Speaker 1 0:01
You should you play it safe with a savings account or let your dollars don a cape and fly into the stock market, whether you’re a mattress stuffer or market maven. Knowing when to save and when to invest can save you from some serious financial face bombs. Let’s find out which money moves deserve your applause today on Retire Smart Maryland Radio.
Speaker 2 0:25
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, and again, it’s all about helping you get to and through your retirement. They’re headquartered in Ellicott City, a satellite office in Annapolis for your convenience. I’m Morgan Patrick. My pleasure to jump on and talk about all these different retirement issues, topics, things you should be doing, things you should avoid. Again, it’s all about planning and getting you ready. And guys, as we always do, first we welcome you back to the show. And I just want to state for the record, it’s been a while since all three of us have been together. You guys have been a little busy, a little bit
Speaker 1 1:16
busy. Yeah, both John and myself have newborns here, just in the last, what, I six weeks now, so it’s been, it’s been pretty cool, you know, for me, you know, first time parent, John, this is your obviously your second child, but it’s been a lot of fun, and, but boy, am I excited to get back to the office, get back to work, we have bit of a routine now that we’re back into, so it’s been fun taking a little bit of paternity, but I’ll tell you what, it’s been really nice getting back to the office,
Speaker 2 1:51
John, and just your thoughts too. And let me just add this, you know, entering in, especially for you, Prashant, this is your first foray, John, you’re second. It really makes you think about the bigger picture, doesn’t it?
Speaker 2 2:05
Oh, absolutely. Every day, I mean, you wake up, you see these little babies that are kind of helpless, and you know you have to be the one to provide for them, feed them, change them, you know. It definitely opens up perspective, but also for planning, you know, down the road. You know, I got to think about college, that’s not cheap. I think about the price of milk, the price of all the things that come along with that. You have to have a financial plan in place, as well as longevity. If something happens to me, I got to make sure my wife is prepared to take care of these two kids without an additional income, because she’s now a stay-at-home wife. So it presents a lot of great things, but also a lot of concerns, and that comes with planning, so you know, fantastic opportunity, love the kids, but they’re not cheap,
Speaker 2 2:52
they’re not, and but I tell you, what a blessing, and today having you both back on the show, we’ll see if you guys can still dance together, so here we go. Saving and investing now in this realm of personal finance, both of these, I mean, they’re two fundamental strategies that serve different purposes. Well, while saving offers the security and liquidity, investing provides the potential for growth, so determining when to save and when to invest can significantly impact, you know, your financial overall wellbeing. So, guys, shot, we’ll start with you. What distinguishes between these two, saving and investing?
Speaker 1 3:29
Look, very simply, saving involves setting money aside in low-risk or even no-risk accounts, things like savings accounts, CDs, money markets, and the point there is that you’re getting easy access to capital with very minimal risk, whereas investing, on the other hand, of course, entails purchasing assets, things like stocks, bonds, mutual funds, with the expectation that we’re going to get higher returns, right, and so whether you’re participating in a 401 k at work, or an IRA, or if you’ve had the foresight to take advantage of things like Roth IRAs, hopefully that money is being invested so that it can grow over the long term, and I think one thing people kind of struggle with, you know, in helping the number of households that we’ve helped to retire over the years, I think one common thread is, how do you strike the balance between saving and investing? So, John, maybe talk a little bit about when you should prioritize saving over investing, and I guess vice versa. When should we look at investing over saving? What are your thoughts?
Speaker 2 4:40
Yeah, great. Great, what I mean, it depends on your goals, where you are. I mean, I think the first financial step to success is creating an emergency savings. If you don’t have a reserve fund for when things happen unexpectedly, it can put you in a really serious hole. So, you know, the CFP Board suggests about six to 12 months. Of expenses on hand in a savings account, you know, I subscribe to that ideology. Have a great example of this. I get a call from my wife yesterday that the AC isn’t blowing cold, so you know, get home and, you know, spend an hour and a half putting up window units. You know, we’ve got a, you know, a newborn and a two-year-old and wife that doesn’t want to be uncomfortably hot, so you know that’s going to be an expense that was unexpected, and we’re going on vacation in a couple of days, so you know it’s either you cancel the vacation or you have the vacate, you know, the emergency fund to back that up, so I think it’s a priority to save in those, you know, shorter term and you know options like a savings account rather than investing for the things that you’re going to spend in the next six to 12 months, you’re not really worried about high growth, you’re worried about liquidity and security. So, I think you know the priority to save versus invest is if you don’t have that emergency fund, you don’t have something to fall back on in the event of an unexpected expense. Now, once you have that emergency savings locked in, you know, you have all the money that you’re going to need for the next six to 12 months, liquid, something that you can access without volatility in the market. I think that’s when you start to look forward at how can you invest, right? Look at your intermediate term goals, your long term goals have different buckets for different objectives. You know, I personally have, you know, the emergency bucket for things like this, when the AC goes up. I have a vacation fund. I have, excuse me, I had a hospital fund to pay the bills for when the child came, you know. I have a fund for when I want to buy a house in two years. I’ve, you know, I’ve got the long-term retirement bucket, so so many different buckets working for different objectives. I think it’s extremely important to have that, but you can also have too much money in the savings, and we see that a lot with folks that are uncomfortable with the market, they’re scared to take risk, and that can lead to actually a decrease in purchasing power. So, Prashant, if you want to elaborate a little bit more on, you know, when it makes sense to invest, you know, to combat the inflation, try to be able to prevent a rate of return for that.
Speaker 1 7:00
Look, I think in the last couple years we’ve seen inflation really spike, you know, John, you mentioned it in the open, but cost of living is going up, and everybody, whether you have a plan or not, is dealing with that, and investing, believe it or not, is one way to help you combat inflation, because the higher growth rates over time. Hopefully, the higher growth rates allow you to outpace the rate of inflation. So, think of savings as just your backstop in case there’s an emergency. Think of investing as your way to actually create real value over and above the inflation rate. And so, you know what goes into your decision to save or invest, you got to look at things like financial goals, risk capacity, time horizon, short term objectives may warrant savings, while long term aspirations could benefit from investing. So, if you’re trying to finance a long term need, such as something like retirement, you want your money working for you, growing as much as possible, and so navigating the complexities of it all are really what is important in figuring out the most efficient way to do that. So, heading into our first break here, we’ll open up our phone lines. That phone number, folks, it’s 800-653-8404 that’s 800-653-8404 Let’s think about this from a very simple standpoint. Is your money in the garage or is it on the racetrack? Saving is safe, but it’s not going to take you very far. Investing has the power to grow your wealth, but it does come with certain twists, turns, and speed bumps. Most people don’t know which vehicle to take or which part of journey of life that they’re at to determine which avenue they should go. If you need help figuring out how to get your financial plan started, or maybe you’ve been saving and investing for years and need a way to coordinate it into a retirement plan that works for you, all you’re going to do is pick up the phone, give us a call. Schedule a free consultation with our team at Elite Income Advisors. Again, folks, that phone number 800-653-8404 Call now.
Speaker 2 9:10
When we return on Retire Smart Maryland Radio, most retirees are not planning all the way to the end. We’re going to give you some real advice coming up next. To welcome back into Retire Smart Maryland Radio, powered by Elite Income Advisors. Check out the website, it is a resource, Elite Income advisors.com That’s Elite Income advisors.com Your hosts, Prashant Sabapathi and John DeFeo. You can find them both at Elite, and they’re headquartered Ellicott City, and they have a satellite office in Annapolis for your convenience, and they’re both independent fiduciaries. I’m Morgan Patrick. My pleasure again to jump on Talk Retirement, and we hit all the. Different topics, you’re going to have questions about your own situation when it comes to retirement. Maybe you’re just sitting on the portfolio, you’re waiting for something, you’re procrastinating. We’re going to give you an opportunity to get on the calendar with Elite, and these are complimentary appointments, no obligation. We’ll tell you about those as we move through. You could also be halfway down the path, working with somebody, but the calls aren’t being returned. Your appointments are getting bumped around. Get a second opinion, grab one of our appointments when we give you the number. All right, so we’re going to come out of the, you know, this part of the show, and we’re going to absolutely hit this out of the park. Little bit different, you’re not planning all the way to the end. So, what do we mean by that? What does that mean? It means you think the finish line is close, but in reality it’s not. Listen to this.
Speaker 3 10:47
If you’re 60, I hate to say to you, you’re not 60 today. If you’re 60, you’re 40 years old, because you’re living to 85 years old. Stop thinking you’re 60 years old. With all due respect, you are naive if you’re a boomer at 60, thinking about retiring in five years, you ought to change your retirement plan to 12 years at 72 not because, oh my gosh, that’s so unfair, the government is so unfair, no, because you’re gonna live longer, and if you decide to retire at 65 you’ll be broke at 79 years old, miserable game plan, you’re 60, you’re going to 72 have the conversation with your wife, have the conversation with your husband, go get a side gig, do real estate, go do insurance, sell whatever people at your age are interested in, because that’s your market.
Speaker 2 11:26
I tell you, my pulse rate is like going through the roof just listening to that. A lot of people have opinions on this, I know you guys do too. This is Patrick Bet David, he’s a big shot business guy, but basically, is he speaking the truth? Is 60 the new 40, Prashant. Just your thoughts.
Speaker 1 11:44
Yeah, you know, I.. it’s interesting, because you never know when opportunity is going to hit you in the face, right? Like, you, you get to a point in life, and it could be in your 30s, could be in your 40s, could be in your 60s or 70s, where you have the opportunity to do something that you’ve never had the opportunity to do before, and that turns into kind of a new wave of, you know, action for you, right. And so we have some examples here, John. You want to talk about this one, turning expertise into consulting, right? What’s Morgan? What’s the, what’s the example that we have here for John on this one?
Speaker 2 12:24
Well, I mean, think about it. It’s Barbara Hewson, and this is just to give you some background. Financial journalist, daughter of the H and R Block co-founder, and this is a midlifer, so she’s taking her expertise and she flips it, John, and she turns it into something that can make some money.
Speaker 2 12:44
Yeah, absolutely. So, you know, Barbara is a financial journalist. She’s also the daughter of H and R Block co-founder. So, you know, after, you know, midlife, she began coaching high net worth women on wealth mindset, on financial empowerment. She has a number of books out, so a very successful high net worth coach for women, and she found that, you know, later in her life, and you know, at this point she does a good bit of consulting, you know, she is semi-retired, but still works here and there, kind of at her own pace, and we see a lot of folks doing this in retirement. I don’t know that I necessarily agree with Patrick in delaying your retirement 12 years or whatever he said 60 to 72 because you were going to live longer. I think if you plan correctly in the beginning, you know, from you know as you’re saving through through life and once you get to retirement, I think if you put a successful real plan together, we have clients that are retiring at 60, we have clients that are retiring at 5859 I think if you plan appropriately, waiting until 72 is not needed for some folks, it might be, but consulting is certainly an opportunity to step down from a full grind work employment to do something that’s a little bit more enjoyable and maybe at your own pace we have so many clients that do that, we have a lot of government contractors that worked for the government full time that now just contract and do what they want to do at their pace, so I think it’s a great example for how that can work out.
Speaker 2 14:12
Okay, important to remember too, you know, as you’re moving towards retirement, everybody’s plan is going to be different, you may be in a situation where, as John just mentioned, you know, you do the numbers, you come into elite income advisors, and you crank out this plan, and all of a sudden you’re like, hey, I can go, I can retire, but you also may get the information that you know you might need to work a little bit longer, and I guess from this point of view, we’re thinking, all right, so longevity is going to play a factor here, if I need to work some things I can be doing that I can build off my own resume that I’ve created over the course of my lifetime, building a freelance income stream. The example is Paul Tasner, but I asked Prashant, just give us some background, maybe how he had to pivot here, and then what was the overall. Result,
Speaker 1 15:00
Paul Towson is really interesting guys. I don’t know if you, if our audience knows that the company Pulpworks, but basically Paul was laid off at age, I think it was 64 after 40 years working for other people, and at 66 I believe he became an entrepreneur and started he was a co-founder of Pulpworks, which designs and manufactures biodegradable packaging, and now he does a bunch of TED Talks and a lot of public speaking, runs a very successful company, and so with all that being said, you never know when that other stream of income or that other opportunity is going to present itself for you to be able to supplement what you’ve already built and saved for retirement, and so whether you start that process of creating additional income streams at 30 years old, at 40 years old, or like some of our clients, like John said, they get into consulting or starting their own business in their 70s, believe it or not, I have a client who is still working self-employed in his 80s, not because he has to, but because he loves doing what he does, you know. I think that’s a really important part of it. It’s all about the income, and we talk about it on the show every single week. Your retirement is just a function of money in and money out, and the more streams of money in that you can end up building, ultimately the higher your income is, the better the outcome ends up being when you get to retirement. So, why don’t we start thinking about ways to build additional streams of income? John, another way people go about building income in retirement is to invest in real estate, right now, might not be the best fit for every single person. There’s a certain type of individual that has to be willing to take on the risk of owning real estate, but why don’t you talk about a little bit the opportunity involved with investing in real estate and what that could mean from an income standpoint, specifically for retirees.
Speaker 2 17:00
Yeah, I think rental income is fantastic in retirement. Again, in addition to the cost, you have to be willing to take on the work that is involved with managing a real estate property, right? As you know, a renter, it can be difficult, but if that’s something that you’re willing to do, I think it’s a great opportunity. I think a good example of this is Kathy Fettke. She was Morgan, a radio host and a real estate, also a real estate investor, and she started to invest in single-family homes and ended up turning that into a rental empire. And she went on to create the Real Wealth Network. Some of you guys might be familiar with this. It’s an educational platform that helps boomers invest passively or actively in real estate, so there’s a lot of opportunities investing in real estate, whether you’re a passive or active investor, there’s tax break opportunities there. So I think it’s a great, you know, a thing to have. We have a lot of clients that have rentals into, into retirement. A good example of this, we have a client that had three, three daughters that went to school in Virginia, they bought a house down there for all three of their daughters to stay at when they all graduated from college. They said, well, why don’t we just keep this thing going as a rental, and that’s going to provide them a pretty significant amount of income based on the location that it was they bought it 20 years ago. So it just shows that even those purchases while you’re working can be very helpful in retirement as well.
Speaker 2 18:21
I mean, think about it, an opportunity to pad your accounts, and it may be a situation where it’s just going to be extra for you, extra income, so you can enjoy maybe some more travel, do more for the grandbabies, more for your own kids. Morgan Rick,
Speaker 1 18:36
what this does is it diversifies your streams of income, and how many times you go see a financial professional or advisor, and they talk about the importance of diversifying your investments, but then they talk to you about stocks and bonds and things like that, and they say, why don’t we buy value stocks, or growth stocks, or dividend stocks, and that is one form of diversification. Well, if we all agree that diversification is important. I think we can all agree that it is. Why are we not diversifying our income streams? Right? What if you had five different income streams in retirement – social security, pension, rental income, investment income, dividends? Maybe you have an annuity, and let’s say one of those things doesn’t come through for you in any given year, example, you have a piece of real estate where the renters just don’t pay on time. Well, if that rental income was your only stream of income to supplement your social security that you were counting on, and it doesn’t come through for you, are you willing to have a lifestyle that you now have to sacrifice because it didn’t work out, whereas if you had five different income streams, some of them totally guaranteed, maybe you have an annuity, some of them non-guaranteed, like dividends, some of them non-guaranteed, like rental income, and just one of them didn’t work out, you now do not have to suffer because the other four that you built in proactively are pay. You up, and so diversification is important, but let’s not limit diversification to diversifying stocks and bonds. Let’s diversify your income and let’s diversify your taxes when you get to retirement. If your advisor has not talked to you about this level of diversification and care when you get to retirement, I think you might be leaving opportunities on the table, that’s why we encourage people to schedule these free consultations with us. It’s not to determine whether or not you should switch advisors, it’s simply to understand whether or not there’s a tremendous amount of opportunity that you have not yet taken advantage of. So, I’m sorry to interrupt you there, Morgan, but I had to say that, because, because I think it’s so important to diversify as you get to retirement. By the way, folks, that phone number, 800-653-8404 Let me kick it back to you now. Sorry. Okay, I know
Speaker 2 20:53
perfectly. Okay, I mean, we start this conversation talking about, you know, 60 is the new 40, which is a bigger conversation about longevity, and you know, if you plan well, and you have these multiple income streams, certainly you are going to have the opportunity to really enjoy your retirement. We’re kind of going over things that you could be doing based on what your personal resources are, and how you can kind of reinvent yourself, create more income streams. The rental income is a great one. Again, we’ve got people leaving certain industries that are becoming consultants in those industries, leading TED Talks. Again, these are people that are thinking ahead, and that’s exactly what you need to be doing when you’re planning. So, the appointments – we’ve got 10 of them. Prashant, walk us through what’s going to happen.
Speaker 1 21:41
Here’s the truth: retirement really isn’t the finish line, it’s kind of the new starting point, if you think about it. And we just spent the last few minutes talking about people who redefined what their golden years looked like, right? And so, if that’s got you thinking about this in a little bit of a different way, how am I going to spend the last 20 or 25 years of my life to not just live but make it fulfilling. You have to have that plan in place, and it needs to be a written plan, folks. If you’ve never done a true written plan, all you’re going to do is pick up the phone right now and give us a call, 800-653-8404 that’s 800-653-8404 or you can visit Retire maryland.com When you call in, or you visit the website, schedule that no cost, no obligation conversation with our team at Elite Income Advisors will help you parse through your concerns, help you address them, and most importantly, put it down in a written format, so that you have a plan that allows you to live the retirement that you deserve. 800-653-8404
Speaker 2 22:48
When we return on Retire Smart Maryland Radio, the term is phased retirement. We dig in next Welcome back in Retire Smart Maryland Radio, hosted by Prashant Sabapathi and John DeFeo, Elite Income Advisors, where you can find them. They’re independent fiduciaries. They’re headquartered, Ellicott City satellite office in Annapolis, for your convenience. I’m Morgan Patrick. We are getting into phased retirement. We want to remind you, too, that you’re probably.. if you’ve got any questions about where you are, if you’re sitting on a portfolio, that’s not a plan. If you’re frustrated with your current situation, get a second opinion. We’ll open up the appointments during the course of this show, we’ll tell you about those as we move through. So, phased retirement, Prashant, what is it? What is that?
Speaker 1 23:47
Phased retirement allows older employees to really kind of gradually reduce their working hours, instead of making, you know, that really kind of abrupt exit from the workforce. Okay, and so there was a report that came out, 2024 SHRM report said that nearly 23% of employers now offer some form of a phased retirement arrangement, and so that’s really great, because it, you know, it gives you the opportunity as a pre retiree to kind of practice retirement right, and I think there’s a tremendous amount of value in practicing retirement. In fact, it’s something that we preach to our clients all the time. If you have the opportunity to do so, why not test drive your retirement a little bit before figuring out when and how retirement is going to look, so maybe John, you can talk a little bit about those conversations that we have with our clients, and what is truly the benefit of practicing specifically your impending retirement.
Speaker 2 24:56
Well, I think it does a couple of things. I think number one, it emotionally. Prepares you for what retirement will look like. I think we find in our office quite often the psychological effect of hanging up the hat is what people can’t get over. Some folks know that they’ll be financially okay, but they don’t know what their retirement is going to look like. They hear horror stories of folks that kind of sit there stagnant, their health goes away, they forget their identity, a lot of people’s work is their identity. So, I think it’s important, and it’s helpful to get a sense of what you’re going to do in retirement and practice that. Right, we talk with the clients a lot about this a lot. There’s one way of practicing, and this isn’t just in terms of figuring out what your expenses are going to be. You want to know in retirement how much that’s going to cost you to make sure that the things you plan to do will work in the plan, so we typically tell people the year before you plan to retire to really work on your spending plan, figure out what you’re spending. We have a couple of tips that we give clients on that, and then once you identify that you can do those things, do them right. So we have a couple of clients that are already traveling right now, you know, they’re two years from retirement, but they have, you know, a plethora of PTO that they can use to go on these vacations, so we say, look, you can afford this, go on the two week trip to Europe, go on the three week European cruise, do the things that you want to do in retirement, get a sense, get that taste of retirement, and it really motivates them to be able to hang it up, they say, I know what I’m going to do, I know what my purpose is, I mean, it just, it really helps ramp up the emotional side of retirement, and it gives them the peace of mind that financially they can do it, because we’re letting them know, hey, here’s the plan, you have it in your hand, this will work, go have fun, right.
Speaker 2 26:31
So, important, I mean, think about it, when you take a look at your retirement, maybe a phased retirement is something that you should consider. How’s it going to fit into your overall plan. We’ve talked about it again, giving you the definition. It’s like practicing retirement. The other part of this, too, Prashant, it eases some pressure on your savings. Obviously, you’ve got a plan, hopefully it’s mapped out, you’ve got your income that you need for retirement, but you know, if you’re practicing, or if you’re phasing in your retirement, it’s not as much financial pressure on you right at that time.
Speaker 1 27:04
That’s exactly right. Remember, retirement is all about the income, right. And so, if you have part-time income coming in, which effectively is the phased out part of easing into retirement, more part-time income means less withdrawals from your portfolio. Fidelity did did a study, it’s a 2024 retirement savings assessment study. It found that the average retirement shortfall is still nearly $190,000 for Americans. That means on average the average American retiree passes away with $190,000 less than they should have, have to be able to retire at the comfort level that they wanted to be at when they started retirement, right. So, $190,000 is a lot of money. So, if we have to make up that gap, there’s only a couple different ways to go about that. Number one is you have to reduce the amount of pressure that’s actually placed on your portfolio in terms of withdrawals. Number two, you have to build in more guaranteed income that’s not linked to the ups and the downs and the uncertainties surrounding the stock market, and number three, it could be that we need to be properly prepared for the what ifs that retirement is going to throw at us, and the things that come to mind for me are things like taxes. Number one, if we have higher taxes in the future, I know that the big beautiful bill just passed, but with that being said, I think there’s still an overarching theory that taxes are probably going to be higher 15 or 20 years from now, so taxes, and the second part is health care, right? If health care costs go up or long-term care costs arise, you have to be able to make up the income to fund those types of things, and so I think there’s so many moving parts to planning for retirement and making sure that you’re not in a situation where you have a shortfall. Certainly, easing the pressure on retirement savings by delaying or working part-time is one potential solution to making your money last as long as possible.
Speaker 2 29:15
It’s all about having the plan, and that plan might include a phased retirement. If you’ve got questions about where you currently sit. We’ve got complimentary appointments again. You can get them with Elite Income Advisors. Meet with Prashant, John, and the team. And again, there’s no cost, there’s no obligation. We’ve got 10 of them. Call now: 800-653-8404 Totally complimentary: 800-653-8404 So the phased retirement, John, the mental side of this, you know, you’re not abruptly leaving your job, there’s a sense of worth, there’s a sense of purpose, you, I mean, phase phasing out of your work a little bit slower than say just cold turkey, it’s a big deal.
Speaker 2 30:00
Yeah, absolutely. Yeah, like I kind of mentioned a few moments ago, there’s a huge psychological impact to retiring. A lot of people put a lot of their identity and self-worth into work. That’s where they’re viewed as an important person. They value their work, so completely stopping that can be a big hurdle for folks to get over. I mean, not just that, but not knowing what you’re going to do, and not knowing what your purpose is after that, right? You’d always been a great employee, a great leader, a great, you know, whatever it is that you do for work, and now you’re retired. So, we see this time and time again. A great example of this is, we have a client that we’re helping to retire at the end of the year. When we met with him a few months ago, his main prior, main concern was the financial aspect of it. Once we showed him that financially we could do this, that he could retire at the end of the year, live the retirement lifestyle he wanted, then he comes to me with, well, I really don’t want to retire, because once I retire, that that means that I have to admit that I’m getting older and I’m in a new stage of my life, and we kind of chuckled and said, so that’s what the hang up is, right? And over the past two months, once we put this plan together, I was actually talking to his wife, and she said, John, I have not seen him so relaxed in the time we’ve been married. He has been working on a plan to fix the house up and retire, you know, he’s he’s relaxed, he’s not stressed out, and it just shows the power of, you know, putting a plan together, talking through how to make sure it works, so that we talked about that. We said, well, what do you want to do in retirement? Why don’t you think about that? If you don’t know what you do, then maybe you work part time and phase out. He had the opportunity, and he took time to think about it, and said, you know what, I know what I want to do, and it’s not working anymore. So, I think really helping folks, I mean, we, we talk about being financial advisors and helping people with their financial plans, but we joke that there’s also a therapeutic side to what we do, right? We’re part financial advisor, part psychologist, helping folks get over those emotional, you know, impacts to their decisions. So, I think it’s this huge, you know, phasing down, not working as much, certainly a way to do that.
Speaker 2 32:01
Well, I want to jump to this last one, and Prashant, you can get closing thoughts on this. You know, when there’s a doubt, just have a plan, consult with the pro.
Speaker 1 32:09
Listen, you do this with every other important decision that you have to make. Your retirement is a million dollar or multi million dollar decision, right? Your health is incredibly important, so you go and consult a medical professional, right? If you have a legal question, you’re not just going to go look it up on the internet, you’re going to go consult a legal professional or an attorney to get this stuff done. Why are we not doing the same when it comes to your retirement? I think you have to work with a pro who understands tax laws, who understands Medicare, who understands how to properly structure retirement, so that you don’t run out of money, and that you’re using everything that is at your disposal to make your plan work, okay, and we do that with every other important part of our life, we should be doing that with our retirement as well. Because let’s be honest, retirement isn’t as simple as just flipping a switch. For many people, quitting cold turkey leads to boredom, financial stress, identity loss, just like what John was talking about. That’s why phased retirement is gaining serious momentum. It’s really not about stopping, it’s about slowing down with a purpose. If you’ve never considered slowing down within your purpose, give us a call. Let’s talk it out. 800-653-8404 is the number for you to schedule a complimentary review of your situation, your objectives, your concerns. Let’s put together a written financial plan that helps you get exactly where you want to go. Again, 800-653-8404
Speaker 2 33:46
When we return on Retire Smart Maryland Radio, it’s time for scenarios. We gather them from around the country, we’ll throw them at the guys, see what they come up with. That’s next, you John, welcome back to Retire Smart Maryland Radio, hosted by Prashant Sabapathi and John DeFeo. You can find them at Elite Income Advisors, the power behind this program. Check out the website Elite Income advisors.com it is a resource. Both Prashant and John are independent fiduciaries. They’re headquartered out of Ellicott City. They have a satellite office in Annapolis. I’m Morgan Patrick. Each and every week, it’s retirement topics, but also an opportunity for you to get on the calendar with elite income advisors. The appointments we open up through the radio show, they are complimentary. We are here to help. A lot of you have portfolios, don’t have a plan. There’s some of you that are halfway down this planning path, but you’re frustrated, need that second opinion. The 10 appointments we open up are for you, so make sure you take advantage. That number, 800-653-8404 that’s 800-653-8404 You can call that number at any time, grab. One of the 10, all right. So, scenario number one to Prashant, a retiree creating a legacy plan, wants to leave their estate to support future generations, but doesn’t want to encourage financial dependency. They’re exploring options for creating a family bank or dynasty trust to fund educational and entrepreneurial pursuits with that legacy
Speaker 1 35:23
we see this so commonly, where you know mom and dad do a great job saving money because they’re great at saving money, they’re savers, right? They’re not spenders, they’re savers. And then when they get to retirement, they have a hard time spending because they’re used to saving, and as a result, when they pass away, they have millions and millions of dollars that are left to their kids, and one of the primary concerns is I do not want my kids to lose their purpose as a result of inheriting millions of dollars, and this is something we hear, I feel like every single day in our office, literally, because that’s the type of people that typically come to see us, it’s the really great savers, and so when we look at things like trusts, when we look at wealth transfer tactics to minimize tax liabilities, this is increasingly at the forefront of people’s minds, and that’s why I think you not only need to have a financial plan that accomplishes what you want to accomplish, but your financial plan has to actually work in tandem with your estate plan to make sure that whoever gets your money when you’re gone, that your wishes are what’s honored at the time of death and at the time of inheritance. Okay, and so what I’m getting at here is, it’s in this day and age, it’s not enough to just have a really good financial advisor. I think you have to have a good tax advisor, you have to have a good financial advisor, you have to have a good estate planning professional as well, but most importantly, all these individuals and all these professionals, they have to be able to work together to create a true team to help you get where you want to go. This is something we’re big preachers of, and most of our clients like to have that financial dream team in place to take advantage of all the different opportunities they can to minimize taxes and to make sure that their legacy is honored the way that they expected.
Speaker 2 37:21
Yeah, teamwork to make the retirement dream work. We are in the middle of scenarios. I’ve got one for John. Here it is. A 70 year old retiree has a paid up whole life insurance policy with 200,000 as the death benefit. They’re considering surrendering the policy to access the cash value, but are unsure of the tax implications. Is surrendering the policy the best option for them at this stage?
Speaker 2 37:48
Yeah, I think, like most of these, probably have a little bit more information here. I mean, what’s the purpose of the surrender? Is there a large expense they’re looking to fund? You know, why do they need that level of cash, and what’s the cash value within the policy, right, so a couple of things to consider here. When you pull cash value out of a life insurance policy, your cost basis is your premiums that you’ve put in, right. But if you have growth in that account over time and you pull that out, you have to pay taxes on that, right. So, depending on the level of growth, it could have a large tax event, whereas if you pass away, and the death benefit is left to the beneficiary, that death benefit is left to them tax free, right. So, there’s there’s an advantage to allowing this to play out, and you’d pass away, and your beneficiary inherit that money, but if there’s a specific use or need for that cash value, we probably reevaluate that, right. And I think this is with anything right, as Prashant said, you have to have an idea of what the taxes look like. A CPA can help you with that. You have to understand what, again, what the purpose of the whole life policy was to begin with. They might have bought it because they needed to insure a spouse that they went out of work, and maybe that’s not an issue anymore. So, maybe the cash value is more valuable to them now, but I would also argue that at 70 years old, that $200,000 death benefit is probably more valuable than it has ever been. Right, as you get older and older, the death benefit on a life insurance policy becomes more valuable because it’s more likely that you would pass away. So, it would depend on how long he’s held the policy, what the cash value is, what the premiums are. I mean, if he still paid well, it’s paid up, so never mind. I will make that, but I think there’s a couple of things we’d have to look into before we’d recommend that.
Speaker 1 39:27
John, what are the go through for a second the tax implications associated with life insurance death benefits? Right, I think I think that’s an important piece of this, is a lot of people don’t understand how powerful the tax benefits are with life insurance. Why don’t you cover death benefits and taxes for a sec?
Speaker 2 39:48
Yeah, yeah, so a death benefit with a life insurance policy is not included in taxable income for the beneficiary. If you title it the right way, it can even be excluded from an estate. But it can be very powerful in a few ways. Number one, it can provide income and assets to your surviving family, whoever it is that needed that money. I think that’s impactful, but it can also be used to pay taxes on your estate down the road. So, if you’re a high net worth individual and you have more than, say, you know, $30 million and when you pass away, it’s very likely you’re going to have to pay estate tax, and estate tax can be more than 50% of your overall wealth, in addition to your income taxes. So, it’s a pretty significant amount of money you have to pay, and maybe some of those assets are held up in highly appreciated or real estate that maybe at that time is down, maybe the market’s down for real estate, you pass away, and you have to liquidate some of those properties to pay the estate tax. That might not be something you want to do. So, we have a lot of folks, a lot of clients that will purchase life insurance, and you know, in the millions, to be able to cover the taxes that will be due on their estate, so that their kids aren’t forced to sell property, sell assets that might not be at the appreciation value that they’d like, or maybe they don’t want to have to sell the property at all, so they can be used as a tool, not just for the tax-free benefit, but also to pay estate taxes down the road.
Speaker 1 41:08
If you’re listening to this, and your estate is 2530 35 million, or you’re in a position where you’re maybe 10 or 15 million, but that estate is growing year over year. Maybe you own a business that’s doing really well, and you could forecast being able to grow your estate in excess of 2025, 30, $35 million You have to start thinking about estate planning seriously. Okay, and estate planning is not how do I make my kids rich? Okay, to me it’s a matter of principle. Either your family gets it or the federal government gets it. How much each party gets is in the hands of how well you plan, and to John’s point, there are ways to shield a lot of that money and a lot of those assets from the federal government. So, John, I love that example, and for anyone listening who’s 15, 2020-five, 30 million or more, this is a conversation that you need to start having right now, before the tax laws eventually one day potentially get worse.
Speaker 2 42:15
Well, and we have complimentary appointments, you can have that conversation, and again, see if you’re on track for retirement. Again, the number to call to grab one is 800-653-8404 That’s 800-653-8404 10 appointments, we call it our top 10. Jump in there, grab it. It is complimentary. There’s no obligation, meaning you’re not obligated to become a client. They’re not obligated to take you as a client. This is to see if it’s a good fit. 800-653-8404 106 538404 All right, next scenario. Prashant to you, 50 year old investor. So we got a little ways to go here before retirement. 50 years old, 300,000 in small cap stocks has seen high growth, but worries about the potential for steep losses. They’re considering rebalancing to large cap stocks to reduce volatility. What are the trade-offs between small cap and large cap stocks?
Speaker 1 43:05
Well, it’s all in the name, right? So large cap just means large capitalization, so you’re going to get more established companies that you’ve probably heard of, whereas small cap companies, small capitalization that are much more growth oriented and growth focused, which also comes at a higher level of risk, but you know it’s almost like we had a conversation on diversification, right? And so that’s exactly what this question is alluding to. Okay, you’re thinking about diversifying from exclusively one asset class, which is small capitalization stocks, into things that potentially carry less risk, like large cap stocks, and so the trade-offs are going to be risk in return, but when evaluating when to make a switch like this, look, I’m a big believer that we shouldn’t just diversify for the sake of diversifying, we shouldn’t just make financial moves for the sake of making financial moves, I think when you get close to retirement, meaning if you’re 10 years or less from retirement, I think every single financial decision that you make from this point forward should have a clear cut purpose behind it. The way I look at it is every financial decision you’ve, you’re going to make, and that you have made to this point is almost like a financial prescription, and prescriptions, as we know, have side effects, and they have interactions, right. And so every decision you make moving forward is a new financial prescription that you need to evaluate how it’s going to interact with all the other financial medication that you’ve been taking, and evaluate what all the other financial side effects are of the decision making process. This is what you have to get into in order to create a comprehensive retirement plan. Folks, last opportunity for today’s show to pick up the phone, schedule that time with our team at Elite Income Advisors. You’ll meet with John DeFeo, he’s a certified financial planner, you’ll meet with. Myself and my incredible team here, Connor, Nick, Ozzie, Dan, they’re going to take really good care of you when you come in, and when you come in, it is just a conversation. It’s a conversation about the things that are most important to you as you’re thinking about retirement, whether you’re just starting to ask, Should I be saving or investing, or you’re already thinking about how to leave a meaningful, tax-efficient legacy for your kids and grandkids. Today’s show has one central message: you are not ever done planning. It’s going to start with that phone call: 800-653-8404 That’s 800-653-8404 Schedule that appointment, have that initial conversation. Let’s put together a real written retirement plan that gets you on track to retire smart. And so visit Elite Income advisors.com or dial that phone number, 800-653-8404
Speaker 2 45:57
Another edition of Retire Smart Maryland Radio in the books for Prashant Sabapathi and John DeFeo. I’m Morgan Patrick. We’ll see you on the radio next week.
Speaker 4 46:14
Family guarantees are subject to the claims 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 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 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 for Retirement Planning Services Incorporated. Insurance and annuity product guarantees are subject to 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 retires from our Maryland program has paid production of elite income advisors,
