity funded with assets from a qualified retirement account, things like an IRA or 401 k, and the main benefit of a cue lack is that you can delay the income starting from that cullac all the way up to the age of 85 years old, and so that could give you a way to defer on some of the RMDs. Now they are restrictive. There’s only a certain amount of money that you can put into a CULAC. You can’t just take all of your retirement wealth, deposit it into a CULOC, and then figure that, hey, I won’t have to take out the required minimum distribution, and thus I don’t have to pay taxes. So make sure you’re visiting with your insurance advisor, your investment advisor, as to what may fit your specific situation, but it’s a little-known tool that some of our clients use to help offset or mitigate their required minimum distribution tax obligation when they get to that age.
Speaker 2 38:39
So important to be ready for retirement. We’re going over scenarios, and if you, if you learn anything from this segment, man, so many things can be happening. You know, retirement doesn’t happen in a vacuum, and these types of scenarios could pop up, and your scenario is going to be different from anybody else’s. So, make sure you’re getting some professional guidance and work with a fiduciary. All right, here’s another scenario. A couple in their 60s per shot with grown children is unsure if they still need life insurance. They’re considering keeping a small whole life policy to cover funeral costs and leave a modest inheritance. How should they assess if this coverage is worth the ongoing premiums?
Speaker 1 39:22
So this one’s another good one. I just had this conversation with an actually an existing client of mine who expressed some concern about, you know, their insurance coverage after they retire, because most of their coverage was through their employer, which goes away when they retire. So, I think where we start with this conversation in particular is what kind of objectives do we have, meaning if we have life insurance, and by the way, I’m a big believer in life insurance. I actually think life insurance is one of the single best ways to transfer money to your beneficiary because of all the tax free benefits. Fits that come with life insurance, so that’s great, but it’s not the right thing for everybody, because it depends what your objectives are. If your objectives are just give me enough money to get through final expenses, that’s an entirely different objective than hey, I want to make sure that my kids and grandkids have money to go to college and you know have a meaningful legacy, and so the first step is identifying what your insurance objectives actually are, and then from there, is it worth the cost? Is just a function of what are the benefits, right? We can’t evaluate whether the cost is worth paying unless we understand what the benefits are, so you have to integrate it into the rest of your financial plan. I think a lot of times people look at life insurance independently of everything else when they should be doing the exact opposite. They should be looking how the life insurance actually integrates to the rest of your financial plan. How much money do you have saved? What are the tax consequences of your retirement accounts? All of those things impact how
Speaker 2 41:00
much life insurance you should have goes back to our puzzle pieces, and how they all fit together to form what is going to be your retirement. We’re in the middle of scenarios, we’ve got time for one more. I do want to remind you, the opportunity to get on the calendar with Elite Income Advisors is ongoing during the course of this show. These are complimentary appointments, you’re going to leave the checkbook at home again, you’re not agreeing to become a client, but you will receive that Retire Smart roadmap. They’ll put together this map for you, and again, you’ll walk out with that, and again, there’s no obligation. All you’ve got to do is call 800-653-8404 That’s 800-653-8404 I will tell you this: it’s a busy office, but we’ve carved out these spots for our radio listeners. So, call now and secure it: 800-653-8404 All right. Final scenario: someone in their 60s planning for future care and wants to stay at home as long as possible, but worries about the rising home health aid costs. They wonder if investing in long-term care insurance or a home health savings fund is the best move. How should they make this decision?
Speaker 1 42:15
Look, as someone who’s lived through this, like I shared in the last segment with my mom, I’m a big believer in transferring risk. Okay, at the end of the day, retirement is all about transferring risk, whether that’s risk surrounding your income, risk surrounding your longevity, or certainly when it comes to health care, risks surrounding your long-term care with regards to your health situation, and so in my opinion, insurance is a great option, but it doesn’t come without its flaws, and one of the flaws of the insurance is that you have to qualify for it, which means if you’re in your mid late 60s, early 70s, your health situation may not afford you the opportunity to actually qualify for something like long term care insurance, despite how beneficial it could be. So, I think we have to explore insurance, but there’s actually a newer way of protecting against long term care, and that is through what is called asset based care. Believe it or not, if you have money set aside, that’s not really working for you. If you just have money in CDs or just sitting in a bank, one of the things that you could do is you could take that money and put it into a long-term care protection vehicle that offers you long-term care benefits on the money that you have. So, I’ll give you an example. I just did this for a client, they this plan offered them three times their deposit amount for long-term care. So, what we did is we took $150,000 placed it into a safe account that earns interest each and every year, but at any point in time, if they get sick, they can access up to $450,000.03 times. times their deposit for long-term care benefits. Okay, and the best part about it is this is not a long-term care insurance policy. Now, there are still some underwriting questions and hurdles that you have to clear, but it’s a lot less stringent than just buying an insurance policy, so a lot of different solutions are potentially out there. If you have not explored those other aspects of your retirement plan, whether it’s taxes, investments, bucketing your money, optimizing your social security, or leaving a strong legacy plan and long-term care plan. I think you should pick up the phone and give us a call, folks. This will be our last opportunity for today’s program to get into our calendar here over the next couple of weeks. The phone number is 800-653-8404 that’s 800-653-8404 So, when you come in to visit with us, we’re. Going to put together a series of reports. Number one, a Social Security optimization report will help you coordinate your Social Security benefits to file for your benefits in the most optimal way for your unique situation. Number two, we’ll put together an Income for Life plan, help you map out that income each and every year for the rest of your life, including taxes and inflation. Number three, we’ll do a risk analysis and a bucketing analysis of your portfolio. Make sure that your money is positioned in the proper places to give you all the income that you could want or need to retire smart. That phone number again. Last opportunity today’s show: 800-653-8404 Call now, another Another edition of Retire Smart Maryland Radio in the books for Prashant Sabapathi. I’m Morgan Patrick. We’ll see on the radio next week.
Announcer 45:59
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