Speaker 1 0:02
You can save a couple million dollars, live comfortably, and still get blindsided in retirement, especially by taxes. Today, we’re walking through the mistakes that people make, the myths that quietly cost retirees money, and how to avoid forced income later in life.
Speaker 2 0:21
Welcome in.
Speaker 3 0:22
to Retire Smart Maryland Radio with Prashant Sabapathi. Welcome in to Retire Smart Maryland Radio, hosted by Prashant Sabapathi and John DeFeo. They are at Elite Income Advisors, Independent Fiduciaries, headquartered at Ellicott City Satellite office in Annapolis, for your convenience. I’m Morgan Patrick. Absolute pleasure to jump on and hit the different topics, always focusing in on the importance of being prepared, the importance of having that roadmap to get you to and through your retirement. Just sitting on a portfolio, not a plan. And if you’re frustrated with your current situation, you’re an ideal candidate for a second opinion. We’re going to open up complimentary appointments during the course of this show, and you can jump on with Elite Income Advisors and see if you are on track for your retirement. Guys, as I always do, before we jump in on some of the biggest retirement myths out there. Prashant, how was the week?
Speaker 1 1:20
Hey, Morgan, the week’s been really good, busy in a very productive way, a lot of good conversations, progress on some of the things that matter. Obviously, a lot going on in the stock market right now with the announcement of the new nominated Federal Reserve chief, so very closely watching that, a lot of geopolitical stuff that doesn’t really have a bearing on the market, but absolutely has an impact on how Congress is operating. We just got through, or getting through, depending on who you’re talking to, government shutdown partially. So, with all this stuff being at the forefront, it’s created a lot of really interesting conversations, not just about retirement planning and about money, but about the long-term health of America, and I think in some strange way that all kind of comes back to how your financial plan may end up working out over the future. So, been really interesting yet productive week.
Speaker 3 2:19
Yeah, it’s there are a lot of rumblings out there, and certainly that’s going to impact stock market, that’s going to impact portfolios, that’s going to impact your plan. So, listen up, we’re going to get into a few things. John, how was your week?
Speaker 4 2:31
It’s been great. I’ll mirror what Prashant said, very busy. In, I would also mention that, you know, in addition to the markets and everything else that the world is affecting it’s also the emotions of our clients. People are coming in fearful. Hey, what do you think’s going to happen? What are we looking at in the next year? Markets keep hitting records, you know. What does that mean for the future? So, trying to calm those emotions, think more neutrally, put plans together that defend against those types of concerns. We’ve been working on quite frequently over the last couple of weeks,
Speaker 3 3:02
tell you it’s important just to be in touch with what’s going on, maybe not stare directly at your financial television, because it will freak you out, because there’s a lot of nervousness, there’s a lot of uneasiness when it comes to the market, but having that plan and having that peace of mind, that’s what we talk about each week, and a lot of you out there are saving well, doing the heavy lifting, putting the money away, but now you need to really think in and dive in on the planning aspect. Well, you guys wanted to get into the biggest retirement myths, Prashant and John. Obviously, this is a discussion point, because you see it almost on a daily basis. People will come in, maybe for that first or second appointment, and they’ve got ideas on certain things, and really you got to clear the air. So, let’s start with taxes and the big tax myth.
Speaker 1 3:51
Yeah, I mean, I think one of the biggest things that we hear is that because my income will be lower in retirement, my taxes will be lower in retirement, and I think this was often true decades ago. In my opinion, I think that’s a far less reliable assumption today than it was two or three decades ago, and that’s simply because many retirees, especially the ones that we see, are great at saving money, and so, as a result, they have large before-tax balances in their retirement accounts for one case, IRAs, TSPs, and so as a result they could face really big required minimum distributions in the future, which ultimately trigger higher Medicare premiums, increased taxation, potentially on Social Security benefits, and of course, you know the government is the wild card in all this, in that there’s approximately 38 and a half trillion dollars of national debt, and with that kind of liability on America’s balance sheet, I think it’s a fair question to ask whether an. We think taxes are actually going to go up in the future, as opposed to saying the same, and so with taxes being lower in retirement, with that being potentially a myth, John, I think it’s worthwhile to talk with the audience about how do we deal with that. What if your taxes are not going to be lower in retirement? What should people be doing today to actually make sure that they have a plan that actually hopefully reduces their tax liability in the future. What would you say? I would say you have to look at what type
Speaker 4 5:30
of tax environment we’re in today. You know, if you have opportunities to create income at lower brackets, then you could potentially be facing in the future. Does it make sense to create some income now, even if you don’t need it by way of a regular distribution, maybe something like a Roth conversion. I think talking with a professional that has expertise in tax planning would certainly be valuable, so you can understand what your tax situation is today, where it could potentially be in the future, and if there’s a tax planning strategy that does make sense in the short term,
Speaker 1 6:03
I think what’s really interesting is, you know, I was having a conversation with somebody recently, and you know, they thought that they were coming in to visit with us to talk specifically about things like investments and annuities and social security, but we actually spent the majority of our conversation talking about this particular topic, which was taxation, and they were sitting there, and one thing that kind of struck me is they said, Look, Prashant, my current advisor has never gone this in depth into what the potential tax rate may look like in the future, and I was sitting there, and I just asked, Why do you think that is? You know, because you’re not the first person to tell me that their advisor really hasn’t taken them into a deeper dive on taxes. I was really interested to hear what their response is, and they said to me, I’m starting to think that maybe my advisor doesn’t understand the tax side of this thing, or hasn’t maybe considered that as a part of the overall plan, and it’s actually remarkable how often we hear just that. So, if your advisor hasn’t talked to you about the impact of taxation and what that’s going to look like in your retirement, especially if your income tax rate potentially goes up, I think that you might be missing the mark in a planning area here, and that’s one of the biggest expenses I think that you’re going to have to incur when you get to retirement. So, why not put a proactive plan in place today to make sure that you’re well situated for tomorrow?
Speaker 3 7:35
Well, the opportunity to get on
Speaker 2 7:37
the
Speaker 3 7:37
calendar again with the elite income advisors, get on that calendar and
Speaker 1 7:41
have
Speaker 3 7:42
this conversation, and maybe you’re following some of these myths that we’re going to talk about today. You really need to have clarification, especially if you’re not talking about the tax aspect of this, as both John and Prashant have pointed out. I mean, you look at the deficit, it is massive, they’re going to come get their taxes right now. There’s that extended tax window you can take advantage of, but your planning should certainly have taxes on the menu, at least how you’re going to deal with it moving forward. Now, appointments, these are complimentary. Prashant, kind of walk us through what’s going to happen
Speaker 1 8:18
if you dial the phone number, it’s 806 5384048 38404 800-653-8404 You’ll be able to set up that complimentary visit with our team, including myself and John DeFeo, certified financial planner here at Elite Income Advisors. When you visit with our team, you’ll be able to sit down, just have a conversation about your situation, what we found is that most people don’t realize that they’re building their retirement plan on assumptions that may actually not hold up in this day and age. If you just want a second set of eyes on your plan, if you’re not sure where you stand, or if you’re not entirely confident that your advisor has thought through all of the different aspects, just pick up the phone, give us a call. It’s 800-653-8404 Also, complimentary copy of my book, Fiscal Health, Retirement Wealth, is available. All you have to do is fill out a short questionnaire at www dot retire maryland.com
Speaker 3 9:17
When we return on Retire Smart Maryland Radio, we’ll continue with the biggest retirement myth that’s coming up next. Welcome back in Retire Smart Maryland Radio, hosted by Prashant Sabapathi and John DeFeo, they are with Elite Income Advisors, again independent fiduciaries, and it’s all about getting you ready for retirement again, having that roadmap, that plan. They are headquartered at Ellicott City Satellite Office in Annapolis for your convenience. I’m Morgan Patrick. Absolute pleasure to jump on and hit these different topics, and we started. The program talking about biggest retirement myths, and we hit taxes, and a lot of people feel like, you know, we’ve always heard, at least from our grandparents and our parents, you know, taxes are going to be lower when we get to retirement. It’s not really mapping out that way, so be aware and make sure you’re planning for it. Social Security myths is up next, guys, and Prashant, let’s just start with that. And again, a lot of people, they know Social Security is there, but there are a lot of details they need to be aware of.
Speaker 1 10:30
I think one myth that I’ve heard just recently, because they passed the big beautiful bill, and it’s been in the news so much, is it’s incredible to me, how many people come into the office. John, I’m sure you’ve probably heard this before. There’s no tax on Social Security because of the big, beautiful bill. Have you heard that in some of your meetings?
Speaker 4 10:50
So, so many times.
Speaker 1 10:51
Yeah, yeah. And I’ve heard that too, and we’re here to tell you that that is a myth. Okay, there is potentially going to be tax owed on social security. Now it is dependent on your income. Believe it or not, some people can get social security totally income tax free, but it’s all dependent on your total income. When it comes to the big beautiful bill, John, what are the top maybe two or three takeaways on the big beautiful bill that retirees should be focusing on that could help from a tax deduction standpoint, although it might not be tax free. Social Security, what should we be looking for?
Speaker 4 11:30
You know, I think the biggest thing the Big Beautiful Bill Act did was extend the tax code from the Tax Cuts and Jobs Act indefinitely, right? So we have this tax code indefinitely, which really just means until the next election, right? The next administration makes a change, but when it comes to that no tax on social security comment that had been made so many times, what they actually did within that bill was extend an additional $6,000 standard deduction to seniors 65 and older, from 2025 through 2028 if you make under a certain amount of money, and that’s the caveat. So, if you’re married filing jointly, you have to make under $150,000 a year to receive that full $6,000 standard deduction per person, and again, you both have to be 65 For single filers it’s a $75,000 limit, so if you’re under that income, you can take advantage of that extra $6,000 standard deduction, but if your income is outside of that range, to the point that you’re phased out of the deduction, then your social security tax is in the exact same situation that you were prior to this bill being passed, so are there folks that will have less tax on social security, or maybe no tax on social security due to that extra standard deduction? Quite possibly, but it’s not for everybody, and anybody that’s making over that threshold is in the same situation that they were prior. Not to say anything negative about that provision, I think it’s a great advantage for those folks that can apply for it, but it certainly wasn’t a no tax on social security for everyone that was granted, and we do hear this so often, it’s, it’s, it’s unfortunate that that was the language that they used. One other thing that the Big Beautiful Bill Act did that could be helpful to clients is it actually increased the state and local tax deductions that you can claim when you file your taxes, so the tax cuts and jobs act had reduced it to $10,000 This new bill actually increases it to $40,000 So now you can, you can deduct $40,000 from your income based on your state and local taxes. So if your state income taxes, your property taxes, there is also a caveat to this, though, and it seems like there’s always a caveat to these rules. That caveat is that you have to earn under $500,000 as a joint filer or 250,000 as a single filer in order to qualify for that higher deduction amount. So
Speaker 1 13:57
it’s, and John, just by the way, it’s up to 40,000 You don’t get the full 40,000 you can do up to the full 40,000 depending on what your total tax bill is going to end up looking like to the state. So, right, you know, I think when you look at this, it’s like, how do people make sense of all this stuff, right? Like, there’s so many moving parts. Do I qualify for the over 65 deduction? Do I qualify for the added salt deduction, what is my total tax bill going to end up looking like? Should I do a Roth conversion? Like, so many different moving parts. Is John, how do you work through this with your clients that you see? Like, it can be very overwhelming, I feel, to try to juggle this many different things, and by the way, there’s a whole, you know, like part of the financial plan that we haven’t even talked about yet, the investments, the social security, the legacy planning. How do you juggle all this stuff together to make it simple for somebody?
Speaker 4 14:54
It’s a very good question. Part of it is experience, you know, working with 1000s of people. So over the time I’ve been doing this, you know, having a process in place, like we do with our Retire Smart roadmap, we’re following the same process for every client, everybody has a different situation, everybody has a different retirement vision, but the laws are the laws, right, so we know how the laws apply to different people’s situations, we’ve done a lot of research, we keep up with this. We spent a lot of time outside of just meeting with our clients, staying up to date with the trends, with the changes in legislation, with the, you know, things going on in the world, right? We have to stay present on this stuff. So it’s a lot of time and researched, a lot of practice, but ultimately it is, it is a process that we follow with every single client to ensure that all aspects of their financial plan are covered, you know, that’s, I’d say, that, that really is at a high level what we’re, what we’re doing to tie all of that together and keep it efficient.
Speaker 1 15:55
So, we’ve hit tax myths, we’ve hit social security myths, now you kind of previewed it for us, Prashant. Investing myths. There are a lot of people out there that are hearing certain things. We need to clear some of that up. Yeah, the one that I’ve heard is the stock market is a safe investment, and this one is a myth. I think I was watching a Warren Buffett clip yesterday and said something really interesting, and this is not verbatim, I’m paraphrasing this, but he said something to the effect of over time stocks are really safe, okay, but in any given year they’re not right, and so with that being said, I think we look at history and what we’re going to find is that if you give the market a 1520 30 year time horizon, it tends to go up. Now, of course, past performance is never a guarantee of future results, and any advisor will tell you that, but of course, in any given year, the price of stocks can do anything. It could go up, it could go down, it could stay exactly the same, and nobody really has a crystal ball to understand what is going to happen in any given year, so the way we look at large cap and maybe dividend stocks is they’re familiar, they’re just not guaranteed, and so what really matters in my opinion is sequencing of returns, we’ve all heard the old saying on Wall Street of buying low and selling high, and while we’re working, we can follow that rule, because we don’t need to access our money to live on when we are working, but when we get to retirement, we’re not putting money into our retirement plans, we’re taking it out, and so what you don’t want is, you don’t want the market to go down while you are withdrawing at the same time, so that’s an investing myth that the stock market is quote unquote a safe investment. I would disagree with that, it’s a familiar investment, it just might not be guaranteed. The one we’ve also been hearing is that bonds are safe, right? We talk about the stocks potentially not being safe. We hear that bonds are safe. John, myth, fact, fiction. What’s your thought? A
Speaker 4 18:08
little bit of both, or all three, if you would. You know, bonds have historically been a, you know, more safe haven to stocks, where, you know, stocks were not performing well, bonds typically stayed pretty level, so that was the safe haven where you’d pull your income from in the event of a downturn in the stock market, which was supposed to be the growth portion, right? I think it was that way for a while, until 2022 when we saw bonds actually fall at a pretty equivalent, or even a faster rate than stocks did that year, all due to the change in the interest rate environment, so there’s a lot that goes into what causes bond prices to change, but at a high level they have an inverse relationship to interest rates, so if interest rates go up, bond values go down, when interest rates go down, sometimes bond values go up, so we saw a pretty significant sell off of bonds or decline in bond values in 2022 and it’s interesting what we’ve seen is the stock market is rebounded, right? The stock market is continuing to hit records. The bond market actually continued to go down and has yet to recover. So, people that had a large allocation of their portfolio to bonds, some of them are still not even from where they were in 2022 those people that are also taking money out of those accounts while they’re down are continuing to lock in losses. So, again, it used to be something that provided some more security, but we typically don’t like to look at this as a safe and secure investment for our clients, if there is any potential for it to go down, which is exactly what we saw in 2022 you know, I think there’s a big shift in some of the old rules of thumb that we used to do, like the balanced portfolio, 60% stocks, 40% bonds, being kind of the golden standard for. Retirees using the 4% rule, where you’re just taking 4% of your account value over time, and being able to continue on for 30 years. I think a lot of these are based on old metrics and old data, where we really need to look at what’s happening now, how the markets have changed, how they move when we’re planning for our clients’ plans in the future, so I think that’s another important aspect to planning, is keeping up with the trends, identifying how things have changed, and adapting the plans in that way.
Speaker 3 20:30
Well, and it’s important too, to, I mean, think about everything we’ve talked about thus far on the program, there’s a lot that goes into this, there’s a lot that you need to be aware of, as someone that is heading towards retirement, or maybe already in retirement, and if you’re doing this yourself, there are a lot of things here that can be missed. Working with professionals, someone or a team member that’s doing this on a daily basis, you’re going to have that confidence moving towards your retirement and your retirement plan. This is an opportunity for you to get on the calendar with the Elite Income Advisors. We’ve got a couple things going on here today. We’ve got the appointment with Elite Income Advisors. We also have Prashant’s book, retiremaryland.com Go there, get signed up for it. Physical Health, Retirement, Wealth, they’ll ship out a free copy for you. Maybe you’re not quite ready to come in. Grab the book again, retire maryland.com It’s free. They’ll ship it out to you, and you can check it out, and then you can set up your appointment if you want to. And if you’re out there and you know I’m ready to come in, Prashant, what’s going to happen if they call our number?
Speaker 1 21:33
Yeah, the number, by the way, it’s 800-653-8404 When you visit the office, we have headquarters in Ellicott City, we have an auxiliary office in Annapolis, Maryland. You can also book a virtual conversation with our team as well. But when you come into the office, it’s really just a conversation about the things that you care most about. Maybe you’re not sure what taxes are going to look like, maybe you’re just not sure when to collect your social security benefit in an optimal way for your plan, maybe just don’t know if you can survive another bear market or down market this close to retirement. Okay, most advisors focus on growing your money. In our experience, very few help you control how much you actually get to keep in retirement. So, if you’ve never had a plan built that’s designed around after-tax income, not just your account balances, you’re going to want to give our office a call. It’s 800-653-8404 800-653-8404 Also, visit Retire maryland.com get a free copy of my book, Fiscal Health Retirement wealth.
Speaker 3 22:41
All right, we’ve got more Retire Smart Maryland Radio coming up. Welcome back in. It’s Retire Smart Maryland Radio, hosted by Prashant Sabapathi and John DeFeo. You can find them at Elite Income Advisors. Check out the website and treat it as a resource, Elite Income advisors.com They’re independent fiduciaries, and again, it’s all about helping you get ready for retirement. Have that plan, be proactive, and they’re headquartered at Ellicott City Satellite Office in Annapolis for your convenience, there will be an opportunity to get on the calendar with Elite Income Advisors and talk about your retirement situation. And again, if you are sitting on a portfolio, excellent opportunity to maybe get the ball rolling on a plan. If you’re in the middle of something, need that second opinion, use one of the appointments for that. But again, no cost, no obligation. Stay tuned, we’ll make those available to you here shortly, and also Prashant’s book is available, Physical Health Retirement Wealth. Go to retire maryland.com that’s Retire maryland.com sign up for it there, they’ll ship it out to you, and again, that is complimentary, and shipping is paid for. So there you go. All right, so guys, we wanted to get into the components of a successful financial plan, it’s just nice to know what are the foundation, what are the building blocks.
Speaker 1 24:07
I think I go to five different things here. Maybe we can do just a quick minute on on each of these, but we’ve said for years that retirement is a function of what we call money coming in and money going out, and so I think the building block, the foundation that your entire retirement plan rests on is number one, your income, right? Like, while you’re working, you’re used to having an income coming in through your paycheck. I don’t think that it should be any different when you get to retirement. So the first thing that we look at is how much income is any particular person going to have, and is that income going to be enough for them to live the way that they want to? John, can you talk a little bit, just maybe 30 seconds to a minute, real quick here on how we have to look at income and what considerations we have to take into account?
Speaker 4 25:00
When evaluating income, when we get to retirement, certainly I think the first thing that we want to do is identify your foundational income sources. So this is money that’s going to be coming in every single month, no matter what, while you’re alive, regardless of what the market’s doing. This can be social security, it can be pensions, it can be annuities, income that you know you can rely on. So we want to identify that, figure out what your target is after taxes on a monthly, monthly basis. We call this your monthly income target, and see if your foundational income is enough to support that. If not, it’s likely we have to go and pull from your savings in some capacity to fill that gap, which I think kind of brings up the next topic that we really focus on when it comes to financial planning, and that is the tax impact. Right? What bucket of savings do you pull from? Is it your pretax, tax-deferred accounts, like your 401 k or IRA? Is it your non-retirement brokerage accounts that might have some capital gains in it? Is it your bank account? You start social security now or later, there’s a lot of different impacts that taking from each types of these sources can have on you. So, how do you minimize the taxes you’re going to pay now and potentially in the future based on the decision of what income you’re going to pull from?
Speaker 1 26:13
Yeah, that’s a good point. So, income and taxes are very much so intertwined, so those are definitely two of the pillars of a successful financial plan. I’d say number three is your investment mix. I mean, of course, you, most people are going to stay invested even through the retirement phase of their life. You know, if you’ve been investing for the last 30 or 40 years in your 401 k or your IRA, your TSP, it doesn’t mean that you just go ahead and stop that process when you get to retirement. You don’t just move all your money typically to a cash account and pull from it. You want to stay invested through retirement. And so I think the question that comes to mind is, How much risk am I actually comfortable taking on with my retirement investments, how does that risk threshold have to change as I get further and further into retirement? One thing that I found in helping our clients, but even just in visiting with the number of people that we visit with every year, is the deeper and deeper you get into retirement, the more sensitive you are to losing money within your portfolio. If you’re 70 or 75 years old, and you have a million dollars, even a 50 to $100,000 temporary decline has more of an impact on you at 75 years old than it ever did when you might have been 55 or even 60 years old, and so the question is not necessarily exactly how do I have to be positioned, but I think it starts with that question about taking risk, how much money could I lose before it starts to make me feel uncomfortable about my retirement lifestyle. I think every single person should start thinking about the answer to that question, and it actually is very much intertwined with income and taxes. So, that’s number three: investments, John. Number four: healthcare and long-term care. What are the top considerations when it comes to healthcare and long-term care planning that we have to focus on in this segment of our financial plan.
Speaker 4 28:25
Well, with healthcare and long-term care costs accelerating at a much faster pace than some of the other services in the economy, I think we have to have a plan for this in place. If you’re not talking about your long-term care, how to fund healthcare now and in the future. It might be time to reevaluate the plan, but you know we want to look at what your premiums for your healthcare are going to be, right? If you’re going to be on Medicare Part B or Part D, you know what’s your income look like? How is it affecting your premiums with Irma? Do you have healthcare that’s offered through the government or your previous employer at some point throughout your retirement, can you utilize that? Do you have a long-term care plan, in terms of, you know, like a policy that you can rely on? Do you have assets that you’re going to use to pay for the cost of long-term care when you get there? What does your family history look like, you know, if you have parents that have had a history of dementia or grandparents that have had a history of Alzheimer’s, you know, maybe it’s time to really start looking into this. If it’s feasible that could happen to you, you know, we see time and time again the cost of long-term care completely eliminating the assets of families, because it’s not cheap. I mean, we’ve seen 15 to $20,000 a month in cares for the highest level of care, especially in this area, in Howard County. You know, Prashant, I think you can probably relate to that any even more than any of us with your, you know, your story, but, but if you don’t have a long-term care or health care plan in place, it could certainly derail the success in the future. Well.
Speaker 1 30:00
Look, taxes and health care – we’ve said for years – are likely to be two of your biggest expenses through your retirement years. Wouldn’t it make sense to start the process of figuring out what that could look like sooner rather than later? You know, starting sooner, all it does is give you more flexibility in what your options actually are. Right, when my mom went into long-term care, it was costing our family anywhere, you know, a low month would be 7500 to $8,000 A high month, if she had, you know, additional care needs in any given month, we were outputting 12 to $13,000 is what my father was putting out in any given month, by the way, that’s after tax dollars, that is real money, right? And so, thank goodness he was working at the time that we incurred those costs, but with that being said, what if you’re not working? What if all you’re doing is living off of a portfolio that has a finite balance, and now you got to add expenses of 10 to $12,000 a month. Is that going to impact you to the point where now you’re at added risk of running out of money? I think most people would say, yeah, probably that’s the case, and that actually leads into the fifth kind of pillar of creating a successful financial plan, and what it’s, what does your legacy look like, right? If you don’t have enough income, you’re drawing from your portfolio at an accelerated rate. You might pay higher taxes if you’re not planning for the cost of long-term care or healthcare. It all ultimately affects what is left when you’re gone, and so what do you want your legacy to end up looking like? Who’s supposed to get your money when you’re gone? Is it individuals, is it charitable organizations, or, you know, what is it the government? If you haven’t done the proper planning, and so look, I think advisors, clients make the mistake of looking at each one of these things independently, when really, in this day and age, my opinion, every one of these things has some sort of downstream impact on all of the other things, and so why bother looking at things independently? Let’s look at things in such a way where we’re doing it in a coordinated, comprehensive way, so that we can figure out what potentially makes the most sense. Okay, if you have never looked at this in a coordinated way, it is a great opportunity to pick up the phone and give us a call. It’s 800-653-8404 that’s 800-653-8404 Now, John, when someone comes into the office, what can they expect, just from an experience standpoint? And talk a little bit about what our team will do for them when they come in.
Speaker 4 32:58
Yeah, it’s a conversation around your goals for retirement, your vision, we’re going to map out your income, we’re going to identify any tax problems, we’re going to help figure out the best efficient estate plan, look through your investment strategy, look at ways to mitigate risk, put all of that together, in addition to mapping out health care costs and long term care, so conversation to see if we’re a good fit, and if we are, we’ll be able to wrap that up for you.
Speaker 3 33:24
All right, we’ve got more coming up. Got to give you this number: 800-653-8404 That’s 800-653-8404 Grab one of those complimentary appointments with Elite Income Advisors, no cost, no obligation. We’re back to wrap it up right after this. Go. Retire Smart Maryland radio hosted by Prashant Sabapathi and John DeFeo. You can find them both at Elite Income Advisors, Independent Fiduciaries. They’re headquartered Ellicott City, and they’ve got a satellite office in Annapolis for your convenience, and it’s all about being proactive. It’s all about having that plan, not just showing up at retirement with a portfolio and withdrawing a percentage and hoping it goes well. No, no, no, it’s about having that plan. I’m Morgan Patrick. We hit it, we hit this every single week, just the importance of being prepared. And now we’re going to get into a subject a little bit different, but listen to this. How we treat debt in retirement. Now, Prashant, this is something that a lot of people, they don’t discuss, and I would say most go into retirement, and hello, they’ve got debt,
Speaker 1 34:43
you know. I think there’s this misconception, or this overwhelming desire to be 100% debt free as you head into retirement. Now, of course, everyone’s plans a little bit different, everyone’s got a little bit of a different perspective, but I would classify things as reasonable. Debt to carry and unreasonable debt to carry when we get to retirement, so maybe we can break this down a little bit, and maybe we can work through the order of operations, so to speak, in terms of what debts make sense to pay off. One thing that I think falls into reasonable debt, I think would be a mortgage. Right now, let’s qualify that by saying, as long as you have a reasonable interest rate on the mortgage, I think that’s a reasonable debt to carry into retirement, especially with the passing of the big beautiful bill, being able to capture potentially some interest deductions on the mortgage if you itemize, I think that could be valuable, but that being said, my attitude when it comes to debt is that lower interest rate debt in retirement only becomes an issue in the absence of income to be able to service that debt, so sitting down with somebody recently and one of the questions that came up is they owed approximately $200,000 on their house. Okay, they had approximately $300,000 sitting in their bank account, and they had almost about a million dollars in their retirement accounts, and so their question to me was, Should we just take part of that, you know, almost million dollars that we have in our retirement accounts, and should we just pull money out to just pay off the mortgage? And we talked it through, and what we found is that it didn’t make a whole heck of a lot of logical sense to take out a significant chunk of money from the almost million that they had pay the taxes on that just to clear their mortgage debt, and in fact, what we ended up doing is we put some of that money in an instrument that allowed them to have enough income to service that mortgage payment that they had instead, so that way they weren’t giving up all that liquidity on the front side, so you know paying off your mortgage is a really interesting thing. I’m a big believer that you just have enough, you just need to have enough income to service it. I would consider that to be reasonable debt in retirement. John, any thoughts on that, or maybe you want to bring in maybe an unreasonable debt that people should consider paying off before they get to the to the next phase of life here.
Speaker 4 37:25
No, I completely agree. I think if you have a mortgage at a pretty reasonable rate, you know you can typically get a better rate of return over time, you know, even just at the bank and save money right now. So I do think that, you know, depending on the payment, your, you know, emotional tied to the mortgage, there are some people that just refuse to head into retirement without paying off their mortgage, but I don’t think that it’s a bad debt to carry into retirement whatsoever. I think you know a bad debt to carry would be high interest credit card debt, you know, right now credit card interest rates can be, you know, between 20 and 30% depending on the card that you’re using, so if you’re not paying these off fully at the end of the month, you could be paying a lot of unnecessary dollars to the banks in interest, and every dollar you’re paying to them is one less dollar you have going towards the things that you want, going towards your legacy, it’s more money that you potentially have to pull out of investment accounts and pay taxes on in order to service that debt, so not only are you paying further taxes and interest, it snowballs. So paying off those high interest debt credit cards, I think, is very impactful. We have a couple different ways you can do it. There is what’s called the snowball method, where you start to pay off the smaller interest, higher interest debts first. As soon as you get one of those pay off, you move on to the higher balance and a higher balance and a higher balance until they’re all paid off. There’s also what’s called the avalanche method, where you start to pay the higher interest rate debts first, get those out of the way, and go down to the lower interest rate debts from there. Now I will say that a lot of our clients that we have, and a lot of people that visit with us, are not carrying, you know, five, six different high-interest credit cards, you know, into retirement, but you know, even just one or two can be certainly detrimental over the long term if you’re not making substantial payments, only make it the minimum payment, so I think getting rid of that’s important. Even high interest rate loans and HELOCs can be hurtful in retirement, if you have those.
Speaker 3 39:28
Again, important to remember, it takes a plan. And right now, just having that discussion, how we treat debt in retirement, that’s part of your plan. You’re coming in and you’re thinking stock market, you’re thinking investments. Prashant and John talk often about income, but you have to really handle the debt situation and have a plan for that. Now, the opportunity to get on the counter with elite income advisors is ongoing during the course of this show. These are complimentary appointments, you’re leaving the checkbook at home, and there’s no obligation. Become a client, and we say this as well. They’re not obligated to take you as a client. This is to see if it’s a good fit at Elite Income Advisors for you. Call the number, secure an appointment right now: 800-653-8404 That’s 800-653-8404 And we also have an opportunity for you to get a copy of Prashant’s book, Physical health retirement wealth. Go to retire maryland.com and fill some information in there, and they will ship that out to you. That will be complimentary. That’s Retire maryland.com Get a copy of Prashant’s book, Fiscal Health Retirement Wealth. But guys, back to it. How we’re treating debt in retirement and why it’s so important to have a plan. Yeah, I think one thing that this leads the conversation into is, okay, let’s say that I get to retirement. Let’s say I am debt free, right? But now, five years into retirement, I have a huge emergency, and I don’t have the financial capability to just have the money in the bank, and
Speaker 1 41:00
so I put that big expense on a credit card, let’s say it’s a medical expense, let’s say it’s an auto expense, or a house expense, something like that. I put it on a credit card. I think this is why it’s really important to keep money aside in a bucket that is designed for an emergency fund, right? And I think not enough people have a big enough emergency fund when they get to retirement. I think conventional rule of thumb, we’ve always heard three months, six months, maybe even 12 months of expenses. A lot of our clients actually keep even more than 12 months of expenses in a safe place, like a bank or a CD, where they can access that money to deal with emergencies, so that they don’t have to take on debt, and so that’s why we talk about this idea of having different buckets of money designed for different purposes in retirement. Maybe you have a risk bucket of money designed to grow in the market, maybe have a safe bucket of money, like maybe it’s something like an annuity that’s designed to give you income, and then maybe you have a bank bucket of money that has emergency fund money in it as well. John, did you have anything to add to that from a bucketing standpoint, or really anything else that we’ve talked about?
Speaker 4 42:12
Well, I agree with everything you said. I think the emergency fund is absolutely imperative, you know, as you mentioned, the CFP Board’s standard is three to six months of expenses, but I think a lot of people feel more comfortable having even more than that. I mean, I have some clients that prefer to keep an entire year’s worth of expenses in their savings in the event that something happens that they could not expect, and they don’t have to pull out of their investment accounts if it’s a poor period in the market. So, bucketing is something that we preach about all the time, you know. We’ve been talking a lot about how debt can can be hurtful, but there are also ways I think that we can leverage debt to our advantage, right? You know, one of the ways that we can do that is by utilizing the points on those credit cards and make those credit cards actually work for us. So, a lot of credit cards offer rewards points, you know, in terms of travel points, hotel points, just cash back, and there’s, you know, a whole game that you can play where you use these credit cards to pay your day-to-day expenses, you pay them all full at the end of the month, and you can reap the rewards, so that maybe your next trip is on the credit card company, right, and you’re able to fly without any cost to yourself, and it’s all from those reward points. So that’s one way that we can do it. Prashant, or you know any other ideas on leveraging debt that you’ve seen in your experience?
Speaker 1 43:33
Yeah, what if you have your rental on your home, right? If you have to do a reno on your home, maybe all your money’s sitting in a retirement account, and you don’t want to take, hypothetically, $50,000 out of a retirement account, have to pay taxes on it. One way you could use debt in a positive manner is to maybe look at something like a home equity line of credit, right? Get a home equity line of credit, you get to draw on that line, you do not pay any income taxes on it, but of course you’ll accrue some interest on it, but let’s do a comparison. Hypothetically, if my interest rate on my home equity line was six and a half percent, but my income tax rate was a blended rate of say 30% then which one is the better deal, paying 30% upfront when I take the withdrawal or paying 6% on an ongoing basis, right, I would argue as long as you have enough income to service that home equity line of credit, it potentially could be a great option for you to minimize your tax liability and still get the work done around the house that you feel that you might want to get done, and that is a very viable option when you get to retirement, and some of your earning potential goes away. So, look, we’ve been talking about reasonable debt, unreasonable debt. If you’re not sure what debts you have, should be carried into. Environment versus really need to be prioritized to be paid off. I’d suggest that you come in and have a conversation with our team of advisors about this topic in particular. It’s 800-653-8404 that’s 800-653-8404 You come in, we can talk about your debt situation, we’ll talk about your income situation, we’ll talk about your tax situation to see where exactly you stand in regards to your overall retirement planning. We talk about all of this in the book again. Fiscal health, retirement wealth. Just visit Retire maryland.com I will send you a free copy of the book, totally free. Shipping is covered by my team here. Retire maryland.com Claim your free copy of Fiscal Health Retirement Wealth. Also, dial that phone number. Last opportunity for today’s program: 800-653-8404 We’d love to sit down with you, talk about the things that you are most concerned about, but you know our calendar gets busy every week, so you just have to pick up the phone and give us a call right now.
Speaker 3 46:04
Opportunity in front of you, 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, you annuity
Speaker 2 46:24
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