Speaker 1 0:00
You thinking you have a retirement plan is very different from actually having one written down and working for you. Today on Retire Smart Maryland Radio, we’ll outline some common retirement planning myths and the risks of assumptions that could leave your future underfunded.
Speaker 2 0:20
Welcome in to Retire Smart Maryland Radio with Prashant Sabapathi. Welcome in to Retire Smart Maryland Radio, hosted by Prashant Sabapathi and John DeFeo. You can find them at Elite Income Advisors, headquartered Ellicott City Satellite Office in Annapolis. For your convenience, they are independent fiduciaries, and the website’s a resource. Check it out at any time: Elite Income advisors.com I’m Morgan Patrick. Each and every week, it’s retirement and the importance of being ready, the importance of having a plan and being proactive. We are going to dive into our first topic here in just a second, but as I always do, Prashant, we’ll start with you. How’s the week?
Speaker 1 1:02
Hey Morgan, good to good to be back. The week has been really good, you know, with the new baby at home. I’m doing pretty great, but also operating on, you know, like four hours of sleep and a steady diet of cold coffee and baby wipes, so you know, dad life is pretty cool, I. It’s funny, I was telling some people around the office, like it’s so funny how much your life changes, and I know both you gentlemen have been through this, but I feel like I used to just prepare financial plans, and that was my, that was my life, and now it’s gone from prepping financial plans to like prepping bottles and negotiating with a seven week old, like it’s a hostage situation, but it’s been a lot of fun. It’s been good. It’s been nice to be back at work and helping clients. We did a couple seminars in the past couple weeks that we had awesome turnout. I’m talking like 50 to 70 people in the room, both nice. John’s doing a lot of those in the community as well, so things are moving. It’s been a lot of fun.
Speaker 2 2:05
All right, John, you can echo that.
Speaker 3 2:06
Yeah, absolutely. Definitely busy with the seminars. I resonate with everything Prashant just said. Just wait till you’re negotiating with a two-year-old, they’re a bit more terroristic, but it’s great, like he said, you go from really focusing on, you know, your career, your goals, and in that respect, which doesn’t slow down, you still have those responsibilities as a parent, but your, your, I guess goals do change a little bit. Right now, you’ve got a kid to plan for college for, you’ve got additional expenses, you know, you want to spend time with them and help the spouse out your best you can. I mean, I say this all the time. I don’t know what we do without the wives at home, keeping up with the household, you know, making sure the kids are fed and they stay alive. It’s important. So, you know, it’s been a busy week, as always, but a good week at that.
Speaker 2 2:58
Well, I’ll just make one comment, and Prashant, you can, and maybe back me up on this. I mean, going, you know, years and years and years, and working hard, and studying, and getting your license, and you’re working with people on retirement. This being a parent, being a new parent, especially for you, Prashant, it adds a whole nother layer to it, doesn’t it? It
Speaker 1 3:18
sure does, not just the personal side of it, like John was talking about, but from the planning side, you start to think more about legacy, and this is something that we’ve been talking to our clients about for years, and I’m going through the process, not just with my own kid, but my father’s heading into retirement too, and so you know you start to contemplate the legacy piece of this, and how do you make sure that your legacy is not just preserved but maximized when you’re gone, both financially and emotionally. So it’s an interesting thing to go through. We go through it with clients all the time. I’m going through it with my own family. The perspective change is just really cool in a way, when you have a kid, so you know it’s, it’s been a lot of fun to go through, and pretty eye-opening, and it creates more of a burning desire to help people, I think, which is really, really kind of neat,
Speaker 2 4:16
and that’s why we do the radio show, we often get on here, and we have some fun. We also talk about family, but we talk about the importance of just being prepared and having that plan, and not just showing up with a portfolio at retirement, hoping it goes well again. You really got to get down in the weeds here and plan for your retirement. There’s going to be an opportunity to get on the calendar with Prashant DeFeo, the whole team at Elite Income Advisors, and the appointments we open up through the radio show, they’re complimentary, so there’s no charge to it. There’s no obligation, you’re not agreeing to become a client if you can grab one. And again, we’ll open those up here in just a little bit. So, guys, you know, we often just assume, you know, hey, you know, I’m. On track for retirement, right? I’m saving well, and after all, I’ve got my 401 k, and maybe I’ve got unfortunate enough to have a pension, and of course, in the DC area, we’ve got a lot of people with pensions. Social Security is going to come in one day, that’s going to help, so I’ve got to be covered, right? Well, not exactly. We wanted to break down a few common misconceptions that could really send your retirement into the ditch if you’re not careful, so Prashant, we’ll start with you. There’s some people with this, this idea that it’s just, it’s too late to start planning, they’ve waited too long,
Speaker 1 5:33
it’s never too late, that’s what we always say. And I know that sounds a little cliche, but you know, starting in your 20s is the ideal situation, but people that are over the age of 50 can take advantage of things like catch-up contribution, so in 2020-five you can actually increase the contribution to things like your 401 k, your IRA, your Roth IRA, if you’re over the age of 50. It kind of reminds me of someone who came in probably four or five years ago, she was, I think, at the time she came in, maybe 55 or 56 years old, and she thought that it was way too late for her to do anything. She felt like the climb was so uphill that it wasn’t really worth taking on in a meaningful way. What we got her to do is reduce some of her expenses, we maxed out her 401 k, we opened her a Roth IRA and created a little bit of a catch-up contribution strategy, and look, four or five years later, she’s on track for a high six-figure retirement, inherited a little bit of money along the way, found a new job, increased her income, and so you know she saved about $600,000 in total, and it might not be the million that she wanted to have when she first started the process, but I’ll tell you what, it’s a heck of a lot better than if she had never started the uphill climb to begin with. So, it’s never too late to start. I think all you need is a little bit of a push in the right direction, and most importantly, you need a plan that you can follow that you can actually believe in, and I think that’s what empowers people to get started.
Speaker 2 7:05
We’re hitting some misconceptions. We’re going to continue this into our next segment as well. But John, I wanted you to just quick comments again. Another misconception: Medicare is going to cover all my health care. Once I get to that milestone, I’m going to be okay.
Speaker 3 7:18
Yeah, this is definitely dangerous, because you know, although Medicare Part A covers a lot of the hospital services, your inpatient care, Medicare Part B is a coinsurance program, and they’re only covering 80% of that outpatient care. So, if you find yourself in a situation where you have a serious illness, you maybe have cancer, you could be on the hook for a pretty significant amount of those costs. So, a lot of times it makes sense to look into some sort of supplemental policy, like a Medigap policy, to fill that gap, ensure that you’re covered, you know, if you don’t have insurance through your employer, the government, something like that. So, huge misconception, certainly something we see a lot.
Speaker 2 7:53
We’re going to continue the misconception talk. A lot of people are following these, and you need to be aware of them. Prashant, we’ve got spots on the calendar, we’re going to open those up now, but walk us through what’s going to happen if they can grab one.
Speaker 1 8:04
Yes, so the phone number, folks, it’s 800-653-8404 that’s 800-653-8404 All it is, it’s a complimentary free conversation with our team of retirement specialists here at Elite Income Advisors. When you come in to visit, or if you book a virtual call, it’s just a conversation. It’s just a conversation about the things that are actually of concern to you. Maybe you’re not sure where your retirement income is going to come from. Maybe you’re worried that higher taxes could eat into your portfolio at an unsustainable rate. If you’re not sure whether or not, you can stand another bear market like we saw in 2008 or 2022 All you have to do is pick up the phone, give us a call, that’s 800-653-8404 You scheduled that no cost, no obligation consultation. Let’s dive into your concerns, see if there’s a written plan that can be put together to address them specifically. 800-653-8404 or you can visit Elite Income advisors.com We’re going to be back on the other side. Retire Smart Maryland Radio. More misconceptions if you’re following, you got to be careful, you To
Speaker 2 9:23
Retire Smart Maryland Radio, your hosts are Prashant Sabapathi and John DeFeo. You can find them at Elite Income Advisors. The website is a resource, Elite Income advisors.com Both are independent fiduciaries, and they’re headquartered at Ellicott City, and they’ve got a satellite office in Annapolis for your convenience. I’m Morgan Patrick. Again, a pleasure jumping on with the advisors, talking about the importance of being prepared, being proactive, having a plan for retirement, talking about some common misconceptions. As we begin the show today, we’ve talked about already in.
Speaker 1 10:00
And just having the thought that you know what you’re late to the game and it’s almost too late to start planning, Prashant pointed out, no, it’s not, no, it’s not, if you’re sitting on a portfolio, you know, have that plan, craft that plan, you can do that at any time, earlier is better, but it’s never too late, and then, of course, John chiming in on Medicare, it’s not going to cover everything. Things are very expensive. You need to plan beyond Medicare. And Prashant will go back to you on this next one. And then this is more procrastination. I’ll just catch up later. I won’t miss much, will I? Look, waiting for a better job or a market upswing is a total gamble. If it works out, then great, but what happens if it doesn’t? Okay, I think time becomes the key ingredient in compounding returns. So, for example, if you put away $500 a month at the age of 35 it can grow to $470,000 by the age of 65 but if you just waited until 45 years old to start, then the differential is that that money only grows to about $240,000 So, what we learned from this is that procrastination is the thing that costs you more than anything, in my opinion, as you’re planning. So, the best thing you can do is, regardless of where you’re at in your planning process, you have to start today. The earlier you get started, the better off you’re bound to be, even if it is an uphill climb still worth getting started as soon as possible. Are you following some of these misconceptions? If you are, grab one of our appointments at any time during the show. Come in and talk about it. You can also do this virtually. Call the number 800-653-8404 10 slots this week, they will fill up fast. 800-653-8404 Again, complimentary. There’s no obligation to become a client. Great way to test drive
Speaker 2 12:00
elite income advisors, John, to you on this next one again. Misconception, I don’t really need an estate plan or anything like that. My spouse will just inherit everything.
Speaker 3 12:10
Yeah, this is this is an important one as well. I think having the proper estate planning tools in place is imperative to ensure not just the proper transfer of wealth but an efficient, seamless transfer of wealth, so you know, I think in most states the default would be that the wealth that you hold, at least within the marriage, would go to your spouse that’s surviving, but if you don’t have a will in place, some sort of trust in place, the proper beneficiary designations on the proper accounts, then a lot of this will have to flow through probate, which can be a real pain, right? You have to go through the court system. There are costs that are paid. It takes a long time to go through probate in some circumstances. So, again, it’s not efficient. It takes a long time. So, we definitely encourage folks to have those instruments in place, you know. If you are married, another thing that we’ve seen is that folks that get married, divorced, and remarried sometimes forget to change the beneficiary designations on their accounts, right? And you know, maybe the person you’re married to before, you don’t have a great relationship, and the new marriage, you wanted to ensure that they received the money from your 401 k, or the pension that you had, if they were to be able to continue on with that. If you don’t make up this to this designations, there’s nothing that you can do. They’re in law. So, I think it’s important to have a gage on how these things are set up. You know, do a review of your estate plan at least every 10 years to ensure that’s up to date. It, you know, supports the new language and the laws, and also supports your new goals and the wealth that you’ve accumulated.
Speaker 2 13:43
Yeah, I think you hit on something there, because I think it’s so many people don’t even think about the beneficiary part of this, and life changes, life happens. Make sure you’re making those reviews happen with your overall plan. All right, this next 140, 1k per shot, you know, guided it work, right? That’s enough.
Speaker 1 14:00
It’s a great start, but it’s certainly not the entire picture. Okay, because a 401 k account is just one small piece of your overall retirement plan. So, two things are going on here. Number one is a 401 k probably isn’t going to be all of your money that you have saved as a part of your entire financial plan, but the second thing that is that having a 401 k or just having any combination of accounts is not a plan in and of itself, because nowhere on that 401 k statement does it show you what your tax rate’s going to be in retirement, nowhere on that statement does it show you typically when you’re going to run out of money one day? Nowhere on that statement does it show you how much risk you’re taking and what the cost of your health care might end up being in retirement. And so it’s important to remember that investments or retirement accounts are just one small. Piece of the overall picture, and I think in this day and age it’s not enough to just have an investment advisor. Okay, I think you have to have a real planner, someone who’s looking out for every aspect of that financial plan, whether it’s Medicare, long-term care, Social Security, Irma, impact investments, taxes – it all works together, and if you don’t have a plan that is truly comprehensive and coordinated, what we find is that you’re probably missing the mark in some area that could end up costing you at some point down the road, and here’s the thing, if it does end up costing you, or if you are subjected to some sort of risk that will end up costing you at some point down the road, wouldn’t you want to know about that as soon as possible? Like, why wait till you’re 75 or 80 years old for some big surprise to pop up that you could have addressed 10 or 15 years ahead of time? That’s the way we look at everything, is how do we make everything as efficient
Speaker 2 16:00
as possible, and we do that by being proactive about our retirement situation, not reactive. Love what you said there. Comprehensive, coordinated, I mean, it needs to be customized to you. I mean, it needs to be your plan, not some cookie cutter. We’re going over some of these misconceptions, and if we’re rattling your cage on some of these, that’s a good thing. If you are thinking this is the way it’s going to be, this is the path I’m going to take. You need to really rethink that. Grab one of our complimentary appointments, come in, and talk about it again. If you’re in that stage of, you know, what, it’s too late for me. No, it’s not. I’ve got Medicare that’s going to cover my health care, folks. It’s expensive. You need to plan more. I’m just going to catch up later. I’m just going to, you know, kick the can down the road. You’re going to lose opportunities if you’re doing that, and then just assuming your spouse is going to inherit everything, you really need to dial in on an estate plan, and your 401 k is fantastic. And, as Prashant pointed out, it’s a great place to start, but it doesn’t need to be the sole building block of what is going to be your retirement, all right? So, misconceptions continuing. So, John, this next one, I need less money when I retire, right? I keep hearing that.
Speaker 3 17:11
Yeah, I mean, you know, depending on your goals in retirement, what you’re going to be doing, that could be true. But I think what we have found, at least for most of our clients, is that our clients want more money in retirement than when they were working, right? Especially within those first four to five years, where you’re in that, that go-go phase, right? You’re trying to get these things done that you have been waiting your whole working career to do, maybe the European vacation, you know, maybe the road trip throughout the United States in an expensive RV, you’re starting a business, doing the projects around the house, I mean, a number of things that we help clients with, and typically within those four first four to five years, you’re really driving into the spending, and then I would also argue that with the increase in inflation over time, the potential increase in taxes down the road, it is highly likely that the income that you need in retirement will be higher than what you had when you were working. We also have to build in the medical costs that arise as you get older, and those, you know, medical issues arise. There’s long-term care, so the, you know, the notion that you’re going to spend less in retirement than when you were working, I don’t think applies to at least a lot of the folks that we work with. Our clients want to retire abundantly, right? They don’t want to just survive retirement, they want to enjoy retirement, and that’s what we’re here to help them do, right. And it all comes back to building out that plan, just like Brishant talked about. You know, how do we get in front of inflation? How do we ensure that the sequence of returns in that first four to five years doesn’t affect the, you know, the assets we have if we’re taking high distributions. How do we navigate the taxes now? All this comes full circle when building out the plan, so we hear it, you know, from time to time, but again, I would disagree. I think you want to target to bring in more income in retirement than you did when you were working.
Speaker 2 18:57
I’ll tell you, it’s so important to be ready, so important to plan, but also understand if you’re following a path that might be detrimental to your overall retirement. So, if you are in these categories of misconceptions, you know you need to grab an appointment and come in and talk about it. This next one, I think we could all be guilty of at certain portions of our life. I just have more pressing priorities. I got so much on my plate, Prashant. Retirement planning is not right there at the top, but it needs to be. Life’s expensive, especially in this day and age. It certainly is
Speaker 1 19:30
expensive, but I think you have to pay yourself first. I think you have to figure out a way to live within your means, so that you don’t jeopardize your future, I mean, your choices, you can live, live it up today, live to the fullest extent, but what if that means you’re one day going to be 75 years old with not enough money to pay for health care, not enough money to do the things you want to do at that stage of. The game, right? So, there has to be a balance within your financial plan. Here, I was just meeting with somebody this past week, and they’ve done an incredible job saving money. They were up near eight or $9 million and we were just talking about their mindset, and it was really funny. They said to me to this day, even with eight or 9 million, we still don’t go and spend money extravagantly, like buying a $300 pair of shoes. Clearly, they can afford it, but buying a $300 pair of shoes is a big mental hurdle for them to get over, and I looked at them and I said that’s the reason you have the eight or 9 million to begin with. It’s because you lived your life according to a mindset, and that mindset doesn’t really change when you get to retirement. You know, it’s funny, Morgan, for a lot of our clients, one of the biggest hurdles that they have to overcome is the hurdle of spending their hard-earned money when they get to retirement like we see so many people that save, save, save, and it’s just ingrained in their mind to just always save money, and yet when they get to retirement, they have a hard time flipping that switch from saving to spending, and so you know you want to make sure that you’re not jeopardizing the future by spending it all today, but at the same token, if you’re like a lot of our clients, you also have to condition your mind to spend when you get to retirement as well, and so that’s what these consultations, that’s what these visits are all about. If you dial that phone number, it’s 800-653-8404 that’s 800-653-8404 Have your calendar in front of you. Schedule that time to come visit with John, with myself, with our incredible team of fiduciary advisors here at Elite Income Advisors. When you come in, you’re not obligated to become a client. What you are doing is you’re coming in to have a conversation, so you can get a little bit of help creating a written income plan for you, creating a written plan that helps you minimize the tax liability that you potentially have to pay over the course of your lifetime. If leaving a legacy is important to you, let’s do that in the most cost effective and tax efficient way possible. It all starts with that initial visit, folks. Totally free of cost, no obligation. 800-653-8404 that’s 800-653-8404 or you can visit Elite Income advisors.com We’ve got more Retire Smart Maryland Radio coming up on the other side. I
Speaker 2 22:50
welcome back in to Retire Smart Maryland Radio. Your hosts are Prashant Sabapathi and John DeFeo. You can find them at Elite Income Advisors, headquartered Ellicott City Satellite Office in Annapolis, they’re independent fiduciaries. Their website is a resource, check it out, Elite Income advisors.com that’s Elite Income advisors.com Their links to the TV show, radio shows in podcast form, it’s all about, you know, giving you the information you need to make good decisions on retirement, and we also give you the opportunity through the radio show to grab an appointment. It’s complimentary, see if you’re on track for retirement. The number to call to grab one of our 10 is 800-653-8404 That’s 800-653-8404 We’ll tell you more about those appointments as we move through this portion of our show, so when most people, guys, they think about retirement savings, they focus in on how much they’ve saved. What’s that magic number, right? But the real question is, how much of it are you going to be able to keep? So taxes, you don’t want them to retire you. In fact, they could quietly chip away at your income, and again you need to have that proactive planning. So we wanted to kind of go over some strategies, some key strategies that could help you generate tax-free income in retirement. That sounds good to me. And we’ll start with Prashant Roth IRAs, Roth 401 K’s. You need to educate yourself here.
Speaker 1 24:21
You know, every time I do a workshop in our community, I talk about the idea of creating a retirement that is income tax free, if possible. And I always joke that income tax free are my three favorite words in the industry, right? And so, if you want tax free withdrawals in retirement, a Roth account is one of the clearest paths that you can utilize to get there. Just remember, your money goes into a Roth after tax, so you don’t get a deduction for putting contributions in. But then all the money gross tax deferred, and provided that you’re over the age of 59 and a half, and that you’ve held the Roth for at least five years. Dollars, all of the value of that Roth IRA, including your principal plus any interest or growth on that account, is able to be withdrawn 100% income tax free. The trouble with a Roth IRA is that there’s income limits you inherently can’t actually put that much money into it, I think the limit is up to $8,000 if you’re over the age of 50 years old, but furthermore, there’s an income limit, so if you’re a high-income earner, you might actually be disqualified from contributing to the Roth. This is where you should take advantage, if you have access to it, you should potentially take advantage of what’s called a Roth 401 k, just like your traditional 401 k. The only difference is that you can save a heck of a lot more money in the Roth four 1k limits are same as the four 1k limits, but all that money goes in after taxes, tax deferred, and then of course income tax free upon withdrawal, as long as you’re taking qualified withdrawal. So you know we talk about Roth IRAs and Roth contributions all the time, but not everyone will find that that’s a good fit because they’re disqualified. So, John, one thing we’re talking about is this idea of doing Roth conversions. Can you kind of put a Roth conversion in layman’s terms and really make it simple for the audience in terms of who should be thinking about doing a Roth conversion, who’s a good candidate, and why should we consider doing a conversion.
Speaker 3 26:29
Certainly, yeah, so in a nutshell, a Roth conversion is when we take money from a pretax or qualified IRA, we take that money out, we pay the income taxes at that time, and we transfer that money into a Roth IRA, and when it’s in the Roth IRA, it gets the same tax-free growth that the contribution would get that you made with the after-tax dollars. So it’s a way for you to take money that you’ve already contributed and received the tax deduction for, pay the taxes early on it, and put it into an account that grows tax free for you for the rest of your life. A couple advantages of this: number one, there is no income limit, right? You’re not disqualified for being a high earner. There’s also no maximum contribution, so if you’re someone that’s getting closer to retirement or closer to required minimum distribution age, where you have to start taking that pretax money out, you have an opportunity to do the Roth conversion, avoid potentially a higher required minimum distribution down the road, and you can kind of accelerate the money into that Roth IRA, so you know the guess the ideal candidate for a Roth conversion would be someone who has a higher amount of pretax assets, they don’t have a lot of Roth money or after-tax money, and you think that your future tax rate will be higher than your current tax rate, right? We are currently in the third most favorable marginal income tax bracket in history from the Tax cuts and jobs act. We were expecting that to sunset at the end of this year, so we have been performing a number of Roth conversions to take advantage of the tax code. The big beautiful bill extended that tax code at least throughout the end of this administration, potentially even further. So now we have another at least three to four years of an opportunity to continue converting money to Roth in a lower income tax environment, so this is a great strategy. It’s something that that we incorporate into a lot of our financial plans, but this isn’t a blanket statement for everybody to go out there and perform a Roth conversion. We strongly encourage you to work with the professional to assess the tax implications, because at the end of the day, you do have to pay the taxes in the year that you convert. So, having the disposable cash to be able to pay the taxes is important, and understanding the implications of the conversion for your tax situation, your Medicare Part B premiums, all of that in conjunction is important. So, what I would encourage you to do is, if you think you could be a good candidate, give us a call, let us look at your situation, see if we can fit that into a more holistic, broad financial plan, and get the assessment that way.
Speaker 2 29:11
Complimentary consult is available. You can call the number 800-653-8404 that’s 800-653-8404 If you’ve got questions about Roth conversions, get those answered, and again, it’s an opportunity for you to get to know the team at Elite Income Advisors as you move forward with your retirement planning. We’re just going over some strategies, some key ones to kind of help you generate that tax-free income in retirement. We like that tax-free, so Roth IRAs, Roth 401 K’s, consider it, talk about it, discuss Roth conversion opportunities. Good time to have that conversation. And then this next one, Prashant, it’s the triple threat, the health savings accounts. A lot of people don’t think about these, but the HSA could be a great avenue. This applies if you’re enrolled in a high deductible health plan.
Speaker 1 30:00
You could be eligible for an HSA, which, to your point, Morgan, is a triple tax advantaged account. What that means is that when you make contributions to your HSA, those contributions are actually tax deductible, so you get to deduct that from your income. The money in the account grows tax deferred, so you don’t pay taxes on it while it’s growing, and then, assuming that you use that money for qualified medical expenses, you’ll be able to actually withdraw it, including the interest tax free. So, that sounds like a pretty good deal to me. One of the cool things about the HSA is being able to defer that money and then withdraw the HSA money for prior medical expenses, so this is a really cool kind of tax, almost loophole that people can take advantage of, though not a lot of people know about it. This being said, to John’s earlier point, when you’re dealing with complex tax strategies like being able to use HSA money for a prior year’s medical expense. Just make sure you’re keeping the appropriate documentation, and that you’re working with a certified public accountant, or you know, a really qualified tax professional, to make sure that you’re in compliance with all of the IRS regulations. But if you know what you’re doing and you’re working with the right people. It’s a great way to be able to fund some of those medical expenses in more of a tax-free status.
Speaker 2 31:29
Well, we are going over again some key strategies. John, I do want to jump to this one, hit this real quick. And again, talking about tax-free income possibilities in retirement, what about cash value, life insurance and annuities.
Speaker 3 31:42
Yeah, this is a strategy that a lot of people sleep on. You think of life insurance as just being a means to an end when you pass away to provide your family with the tax-free income to provide a lifestyle moving forward, but a lot of the whole life and universal life insurance policies actually provide a cash value that grows tax deferred that you could potentially tap into down the road, you can take loans from that cash value tax free under the right circumstances and effectively not have to pay that that tax back if you pass away, the, you know, the loan gets deducted from the death benefit, and then that goes to your heirs tax free, so there’s a tax loophole there. Annuities also have the ability to defer taxes down the road. The interest portion on non-qualified annuities gets deferred, so a lot of different things we can do with that.
Speaker 2 32:35
Tell you, it’s important to be ready. It’s important to know some tax strategies as you’re going into retirement. Prashant, we’ve got spots. Tell us about them.
Speaker 1 32:42
If you’re not sure the best way or the most efficient way to keep more of your retirement savings in your own pocket, it’s a great opportunity for you to pick up the phone and give us a call. It’s 800-653-8404 That’s 800-653-8404 Call in schedule that no cost, no obligation visit with our team at Elite Income Advisors. You can visit with us in Annapolis or at our headquarters office in Ellicott City. You can also book a virtual meeting to have that initial conversation. Let’s talk specifically about your concerns and what strategies may be a good fit for you to try to pay the least amount in taxes possible, both this year and in the future. 800-653-8404
Speaker 2 33:30
We have retirement scenarios coming up next on Retire Smart Maryland Radio, you Welcome back into Retire Smart Maryland Radio, hosted by Prashant Sabapathi and John DeFeo of Elite Income Advisors. The power behind this program, the website, it is a resource. Check it out, Elite Income advisors.com that’s Elite Income advisors.com Links to the TV show, radio shows, and podcast form. Just good information on retirement and contact information. You can get in touch with the team, and both Prashant and John are independent fiduciaries. They’re headquartered to Ellicott City, and they’ve got a satellite office in Annapolis, for your convenience. I’m Morgan Patrick. And again, we are now at the scenario portion. We gather these scenarios from around the country, and we see what the advisors would do. Want to remind our listeners that you may hear a scenario on the program that’s kind of what you’re going through, but we always emphasize you need to have a customized plan that takes into account what’s going on with you, so take these with a grain of salt. All right, Prashant. First one up is to you. They’ve got about 800,000 spread across a traditional IRA and a 401 k, but they’re starting to worry about how much taxes – hello, there’s the t word – will eat into their withdrawals once the RMDs kick in, the. Required minimum distribution, so is there a smart way to start shifting some of that money now to reduce their future tax burden without triggering a huge tax bill today? I
Speaker 1 35:10
got to tell you, in probably the last two to three months, I feel like this is the number one scenario that we are encountering as retirement advisors, at least in our office, it seems like every other person that comes in is concerned about how much tax they are going to end up paying over the course of their lifetime, and so if the question is, is there a way to reduce your tax liability over the long term, I believe that answer is yes, and it has to do with efficiently converting your money into a Roth IRA. Okay, that challenging part of this is that there’s so many different moving parts to doing the Roth conversion. Number one is you want to make sure that you’re not unnecessarily increasing your income tax bracket when you make that conversion. Number two is that when you make the conversion, you actually have to have the resources or the money to pay the income tax that’s owed on it, and then number three is you got to be able to invest the Roth money in such a way that empowers you to grow to make the tax-free aspect of the account worth it, so unless you can satisfy all three of these objectives, you really shouldn’t be doing a Roth conversion without clarity in those three areas, and so this is what we’re doing each and every day. I just did a case for someone who came in to visit, and what we found is that, believe it or not, it made sense for him to convert like $15,000 this year, $65,000 next year, and then his conversion amount, because he’s retiring, we’re projecting something like $175,000 in conversions for the next three years after that, and so if he executes that plan properly. It looks like he’ll be able to get somewhere between half a million to three quarters of a million dollars into a tax-free status, and he had no idea that this option even existed, or how to implement it, until we were able to kind of take him through this process. It’s incredibly powerful, and it’s the number one concern that we’re seeing in today’s retirement planning journey.
Speaker 2 37:26
Love doing the scenarios, getting into these conversations. It just sheds more light on the fact that so many things are going on just in everyday life that’s going to impact you in retirement, and your situation is unique to you. So, make sure you have that customized plan, and talk about your concerns. We do have the complimentary appointments with elite income advisors, and all you got to do is call the number and grab one again: 800-653-8404 That’s 800-653-8404 All right, next scenario, John, to you, they retired five years ago with a solid nest egg, feeling pretty good, but guess what, rising prices, especially on food, gas, and insurance, starting to strain their 6000 a month budget. What’s a good way to adjust their plan so they can keep up with inflation without cutting too deeply into their lifestyle or their portfolio,
Speaker 3 38:21
yeah, we talk about this on a regular basis, and you know, I think the number one, you know, protection against inflation is through growth, right, growth of your assets, and the best way to do it in a meaningful way is through some sort of equity exposure, investing in the market, now you want that to be diversified, you know, you don’t want to be putting all of your eggs in one basket, you know, buying just one stock that can be volatile, and you certainly don’t want to be using the money you’re relying on for that $6,000 of income to be fully invested. So, kind of going back to what Prashant said, having different buckets for different objectives to have flexibility, I think’s important. You want to have a bucket that’s invested, that’s growing meaningfully for you to hedge inflation, provide you with a legacy down the road. You want to have a bucket that provides you income on a more certain basis. We don’t want to be worrying about what the market’s doing when we have to pay the BGD bill, but I would say that having that equity exposure and having that part of your plan built in should have been established well before retirement, at least in our opinion. So, if you’re five years in and you haven’t had any money invested, you know that that can certainly present problems, especially folks that are that are risk averse. I mean, another thing you could do, you know, just getting into kind of penny pinching, is reevaluate your insurances, you know, get quotes on your home, your auto, you know, if you have supplemental policies through Medicare at open enrollment, check to see, you know, if there’s something cheaper out there, you know, a coupon at the grocery store, you know, find better places to get gas, I mean, another big, a big thing that people don’t recognize is if you’re disciplined, you can use your credit cards for the rewards points, as long as you pay. Off at the end of the month, a lot of these companies will give you points towards, you know, your groceries, they’ll give you free cash, airline points, whatever the case might be. So just be smart and tactful in that way. If you don’t have a way to hedge against the increased costs, but I think at the end of the day, equity exposure and investing in the market is imperative to success with inflation.
Speaker 2 40:19
Yeah, have a plan, come in, talk about it again. These scenarios get you thinking about your own situation. And again, remember the importance of being proactive and getting ahead of this. You can grab an appointment at any time with Elite Income Advisors simply by calling 800-653-8404 That’s 800-653-8404 complimentary, no obligation. All right, Prashant. Here’s another one for you. They’re considering putting 250,000 into an annuity to help cover their fixed monthly expenses, but they’re unsure about locking up that much money. How should someone decide if an annuity makes sense for them? And what are the trade-offs they should really understand first before doing so?
Speaker 1 41:05
To me, this is very simple. Okay, annuities can be very complicated, but the answer to this one, in my opinion, is relatively simple. An income annuity that provides you a fixed monthly income should be used in cases where the client has an income gap, so I’ll give you an example. Let’s say that you needed $6,000 per month in order to retire abundantly in the most fulfilling way possible. Let’s say that your social security and your pension income after taxes only makes up $4,000 each and every month by using an annuity, you can take some of your retirement portfolio and have it give you the income to close that $2,000 per month income gap, and so to me that is the use case. If you have a shortfall in your retirement income and you’re not comfortable subjecting your income to a stock market that is volatile, subject to geopolitical issues, tariffs, etc. An annuity could be the right fit for you. Now, it’s not the right fit for every single person out there. It’s definitely not a silver bullet, and it’s not a one size fits all solution. So, Morgan, yes, about the trade-offs. There’s two or three trade-offs to annuities. Number one is annuities are typically not going to be high growth vehicles. If you put your money into an annuity and expect to average eight, 910, 15% per year, you’re probably going to be pretty disappointed in the annuity that you get, because it’s simply not designed to do that. So that’s number one. Number two is annuities are long-term commitments, typically 10 years or longer, and so if you put that money into an annuity, and in year eight you wanted to take all of it out, there’s probably going to be a penalty to access that principal, right? So that’s number two, and then number three is annuities, especially income annuities that provide fixed monthly income oftentimes have fees associated with it, so before you make that decision to close the income gap using an annuity, you want to evaluate those three downsides to see whether or not it’s worth it. What we find with a lot of our clients who have a gap in their income, carving off 1015, 20, 30% of their portfolio simply for the purposes of creating all the income that they could want or need in retirement tends to be a pretty sound decision, but it’s not the right decision for every single person. So, just make sure that you get a customized income plan done before you make that decision.
Speaker 2 43:36
Final scenario, we’ll hit it quick. John, here it is. They’ve remarried children from both sides, want to make sure their spouse is provided for as well, without accidentally disinheriting their own kids. How can someone in a blended family scenario make sure that the estate plan is set up correctly to avoid future conflict and ensure that everyone’s treated fairly?
Speaker 3 43:57
This is very important for blended families. I think the best strategy I’ve found is through a qualified terminable interest property trust, also abbreviated to a Q-tip trust. What this does is it allows the surviving spouse to collect and receive the income from the trust. Sometimes the principle of the trust language suggests that, and they can use that income from the trust for the rest of their lives, but what they’re not able to do is reassign the beneficiaries. They’re not allowed to disinherit the grantor’s kids, they’re not allowed to leave the assets to a new spouse or their own children. They can only live on the interest of that trust. The principal will go to the beneficiaries that the grantor designs. This allows your kids to receive the principal if you pass away, while your spouse receives interest, she’s not put out, or he’s not put out, your kids aren’t put out, so it’s a great strategy. I’d also say that it qualifies for the marital deduction, right? So that means that no estate tax is due when the first spouse passes away, you know, the taxes may be owed when. Second spouse dies, but that can also be planned for with things like a bypass trust and other instruments. So that’s the best way I found to do it. I’m sure there’s other ways out there, but that’s what you know I found at this point.
Speaker 2 45:11
I tell you, scenarios always get you thinking. Prashant, we’ve got spots on the calendar. Let’s open it up.
Speaker 1 45:16
You lost opportunity for today’s program. It’s 800-653-8404 800-653-8404 Folks, it’s all about creating a comprehensive, coordinated, and customized written retirement plan. If that’s a process you’ve never been through, if your advisor hasn’t talked to you about Medicare taxes or how your investment plan integrates with your income plan, I think that you should pick up the phone, give us a call, schedule that no cost, no obligation visit with us in Ellicott City, Annapolis, or virtually 800-653-8404 Call the number. Let’s get you on track to Retire Smart,
Speaker 2 45:56
another edition of Retire Smart Maryland Radio, in the books for Prashant. John, I’m Morgan. See you on the radio next week.
Speaker 4 46:12
Finally guarantees are subject to the claims of paying ability of the issuing insurance company. If you withdraw money from or surrender your contract within a certain period of time after investing, the insurance company may assess a surrender charge. Withdrawals may be subject to tax penalties and income taxes. Persons selling annuities and other insurance products receive compensation for these transactions. Products are subject to fees and additional expenses. Any comments regarding safe and secure investments and guaranteed income streams refer only to the fixed insurance products. They do not refer in any way to securities or investment advisory products. Information presented on this program is legally factual and up to date, but we do not guarantee its accuracy, and it should not be regarded as complete analysis of the subjects discussed. Discussion should not be construed as an offer to buy or sell, or a solicitation of an offer to buy or sell the investments mentioned. Professional advisors should be consulted before implementing any of the strategies discussed. Investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client’s portfolio. Investment advisory services offered through Elite Income Advisors Incorporated, a registered investment advisor located in Ellicott City, Maryland. The firm only conducts business in states and jurisdictions in which they are properly registered or exempt from registration requirements. Registration is not an endorsement of the firm by securities regulators and does not mean the advisors achieve a specific level of skill or ability. Content should not be viewed as personalized financial advice. Insurance and annuity 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 to retired Planning Services Incorporated. Insurance annuity product guarantees are subject to the financial strength and claims paying ability of the issuing insurance company. Morgan Patrick is not a client of or affiliated with Elite Income Advisors, however, he has a financial incentive to promote our services because he was compensated for his work on Retire Smart Maryland. The program is the production of elite income advisors,
