Speaker 1 0:01
A new research shows people who have a clear retirement plan are four times less likely to feel stressed about their long-term money situation than those without one. We’ll break down why that matters today on Retire Smart Maryland Radio.
Speaker 2 0:18
Welcome in to Retire Smart Maryland Radio with Prashant Sabapathi. Welcome into Retire Smart Maryland Radio. Your hosts are Prashant Sabapathi and John DeFeo. You can find them at Elite Income Advisors. They’re independent fiduciaries. They’re headquartered in Ellicott City, and they have a satellite office in Annapolis for your convenience. I’m Morgan Patrick. Absolute pleasure to jump on with the gentleman and talk about just the importance of being proactive and having a plan. We get on here, we talk about these topics. You’re going to have questions about your own retirement. You can grab one of our appointments at any time during the show. We’ll tell you how to do that. They’re complimentary and no obligations. So, guys, as I always do, Prashant. We’ll start with you. How was the week?
Speaker 1 1:02
You know, Morgan, the week’s been really good. It’s just been busy. When we get to the end of the year, I tell you what, everybody’s kind of rushing for year-end deadlines, whether it’s on things like Roth conversions or tax planning, or just trying to do some tax loss harvesting within investment accounts, and so our activity level always seems to get busier and busier as we get into the end of the year, and then you piggyback that on top of all the seminars that we’ve been doing, I mean, John has done what, John, four to six seminars, I think, just in the last month or so, and I’ve done a couple myself, so it’s been a busy week, but this is exactly why we love doing what we do every quarter. Four of every year tends to be a lot of fun for us, because the engagement is high, the activity is really high, and feels like we deliver a lot of value during the fourth quarter of every year.
Speaker 2 1:57
I was going to say, John, what’s been the attendance at these events? I mean, a lot of people are very interested, obviously, in protecting their money.
Speaker 3 2:06
Absolutely, yeah, I mean, we’re always booked to capacity. We have a wait list of folks. I mean, we end up a lot of times having more people show up than we even have booked, just because, you know, they’re hoping that they might be able to get in. So, it’s, it’s a great turnout, as you mentioned, a lot of people are looking at ways to make their retirement more efficient. You know, there’s a lot of folks that are retiring now. I mean, even with the government being shut down, we have people that are coming in with concerns about what this can mean to them if they might want to retire early. So, there’s been a lot of foot traffic based on the seminars, based on those types of concerns.
Speaker 2 2:39
All right, website, you can go to Elite Income advisors.com It’s a resource. Any event that’s coming up, you can find it there, Elite Income advisors.com and sign up for it again, Elite Income advisors.com So,
Speaker 1 2:53
real quick, Morgan, on the events, there is an events tab, just like you said, on the website. We actually created an events interest form, so just fill that out. We do two different seminars during the course of any month. One is called the Social Security Optimization Income and Tax Planning Workshop. It’s a 45 minute to one hour workshop just on taxes and Social Security. And then John and I both do one called the Retirement Master Class. It’s a little bit more of a long form workshop where we actually take questions, and that’s a little bit more interactive. It actually runs between 90 minutes and two hours, and we do that intentionally, so we can cover a broader range of topics and be able to interact with the crowd. Obviously, on a one hour workshop, when we get 40 people in the room, we can’t really take too many questions and that type of thing, but what we found is both of those workshops provide a heck of a lot of valuable information, and our belief is that as long as people have the right information, we trust that they’re going to make the best decisions, and so that’s how we view our role in our communities to provide as much good information as we possibly can, and let our clients make the decisions that best suit their financials.
Speaker 2 4:10
Knowledge, knowledge is power. And grab one of the spots at one of these upcoming seminars and events, go to Elite Income advisors.com and again click on that events tab, and you can get signed up there. So, guys, it’s not just about building the nest egg, it’s about peace of mind. And according to a recent data survey from Aegon’s six, it’s a 6050 it’s the second 50 report. Only 11% of people with a well-developed retirement plan feel stressed about their long-term financial situation, that’s compared to 46% of those that don’t have a plan. Now that dramatic difference, it really hits home for anyone who wants to retire, not just with wealth, but also some serenity. So today we wanted to kind of go through some planning matters and what matters to planning and. What you should not overlook, maybe some things you should avoid, and how your advisor or you can turn uncertainty into action. So, I’ve got a question for you, Prashant. We’ll start with this, and let’s just start with the headline stat. People with a plan are four times less likely to feel financial stress. Why do you think having a structured retirement plan alone, right, makes such a big difference in the mindset.
Speaker 1 5:26
Look, Morgan, I’ll put it like this: you and I were just talking before the show, you mentioned that you have a road trip coming up, right, you’re going down south somewhere, going down, and so that’s a long trip, long road trip for you, right. What if I told you you’re not allowed to use the GPS to drive to Mississippi or Missouri or wherever you’re heading.
Speaker 2 5:46
Yeah, that would be stressful, because I need to know where I’m going, I need to know where I’m going to stay, I need to know where the best place is to stop, and obviously I’m going to be riding with my parents or driving my parents in the strip, and they’re going to need things too, so I would need to plan that out,
Speaker 1 6:01
and you want to know where the traffic jams are as well to take the most efficient route from point a to point b. You mentioned something that sounds stressful, is what you just said, and in our experience we find that stress starts to fade away when there is structure. Okay, and all a retirement plan is, is it’s actually just structure for how you should be withdrawing your income, paying the least amount of taxes possible, making sure that you and your estate are well protected in the event that you run into a traffic jam that is unexpected, and that is all a financial plan is it’s really no surprise that people with a real plan feel significantly less stress, but John, the article also mentioned that 57% of people without a plan worry about running out of money, versus just 22% of people that actually have a plan worry about running out of money, so you know what role does that kind of plan play in combating that very specific fear of outliving your money, which you and I both know are is retirees’ number one fear in today’s day and age.
Speaker 3 7:15
Yeah, I mean the same, I think analogy can be placed with the road trip, right? I mean, if you hop in the car, you don’t know how many miles you’re going, you don’t know how far your fuel tank is going to carry you, right? You have to have an idea of what your expenses are going to look like, what inflation could appear to be, what tax implications you could have, you know, all of that combined. What are your medical costs? I mean, knowing or having an idea, projection of what you’re going to be spending, having a plan of how to meet those expenses with the income that you’re bringing in. It’s the same concept as drawing out a roadmap on a road trip. So, I think it’s very important to have that put together.
Speaker 1 7:50
So, folks, if you’ve never put together your own Retire Smart roadmap, if you’re not sure how to get from point A working to point B retirement and beyond, it’s a great opportunity to pick up the phone and give us a call. We do it on the show every week. We’ll open up our phone lines. That phone number is 800-653-8404 That’s 800-653-8404 If you don’t yet have a plan that gives you peace of mind, let’s fix that. You dial that number or visit Elite Income advisors.com You’ll be able to schedule a complimentary visit with our team of investment advisors, folks like John, myself, Connor, Dan, Ozzie, Nick. We have a great team here that will help you through the planning process, and all it is, it’s a conversation to figure out where you stand and where you need to go to get to your most fulfilling version of retirement. It’s totally free of cost for anybody to come in, have that initial conversation. From there, we’ll help you put together an income plan, a tax roadmap, a social security optimization report, and all of that is your Retire Smart Roadmap. It starts with that phone call, free appointment 800-653-8404 Coming up on Retire Smart Maryland Radio. Are you still following some retirement tips from yesteryear? It may be outdated. We’re going to talk about that when we return on Retire Smart Maryland Radio. I
Speaker 2 9:31
We are back on Retire Smart Maryland Radio, hosted by Prashant Sabapathi and John DeFeo. You can find him at Elite Income Advisors, headquartered Ellicott City Satellite Office in Annapolis, and they’re independent fiduciaries. And you can go to the website, it’s a resource, Elite Income advisors.com We’ve already talked about it today. There’s an events tab there, click on it, see what you like, sign up right there on the website, Elite Income advisors.com and again, seminars. The events are well attended, so make sure you make that effort and sign up for it. Elite Income advisors.com I’m Morgan Patrick. A pleasure to jump on. We talk about all these different topics, but we also give you an opportunity to take action on your own behalf. We have appointments, they’re complimentary, and again, no obligation to become a client. Great way to test drive elite income advisors. Stay tuned, we’ll open those up here in just a little bit. So, someone’s hitting retirement age, and they’re doing it right around this time. They didn’t start saving until 40, probably following some advice that predates the smartphone, maybe even Google. A lot has changed in the past 30 years, guys, and you know this, a lot of people out there may be following some older models, interest rates, life expectancy, market volatility, even what it means to retire has changed. So some outdated tips, just they keep circulating. So on today’s show we kind of wanted to separate the timeless from the tired and revealing what a modern retirement strategy really looks like, and we’ll do that, starting with this. John, you’re up first. Let’s start with the sacred cow 6040 split in the portfolio. It used to be the holy grail of allocations. Is that still relevant today, or has it gone the way of the floppy disk?
Speaker 3 11:17
Yeah, this is a question we get quite often. You know, I think the 6040 split specifically, it means 60% in equities or stocks, 40% in more fixed income bond type instruments, and the idea was the 60% was for growth, the 40% was to protect you on the downside, so it was a balanced approach to provide both growth and income within your retirement portfolio. The issue with this is that these were, as you mentioned, based on old rules of thumb, old metrics in terms of interest rates, market volatility, a different economic environment that we saw 3040 years ago than where we are today. Right, interest rates are much different. The market moves much differently than it used to. If you think about it, you know, 3040 years ago, if you wanted to place a stock trade, you called your broker. They probably made another phone call. There was some paperwork exchanged. It was a lengthy process. You look at today, I can get on my phone, I can see what’s happening halfway across the world in the news, and then go place a trade in my app, all within a matter of minutes. So, we see volatility in the markets that we’ve not seen before. We see different yields with bonds and interest rates, so we’re finding that it’s not as effective as it used to be in providing down downside protection in bad markets and productive growth in good markets, and a great example of this is as recent as 2022 Right, typically when stocks go up, bonds stay relatively stable, maybe decrease just slightly, and vice versa. When stocks are down, bonds do relatively well, or stay a bit more consistent, because they’re a defensive position, right. Well, in 2022 we saw both asset classes down pretty significantly. Bonds were down, bond funds were down somewhere around 13 to 15% So folks were concerned and said, in this 6040 portfolio, I wasn’t supposed to lose this much money trying to figure out what happened, and it’s because of this different economy, this different market cycle that we’re in, that we’re seeing that difference. So, when we’re structuring our clients’ portfolios, we are big proponents of the bucketing system. You hear us talk about this all the time, where we should specifically bucket our money into different categories based on the objective, right? So you want to have a growth bucket for long-term growth in the market, increasing the value of your assets for long-term care, a legacy inflation hedge, all of those things. We also want to have a bucket that we’re drawing our income from that’s not going to be subject to those market ups and downs and fluctuations, right. We want consistency and certainty when it comes to our income, so we have a more consistent income bucket. And then finally, we have your operational cash bucket, where you’re living out of for your emergency. So we find that doing that in that way is a bit better, just because it gives you flexibility. We’re not relying on an asset class that we’re not sure of, so we do it a little bit differently, and our clients are much more confident because of it. In 2022 we weren’t getting calls from our clients asking why our accounts were down, you know, when we were promised something different, because we aligned them in a way that they expected to not lose money in their income bucket, and that’s exactly what happened. They didn’t lose any money in that strategy, so it worked out well.
Speaker 2 14:22
I mean, having a plan, working with a professional, and we’re talking about right now maybe some old school ways of doing things, and you might be following some of these that are 20 and 30 years old. You need to rebalance, readjust, take a look at what you’re doing. There’s an opportunity to get on the calendar with elite income advisors, and have this kind of conversation. Maybe it’s a reset for your portfolio, your overall plan, and maybe if you’re just sitting on a portfolio, I can tell you right now you don’t have a plan. So, again, is it outdated? So, we’ll ask this question to Prashant. There’s this idea that you should never carry. Debt into retirement, and you’re better off renting than having a mortgage, but is that always true?
Speaker 1 15:07
I’m hesitant to say that anything is always true, just as I’m hesitant to say you should never do anything. I think it totally depends on your individual situation. Now, of course, there is what I would consider to be toxic debt, and that’s going to be personal high interest consumer debt, things like credit cards and higher interest car loans, and those types of things, like, of course, we don’t want to carry those into retirement if we can figure out a way to avoid that, but then there’s also what I would consider to be to some people good debt, right, whether it’s mortgage debt or if you’re taking on investment debt, like for a real estate property or an investment property, something like that, or if you strategically use debt to maybe reinvest back into your business, we have a ton of clients that are business owners that take on debt to reinvest back into their practice or into their business to then help them create additional cash flow. So, I’m hesitant to say that there’s a one size fits all solution to this, but our philosophy when it comes to carrying debt in retirement is actually extremely simple, leaving the personal high interest rate debt out of it. I think one thing that we always say is that having debt in retirement becomes an issue in the absence of an income to service that debt. If you knew that your debt always came with a certain payment, but then you structure your money to always have enough to service that payment. I think we’ve kind of eliminated some of the risk surrounding that debt to begin with. So, it all depends on what your personalized financial plan allows for, and it comes back to the fundamental question: Do I have enough income coming in every month that I can rely on after taxes that allows me to live my life in the most fulfilling way possible, as well as service any debt that I may carry into that next phase of life.
Speaker 2 17:16
Talking about strategies that are out there, you may be following some older strategies might be time to hit the reboot button, the refresh, and see how you’re doing with your overall plan and your portfolio. The opportunity to get on the counter with Prashant and John and the team at Elite Income Advisors is ongoing during the course of this show. These are complimentary appointments. There’s no obligation to become a client’s great way to test drive Elite Income Advisors. Call this number 800-653-8404 that’s 800-653-8404 to book that complimentary appointment again, no obligation to become a client. So, going back to it again, when we start thinking about separating the timeless from the tired and revealing what a modern retirement strategy can look like John. This next one to you, dividend stocks – they’ve long been a retiree favorite. At least that’s what the, you know, the messages are telling us. That’s what the news is telling us. The headlines are telling us steady income, less volatility. But are we putting too many eggs in one basket here?
Speaker 3 18:19
Yeah, I think you can be. I mean, as Prashant mentioned, I’m hesitant to say that it’s altogether a bad strategy. I think, or putting too many eggs in one basket. I think certainly, if you have all of your assets in one dividend paying stock, that could be a bit over concentrated. But dividends are certainly a productive part of an investment portfolio, right. It’s a steady payment. Sometimes they can be taxed preferentially, but I actually subscribe to a theory called the Dividend Irrelevance Theory, and it’s a concept in corporate finance that suggests that the value of a firm is not affected by its dividend policy. Right, in other words, it doesn’t matter if it pays high dividends, low dividends, no dividends, investors are indifferent because the firm’s value depends on its ability to actually generate earnings. So, an example of this would be, say, that a company pays out its dividends, right? When it pays out its dividends, inherently the stock price is reduced proportionately as it pays out some of those earnings. If the same firm had retained those earnings and provided higher growth in the stock, then you would have seen higher value in the stock growth. So, in a sense, you know it one way or another, you’re going to have the same value. Everybody looks at it a little bit differently, but when it comes to generating consistent income in our clients’ portfolios, we like to have a bit more consistency, right? If that stock price goes down, typically the dividend tied to it is also going to decrease, so that’s a risk. So we like strategies such as fixed indexed annuities. These provide a consistent stream of income without any downside potential. It’s almost like you’re purchasing your own pension, so those are a better way to provide income if you’re looking for more certainty, the. Though dividends can certainly be a part of a financial plan when it comes to creating income.
Speaker 2 20:04
Wow, I mean, Dividend Professor John DeFeo, I feel smarter just listening to that. That’s fantastic.
Speaker 1 20:11
This is why you need a CFP to work with, and John is a CFP, so I mean all
Speaker 2 20:16
over it.
Speaker 1 20:17
Absolutely,
Speaker 2 20:18
so we’re talking about again some strategies that are out there, they might be dated, they might be okay, they might be timeless, but you need to be aware of them and make sure you’re following the right ones. All right, so target date fund, last one we have time for, Prashant hit it real quick. Target date funds, this is another one, they become that kind of go-to in many 401 k’s out there, especially for people who don’t want to think too hard about this stuff, but is set it and forget it actually dangerous.
Speaker 1 20:46
I think it can be Morgan. I think target date funds do, in a way, simplify investing, but it also assumes that every person has the exact same risk tolerance, the same goals, the same tax situation, and they don’t base, they don’t adjust really based on market conditions or any particular person situation, they just adjust based on time, like you guys ever picked up, I don’t know, like your buddy’s prescription glasses and tried to put those on, it’s like you can still see, but not as clearly, because those glasses are for somebody else, right, and that’s how I view target date funds, like they work, but they’re not customized for you, right, and so if you have alternative options to build a financial plan that is truly customized for your situation, why would we ever look at a situation or an investment that wasn’t necessarily working in our best interest? So, target date funds are out there, they’re popular, but that being said, I think we have to take a more personalized approach. John, as we head to the break here, the phone number is 800-653-8404 Why don’t you tell the listeners what they can expect if they make that phone call.
Speaker 3 22:05
Yeah, just a conversation, right, identifying what your goals and concerns are, figuring out, you know, if we’re the right fit to help you with that based on our planning style, and if we are, we’ll put together a comprehensive income plan, identifying what retirement costs you, how much income you’re going to need, and where you’re going to take it from. How to navigate the tax challenges, how to build out an efficient estate plan, covering your medical costs, long-term care costs, the full gambit of financial planning. So long we find that we are the right fit to help you with those concerns. All right,
Speaker 2 22:35
grab this number, call it now: 800-653-8404 That’s 800-653-8404 We have appointments. They’re no cost, no obligation. Call now to book 800-653-8404 We’ve got more Retire Smart Maryland radio coming up, you Retire Smart Maryland Radio, your hosts Prashant Sabapathi and John DeFeo. You can find them at Elite Income Advisors. They’re headquartered Ellicott City and a satellite office in Annapolis for your convenience. It’s all about getting you ready for your retirement. They’re both independent fiduciaries, and again, being proactive, having a plan, having that roadmap to get you to and through retirement, that leads to confidence, and that’s what we talk about each and every week. So, guys, we all love the idea of set it and forget it. We’ve kind of, you know, we like the idea of not having to worry about things, but thinking about it from a retirement standpoint, your 401 k deserves more than just autopilot. I mean, I think a lot of people get into these, and that’s what they do, especially think about this: if you’re counting on it to carry you 20, maybe 3035, years of retirement, you need to have control here. The good news is, with a simple couple of tweaks, you can make your 401 k work smarter, grow faster, and cost less. So we kind of wanted to get into this and break down some do’s and don’ts. And why didn’t anyone tell me this sooner’s strategies to get the most out of your retirement powerhouse? So first up, Prashant, to you, starting with just the basics, a lot of folks set up their 401 k when they get hired, they pick a fund that sounds okayish, and they never touch it again. Why is that a problem?
Speaker 1 24:29
This one is so common, and look, it’s better than not starting at all. So, I don’t want to poo poo on people that do it this way too much, but let’s just remember, your retirement plan, it’s not a crock pot, right? It’s not a slow cooker. You don’t just put the money in there, let it sit forever without ever revisiting it, and that’s just because markets are going to change, tax laws shift, your goals they evolve over time, and part of the issue is that let’s say. You started with that company 15 or 20 years ago, when gas was $2 a gallon, and inflation was a lot lower, and the stock market was valued at a much lower level. It’s probably time to review that, because the world has changed, you’ve aged, your goals have changed, your retirement dreams might look totally different, and so I think that you should be in alignment with what your objectives are. Now, it’s great that you started, and it’s great that hopefully your money has grown over time, but at some point, when you get close to retirement, it’s not just about growing your nest egg to the highest possible balance that it could be at it’s really about protecting what you’ve worked so hard to accumulate and make sure that that 401 k balance lasts you the rest of your lifetime, and so I think this is a huge deal when it comes to planning, it’s not about setting it and forgetting it, it’s about making sure that you actually have a written plan that you can rely on during the tough times that shows you and proves to you that you’re going to be able to live the rest of your life the way that you deserve. Quite frankly, after three or four decades of really hard work.
Speaker 2 26:12
Yeah, I mean, we get into these conversations and you think about it, if you were working with a pro, there is no such thing as set it and forget it. I mean, it’s planning, it’s a living, breathing thing. This is your retirement. They’re going to be revisions, they’re going to be meetings, they’re going to be conversations about how the plan is going, and if there needs to be a pivot, a change, something needs to be tweaked, and that’s what we’re talking about today. So, the set it and forget it mentality, kind of, you know, throw that out the window. John, to you. This next one: traditional 401 k versus Roth 401 k. Wanted to get into that. What’s the difference, and how should someone choose?
Speaker 3 26:50
Well, this really comes down to your philosophy on where you think taxes are going, what your existing tax situation is, in terms of what you’re bringing in, marital status, all of that, but high level, the difference between a traditional 401k and a Roth 401k is how the money goes in and how the money comes out. With a traditional 401k you’re deferring the income taxes that you contribute at the current time, and when you take that money out of the 401k down the road, typically in retirement, that is when you’re liable for your federal, state and local income taxes on that money, opposed to that, the Roth IRA, you’re paying the taxes upfront in the year that you contribute, and the advantage is that money then grows tax free over your lifetime, so by the time you get to retirement, you should be able to take that money out without any tax on the growth over that period of time, so what would warrant you know one versus the other? If you think that your tax situation today is going to be more preferential than in the future, meaning that you think that your taxes today are going to be lower than they’re going to be in the future, then it probably makes sense to contribute to the Roth, right, because you’re paying taxes now at a lower rate, then you would be forced to take them out in the future. Vice versa, if you think that today your tax rate is much higher than what it’s going to be in the future, then it could make more sense to contribute to the traditional IRA to defer the taxes at the current higher rate and take it out when it could potentially be lower. So that is a, you know, an analysis that we do for everybody that comes in our door is where we think you’re going to be based on our person, you know, projections and everything else. So, that I think, in a nutshell, is how we make that decision on what the right thing to do
Speaker 2 28:33
is. Yeah, we’re having that conversation again, getting into the 401 k, Roth 401 k, and also just basics when it comes to strategy, and having you know, having the best strategy to make your portfolio a powerhouse, so we’ve talked about the basics when it comes to the Roth, and it comes to the 401 k. So now this next one, Prashant, the contribution limits have gone up again. What can people actually sock away now, and how to catch up contributions work just for the layman out there.
Speaker 1 29:03
Yeah, if you’re over the age of 50 years old, which most of the people that come to visit with us do fall in that category. Our average client is somewhere between 50 and 70 years old at the time that they approach us to talk about distribution and retirement planning, but if you’re over the age of 50, then you get to put in additional money into things like your 401 k, your IRA, your Roth IRA. This is what is called a catch-up contribution. It’s almost like giving your future self a raise by being able to save more money into those retirement accounts. The best part about it is that it’s super easy logistically to make, you don’t have to do any additional forms or anything like that. You just increase your payroll contribution, or if you’re contributing to an IRA or a Roth IRA, you just put that extra money in, as long as you satisfy the requirements from an age standpoint. Point, and an income standpoint, you’re able to go ahead and make that contribution. I think one thing that has really kind of come up here is the topic of fees, right? Just to pivot a little bit, John, if we talk about fees for a second, people always hear this fee of like 1% for investment management, or for the cost of working with a financial advisor, and so what is your perspective on paying fees? At what point does it make sense to pay fees versus at what point is it just kind of a detraction from your overall wealth building capability? What’s your perspective on something like that?
Speaker 3 30:42
Yeah, I think this is a great question, and it comes down to your objectives at the end of the day, right? If you find value in active advice and proactive management, and having someone as a sounding board for your financial concerns, someone that’s going to bat for you, they can give you an objective opinion, maybe give you some peace of mind and certainty in your retirement plan. Then you know what is that worth to you, right? Is are you willing to pay that 1% fee to have the peace of mind to have a retirement plan written out to have the sounding board, or are you able to do those things on your own, and do you have the time to do them? Is that something that you’re willing to do? Maybe that 1% fee isn’t worth it to you, right? I think it comes down to what you’re seeking in terms of advice and guidance from the advisor that you’re exploring, right. And we get this question all the time, what makes that worth it? And my answer is always the same: I don’t know. You tell me, what is it worth to you to have a plan put together, and you know, if it is something that is warranted and you find the value in it, I think that 1% fee more than pays for itself in the value that we can deliver through tax savings, investment management, and ultimate peace of mind at the end of the day,
Speaker 1 31:53
and one thing to piggyback on that is that’s what’s called what I would call a transparent fee, right, where you know exactly what you’re paying to your advisor, but when you own investments, and I know we got to get to a break here in just a moment, but when you own like mutual funds and you own ETFs and different investments, there’s this fee that I almost call it like a hidden fee, it’s called an expense ratio. Can you just talk about the expense ratio and how people almost feel like they have financial termites in their portfolio, because it’s a fee that never shows up. Can you just give, like, a 32nd explanation on that, and what people should be looking for?
Speaker 3 32:34
Yeah, so within your investment portfolio, if you’re investing in mutual funds or exchange traded funds, they’re going to have an expense to actually manage that, right, and the more actively it’s managed, the higher the expense, the less actively it’s managed, the lower the expense. So you have to be cognizant of this, right? If this is not transparent, it’s built into the actual growth of the investment. You have to be able to do that research, understand what those hidden fees could be, and our office were big proponents of the low-cost exchange traded funds, because we can maximize the growth in that side, but yeah, you have to pay attention to that based on the investment strategy,
Speaker 1 33:08
folks. If there was a way to help you save money that you’re paying in hidden fees in your portfolio, wouldn’t you like to know about that as soon as possible? One of the things that we’ll do when you come in to visit, you dial that phone number, 800-653-8404 We’ll do for you what’s called a portfolio x ray, and in that x ray will help you evaluate your risk, your return, and all of the fees associated with your portfolio, the transparent ones as well as the hidden ones. If you haven’t done that before. It’s great insight into what you are paying your investment advisor or your mutual fund companies on a year to year basis. Again, 800-653-8404 complimentary portfolio X Ray. When you come in to visit,
Speaker 2 33:55
we’re back with more Retire Smart Maryland Radio right after this. We are back on Retire Smart Maryland Radio. Your hosts are Prashant Sabapathi and John DeFeo. You can find them at Elite Income Advisors. Check out the website Elite Income advisors.com It’s a resource. Both are independent fiduciaries. They’re headquartered in Ellicott City, and they’ve got a satellite office in Annapolis for your convenience. I’m Morgan Patrick. A pleasure to jump on and talk about just the importance of having the plan, the importance of having something customized to you and your situation, and now we get to scenarios, and you’re going to hear a handful of these. We pull them from all over the country, and we’re going to see how Prashant and John will handle them. John, you’re first up, and here is your scenario. They’re debating whether to purchase a long-term care insurance policy, and they are 67 Been years old, but the premiums, guess what, they’re steep. The health is good right now, but they’ve seen what care costs with their own parents. How do you decide if long-term care insurance is worth the cost later in life?
Speaker 3 35:16
Yeah, this is an important conversation we’re having quite regularly, and I think you know the old school long term care policies have all but evaporated in our society. I mean, I think when these policies were created decades ago, there was about 125 carriers, now we’re down to about 15, and it’s because these companies underwrote the policies poorly, not to their to their fault, but don’t think anybody expected us to be where we are with medical advancements, people living as long as they are, the cost of care, so they underwrote these policies with low premiums and high payouts, and they weren’t able to keep up with them, so a lot of those companies have consolidated down to about 15, and now the policies are increasing in terms of premium significantly, if you have an existing policy, there’s one carry, I won’t mention the name, but they’ve already suggested they’re going to increase their premiums in their long-term care policies by 150% The state of Maryland, I believe, only allows about a 15% increase per year, so they’ve said you can count on a 15% increase every year for the next 10 years, no matter what, right? So we found that fitting a long-term care policy into the cash flow of our clients’ financial plans can be difficult, so there’s a couple of ways that we try to get around it. Number one is to be able to self-insure if you can, right, invest in the market, create a nest egg for down the road that you can potentially draw from from this, but there are also some situations where it could make sense to look at something like a life insurance policy that has a long term care component to it, so there are, believe it or not, solutions that you can contribute to that will not only provide a tax free death benefit to your beneficiary, but will also allow you to access that death benefit amount for long term care. So, say, for example, you purchased a million dollar life insurance policy, and you know, a million dollars could go tax free to your spouse, if within your lifetime you require long term care, you have access up to that million dollars to use for long term care instead. So it’s a dual threat. You also have the ability to utilize the cash value that you’re paying into it. If none of those scenarios come up and the cash value is more important, so it can be somewhat of a three headed sword there, so you know it just depends on the situation. It doesn’t make sense for everybody, but that is, you know, an alternative to traditional long term care that you might never use and pay high premiums on.
Speaker 2 37:36
Well, I was going to say the message is their options, people are going to be facing difficulties as they age, and they’re moving through their retirement, you know, you’re working with a professional, and you’re going to have these conversations about just what options you do have. A lot of people feel kind of helpless in this category, because it is very, very expensive, but come in, have these conversations again about your options when it comes to these different moves in retirement, so Prashant, next one to you. This is another scenario. They have a mix of traditional and Roth accounts, and they’re not sure how to draw down efficiently now that the RMDs are kicking in. What’s a smart strategy for combining different types of accounts to create a tax-efficient retirement income stream?
Speaker 1 38:19
It’s all about having an actual written income plan, because, of course, the benefit of having both traditional and Roth is some of that is taxable and some of that isn’t, and so if you have a certain need for income in retirement, doesn’t it make sense to only potentially pull out the taxable money up to the edge of the tax bracket that you fall in. For example, if you needed $100,000 a year of income, and pulling 70,000 of that income only puts you in a 24% tax bracket, and taking the other 30,000 would put you in a 32% tax bracket, wouldn’t it potentially make better sense to only take the 70 from the taxable account and pull the other 30 from a tax free bucket, thus your tax bracket doesn’t increase, right? And so this is simply how we think about creating an efficient plan, all types of money are not treated equal, and too often I think advisors make the mistakes of treating every bucket of money exactly the same, both from an investment standpoint, but also a tax standpoint as well. So this all comes back to being able to create a roadmap, a written roadmap where you should be able to look at one sheet of paper or one big screen TV and know exactly where your income is actually going to come from every year for the rest of your life. If your advisor has not helped you map that out, I think you have to question whether or not you’re actually working. With a true distribution retirement specialist, so creating an income plan is all about understanding where your income is going to come from for the rest of your life. What is the tax liability on that income, and what is inflation going to do to that income over time? And your withdrawal strategy should operate within the context of your personalized income plan, and this is probably the most important component to what we call the Retire Smart roadmap. Okay, it all starts with the income, and so you have to have a guaranteed income plan to understand where you’re headed.
Speaker 2 40:38
We are in the middle of our scenarios, and you’re probably thinking about your very own scenario, and how things are going, and you’ve got some questions. You can grab one of our complimentary appointments simply by calling 800-653-8404 Come in and have that conversation about all your puzzle pieces and how they’re going to fit together. If you are sitting on a portfolio, folks, ideal candidate. If you’re halfway down the path and you’re frustrated, second opinion, ideal candidate, call this number: 800-653-8404 There’s no cost to this appointment, and there’s no obligation to become a client. Great way to test drive elite income advisors. 800-653-8404 All right, John, here’s another one for you. They just inherited some money, 200,000 and they want to use it to boost their retirement plan, but they’re not sure whether to invest it, save it, or maybe pay off some debt, like a mortgage. How should a retiree decide what to do with an unexpected windfall?
Speaker 3 41:36
Yeah, I think we have to determine what their situation looks like, as we always do right, ask more questions, figure out, you know, what their mortgage rate is, what their mindset is, in terms of carrying a mortgage further into retirement, you know, if it would give them peace of mind to pay it off, you know, get it off their books, and it’s, you know, not going to damage other parts of their financial plan. I’m completely fine with that, you know, if you have a really, really low mortgage rate, I mean, I met with a client last week that managed to get a 2.1% refinance back after Covid, which is just phenomenal, and for a situation like that, I probably wouldn’t suggest paying that off right now, when you can still get three, three and a half percent safely at the bank, right, so if you can earn more interest safely on your money, then that could be more beneficial than paying off the mortgage, but it all depends on your mindset, your philosophy. Now, when it comes to investing it, that could certainly be an option, you know, considering that you already have your emergency funds set up, you have all the income that you could possibly need for your retirement plan, maybe, you know mortgages at a low rate, and you know you are comfortable paying it. Then you could invest it in the market as well. I think it really comes down, as always, to what your objectives are, where you’re at in your life, what your mindset is, and what direction you’d actually go with that. So just be tough to say, you know, out the gate. We have to ask some more questions and figure that out.
Speaker 2 43:00
Yeah, everybody out there, you got your own scenario. Make sure you have a customized plan. We’re giving you the opportunity to get on the calendar with the lead income advisors with a complimentary appointment, and either get the ball rolling or get that second opinion, and there’s no cost or obligation. 800-653-8404 Final scenario to you, Prashant. Widowed 74 their adult child with a disability may need long-term financial support. They’ve saved diligently, but estate planning now feels more urgent. What options should someone consider to ensure a secure future for a dependent child after they pass, the
Speaker 1 43:43
first thing that comes to mind here would be something like a trust. Okay, and the benefit of a trust is that it gives you total control of how assets are to be distributed when you pass away, and so with that being said, if you want to have supreme control over who gets money and what schedule they get it on, and most importantly, being able to protect some of those assets from the government, because you know if you’re on social security from a disability standpoint or SSI, there’s certain asset thresholds that you cannot exceed in order to qualify for benefits, so having a trust in place is certainly one option that could tremendously help create a little bit more control over an inheritance situation when you pass away. The way I look at estate planning, you know, it’s kind of, in a way, almost like running a relay race, right? And you know, the baton only matters if it’s passed smoothly, right? The minute one person drops that baton or fumbles it and slows everything else down, the whole process just becomes that much more inefficient, and it becomes much harder and. Harder to catch up and maintain your position in that race, and that’s exactly how I view estate planning. I think a lot of people mistake estate planning as something that only wealthy people should do, when in fact I think every single person with any kind of assets should look at doing an estate plan, that could be just a will, it could be just listing beneficiaries, it could be doing something as complex of a trust. So, folks, if you’ve got similar questions about your retirement, let’s talk. We help people every week turn uncertainty into clarity. It starts with that phone call, it’s 800-653-8404 You’re just going to dial that number. Our operators are standing by. We have appointments available in our schedule for the next two weeks. Here, beyond two weeks, there’s no guarantee we’ll be able to get you in. Our office does stay very busy, but we’ll put you on a priority wait list if you’re not able to get in in the next two weeks. But those phone lines are open, it’s 800-653-8404 You can also visit Elite Income advisors.com that’s Elite Income advisors.com Go check out our events tab, we have a great educational center and a resource tab on the website as well, Elite Income advisors.com
Speaker 2 46:19
Another edition of Retire Smart Maryland Radio in the books for Prashant and John. I’m Morgan. We’ll see on the radio next week.
Speaker 4 46:34
Family guarantees are subject to the claims payability of the issuing insurance company. If you withdraw money from or surrender your contract within a certain period of time after investing, the insurance company may assess a surrender charge. Withdrawals may be subject to tax penalties and income taxes. Persons selling annuities and other insurance products receive compensation for these transactions. Products are subject to fees and additional expenses. Any comments regarding safe and secure investments and guaranteed income streams refer only to the fixed insurance products. They do not refer in any way to securities or investment advisory products. Information presented on this program is believed to be factual and up to date, but we do not guarantee its accuracy, and it should not be regarded as complete analysis of the subjects discussed. Discussion should not be construed as an offer to buy or sell, or a solicitation of an offer to buy or sell the investments mentioned. Professional advisors should be consulted before implementing any of the strategies discussed. Investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client’s portfolio. Investment advisory services offered through Elite Income Advisors Incorporated, a registered investment advisor located in Ellicott City, Maryland. The firm only conducts business in states and jurisdictions in which they are properly registered or exempt from registration requirements. Registration is not an endorsement of the firm by securities regulators and does not mean the advisor has achieved a specific level of skill or ability. Content should not be viewed as personalized financial advice. Insurance and Hootie 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 through Retirement Planning Services Incorporated. President Ozer Culhagil, Prashant Sabapathi, and Jonathan Defea receive commissions for the sale of insurance products as insurance agents for Retirement Planning Services Incorporated. Insurance annuity product guarantees are subject to the financial strength and claims payability 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 a production of Elite Income Advisors,
