Speaker 1 0:02
We’ve all heard the classic financial advice: pay off your mortgage, downsize your home, and stick to a fixed retirement income. But in today’s world of longer lifespans, fluctuating markets, and unpredictable inflation, do these tried and true rules still make sense? We’ll take a fresh look today on Retire Smart Maryland Radio. Welcome
Announcer 0:24
in to Retire Smart Maryland Radio with Prashant Sababathi.
Speaker 2 0:31
Welcome in to Retire Smart Maryland Radio, hosted by Prashant Sabapathi and John DeFeo of Elite Income Advisors. And again, Elite is the power behind the program. Both are independent fiduciaries, and again, it’s all about helping you get ready for your retirement. They’re headquartered Ellicott City, and they have a satellite office in Annapolis for your convenience. I’m Morgan Patrick. My pleasure to jump on each and every week, talk retirement, but also give you an opportunity to get on the calendar with Elite Income Advisors. We’ll tell you about those appointments, because they’re complimentary, and if you have not started planning, or you need that second opinion, you are a perfect candidate for one of those appointments. Gentlemen, as we always do, before we jump in on the first topic, How was the week? Prashant, the
Speaker 1 1:14
week’s been great. It’s nice to be back at work after the baby, and it’s been busy. I’ll tell you that with the passing of the big beautiful bill, it’s created a lot of buzz, a lot of activity. I think a lot of people have questions on how to structure specifically their taxes in retirement. So, this is a conversation we’ve been having with a lot of folks lately, and it’s been really neat to redesign and kind of re-engineer some of these plans moving forward for folks.
Speaker 2 1:45
All right, John, what about you?
Speaker 3 1:46
Yeah, the same lot of buzz on the big beautiful bill. You know, it’ll probably already been decided by the time this recording is out, but there is another round of tariffs that could be coming into play, another budget reconciliation bill, you know, September, so a lot of these concerns are driving, you know, conversations in the office, you know, getting people in the door. I think, you know, as the summer starts to wrap up, we’ll see that even more, even with people being on vacation, traveling, still a lot of interest in getting a financial plan in place. So busy as ever, and as Prashant said, great to be in the office, and have the whole team together at this point.
Speaker 2 2:23
Retire Smart Maryland Radio. Again, it’s always important to have a plan. We hit these topics, you have questions about your own situation, and when we make the appointments available, jump all over it. So, sometimes the one size fits all, it doesn’t fit at all. I mean, it doesn’t fit everybody, especially, and when you think about it, it’s all about being ready for retirement, having a plan, and make sure it’s customized to you. So, we’ve got some new insights from Bank Rate, some other financial sources as well, reexamining the old standards, the tried and trues, but we’re looking at it with a different light, and these strategies, do they still work, which ones might hurt you, and how can you tailor that financial decision you’re going to make, you know, for your life, and of course, retirement. So, John, let’s just start with you. Should you really rush to pay off the mortgage? Because I remember hearing my grandparents talk about this, my parents talk about this, can’t wait to pay the mortgage off, that may have changed by now.
Speaker 3 3:21
Yeah, this is an interesting conversation that we have with clients quite often as they enter retirement. I think you know there’s a difference between the psychological, you know, decision and the decision when it comes to numbers, right? So, a lot of folks just don’t want the liability or the responsibility of having to pay a mortgage in retirement, so psychologically it might make sense to pay that off prior. We have some clients that build their retirement timeline around when the mortgage is paid off, so that’s the strategy, but I would say you also have to look at the numbers of this, right? You know, if you had gotten a mortgage or refinance back when rates were at two and a half, 3% you know that it might make more sense to maintain that mortgage moving forward, as you can get a higher rate of return at the bank right now with safe money, which you know could potentially be higher than the interest you’re paying on the mortgage. So there’s also the thought of, you know, returns in the market being able to outpace the interest that you’re going to pay on the mortgage, but you know, I would say you don’t really want to take the risk in the market as the percentage that you base paying your mortgage off of. I think if you can get a safe rate of return at the bank with zero risk, and that can outpace the interest on your mortgage, that might make sense, but as interest rates come down and mortgage rates go up, you know, I think we’ll have a different conversation, so it might not be the clearest answer. I think, as all financial plans warrant, it really depends on the situation psychologically. Can you afford to pay it off? Those things have to come into play.
Speaker 2 4:52
We are taking a real good look at some of the tried and trues from the past, and do these strategies still work, or should you follow these strategies? Again, there’s always been the talk. Hey, pay that mortgage off, but if you’ve got a favorable interest rate, you really need to think that over. Make sure it’s part of your plan. You might want to hold on to that mortgage. This next one, Prashant, to you, how much will you really need each year in retirement? I think we kind of go back to the years where we kind of pictured what our magic number was overall, but it’s more about what you need every year.
Speaker 1 5:23
That’s right. Maybe you’ve done the math, and you decided that, let’s say, you need $80,000 per year to retire comfortably, but the catch is that is in today’s dollars, right? So you know 80,000 very well might feel comfortable today, but even if you just had, say, 3% inflation in 20 years’ time, that 80,000 that you’re bringing in will feel a lot more like $44,000 in future dollars. So, if you’re 60 years old and you needed 80,000 by the time you’re 80 years old, that 80,000 feels like 44 Morgan, to me that’s like budgeting for a steak dinner and ending up at the drive-thru, right? It’s like it’s like it’s not going to be enough, and so look, while we’re working, we’re used to having a rising income in retirement. I’m sorry, while we’re working, and so when you get to retirement, we should have a rising income as well to offset the threat of higher cost of living, which we all think is going to be there. Inflation has to be built into your retirement plan one way or another.
Speaker 2 6:30
Looking at some of the tried and trues, and are these strategies you should still follow today? I mean, it is worth a conversation. John, we’re going to hit you with this last one, and then we’ll take a break. We’ll give an opportunity to our listeners to get on your calendar, no cost, no obligation for one of those appointments, but I’ve also heard this: you get to retirement, you downsize, it’s almost like a Pavlovian dog thing, you get to retirement, you start salivating to downsize, that might not be the best move.
Speaker 3 6:56
Yeah, I think this also depends on the situation, you know, depends on where you’re moving to, you know, if you’re moving to a state that has less preferential taxes, you know, maybe a higher cost of living that can be, you know, detrimental to a plan. I think sometimes it can be helpful, you know, if you have too big of a home to maintain, maybe, you know, the property taxes on the amount of space and land that you have is higher than if you downsize to a smaller area. There are retirement communities that can be more cost effective for certain things. So, I think it really depends on what your goals are, what your objectives are. But it can be expensive to sell your house and buy a new one, right? You’ve got closing costs, realtor fees, moving expenses, getting the home prepared to move. So, these are conversations we have with clients on a regular basis when they’re considering the downsizing or the relocation, so I think you have to consider the taxes, the fees, the cost of living, where you’re going, again, what types of income taxes they have, all of that has to be part of that decision. I mean,
Speaker 2 7:55
there’s there’s a very good chance we’ve hit a nerve here with you, the listener, maybe you’re following one of these tried and trues because your grandparents did it, your parents are doing it, and you’re going to just follow that line. If we have caused a little bit of concern, grab one of our appointments. Per shot, walk us through what’s going to happen.
Speaker 1 8:13
Listen, folks, the old playbook, the payoff your house, downsize, live on less, that may not fit your reality today. What if you could keep more cash in your pocket, grow your money smarter, and protect your lifestyle for your retirement years. That’s exactly the type of thing that we’ll look at when you come in for your complimentary retirement reality check with Elite Income Advisors. We’ll help you evaluate whether those traditional rules are in fact the golden rule for you, or whether there’s a better path. You’re going to want to pick up the phone and give us a call. The phone number is 800-653-8404 that’s 800-653-8404 or you can visit Elite Income Advisors to schedule your complimentary no cost, no obligation retirement reality check today.
Speaker 2 9:04
I like it. Retirement reality check, get one. Retire Smart. Maryland radio continues on the other side. We’ll talk about building the nest egg, but you got to remember inflation is out there. We are back on Retire Smart Maryland Radio, hosted by Prashant Sabapathi and John DeFeo, both of Elite Income Advisors. Check out the website Elite Income advisors.com it is a resource for you. Both of these gentlemen are independent fiduciaries. They are headquartered at Ellicott City Satellite Office in Annapolis for your convenience. I’m Morgan Patrick. I jump on with the advisors each and every week, and it’s about being prepared. We hit the topics, you’re going to have questions about your own situation, we give you an avenue to get answers to your questions again. Retirement reality check. Stay tuned, we’ll open up those appointments here in just a little bit. So, a gallon of milk doesn’t cost what it did 20 years ago, and guess what, 20 years from now it’s not going to be anywhere close to what it costs today. So, inflation has always been a big part of our financial lives, but for retirees living on a fixed income, I mean, it can feel like a slow leak in the old financial bucket. So, the big question is, how do you keep up? So, today we’re going to explore some strategies to kind of help your retirement income stay ahead of rising costs. So, John, you’re up first. Inflation, it’s just slow, but it’s relentless, it’s there.
Speaker 3 10:40
Yeah, I’d say that in today’s economy, not as slow as it used to be. You know, we’re seeing prices increase on goods and services more and more over time, even more so on things like medical expenses, hospital services, food, beverages. These things are exponentially increasing, so it has to be considered when putting together a financial plan. In fact, in every single one of our income plans that we put together for clients, we assume there’s an inflation component to your expenses, so the money that you need today is going to be much higher in the future, just based on the increase of cost of goods and services. I mean, if we consider, you know, a 3% inflation rate, $1,000 today would only be worth about $412 in 30 years, right. So, the erosion of your purchasing power over time is one of the biggest risks that you have in your financial plan when it comes to, you know, again eroding your assets. You know, we think of times like 1980 when Ford inflation was about 14.8% I mean, as recent as 2022 when we saw about 9.1 9.2% at the peak. So we have to be cognizant of these times, you know, things are getting more expensive, and how do we build in a hedge to inflation? And typically it’s through equity exposure, but the appropriate amount of equity exposure. So if you’re unsure if you have enough to help pace inflation, if you have concerns about the increase in cost, it might be a good time to come into the office and have a look at your plan and make sure that you’re covered for that over the long term. Yeah,
Speaker 2 12:11
and everybody’s different, and you don’t know what you don’t know. Have a plan, have this type of conversation. You can grab an appointment with Elite Income advisors at any time during the show, and they’re complimentary 800-653-8404 that’s 800-653-8404 The retirement reality check, I love it, 800-653-8404 So, again, exploring strategies to kind of help that retirement income stay ahead of what we are seeing, which is rising costs. Prashant, to you, fixed income, it doesn’t always mean a fixed lifestyle, because things are expensive in retirement, and we’ve got to watch this, and got to have our money off the sidelines.
Speaker 1 12:52
I think it’s natural for pre-retirees who are getting close to retirement, or even retirees who are already there. I think it’s very natural to want to enter entirely into safer investments or lower risk investments, especially when you think about things like CDs, treasury bonds, annuities, but I think the shortfall with this type of strategy is these things often fail to outpace the cost of living rate just like John was talking about a minute ago, and so putting all your retirement savings into CDs or bonds is a lot like hiding your money under the mattress, isn’t it? It’s, it feels safe because you can go put your hands on it, but when the cost of living goes up, your purchasing power is threatened, and so moving all your money to a safe place, in a way, is almost like losing money safely, is what I call it, right? It’s like the, you get the illusion of safety, but if your purchasing power is going down, is your money really safe? And so I think what John talked about is really important. I think safety is always going to be a huge component to your retirement plan, but it’s also important to take risk in a structured and calculated way to help you grow your money to ultimately outpace inflation, and very rarely is the right thing to do to put all your money at risk, just as it’s not typically appropriate to make all your money safe. You have to have a balance, but you have to have purpose behind that balance, and that’s ultimately something that your fiduciary advisor should be helping you with on an ongoing basis.
Speaker 2 14:39
Yeah, I mean, have a plan, and certainly take all of this into consideration. Everybody’s different, so you need that customized plan. Going over again some strategies to help your retirement income kind of stay, hold its ground with all the rising costs. If not, you know, build a little bit, so this net, but you know what we talked about. Some, some problems, but John, we’ve got social security, right? We’ve got cost of living increases, right? That’s going to cover
Speaker 3 15:07
us, right? You would think, right. And I think this is a pretty common misconception that we hear from clients, is, hey, look, whatever inflation did from the previous year, whatever that consumer price index report presented, they’re just going to give me an increase into my social security, so do I really need equity exposure to build that inflation hedge? And we would argue that you absolutely do, and for a couple of reasons. Number one, most people need more income than just social security, right? So you have to be drawing out of your retirement savings, which means you’re likely going to need to take more and more each year, but another component of this is that with those cost of living adjustments, as I mentioned, they’re based on the consumer price index, right? That’s how inflation is measured in the economy on an annual basis, and what they don’t tell you is that there are two key variables that are excluded from the consumer price index, and that is going to be a food and it’s going to be energy, right? I don’t know about you guys, but, but I spend a heck of a lot of money on food and energy, especially with two kids that drink a lot of milk, you can’t keep it in the fridge. BG knee bills are higher than they’ve ever been, gas prices, so these are excluded from the CPI report, which in turn do not get included in the cost of living adjustment, right. So, if those two costs are not included in the adjustment you get in Social Security, then we have to account for that on our own, right, with our own savings, our own equity exposure. So, I think it’s important to note that another thing, you know, if we look at 2022 as an example, we got an 8.7% cost of living adjustment that year, which was a great cost of living adjustment, but as I mentioned earlier, inflation peaked at 9.1% so we didn’t even get the full adjustment that was needed to pace inflation, and again, it didn’t even include food and energy, so I think it’s a common misconception, and something that we have to account for.
Speaker 2 16:59
Certainly important to have this plan put together and take all of this into consideration as you build it. This next one, for Sean, very close to you, healthcare boy, the inflation just in this sector is, it’s, it’s, man, it’s out, it’s out of control, it’s very, very expensive.
Speaker 1 17:18
I think if you’re just planning for two to 3% inflation, which I think is a number that the Federal Reserve has talked about, getting inflation back down to 2% which I still think we got a ways to go before we get there, but even if two to 3% was the planning number that you’re looking at, that represents more of a general inflation rate, when you look specifically at the cost of health care inflation, you’re looking at numbers that are closer to five to 6% annually, and rightly so. It is a major concern for pre-retirees and retirees as we age. Now, you got to remember Medicare covers a lot, but not everything, especially long-term care, right? When, when my mom went through a long-term care scenario, Medicare did not pick up the tab on virtually any of that expense, and so, without proper planning, medical inflation is one of the things that eats up a larger and larger portion of your retirement income. I sometimes refer to it as the aging tax, right? It’s essentially a tax associated with the cost of higher health care, and thus it eats into your retirement income, and the more it eats into your retirement income, the more you need to withdraw to offset, and the more you withdraw, the higher the probability is that you one day run out of money, especially if the market does not continue to give us double digit returns on an annual basis, so it’s kind of funny how one thing like healthcare or inflation or taxes creates this nasty domino effect that ultimately puts you at additional risk of running out of money, and I think that unless you’ve considered how each and every one of these areas has a downstream effect on your financial plan, I’m not so sure that you’re quite as prepared as you may be thought, and so you got to think, is my advisor talking to me about all these things, not independently, but in a comprehensive way that I can understand, and that is written down somewhere, so that I can reference and follow it when I need to, and when I need to do that at the most important time of my life.
Speaker 2 19:34
Well, gentlemen, let’s, let’s give them some practical inflation hedges to consider. Let’s jump in on this, and then we’re going to open up those appointments, but John, we’ll start with you. I mean, what are some things people can do right now?
Speaker 3 19:46
Yeah, I mean, I think number one that we preach is through equity exposure and investing into the stock market, doing that appropriately with diversification is important to ensure that you’re having substantial growth to outpace inflation there. Also, more risk-averse types of strategies, things like treasury inflation protected securities. This is abbreviated to TIPS. So, these are government treasuries that are indexed due to inflation on an annual basis. So, these can provide somewhat of a hedge there. There are dividend-paying stocks. Companies typically increase their dividends to help offset rising costs. You can also look at this as if the stock price is increasing, generally your dividend payouts a bit higher. So, there’s a bit of the best of both worlds in terms of equity exposure. You know, real estate has always appreciated over time, that’s another way to potentially get in front of it, but I think at the end of the day, truly investing in the market, doing so in a diversified way that gives you access to different sectors of the economy within that equity exposure. I think it’s the best way to do it, and knowing the right amount of risk to take with the portfolio is also important, because, as Prashant mentioned earlier, there is also a concept of security and preservation of capital that’s important when creating income, so you have to know that balance, and if you’re unsure of it, I think that’s a great time to come in and meet with one of us to get a second opinion. I
Speaker 1 21:10
think the answer to higher prices very simply is higher income. Okay, I’ve never once had a client that had way too much income coming in, complaining to me about the costs going up, right, because they were okay at the end of the day, and so inflation isn’t just a buzzword, it’s a retirement killer if you’re not prepared, and with longer retirements and rising costs, the margin for error is razor thin. You should pick up the phone, you should give us a call, it’s 800-653-8404 that’s 800-653-8404 You can also visit Elite Income advisors.com that’s Elite Income advisors.com When we put you through that retirement reality check, one of the things that we’ll do is help you identify the cracks in your income plan, not just help you identify them, but help you shore them up with smarter growth tools, higher income producing assets, and position your retirement in such a way that you can thrive, not just survive in retirement. Starts with that phone call, folks. Complimentary appointment with our team at Elite Income Advisors. Join us in Ellicott City, or virtually on a Zoom call, 800-653-8404 or visit Elite Income advisors.com
Speaker 2 22:29
When we return on Retire Smart Maryland Radio, we’re going to talk about the grandbabies and how to set them up without breaking your retirement piggy bank, you Retire Smart Maryland Radio, hosted by Prashant Sabapathi and John DeFeo. You can find them both at Elite Income Advisors. They’re headquartered in Ellicott City satellite office in Annapolis, and again, both independent fiduciaries. I’m Morgan Patrick. My pleasure. Jumping on, talking retirement. We’re going to get into the grandchildren discussion now, and helping out the grandbabies, and helping them thrive. It brings deep satisfaction, but it also comes with a financial burden, and many don’t really anticipate the full bore of this. Now, a new study shows nearly all grandparents contribute, and many make significant sacrifices along the way. So, we wanted to kind of explore how to give from the heart, stay within your means, and make sure your golden years stay secure. So, John, you’ve got some key stats in front of you, these are IOP.
Speaker 3 23:42
Yeah, they certainly are. And I think this has to do with the concept of grandparents wanting to, you know, see the, you know, the gifting that they give to their grandkids and watch their grandkids enjoy the money they have, rather than just leaving it to them at death and not being able to see them enjoy it. So, these are some, some really interesting statistics, right, about 96% of grandparents provide some level of financial assistance to their grandchildren, right. That’s almost all of them, right. Some level of assistance, on average, about $3,948 per year is the spending, with 10% giving $10,000 or more annually, right. So, on average, about, call it $4,000 a year, but with 10% spending over $10,000 a year, one in five feels pressured to give beyond their means, and 10% have even gone into debt or delayed their retirement. I mean, that’s, that’s fascinating that folks are willing to put themselves in the hole or delay their retirement for their grandkids. I mean, having children myself, I can slightly understand it, but still I don’t think we want to be going that far. And then about 16% live with their grandchild, right? So that escalates the day-to-day costs for whatever reason. So these are, you know, the things we. Have to consider, in fact, it’s a question I ask all of our clients, or what are your goals when it comes to gifting, to helping out your children, your grandchildren? It ties into the legacy plan, but I think that’s a pretty fascinating set of statistics. Prashant, you want to maybe talk about a little bit of where that money is going? You know, they’re spending all of this money, but what types of things are they generally spending this on, I
Speaker 1 25:22
think, specific occasion gifts. Think, think of things like birthdays, and you know, your grandkids graduate college, and you want to kick in something to help them get started. So, you’re looking at, you know, occasional gifts, four to 500 bucks a year. Are you talking about clothing, entertainment, two to 300 bucks, groceries, outings, three to 500 bucks, but the one that I’ve been seeing across our clients, especially in the face of higher cost of living, is when their grandkids get started, the wages that they earn are not even oftentimes enough to allow them to live a comfortable life and save, so we’re seeing grandparents help out with things like housing, healthcare costs, and just day-to-day living costs, and that is creating a burden, quite frankly, on the grandparents’ retirement plan. Now, thank goodness, most of our clients are really good savers, and they’re in a position to be able to help, and so they’re not oftentimes having to make a choice between what they want to do and being able to help their grandchildren, but that being said, I know this is something that people across this country are having to deal with, and what it does is it creates pressure, it creates stress, and look, when you get to retirement, your life should be about the least amount of stress possible, not increasing your stress level, and so I think it’s worth talking about the different smart strategies that grandparents are actually using in today’s environment to be responsible about how they go about helping their family, John. When you take, let’s say, let’s say that I come in as a client of yours, and I have a goal to help grandchildren out, walk me through maybe the top four or five things that you’re doing from a process standpoint to help someone figure out what is realistic within the context of their financial plan and helping their family out.
Speaker 3 27:29
Certainly, yeah, I think number one is budgeting that into your financial plan, right? Set a comfortable annual gift amount, you know, 1000 3000 10,000 whatever that number is, but ensure that it’s not so high that it’s derailing your financial plan, causing you to delay retirement. So, I think budgeting that in, trying to make sure that’s a part of your income plan, is imperative. We also suggest using investment gifts, right, instead of just giving cash, open up a 529 plan to contribute for their education, you know, this can’t isn’t only used for your traditional four year college, it can also be used for trade schools, so if you’re, you know, not, you know, looking to steer your grandkids or your kids into the traditional college route, they can still use it for some of those blue collar roles, and those are absolutely fantastic jobs, especially today. Another concept to think about is the gift tax. Right, there are taxes that you can owe by giving too much money away. At this point, it’s $19,000 per year per person. So, if you’re married, you can double that amount per individual. So, you know, if you go over that, then there can be gift tax implications, so that’s something that we have to be cognizant of, you know. And I also offer non-financial support. I think this is another good one, right? Mentor them, you know, introduce them to traditions. I know a big, you know, a big thing a lot of our clients will do is throw a big vacation for the whole family, right? Maybe go down to the Outer Banks and rent out one of those big houses and bring the whole family down. Those can be expensive, you know, but at the same time, if you, you know, bring them into those traditions, maybe at some point they’ll be successful enough to do that themselves. And then I think, of course, avoiding any risky kind of debt to fund these types of gifts is definitely not something we want to do. We don’t want to have to delay retirement. We don’t want to be taking out loans or going into credit card debt. You know, financial charity is certainly noble, but it shouldn’t be coming at the detriment of self-sacrifice. So, these are just some of the things that we talk to clients about to try to help them stay within their means for gifting, yeah,
Speaker 2 29:41
we often have this discussion about making sure you’re taking care of yourself first, and we go back to, you know, when you fly on the plane and they go through the safety instructions and they tell you if the cabin decompresses and the mass pops out of the ceiling, what’s the first. You do after a little bit of shock, obviously, but you, you put the mask on yourself, and that plays right into what we’re talking about as grandparents out there. You want to help your grandbabies, you want to help your own kids, but you need to make sure you’re taken care of first. Persona,
Speaker 1 30:17
it’s exactly right. You can’t help others if you, if you’re not helping yourself first, it does you no good if every time you’re generous or every time you help your family, you’re putting yourself at higher risk of running out of money or making a bad tax move that costs you unnecessarily potentially 1000s of dollars in unnecessary taxes. So, you got to be really careful. I think this is why it’s really important to have a comprehensive plan. You got to remember every financial decision you make in retirement, every significant financial decision impacts two or three other parts of your financial plan. For example, the more you withdraw from your retirement accounts, the more you might end up paying for your Medicare down the road. I think a lot of people don’t think about things like that, and how they touch every other aspect of your financial plan, and so I think when we have the conversation with our clients about it, we try to be very upfront and have our clients be very upfront about what they are trying to accomplish. I mean, John talks about how he asks clients about what their goals and their, their objectives are, but I think we take that one step further and even say, like, do you have financial obligations, and not even just obligations, but pressures that your family is expecting you to help with, and how are you going about dealing with that? Have you budgeted or accounted for a maximum amount of annual support that you’re comfortable giving on a year to year basis? So these are the types of more qualitative questions that I think advisors don’t do a good enough job diving deep into, and I think that’s what attracts a lot of people to elite income advisors, is we don’t take a very surface level relationship with our clients. It’s really about being specific about accomplishing what you want to accomplish. John, I don’t know if you have anything to add to that, but that’s kind of where my mind goes when it comes to the grandparents here.
Speaker 3 32:22
No, I 100% agree, and I really like what you mentioned there about drilling even deeper into their goals. I think it’s important not to just identify, you know, what the goal is, or I guess the concept of the goal, but get into the details. You know, where do you want to travel? How do you want to gift to them? What things do you want to be providing to them. I think that’s very important to drill into. That’s
Speaker 1 32:43
right. Listen, we all love our families. We know that our clients love their grandkids, and there’s nothing wrong with being generous, but what happens when generosity turns into financial pressures? You put your retirement plan at unnecessary risk. If you’re not sure how much you can afford to give, or whether or not the giving strategy that you’re on now is sustainable. Pick up the phone, give us a call, folks. It’s 800-653-8404 That’s 800-653-8404 Come in for that complimentary no cost, no obligation retirement readiness check. Let’s figure out whether or not you’re on track for the retirement you deserve after three or four decades of really hard work.
Speaker 2 33:27
Retire Smart Maryland Radio returns on the other side. We’ve got retirement scenarios, we’ve gathered them from around the country, we’ll throw them at the advisor, see what they come up with. That’s next, you We are back on Retire Smart Maryland Radio. Your hosts are Prashant Sabapathi and John DeFeo of Elite Income Advisors, headquartered Ellicott City Satellite Office in Annapolis, for your convenience. They’re independent fiduciaries. Check out the website, it’s a resource for you. Elite Income advisors.com that’s Elite Income advisors.com Links to the TV show, radio shows, and podcast form. Just really good retirement information. Great way to kick the tires, get to know the team again at Elite Income Advisors, Elite Income advisors.com All right, it’s time for scenarios, and I will throw these out now. I will tell you, I want our listeners to know these happen all over the country. You may have a scenario that comes up that’s kind of what you’re going through, but I always say it’s not exactly what you’re going through. So, make sure you have a customized retirement plan, and there’s going to be an opportunity to get on the calendar with elite income advisors at no cost, no obligation. That is coming up. All right, John, you’re first up. Here it is. They’re turning 73 this year, facing their first RMD, required minimum distribution, from a $650,000 traditional IRA. They don’t need all the money for living expenses, but they worry. About the tax hit, how can they manage RMDs in a way that keeps taxes lower while still meeting the requirements?
Speaker 3 35:08
Yeah, so unfortunately, you know, there’s not a whole lot you can do to minimize the taxes from these distributions once you get to the required minimum distribution age. This is, you know, typically why we speak so intentionally about things like Roth conversions and strategic distributions early on in life to try and reduce the RMD you have to take, but if you’re in this situation, you know one of the things you can look at is qualified charitable distributions, and this is a way that you can give directly to a qualified charity and eliminate the income tax implication on that, that, that distribution, right? So your first RMD is usually around 4% of the account balance at the beginning of the year, so it’s a little less than 4% but let’s just call it 4% that’s about $26,000 they’re going to have to take if they were to send that $26,000 directly to qualified charities, it doesn’t have to be one. We have clients that send them all over the place, so long as it’s a qualified charity, you don’t have to claim that money is income. It’s like it never happened. So that’s a great way to avoid the income tax. There are also ways, if you have a business, you know, a sizable real estate portfolio, maybe significant losses in your, you know, your non-qualified assets. Those are ways that you can potentially write off losses, but I think primarily the way that we look at it, if you’re, you know, just looking at an IRA, you don’t have real estate, you don’t have a small business to write off taxes on. I think the QCDs, the qualified charitable distributions, are probably one of the best ways to do that.
Speaker 2 36:45
Scenarios gets you thinking, folks. We got another one. I’m gonna throw this one at first shot. They own a paid-off family home worth about 650k but they’re considering downsizing to a condo to cut maintenance costs. Selling would free up some cash, could trigger capital gains concerns. What’s the best way to evaluate the financial and tax impact of selling versus, say, just staying put?
Speaker 1 37:11
I think a lot of people look at just the sticker price, so to speak, of their house when considering whether or not it’s a good decision to sell, but we have to remember when you sell a house, there’s commissions, there’s closing costs, there’s the cost of moving, and so you know, I was recently sitting with a client who sold their half a million dollar paid off property to go pay cash at $350,000 for a condo at the beach, and what they found is by the time that they had moved, sold the place, paid the real estate commissions, and everything else, they didn’t actually have any money left over, right? Because when you move into a new place, what do you want to do? You want to furnish that place to make it feel like a new home to you, and all that stuff costs money, and so I think there’s several different moving parts to this. When you’re evaluating whether to stay put or sell, obviously there’s a huge non-financial component to this that becomes really important, but financially, let’s not ignore all the other stuff, as I call it, that goes into selling your property. It’s not just looking at the list price and then the new buy price of the new place. So, a lot of things to consider. Most importantly, do you have enough income to be able to support whatever move you’re making? And I think that is ultimately the most important thing.
Speaker 2 38:39
Yeah, it comes back to having the plan that fits you, customized to you. We do have appointments with our elite income advisors, advisors, and all you’ve got to do is call 800-653-8404 That’s 800-653-8404 Retirement reality check available for you. That’s 800-653-8404 whatever your scenario is, come in, talk about it, either get rolling on the planning or not. It’s no obligation, you don’t, you’re not agreeing to become a client if you grab one of these appointments. A great way to test drive elite income advisors. 800-653-8404 All right, John, you’re up next. They’ve saved about 300k in a traditional IRA, and have a smaller Roth IRA, right around 80,000 They’re wondering if converting some traditional funds to Roth now makes sense, even though it means paying the taxes upfront. How do you decide if a Roth conversion is a worthwhile, is worthwhile currently, or is it maybe a little bit later in retirement?
Speaker 3 39:43
So, an excellent question. You know, when we look at Roth conversions for our clients, the number one consideration is, do we feel like tax rates in the future will be higher than where they are today? Right. So, that’s one of the first things we have to identify, so. What does your income look like now? You know, are you still working? You know, do you have income coming in from Social Security yet? Pensions, you know, what does that actually look like? So, we have to identify what your current income is, what your potential future income could be. You know, if you haven’t started taking Social Security or a pension, or, you know, RMDs, whatever the case is maybe it is a good opportunity to do some conversion, so another part of this is ensuring you have the cash on hand to pay the taxes. We typically recommend, if you do a Roth conversion, to use cash on hand to pay the taxes on that reclassification. So that’s another thing to consider, but you know, again, I think it really comes down to, do we think we can utilize a lower tax code that we’re in today to get in front of a potential higher tax code down the road. You know, we’re $37 trillion in national debt and growing every day. Do we think that we’re going to maintain the tax code that we’re in long term? This is the third most favorable in history, right. And you know, I think that there’s an argument to say that no, we can’t sustain these low tax rates forever. So that’s a conversation we have, and there’s also the concept of just increasing your own income down the road through different sources, so all of that has to come into play when we make the decision, you know, we wait till the end of the year, we calculate the income, we figure out what the deductions are. Figure out what tax bracket we want to go to the top of, and then run it by our in-house CPAs, and end up pulling the trigger once all of that is done, and the client signs off. And
Speaker 2 41:30
it seems like, guys, we’ve been having that tax window conversation for several years. We’ve had an extension to that, so the window is a little bit longer, but don’t procrastinate, have some questions about Roth conversions. Certainly, grab one of the appointments and get some answers to those questions. All right. Final scenario, Prashant, you’ll handle this one. John, you can jump in as well. They’re widowed with two adult children and want to leave an inheritance, but also want to make sure they don’t run out of money themselves. Their assets are about a million spread across retirement accounts and taxable investments. How do you balance legacy planning with protecting your own long-term needs? We’ve had this discussion already on the show.
Speaker 1 42:13
We sure have. It’s all about the income. If you had all the income that you could ever want or need coming in on a month to month basis, then what you can then be empowered to do is dedicate the rest of your portfolio that is not creating income towards securing that legacy. I’ll give you a great example. I was just visiting with a client, very similar situation, they wanted to balance inheritance versus their own long-term needs, had about a million and a half dollars, and what we did is we carved off about half a million bucks of that one and a half million to give them all the income that they needed on a month to month basis to supplement their social security and their pension. What it allowed them to do is use the other million dollars in increments. We took some of that million dollars, and we have a plan for the next 15 to 20 years to use a piece of that million dollars to actually buy life insurance, which means that even if they spend that million dollars on their own retirement at some point, the life insurance policy is what ultimately leaves the inheritance to their children, so I’m not saying every single person out there needs life insurance, or should buy life insurance, of course. If you are engaging with something like that, you do have to be able to qualify from a health perspective, which not everyone will be able to do, but it’s just one great strategy to leave a tax-free nest egg to your heirs one day, and I think one thing that we have to look at is children in these days, in this day and age, are not going to be able to save at the same rate that their parents were. Wages are just not keeping up, cost of living is higher, the cost of purchasing a home is higher than it than it ever was. Interest rates are not favorable to take on a mortgage, like there’s so many factors working against people in their 20s and 30s to build wealth, and so as parents, as grandparents, we’re seeing an increased desire to help children out, and life insurance is by far, in my opinion, one of the best ways to go about doing just that,
Speaker 2 44:24
so important again, there are so many ways, so many plans of attack when it comes to retirement, and everybody’s different, but you got to have the conversation, you need to have the icebreaker, so many of you are sitting on portfolios and haven’t even thought about the planning process. Think about it right now, or if you’re halfway down this path and you’re frustrated, use one of the appointments. Get a second opinion. Prashant, tell us about the appointments.
Speaker 1 44:52
When you come in to visit with us, it’s just a conversation, that’s truly all it is. It’s an initial conversation to specifically be. Go through your questions and your concerns that you have about your unique retirement situation. It’s 800-653-8404 that’s 800-653-8404 If you join us at our offices in either Ellicott City, Annapolis, or if you book a virtual call with us, we’re going to talk about what’s important to you, and at any point in time, if you feel that we’re not the right fit for you, all you’ll do is be upfront with us and let us know, and we will do the same for you. But it’s just about having that conversation and putting together that written retirement plan. If that’s something that you do not have in place, it’s a great opportunity to come in, visit with our team of specialists, and see whether or not you’re on track for the retirement that you deserve. It’s 800-653-8404 Last opportunity for today’s show: 800-653-8404 or you can visit Elite Income advisors.com
Speaker 2 45:55
Another edition of Retire Smart Maryland Radio in the books for Prashant Sabapathi and John DeFeo. I’m Morgan Patrick. We’ll see on the radio next week. Remote
Speaker 4 46:13
guarantees are subject to the claims payability 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 believed to be factual and up to date, but we do not guarantee its accuracy, and it should not be regarded as complete analysis of the subjects discussed. Discussion should not be construed as an offer to buy or sell, or a solicitation of an 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 annuity products are sold separately to Retirement Planning Services Incorporated. President Ozer Culhagil, Prashant Sabapathi, and Jonathan DeFeo receive commissions for the sale of insurance products as insurance agents for Retirement Planning Services Incorporated. Insurance and annuity product guarantees are subject to the financial strength and claims paying ability of the issuing insurance company. Morgan Patrick is not 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 Retirement Maryland. The program is paid production of elite income advisors.
