Cynthia de Fazio 0:23
Welcome to Retire Smart Maryland. My name is Cynthia DeFazio. Joined today by Prashant Sabapathi of Elite Income Advisors. And to our viewers at home, if you’ve been watching us week after week, you know that Prashant and the team like to talk about the bucket approach when it comes to financial planning. Well, what is that exactly? We’re so glad you asked. We’re going to talk about that in depth today. So again, thank you for being with us, and thank you for being viewers of Retire Smart Maryland. Prashant, how are you today? I’m
Speaker 1 0:51
doing excellent. I’m fired up for this for this conversation we’re going to have today. This is something we talk about every single day. It feels like with the folks that come into the office with our clients, I’m really excited to get into this today.
Cynthia de Fazio 1:04
I’m so excited! I love that we have props.
Speaker 1 1:06
Yeah, visuals are always better. That’s what I’ve learned over the years.
Cynthia de Fazio 1:10
It’s fantastic. And so the reason we’re talking about the bucket approach, we’re talking about income planning, of course, especially for the retirement years. And those buckets each serve a purpose. Let’s talk about what absolutely.
Speaker 1 1:23
So this is how I think about it. You start working, you start your career, and they tell you to save money for retirement. Maybe it’s going to your 401k it’s going to your IRA, your TSP, your Roth. But ultimately, what you’re doing is you’re taking the money and you are putting it in your red bucket. And so the red bucket, the way we view this red bucket in our office, is if it has the risk of going either up or down, like anything in the stock market or the bond market, if it has the risk to fluctuate, it belongs in this red bucket. Now, what we found is that over time, the longer and longer that you can keep stacking money away in this red bucket. The higher the probability is that you’re going to earn a really nice rate of return. And so the operative thing about this red bucket is that the longer and longer you can go without touching this money, the higher the probability typically is that you’re going to make money. So it’s a great, great tool to finance a long-term need, and that long-term need in this example would be retirement, right? So, because we’re going to put money in this bucket for 1015, 2030, years, and hope that over that period of time it grows to this nice big number.
Cynthia de Fazio 2:36
Okay,
Speaker 1 2:36
but remember the operative thing here, and that is, in order to be successful, putting all of your money just in this red bucket, you need to have time on your side. Here’s the problem: when you get to retirement, what is the one thing that you do not have quite as much of?
Cynthia de Fazio 2:54
Time.
Speaker 1 2:54
It’s time, and so people are forced into this awkward position where, on one hand they need time to be successful, yet they’re at a stage of their life where they don’t have the time that they necessarily want in order to make it work. Okay, and so this is why we talk about the introduction of multiple buckets of money. Okay, so the blue bucket. This is what we call your liquid bank money. So what some people will do is they’ll take some of their money from the red bucket, they’ll put it in the blue bucket. This bucket is there just in case there’s an emergency, there’s an opportunity to do something. Maybe the market goes down and you don’t necessarily want to take money out of this bucket, and you need to finance something ultra short term. We just go to this blue bucket. It’s typically going to be market protected. Maybe it doesn’t earn the highest rate of interest, but it’s safe. It’s easily accessible in the event that you need it. Okay, and that’s great. Most of our clients like to keep a blue bucket of money for emergencies or opportunities.
Cynthia de Fazio 3:56
Would that be more of your sleep well at night bucket? The blue that you know to have the money there just in case you need to replace like your air conditioning units or heaven forbid your roof and what have you. So that would be the money that you would pull from the blue.
Speaker 1 4:08
That’s exactly it. We know that life is going to happen and it’s going to be unexpected. I call it the four new tires fund, right? Like in any given month, if you needed four new tires, I don’t want to have to take a loan. I don’t want to put it on a credit card. I just want to be able to pull that cash out and go pay for my four new tires, right? Whether it’s a water heater or four new tires or just any kind of healthcare emergency that’s relatively minor, we want to have the money on hand to be able to deal with it without having to take out high interest rate debt to service it.
Cynthia de Fazio 4:39
Okay.
Speaker 1 4:40
So that’s our blue bucket of money. Okay, but this one I think is the most powerful tool, and this is what we call the green bucket of money. And the green bucket is going to be a market protected bucket. So what I mean by that, folks, is that when you have money in this green bucket, I want to ensure that if the stock market goes down, that your principal. Is totally protected, okay? Because Wall Street always told us that the key to being successful with investing was that we were supposed to buy low and we were supposed to sell high. Right? That was the old saying: buy low and sell high. The challenge, though, is that when we get to retirement with this money, we’re no longer putting it in. We’re doing what?
Cynthia de Fazio 5:21
Taking it out. We’re
Speaker 1 5:22
taking it out because we need to take that money out in order to live on it in retirement. Okay. But the problem is, if all of your money is in this red bucket,
Cynthia de Fazio 5:31
yep,
Speaker 1 5:31
and then the market goes down,
Cynthia de Fazio 5:33
yes.
Speaker 1 5:34
How comfortable do you feel taking money out of that red bucket while the market is going through a downturn?
Cynthia de Fazio 5:41
Yeah, not at all. Not at all, right? Because
Speaker 1 5:43
in that case, we are not buying low and selling high. We’re doing the exact opposite.
Cynthia de Fazio 5:48
Yes, we
Speaker 1 5:49
might be selling at a low point. We might be compounding that loss by taking that withdrawal. And by the way, you’re also locking in that loss by selling it at a low point.
Cynthia de Fazio 5:59
Wow. And
Speaker 1 6:00
so, what a lot of folks have started to consider doing is instead of having all their eggs just in this one red bucket, they’ll start to take a piece of it, and they’ll start to reallocate it to a market-protected green bucket.
Cynthia de Fazio 6:14
Ah, okay. And
Speaker 1 6:16
so now, when you need a paycheck, when you need income in retirement, you have choices. You have flexibility to say if the stock market is up and this red bucket is at a high point, I’m comfortable taking money out because I’m selling high and I’m following that buy low, sell high principle. But if the market goes down, which we know that the market will go down, I don’t know when. I wish I did. I don’t know when, but I do know that it will happen at some point in your retirement, and when that happens, you’re not going to want to take money from this. But you’re already going to have money in your market protected bucket, and that is the bucket we’re going to lean on, so that we buy enough time to let this red bucket recover.
Cynthia de Fazio 6:57
Okay.
Speaker 1 6:58
Financial planning, I don’t think is necessarily about exactly where to position your money to earn the highest rate of return when you get to retirement. To me, people always talk about ROI, and to most people, ROI means what?
Cynthia de Fazio 7:13
Return of investment.
Speaker 1 7:14
It’s it’s it’s yeah, return of investment, return on investment, right? How much am I going to earn on the money that I’ve saved in our office, when we talk about ROI, I talk about reliability of income. Okay, that’s what ROI means to me because when you’re working, your financial life is just about money in and money out, and when you retire, it’s still about money coming in and money going out. The difference is if you’re not getting a paycheck, where is that money in going to come from? Most people that we visit with that tend to be a really good fit for us philosophically, and we tend to be a really good fit for them philosophically, they want to have a market protected bucket so that when the market goes down, they have a place to take money from while letting their other money recover, financial planning bucketing is about buying yourself the time required to invest in this red bucket because time is the one thing that we need to be ultra successful in that red bucket.
Cynthia de Fazio 8:14
Most definitely, and Prashant, I know last week’s show we talked about risk, and so obviously once you know someone’s risk score, which we do have that website. It’s eiariskquiz.com, eiariskquiz.com, and they come into the office. It helps you determine what bucket needs to be used and when for each specific client. We can’t stress that enough, viewers at home. This is not a one-size-fits-all situation. It’s very customized just for you, and your buckets may look totally different from your neighbor next door, and I love that because it marries it together so well. And that way, like you said when you started the show, all of your eggs are not in the wrong bucket.
Speaker 1 8:52
Yeah, I mean, look, what’s the point of investing when we’re going to invest money? The point of investing is trying to trying to make money, right? That’s the whole reason we take the risk in the first place. If we’re taking risk, we expect to be compensated potentially for that risk that we’re taking.
Cynthia de Fazio 9:08
Right.
Speaker 1 9:08
Okay. And so people want to make a return on their investment, and that’s important. So our philosophy tends to be having the least amount of money possible in this green bucket, so long as your income is protected, okay. And so, if you have some amount of money in this green bucket and it provides you all of the monthly income that you want to have, it actually empowers you to take risk with this red bucket, knowing that your income is still going to be there for you every single month. That is true peace of mind, in my opinion. When you know exactly where that income is going to come from, you know exactly what it’s going to look like after taxes, and you have a plan to make sure that hopefully it increases with the cost of living. That’s the type of thing that could give you peace of mind. If your advisor. Hasn’t talked to you about bucketing your money in distinct buckets that each have a concrete purpose. It is a great opportunity to pick up the phone and give us a call. The phone number, folks, is 833308 5200 You’re going to have your calendar in front of you when you dial that phone number. My incredible team is ready to book your appointment? Come and visit with us in Ellicott City. We do have an office in Annapolis, Maryland, as well. And when you do come in, you’re not agreeing to become a client. I cannot stress that enough. It is just a conversation. Let’s have a conversation about whether or not a bucketing strategy could be the right fit for you, and whether or not me and my team are even a good fit for you to potentially work together, a lot of you will find that we are. Some of you might find that we’re not the right fit. In which case, Maryland, Baltimore-it’s a pretty small town. That’s why they call it Smaltimore, right? I will still see you around town. We will still be friendly. We’ll shake your hand and say hello, even if we don’t end up working together. But that being said, if you’re unsure as to whether or not bucketing could be the right fit for you, pick up the phone, give us a call 833308 5200
Cynthia de Fazio 11:09
Prashant, thank you so much to our viewers at home. Once again, the number to call in 833-308-5200 or grab your smartphone, click on the QR code at the bottom corner of your screen. If you’re curious about this bucket strategy, you owe it to yourself to explore it further. Once again, 833-308-5200 or click the QR code at the bottom corner of your screen. We’re going to take a very short commercial break here on Retire Smart Maryland. Don’t go anywhere. I have so much more with Prashant when we return.
Speaker 1 11:38
Market losses aren’t the only risks that you face in retirement. Now, one of the biggest and most overlooked risks could be the tax bill on your qualified assets, like your 401ks, your IRAs, and your Thrift Savings Plan. As tax rates change, so does the value of your retirement income.
Speaker 2 11:56
A Roth conversion may help reduce your exposure and create more predictability, but timing and strategy matter.
Speaker 1 12:03
Do you want to see if a Roth conversion could be the right move for your plan? Take the Roth conversion quiz today. It’s free, and it could help you make a more informed decision about your financial future.
Speaker 2 12:15
Scan the QR code on the screen or visit eiarothquiz.com to take our Roth conversion quiz today.
Cynthia de Fazio 12:27
Welcome back to Retire Smart Maryland. My name is Cynthia DeFazio. Joined today by Prashant Sabapathi of Elite Income Advisors. And again, viewers at home, we welcome you back to the show. Thank you for being with us, Prashant. I love that we talked about the bucket strategy in the first segment, if you will. And I know a lot of people in the viewing audience. What we want to talk about next is important to do. A lot of people can shy away from it a little bit. They’re a little nervous, or they just don’t want to think about it. But we’ve got to take that elephant in the room. Let’s talk about planning for long-term care. That’s something that’s very important that will fit nicely into the bucket strategy because it’s a very important component for all of us. We’re going to need it one day or another. So, Prashant, take it away. The importance of planning for long-term care.
Speaker 1 13:11
I’d be willing to guess that most people watching this show have been affected by a long-term care event in some way. Maybe it’s a parent, maybe it’s a friend, a family member. I’d be willing to to guess that most people have been affected with it in some way. I personally have been affected by long term care event. I’ve shared it for years on this show. I’ve wrote about it in the book Fiscal Health, Retirement, Wealth, and we’ll give you a free copy of this book in a moment here. But my mom was diagnosed with dementia when she was in her mid 50s, very very young, to be diagnosed with such an awful disease, and so she lived quite some time with that disease, almost nine or 10 years with dementia, and that was tough. It was a tough emotional thing for our family to deal with, but compounding on top of that was the financial burden that it it cost our family over time, and I’ll never forget kind of watching her live through that, watching my father go through it with her as well, and having to output seven, 810, some months $12,000 per month potentially just to administer her care. Now we made the the choice. My father made the choice to keep her at home, so we had in-home nursing care come in, and that stacked up over a long period of time.
Speaker 3 14:31
It does.
Speaker 1 14:31
And so, what keeps me up as an advisor is all the people out there that this could happen to in the future, and I and I hope that it doesn’t. But it’s reality. It could happen to you, and I think the question is: If it does happen to you, how are you going to pay for it?
Cynthia de Fazio 14:47
Right.
Speaker 1 14:47
Okay. Either the caregivers are going to take the money, or you have the choice to put a plan together ahead of time to make sure that you can deal with it on your own. Yes. And here. Just the compounding issue of this, I think most people realize, okay, long-term care it’s expensive to go through, right? Seven, 810, 1000 a month, approximately, is not an uncommon price to pay. But what if you did a great job saving money? Maybe all your money is in your 401k or an IRA account or a TSP account, and let’s say you did a great job saving. Maybe you have 1,000,002 million, $3 million hypothetically. You might be thinking that’s enough money for me to fund a long-term care event. Maybe until you realize that every time you go into those accounts to take money out, you have to do what?
Cynthia de Fazio 15:39
Pay taxes. You have to pay
Speaker 1 15:40
taxes on it. Absolutely. So what happens if you’re living at a level of make up a number five or $6,000 a month income, and that’s comfortable for you? But now you have to incur another eight to $10,000 a month potentially for you or your spouse to deal with long term care. If I needed $10,000 a month after taxes, I might actually have to pull out 1314, maybe even $15,000 per month before taxes in order to just walk away with 10 after taxes.
Cynthia de Fazio 16:12
Wow,
Speaker 1 16:13
Cynthia, if you’re pulling out that kind of money from your portfolio, is there a higher likelihood that you might run out one day,
Cynthia de Fazio 16:20
most definitely. I
Speaker 1 16:21
think that it’s absolutely a concern, and I think this is why bucketing is also a really good strategy. If you had a bucket of money set aside simply to deal with a long-term care event, and we hope that it never happens, but if you had that bucket set aside, how much extra peace of mind could that offer you
Cynthia de Fazio 16:41
most definitely, Prashant? And in my mind, I’m thinking probably the sooner you start planning for that, the better. Because as we age, obviously health conditions change, but also we’ve all noticed that healthcare cost it’s on the rise. And so the sooner you start planning for this, the better because it’s important. And I think a lot of people, like you mentioned earlier, they kick the can down the road. They don’t want to think about it. Yeah. But there’s no better time than to start this plan today.
Speaker 1 17:06
Yeah, I agree. And look, that doesn’t necessarily mean that you need to go buy a long-term care insurance policy or anything like that immediately. But have the conversation. If your advisor hasn’t talked to you about how a long-term care event could potentially create an adverse situation to your finances. It’s worth exploring. If there was a big red flag out there, wouldn’t you want to know about it ahead of time so that you could actually take concrete steps to potentially address it? Yes. Or do you just want to get there and then have to deal with it as you’re having to deal with all the other stuff that comes with these terrible healthcare events, like I would want to know about that ahead of time so that I know what my options are and that I could plan for it ahead of time.
Cynthia de Fazio 17:51
Prashant, and I also want to talk about there’s also this misnomer that if you have Medicare, that Medicare will cover all of your long-term care expenses. Talk about that because that can be derailing if someone’s thinking they’re going to rely on Medicare to cover this cost. Yeah, I’m
Speaker 1 18:05
so glad, and thank you for bringing this up. This is such an important thing to talk about: is what is Medicare actually going to cover? Okay, Medicare is the government’s health insurance program for when you get to around age 65 years old, so you can enroll in Medicare at 65. You can get Part A, you can get Part B. You might even get prescription drugs through Part D. But a lot of that stuff does not cover long-term care in full. It might cover it for a very limited period of time, but oftentimes it’s not going to cover all of your long-term care expenses. So keep in mind, long-term care expenses are different than healthcare expenses, right? Doctors’ visits, lab testing, hospitalization-all of that is potentially different than having to pay skilled nursing, you know, for 20-four hour a day care,
Cynthia de Fazio 18:57
right?
Speaker 1 18:57
Because you have Alzheimer’s or dementia or something awful like that, and so for me, it’s like I want to make sure that my money is positioned with purpose. Like every dollar in the financial plan should have a mission, and and maybe $1 mission is to deal with long-term care. Maybe another bucket’s mission is to deal with healthcare. Another bucket’s mission is to deal with growth of the capital so that we can keep up with inflation. Maybe another bucket is designed solely for reliable income in retirement. I think that if you don’t understand what buckets you have and what the purpose behind each of those buckets are,
Cynthia de Fazio 19:35
yes,
Speaker 1 19:36
I think you might be missing the mark. If your advisor hasn’t taken you through that, I think that there could potentially be a red flag that has not yet been addressed. If you’re not sure, give us a call. That’s all you have to do is 833308 5200 is the phone number. Schedule that complimentary visit with our team when you come in to talk. We’re going to help you design an income for life. It’s going to help you understand what that income could potentially look like every single month, every single year for the rest of your life. Will account for things like income taxes. Will account for cost of living, and will make it simple. I think you should be able to look at one sheet of paper and know approximately what your income is going to look like every year for the rest of your life.
Cynthia de Fazio 20:19
That makes it easy. It
Speaker 1 20:20
should be that simple, and I think advisors have a really bad habit of making it complicated, way too complicated. I bet there’s people sitting at home saying, “You know what? Yeah, last time I went and visited my advisor, I didn’t understand a word that he was saying, but I sat there and I and I nodded. Smile and nod. Yeah, exactly. If you’re in that position, pick up the phone, give us a call. Let’s just have a conversation about it. You’re not committing to become a client, and by the way, I’m not agreeing on air to take anybody as a client. I just want to have a conversation with you. Let’s talk about the things that you care most about protecting, especially as it pertains to your retirement and your legacy. 833308 5200
Cynthia de Fazio 21:00
Prashant, thank you so much to our viewers at home. There is a difference when you choose to work with elite income advisors, and as you can see from today’s show, we started talking about the bucket approach. We went into long-term care, and at the end of the day, the purpose for your money determines the placement. Remember that purpose determines the placement. So when we’re designing an income plan, well, not me, I don’t do that. That’s Prashant. When an income plan is being designed for you, we’re going to keep all of those things in mind: your individual goals, your needs, and your dreams for retirement. So they all fall into this beautifully designed one-page retirement plan. Once again, the number is 83330852008333085200 We’ll be right back momentarily on Retire Smart Maryland.
Speaker 2 21:44
Do you own an annuity? Are you aware of what type of annuity you own? For years, annuities have been a cornerstone of retirement planning, but they’re not all created equal, and your current annuity might not be serving your retirement goals. The good news is rising interest rates could mean better guarantees and better benefits for your annuity. If your annuity is not working for you, when would you like to know? Call now for your complimentary annuity review.
Speaker 1 22:12
Just putting money away into a 401k every payday is rarely enough to retire comfortably. 401k savings are only one part of a comprehensive retirement plan. If retirement feels closer than you’re prepared for right now, it’s never too late to start saving and planning. Get started on your own personalized retirement roadmap by visiting retiremaryland.com, and you’ll also receive a complimentary copy of my book, Fiscal Health Retirement wealth.
Cynthia de Fazio 22:42
Welcome back to Retire Smart Maryland. My name is Cynthia DeFazio. Joined today by Prashant Sabapathi of Elite Income Advisors. And if you’re just joining us in this segment, the first segment we talked about the bucket approach to income planning. The next segment we talked about long-term care. And in this final segment, I want to ask Prashant some questions about legacy planning because to you viewers at home, I know you’re wondering what you do to get the first steps rolling in that process as well. We’re going to do a deep dive in this segment, Prashant. I know that you and the team you’re so passionate about talking to your clients about legacy planning, and so often there’s this misunderstanding that people need to have a lot of money or be ultra wealthy to need an estate plan, but that’s not true. A legacy plan or an estate plan really benefits everyone. Correct? Yeah,
Speaker 1 23:28
totally agree. Legacy planning is not just for the uber wealthy. If you’ve done any accumulation, I don’t care how much money it is, I think that you should have a buttoned up estate plan because you worked really hard to accumulate what you have, and you deserve for that money to go to who you want it to go to in the most efficient way possible. And so, the biggest pitfalls that we see is not updating your beneficiary designations. I’m a big believer that at least once a year you should go through every account that you have and verify that the beneficiaries are exactly who you want them to be. If you have a major life change, you should go back through your beneficiaries to make sure that they are up to date. I have this really good friend; he’s an advisor up in the Pittsburgh area. He said something that resonated with me. He said, “Little mistakes lead to big headaches.
Cynthia de Fazio 24:23
That’s true.
Speaker 1 24:24
Little mistakes lead to big headaches over time, and something as simple as not changing your beneficiary-it’s a little mistake, but it’s absolutely the type of thing that could leave your family with a big headache down the road. So that’s one thing: is making sure your beneficiaries are up to date. I think the second thing is understanding the the taxes associated with transferring money to your beneficiaries.
Speaker 2 24:50
Okay. So
Speaker 1 24:51
if you have all your money, for example, in a retirement account, a before tax retirement account, that money has never been taxed before. So. You leave it to your beneficiary; they’re inherently going to have to deal with the taxes potentially at that point in time. So let’s say that I I did a great job saving money. I have approximately a million dollars, and I want to leave it to my kid when I pass away. I leave it to my son; he’s just got 10 years to distribute that account down to zero.
Cynthia de Fazio 25:22
Wow! So he hears a
Speaker 1 25:23
million dollars.
Cynthia de Fazio 25:24
Yep.
Speaker 1 25:25
And now he’s got 10 years to distribute it down to zero, which means every time he goes in there to take money out, he’s got to do what? He’s got to pay taxes. Absolutely. Federal, state, if he lives in a state that taxes income, and by the way, that goes on top of the earned income that he already has. Wow! What happens if he’s doing really well at work? He’s making 100 200 300,000 whatever he’s making. This goes on top of it, which means the threat of raising his tax bracket potentially higher.
Cynthia de Fazio 25:56
Absolutely. Right.
Speaker 1 25:57
The threat of him paying more for Medicare potentially higher. Absolutely, it’s this nasty, nasty domino effect, and it has everything to do with not just financial planning but estate planning as well. The last chapter in my book is called “Rescue Your IRA. It’s the the thought behind creating a tax efficient distribution strategy in retirement. I want you to read this book and focus on that very last chapter on how to rescue your IRA. Visit retiremaryland.com, scan the QR code. I’m going to send you a free copy of this book. You can probably read this thing in about an hour, hour and a half. I call it light dinner reading, right?
Cynthia de Fazio 26:39
It’s excellent. Yeah, read it
Speaker 1 26:40
with dinner. But that being said, easy book to read. It’s your prescription for income generation, tax management, and hopefully financial peace of mind.
Cynthia de Fazio 26:49
Yes, and the best part-it’s so easy to understand, Prashant. So thank you for writing it that way because it’s just beautiful. So thank you to our viewers at home. We know that you have questions about how to plan your perfect retirement. Well, you’re being offered not only the consultation today, of course, but also a free copy of Prashant’s book, Fiscal Health Retirement Wealth. That number 833-308-5200 or you can grab your smartphone and click on the QR code at the bottom corner of your screen. As you know, by watching today’s show, we started the show talking about income planning, of course, talking about the bucket approach, talking about long-term care, and finally talking about legacy planning. Well, all of those nuggets of wisdom and information are inside the pages of this book. It’s yours for the taking. Call in today 83330852008333085200 or click the QR code at the bottom corner of your screen. Be safe, be happy, and be blessed. We’ll see you back one week from today on Retire Smart Maryland. Thank you.
