Speaker 1 0:02
There are significant retirement planning changes coming in 2025 Changes that will impact your 41k your IRA, and yes, they are absolutely worth paying attention to, no matter when you plan to retire. We’re going to explain what all of this means to you and your retirement today on Retire Smart Maryland Radio.
Speaker 2 0:26
Welcome in to Retire Smart Maryland Radio with Prashant Sabbath. Welcome into Retire Smart Maryland Radio, your host Prashant Sabapathi. You can find him at Elite Income Advisors. They’re headquartered in Ellicott City. They’ve got a satellite office in Annapolis. Prashant is an independent fiduciary. He’s also a published author, a couple of books already to his credit: Physical Health, Retirement, Wealth, and Retire Abundantly. I’m Morgan Patrick. And each and every week, it’s always the importance of having a retirement plan to get you to and through. We talk about the many different topics, the different things that can impact you on your way to retirement, and as you make your way through retirement. So, make sure you have that plan. We’ll give you an opportunity, complimentary opportunity, to get on the calendar with Elite Income Advisors and talk about your individual situation, or if you’re retiring as a couple, obviously that couple’s situation. We’ll tell you about those appointments as we move through. Now, before we get into our first topic. Prashant, how was your week, bud?
Speaker 1 1:23
Hey, week has been great, and I’ll tell you what, I am energized here for the final stretch of the year. It’s always my favorite time of year. It gets super busy. I know I say this on the show every week when you ask me how my week’s been, but I’ll tell you what, we put together a couple really cool retirement plans in the last couple weeks here had some business owners coming in trying to take care of year-end business stuff and start planning for next year, so some of our business owner clients came in and we’re adjusting some of their plans, and then I got to say taxes is a big thing that’s come into focus here, especially with the election and everything else, I think we have to start to think about how taxes are going to impact our financial future, and I think retirees are going to be the ones that are most affected by that, given the state of the national debt, and so a lot of interesting things to talk about on today’s show.
Speaker 2 2:17
Election, was there an election?
Speaker 2 2:20
Did you miss that?
Speaker 2 2:24
Oh, wow, the smoke’s still everywhere. But anyway, we’re going to dive into this, since you’re talking about what’s coming. This is what’s coming. 401 k changes for 2025 Now, there are a lot of people that have questions about how these changes are going to impact their retirement savings, and with that in mind, we’re going to kind of get right to it. 2025 bring in some updates to the way the 401 k plans are going to work, and I know that a lot of people are curious about these, so we wanted to kind of run through these, take our time with these, just so you’re aware of them. The first one is a pretty big one. There are higher contribution limits for 2025 exactly right, especially when it comes
Speaker 1 3:00
to how you can save for retirement, there’s two things to be cognizant of here. Number one is the 401 k and thrift savings plan limit. So this is straight from the irs.gov website. They have a section in here that says highlights the changes for 2025 401 k4, or 3b 457 and thrift savings plans limits increase up to $23,500 which is actually an increase from 2024 where the limits were $23,000 and then the second thing here is we are going to get catch-up contributions that will increase as well, so catch up contributions. Just to recap, mean that you, as someone over the age of 50 years old, if you are in that age bracket, you can actually save more to your retirement accounts than someone who is under the age of 50. That is what is called a catch-up contribution. That applies to IRA accounts, that applies to 401 k accounts, so catch up contributions will be going up as well. So it’s a great way if you’re in the kind of the back nine of your working career, so to speak. It’s a great way to save a little bit more money as you get closer to retirement. Great thing to do, take advantage of the 401 k, the match, and the catch-up contribution.
Speaker 2 4:23
Yeah, it’s almost like a do-over. You get to the age 50, and if you have not been diligent enough, you can certainly put your pedal to the metal and make some progress in that category. Again, just kind of going over the 401 k changes for the new year, automatic enrollment expansion. This is another big
Speaker 1 4:43
one. Yeah, look, I’m a big believer that when you automate things, it takes the human element out of it, and thus it allows you to be more efficient when you plan, right? And so to me,
Speaker 2 4:56
are you saying the human element is mistake ridden? Is that what you’re saying?
Speaker 1 4:59
I’m. Saying it’s emotional, okay, not necessarily mistake ridden, but I think when you bring emotions into it, our judgment can get really cloudy really quickly, and so one thing that’s on the table here is the automatic enrollment, so employers could be required to automatically enroll employees into their 401 k, unless there’s an actual opt out that is selected by the employee, a lot of times they’re talking about starting with a contribution of 3% of your salary, but that can increase to 6% over time, and really, Morgan, what it is, if you think about it, it’s just a move to get people saving more money for retirement, especially those who are younger workers who really haven’t given it a whole heck of a lot of thought, and so I think automatically enrolling employees has been shown to significantly increase participation rates in retirement plans. Now we’re talking about 3% 6% potentially our target that we want to have people get to is 15% I think there’s a lot of data out there that says that if you consistently save 15% of your income for retirement over the course of 20 3040 years, it leads to you accumulating a viable nest egg that will then translate into a retirement income that allows you to live your most fulfilling and comfortable version of retirement, so while it’s a great start to start at 3% let’s shoot for the moon, let’s shoot for at least 15% if we can get there for retirement savings.
Speaker 2 6:31
We’re going over the 401 k changes for the new year. You’re locked into Retire Smart Maryland Radio, hosted by Prashant Sabapathi, and again, you can find Prashant at Elite Income Advisors, they’re the power behind this program. They’ve got a wonderful resource website. We get it, you’re busy, you’re out and about. If you can’t listen to the entire show, you can always check out Elite Income advisors.com Very easy to remember, and again, a good resource for you. Elite Income advisors.com There’s links to the TV show, radio show and podcast form, just great information there. And, of course, if you’ve got questions about that Retire Smart roadmap that we give to you on this program, you can certainly ask those questions. Get in touch with Elite Income Advisors. We’re going to give you that opportunity to get on the calendar with Elite here in just a little bit. So, back to the 401 k changes coming up for the new year, higher contribution limits, automatic enrollment expansion changes to required minimum distributions. What is changing with RMDs for 2025 The
Speaker 1 7:30
big change here, when it comes to RMDs or required minimum distributions, is that the age which you have to take it. So this was a piggyback on Secure Act 2.0 and so basically, in 2025 what’s going to happen here is people who turn 73 years old will have to start taking required minimum distributions, which are forced distributions from your retirement plans, your pre-tax retirement plans, like for 1k IRA, Thrift Savings Plan. Now, the interesting thing, though, is that 2033 will one day come along, and when that happens, that age of RMD will actually rise to 75 Now, one thing to remember here, folks, is that your Roth accounts, your after-tax Roth accounts, which then convert to tax-free down the road, Roth accounts are exempt from the required minimum distribution, but secondly, if you have a Roth as a part of your 401 k plan, what’s going to happen is employers will also have the option to offer Roth matching contributions, which is a huge deal if you can take advantage of that. So, look, I think when we talk about retirement, you have to have a comprehensive and coordinated plan put together. That’s why we open up our phone lines every single week to offer you the opportunity to come in, visit with our team of specialists here at Elite Income Advisors. The phone number is 800-653-8404 It is a complimentary appointment to come in and visit with the team. We’re going to help you put together a comprehensive retirement plan. On the other side of the break, we’ll talk about how to build a retirement plan and what specifically to look for, but it starts with your phone call. Call in right now to secure your appointment: 800-653-8404
Speaker 2 9:16
We’re back with more Retire Smart Maryland Radio right after this. You we are back on Retire Smart Maryland Radio. Your host is Prashant Sabapathi. You can find him at Elite Income Advisors. Check us out online. It is a wonderful resource website, Elite Income advisors.com It’s easy to remember, Elite Income advisors.com Links to the TV show, radio shows, and podcast form. Prashant is an independent fiduciary. He’s also a published author, couple of books: Fiscal Health, Retirement, Wealth, and Retire Abundantly. And Elite is headquartered in Ellicott. City, and they have a satellite office for you in Annapolis for your convenience. I’m Morgan Patrick, and each and every week it’s my privilege to talk retirement with Prashant, but we also give you an opportunity to take action on your own behalf. You’re out there sitting on a portfolio, you’ve saved your entire working life, but that is not a retirement plan, and there are a lot of ins and outs you need to be aware of. So, make sure you have a customized plan put together, and if you’re halfway down the path and you’re already working with somebody, but you’re frustrated, it’s okay to get a second opinion. Now, those Retire Smart roadmaps are available, they are complimentary. It is an appointment, and all you’ve got to do is call 800-653-8404 That’s 800-653-8404 That will secure one of those complimentary leave the checkbook at home appointments, we’ve been going over the 401 k changes for 2025 again, you look at higher contribution limits, automatic enrollment expansion, and we also talked about the changes for the required minimum distribution, and that kind of bled into, you know, the importance of considering Roth accounts within your own plan. Now, what about changes for annuities? The qualified longevity annuity contracts, the Culacs.
Speaker 1 11:06
These Culox are starting to become more and more popular. So, what a Culac is, it’s an annuity account, it’s a deferred income annuity account that you can actually purchase with retirement funds. So, typically what you would do is you would go ahead and take money from like an IRA or even a 401 k and put it into this deferred income annuity. By doing so, what would happen is you would be able to defer taking lifetime payments and defer required minimum distributions up until the age of 85 years old, and that offers you a little bit of tax relief. So, what’s going to happen here is we’re going to see CULAC limits increase, right? So, previously the CULAC limit, you know, used to be, I think it was about $145,000 that number is going to $210,000 actually. And I apologize, it was not 145 it was actually $200,000 for 2024 and 2025 That number is going up to $210,000 there. So something to take a look at, potentially there, and really, what I think this conversation on annuities fosters is the idea of creating reliable income in retirement, and you’ve heard me say it on the show every single week, while you’re working, your financial life is really just a function of what I call money in and money out, and your paycheck comes in, your expenses go out, and you try your best to save as much money as you possibly can. Now, with that being said, when you get retired, or when you get to retirement, that concept doesn’t change, folks. It is all about the income, it’s about money in and money out, but of course, what changes is where the money in comes from, and without a guaranteed paycheck in retirement, you now have to figure out a way to recreate that paycheck on your own. Using something like an annuity could be a reliable way to do that. Now, they’re not the right thing for every single person. I’m not saying every single person needs an annuity. What I am saying, though, is that if you don’t have a plan for where your income, where your retirement paycheck is going to come from, you need to look at that, because income is the foundation of a good, strong, solid retirement plan.
Speaker 2 13:36
We do this show to help you. We do this show to educate you. It’s about learning more about the potholes that are on this road to retirement, and there are many of you, you don’t, you don’t have the car out of the garage yet, right? You’re, you’re saving your money, you’re putting it away, you’re doing an excellent job at that, but really everything that goes into the planning part of this, so you can traverse that that pathway to your retirement is as comfortably as possible. I mean, that’s planning, and we talk about it each and every week. And there’s an opportunity to get on the calendar with elite income advisors, sit down and talk about your situation. If you have been sitting on that procrastination couch for many, many years, this is an opportunity to get off the couch, no obligation. You’re not agreeing to become a client to grab one of these appointments and just come in and talk about your situation, and you’re going to walk out with a Retire Smart roadmap. Again, the number to call is 800-653-8404 That’s 800-653-8404 And there’s no cost to this. There’s no obligation. There is no pressure. They’re not going to try to sell you anything. It is a conversation about you and where you are, but also talk about where you want to be. And, of course, that comfortable retirement is at the end of that rainbow. All right, so make sure you’re making plans for that. So, as we talked about just the changes for 2025 and things that are coming for the 401 k, it got me thinking. Can Prashant, what goes into, and again, everybody’s going to be different. Your puzzle pieces are going to be different. Things are going to make your retirement plan go going to be different from anybody else’s. So, just make sure you know you’re working with a fiduciary and you’re mapping out your plan. But what I thought was, we would go up to about 10,000 feet and just take a look, you know what you feel like are the comprehensive building blocks that go into a retirement plan. So, a lot of times when people come in to visit with us, I
Speaker 1 15:30
oftentimes ask them what their plan looks like. Okay, before ever coming to visit with us, I’m always interested in what people’s plan looks like, and so many people say, well, you know, I’ve been doing all this planning all these years, and I asked them to share that plan with me, and what they do is they show me a bunch of different statements, right, a bunch of different accounts, and what I’ve learned over the years is just having money in different places is not a coordinated and comprehensive plan, because nowhere on those statements does it tell you when you’re going to run out of money? Does it tell you what your tax rate is going to be when you retire? It doesn’t tell you how to handle health care expenses. So, what I did is I put together kind of nine core things, and I’ll go through them relatively quickly here that I think build up a comprehensive retirement plan. Number one is income planning, right. So I’ve already talked about that. Income is a foundation of your retirement. The higher your income, the better the outcome, is what I always say. And so income planning is made up with comprehensive coordination of your social security benefits, your pension benefits, part-time income, annuities. If you have them, we want to coordinate your income in such a way that you can map it out every year for the rest of your life. Secondly, is investments okay? We have to be able to manage our investments in a way that allows us to not take on too much risk during the bad times, yet still make the level of growth that we feel comfortable making when the market goes up, but the thing I want everyone to think about here is risk capacity. How much of your retirement nest egg could you lose if the market went down before you begin to feel uncomfortable? Okay, so that’s an important question that flows right into investment management. And then number three here, Morgan, maybe before I let you jump in on this real quick, is creating a spending plan and expense management, right? You have to have an end in mind, meaning you have to know what your retirement is going to cost you, right? Otherwise, you have nothing to plan towards or nothing to plan for. So those are the first three. I don’t know if you have any comments on any of these things before we move forward.
Speaker 2 17:43
Well, and I mean hosting this show with you for as long as we have been doing it. I mean, the part about income is important, and it’s right there at the top, because when you think about it, you know, you leave your job and a lot of people are in this boat where you know they go to work every week, they get a paycheck probably bi monthly, it’s always there, it’s in their bank account, they’ve worked diligently for it, and all of a sudden paycheck stops. So you have to create the income that is no longer coming in, it needs to come from your account. So, how do you do that? So, an income plan is absolutely, it’s monumental. We talk about so many different things when it comes to retirement planning, but having the income has to be at the top of the list. Yeah, that’s exactly right. And then to piggyback on that,
Speaker 1 18:30
let’s go into number four here, which is understanding your taxes. Okay, at the end of the day, you’re in a partnership with the IRS, and the IRS sets all the rules, they set all the tax rates. You just have to operate within the system, so tax planning is a huge part of this. Which accounts do I withdraw from? When do I do it? What’s the tax rate that I’m going to pay? You’ve heard of Ed Slot, right? Most of our clients have heard of Ed Slott. He’s America’s CPA. Ed Slot has this awesome quote, and he says that the IRA is an IOU to the IRS. Okay, and that really resonates with me, because if you’ve saved a million dollars, your million dollars, is it truly worth a million dollars by the time you access it?
Speaker 2 19:14
It is not,
Speaker 1 19:15
probably not, because you got to pay the federal government along the way. So, tax planning is a huge component, number five, health care planning. Okay, whether it’s Medicare supplements, Medicare Advantage, or even long-term care and health savings accounts, you have to coordinate your Medicare and healthcare plan with the rest of your financial plan, because Medicare premiums are dependent on your income, believe it or not. So, the higher your income is, potentially the higher the cost of your Medicare Part B could be, so that’s number five. Number six here: estate planning and legacy planning. Okay, so Who do you want your money to go to when you’re gone? How are you going to ensure that it gets to who you want to get it to in the most tax efficient way possible, and you want to make. Sure, that it is well protected upon death. So, estate and legacy is number six. Number seven is risk management, and when I talk about risk management, it’s not just about market risk, it’s about dealing with the risk of inflation, dealing with the death of a spouse, because that is a huge risk, right? It’s dealing with identity theft and fraud in our day and age with AI and everything else out there, you have to be extremely vigilant in your risk management tactics. And then shifting into the more emotional side of it, number eight is lifestyle emotion, emotional planning. What is your vision for retirement? Let’s talk about longevity, let’s talk about family considerations, and number nine, perhaps the most important is doing regular maintenance. I can’t tell you how many times people say, I got a retirement plan put together, it was done 10 years ago,
Speaker 2 20:52
set and forget it, baby, set and forget it.
Speaker 1 20:55
By the way, I’ve never reviewed it, and I’m like, oh my goodness, if I bought $100,000 luxury car, would I change the tires? Would I change the oil? Would I get tire rotation? Would I check the brakes every once in a while? Absolutely, because it’s a huge asset.
Speaker 2 21:12
But you wouldn’t do it yourself, you would have a professional that knows the car.
Speaker 1 21:16
Yeah, absolutely. And listen, some of our clients do do it themselves, which kudos to them. It’s definitely not my thing. I want to hire a specialist to do that, right, which is why I got my trusted mechanic over there on Little Patuxent Parkway that I like going to. So, all that being said, it’s no different than doing a health checkup where you go see your doctor every year. You should be reviewing your retirement plan every year. Look, if any of these nine things resonate with you: income, investment, taxes, expenses, emotion planning, health care planning, or even just doing a regular review of your plan. If that resonates with you, and you haven’t been getting it from your current advisor, please give us a call: 800-653-8404 that is 800-653-8404 You dial that number, you will be able to schedule a free appointment with my team at Elite Income Advisors. You come in, visit with the team, you’ll have that initial meeting be about you, it’s about your goals, your dreams, your vision for retirement. From there, my team’s going to help you craft a plan. It’s going to include a social security optimization report, an income plan, help you understand your tax liability. We will also talk about the investments and risk capacity that you have, and make sure that you’re operating the right place. 800-653-8404 Call now.
Speaker 2 22:37
Coming up on Retire Smart Maryland Radio, let’s get over the finish line. After a long career, we’ll talk about the emotional side of retirement. It’s all coming up next. Retire Smart Maryland Radio. Your host is Prashant Sabapathi, independent fiduciary at Elite Income Advisors. They’re headquartered Ellicott City Satellite Office in Annapolis for Your Convenience. Published author. Yes, Prashant is. Couple of books already to his credit: Physical Health, Retirement, Wealth, and Retire Abundantly. I’m Morgan Patrick. Each and every week, it’s always the retirement discussion the importance of having a plan? We give you an opportunity to take action on your own behalf. We have appointments, they are complimentary. If you grab one of these appointments, you’re not agreeing to become a client. This is a get to know you, you get to know Prashant and his team, and they will also get to know you. That Retire Smart roadmap will be put together for you. Easy to grab an appointment, move to the front of the line by simply calling this number 800-653-8404 and you’re asking yourself, well, who’s the ideal candidate for one of these appointments? Well, if you’re sitting on a portfolio and you haven’t started planning, ideal candidate. Also, if you are halfway down the path but you’re frustrated not being communicated with, second opinion is for you. Also, ideal candidate, 800-653-8404 So, picture this: you’ve just retired. Life feels like one big endless weekend. What do we say, Prashant? Every day is a Saturday. Once you retire, it just seems that way. But then here comes the big question: after you’ve experienced a little bit of the go-go years. What now? And much like a favorite Netflix series, you’ve got chapters and episodes to navigate, which you do, but eventually you run out of those chapters. So today we’re going to unpack five phases of retirement based on author of retirement and a coach, Mary Ann Ozer. Now, Ozer, her work is basically a roadmap understanding how retirement evolves, helping you plan not just financially but also the emotional part of this. Let’s hear from the author.
Speaker 2 24:53
How are you going to fill your day beyond the toys that you’re going to buy and the trips that you’re going to. Take what beyond that. What else are you going to do every day? What are the things that are going to make you feel like you matter? How people view you in the world, when that goes away, it creates a void that has to be filled. So, before you retire is a wonderful time to begin to work on how you’re going to replace that identity that you will undoubtedly lose,
Speaker 2 25:24
all right. So, Marianne Ozer, again, retirement coach and author, she brings up a really good point, Prashant. And before we jump into, you know, these phases, I don’t, I mean, we’re working, we’re out here, we’re doing it every day, every week, every month, every year. Boy, when that stops, I mean, there’s an adjustment to be made, and I think a lot of people aren’t prepared for it.
Speaker 1 25:49
And it’s one of these situations where I think you don’t really realize how integral work is to your life until it’s gone, and until you don’t have the option to go back, right, and I think we all understand what the work does for us monetarily and relationship-wise, but once you lose it, it’s a huge deal, and I think a lot of people struggle with that. Now, some people absolutely don’t struggle with that, they’re super happy to get into retirement, but I have clients that are a busier now in retirement than they ever were while they were working, doing things around the house, and traveling, and I just helped a client take out a required minimum distribution today, and he’s about the most low maintenance client I have. I talk to him literally once a year to take care of his RMDs and just do a quick review of his portfolio and I asked him what he was doing and how he was staying busy and he said I’ve been to Mexico, Turkey, Spain, Portugal, and I’m going to South Africa in 2025 and I’m like five huge international trips in one year, I’m like unbelievable, and so when you have that kind of purpose behind it, though, I think it makes retirement a lot easier, and that’s what that guy has always wanted to do. I think a lot of people transition to retirement without any clear cut vision for what retirement’s supposed to look like, and those are the ones that find it the most difficult to actually make the transition, so doing some pre-planning on the emotional side of things is actually really important.
Speaker 2 27:25
I mean, you think about it, you’re planning for your retirement, a lot of you focus in on the x’s and o’s, the numbers, which you should be doing, but also on the emotional side, what are your goals in retirement? You talk about those plans and you start mapping those out, and you make the money work in and around those plans. I mean, that’s retirement planning. So, we’re going to go over the phases. We’ll hit these really quick, and again, these are just the five phases. The first one is just, you know, it’s like, I don’t know if you remember summer vacation when you’re in elementary school, the last day of school, and the doors open, the bells ring, and it’s just like freedom, and you just, you have the whole summer. Well, now we’re talking about the rest of your life, and that first phase is the freedom phase.
Speaker 1 28:07
Yeah, and I call it the retirement honeymoon phase, and that’s because it’s all about excitement, and like you said, it is about freedom. So, in my experience, a lot of our clients who have retired indulge in different things, like bucket list adventures, or traveling or buying long kind of long awaited toys like an RV or a boat or something like that. However, what we find is that high does not last forever, and most people eventually ask, what is next? What’s on the horizon? How can we, as clients, and even in my profession as an advisor, help our clients savor the honeymoon phase, while still keeping an eye on sustainable spending that can actually last through 15, 2020-five, years of retirement. So, phase one is really important. You should enjoy it, because you’ve earned it, but it’s important to keep an eye on the bigger picture as well. And
Speaker 2 29:00
you also did a little foreshadowing on what is going to be phase two, and I want our listeners to kind of picture this hill we’re going up the hill right now, phases one, two, and three, and then we’re going to come down the hill on phases four and five, but so phase one is the freedom, and you mentioned, you know, the what now, once you get through the go-go, once you get through the that initial exhilaration of being retired, you know, you have to have a plan for, you know, long-term retirement. I mean, you can’t be go-go the entire time.
Speaker 1 29:32
Yeah, that’s because that thrill kind of fades, right. And I think what we found is retirees enter a different phase where they start to, you know, kind of look inward, have some reflection, start asking questions about purpose and direction, and a lot of times that leads to, hey, what do I want to be doing with my family, and do I have grandkids, and what do I want my role in their life to be? Maybe it’s exploring new activities, I’ll tell you what the pickleball. The pickleball craze has been exploding, so many clients out there playing pickleball, so that’s great. And so, as
Speaker 2 30:08
I gotta add, do you play?
Speaker 1 30:09
I do not play, and here’s the reason why. Just a little personal story. I grew up playing tennis, and
Speaker 2 30:16
are you looking down on pickleball players? You’re not. Are you being a snooty pood? Are you
Speaker 1 30:20
all? I’m saying is that all the tennis courts that I used to play on growing up have now been converted.
Speaker 2 30:26
Yes,
Speaker 1 30:27
and so I appreciate people playing pickleball, but look, I’m not ready to give up my tennis just yet. So it’s not, it’s not for me, not yet, anyway.
Speaker 2 30:35
No, I mean, eventually it could be, but one thing that’ll, you know, it’s just funny about pickleball. I went to a charity event where we were actually in a pickleball club. It’s like a country club for pickleball, yeah. And I walked by the just the store for, you know, just the supplies, the paddle, the balls, you know, all this different stuff. Oh my goodness,
Speaker 1 30:55
boom, in business, right?
Speaker 2 30:57
I mean, I had no idea that you could pay that much for a pickleball paddle.
Speaker 1 31:02
Here’s the, here’s the other thing that happens with pickleball, right? It’s, it’s a huge industry, not just on the sporting side of it, but look, my wife, and we off on a little bit of a tangent here, and I’m okay with that. My wife works in orthopedics, right, so she does sports medicine, and specifically she, she does surgery on knees, hips, and shoulders, and she tells me all the time, seems like every day it’s like, oh, so another pickleball ACL today, or another pickleball rotator cuff today, and I’m like, holy smokes, we start playing pickleball in our retirement years, and we get hurt, so you got to be careful out there, but it really leads when we come out of phase two, which is that what now it really leads to phase phase three, which is okay. We’ve done our reflecting. We now enter what I call the phase of re-engagement, where now you’re starting to pursue new ventures with more purpose and more clarity, and I call it retirements kind of second act, right? And before diving in, you know, we have to realize that people actually need a break to recharge, right. And it’s funny, I was meeting with a client today, and he was telling me about a new investment he made in his best friend’s daughter’s business, and turns out that it’s like, it’s like, I think it’s like a salon business,
Speaker 2 32:19
okay?
Speaker 1 32:20
And you know this guy’s like a mid 60s guy, and he’s like, yeah, I put money into a salon business. I’m like, wow, where’d that come from? And he’s like, just got kind of interested in it, looked
Speaker 2 32:32
mani patties, baby, mani paddies,
Speaker 1 32:35
looked at the books, the thing looked good, great investment opportunity, and it’s something totally different from the career that he was working in, and I think that’s really, really neat to be able to experience something like that. So that’s a re-engagement phase. We’re not going to have time for the other two, but just really quickly, downshifting is the constant slowing down phase when we get closer to comfort and retirement. And then, for lack of a better word, phase five, the last one I’m going to call it old age. Don’t, don’t, don’t fault me for that one, but that’s about just aging gracefully, hoping that we can manage our health. So, look, folks, if you’re thinking about your retirement, think about it in phases, you’re going to go through different emotional roller coaster ups and downs through your retirement. Make sure that you have a financial plan that empowers you to make those important decisions without having to worry about your money. The phone number, again, 800-653-8404 Book that complimentary appointment with me and my team here at a Lead Income Advisors offices in Ellicott City and Annapolis. That is 800-653-8404
Speaker 2 33:40
And just remember all the hate mail on Pickleball, you can send it to me, not Prashant. Again, big, big fan. Retire Smart Maryland Radio, continuing with scenarios coming up on the other side, you We are back on Retire Smart Maryland Radio, hosted by Prashant Sabapathi. You can find him at Elite Income Advisors, headquartered Ellicott City Satellite Office in Annapolis. Prashant is an independent fiduciary, he’s a published author, a couple of books to his credit already: Physical Health, Retirement, Wealth, and Retire abundantly. Check out the website Elite Income advisors.com It’s a great resource for you. There are links to the TV show, radio shows, and podcast form. Again, easy to remember, Elite Income advisors.com Well, it is now time for scenarios. We’re going to give you one more opportunity to get on the calendar with Prashant during the course of this show and get that complimentary Retire Smart roadmap put together for you. So, listen up for that. Here’s your first scenario, Prashant. How would you handle this? Couple nearing retirement, 900,000 in their 401 k accounts, they’re concerned about fees, they’re thinking of rolling over into an IRA, but worry about the cost of doing so. How should they compare the 401 k fee? Fees to IRA fees, and what questions should they be asking?
Speaker 1 35:04
Two things when it comes to fees that we have to understand. There’s fee for advice, and then fee for the actual investments, right? So every investment, whether it’s an ETF, mutual fund, has what’s called an expense ratio, potentially involved. An expense ratio is the management fee that you pay to the underlying fund company on an annual basis, could be anywhere from I’ve seen them as low as 0.09% I’ve seen ones that are over 1% so obviously that’s a huge discrepancy there. So that’s number one, is fund fees, you got to be understanding of what kind of internal expense your portfolio is taking on number two is fee for advice. If you’re working with an advisor, whether it’s an advisor like my firm or any other advisor out there, you’re probably getting charged some sort of an advisory fee. You want to transparently understand what those fees are, how often they get charged, and how do they get billed? Meaning, is it a flat fee for advice, or is it based on a percentage base fee on how much money your advisor is overseeing? So, with that being said, if you have money in a retirement account, I think there’s several factors that have to go into how you make the decision to roll it over, and what kind of investment vehicles or insurance vehicles you end up rolling the money over into, and so it depends on a couple different things. Number one, what is your goal for retirement income? Okay, are you going to be using any part of that 401k or IRA or TSP to actually create your paycheck in retirement? I think that’s number one. Number two is, what level of risk are you comfortable taking with that money? If you have $900,000 in the 401 k, I think you have to ask, how much could I see the 900 go down to before it starts to make me, as an investor, feel uncomfortable about my position. Number three is rate of return. What kind of rate of return am I expecting to earn on this investment? And by rolling this money over, am I going to get close to that projected rate of return? That’s number three. And then the last one here, number four is access and liquidity. How much access do I need to my money over what period of time do I need access all at once? Do I need access over the course of 1015, 20 years? I think you have to answer those questions and then prioritize what is important to you, so that you make the best decision possible, hopefully in conjunction with your fiduciary on what to do with your retirement money when you’re ready
Speaker 2 37:40
hitting retirement scenarios. Want to remind you, you may hear a scenario that’s similar to what you’re going through, that’s not exactly what you’re going through. Make sure you have a customized plan, and you’re working with a fiduciary, mapping out what is going to be your retirement future. And again, scenario time, and it is number two on the scenario list. Here it is: a couple is debating whether to use a portion of their savings to purchase an annuity or continue managing their investments independently. They’re concerned about fees and liquidity in an annuity contract. How can they determine if an annuity provides sufficient value for them?
Speaker 1 38:13
It’s all about what you’re trying to accomplish. Okay, I think most of the time when people get upset with their current annuities, it’s because their advisor has not done a great job setting proper expectations. Okay, so a lot of times what I found is people come into my office, they got an annuity years ago, and that annuity was designed for income, yet they expected it to grow at a really fast rate because their advisor told them that that’s what it would do, and now they feel upset about that, and I understand that if we had one expectation and that expectation did not match reality, of course we’re going to feel upset about that. So, when you evaluate any annuity, couple things to focus on: number one is, what is that annuity supposed to do for you, believe it or not. There’s some annuities out there that are not designed for guaranteed income, they’re actually just designed for market linked upside with total safety of your principal. And by the way, those types of annuities have no fees whatsoever. You heard me correctly, there’s annuities out there that have absolutely no fees. So, that is one use case. Another use case is, what if I need a paycheck in retirement? Maybe I can protect some piece of my portfolio to give me a paycheck, right? I had a client come in, they had $2 million they wanted to create $65,000 a year of guaranteed income, and so all we did is we took about a million bucks of the 2 million, and we put it into an annuity, and that will ensure that they’re going to have that $65,000 paycheck every month, every year, for the rest of their lifetime, and there was a fee associated with that annuity. Now, in that client’s mind, they said we’re. Happy to pay the fee, because it’s giving us everything that we expect out of it. So, when it comes to annuities, set proper expectations and make sure that the annuity you’re getting actually addresses the expectations that you have and concretely furthers your financial plan. If it doesn’t do that, then it’s simply not worth engaging with.
Speaker 2 40:22
Opportunity to get on the calendar with elite income advisors, you can ask questions, and a lot of people kind of, they kind of shrug or they kind of shrink back when the word annuity is used. I tell you, folks, you really need to educate yourself, could be a good fit for your portfolio, but have the conversation and the opportunity to get on the calendar with elite is it’s complimentary, so this is an opportunity for you to come in and ask questions, get that RetireSmart roadmap put together, and, and possibly an annuity might be a good piece for your retirement puzzle. Call this number, move to the front of the line, grab one of these appointments: 800-653-8404 that’s 800-653-8404 Another scenario for you, a couple nearing their RMD age worried about the impact of RMDs on their Medicare premiums. Are there strategies to reduce income and avoid the IRMA, the income-related monthly adjustment amount?
Speaker 1 41:15
Two comments on this to help you through the tax side of the RMD planning, and in conjunction, certainly with Medicare planning. So, number one is, if we have time on our side, meaning we have 345, years before we get to the RMD. One strategy is to look at the potential of doing a Roth conversion. A Roth conversion allows you to take your pretax money, so like an IRA account, and convert it to a Roth IRA. When you convert it to a Roth, any subsequent growth that you get on that money now becomes tax free, and Roth IRAs are not subject to a required minimum distribution, which means no force distribution to increase your income and thus potentially increase your Medicare premiums. So, that’s a great strategy, because you can do Roth conversions over a period of time. You don’t have to do them all at once. Great strategy if you’re 2345, years or more away from retirement to mitigate not only your future Medicare bill, potentially, but your future tax bill. Secondly, when it comes to avoiding the income-related monthly adjustment amount, you can actually donate part of your RMD directly to a qualified charity, like a 501 c3 organization, and you can do that through what’s called a QCD, it’s a qualified charitable distribution, and when you donate money directly from your IRA to a qualified charity, you do not incur the tax burden of that distribution. Thus, you don’t increase your income, which means you potentially may be able to avoid any IRMA, the income-related monthly adjustment amount associated with Medicare. Here’s the thing, Morgan, these two things are great strategies, and I know for fact that advisors are not talking about them. And I think the question is, why are advisors not talking about them? Is it because it’s too much work to have to coach their clients through Roth conversions and QCDs, when they maybe don’t get compensated anything extra for it. I think that’s a fair question to ask. The second thing is, are they just not knowledgeable that these things exist? And I think both of these are potentially the case. If you’re heading to retirement or you’re close to the RMD age, your advisor has not talked to you about Roth conversion or QCDs. You have to ask, am I working with the right specialist? Give us a call, come in for that visit. Let’s review your plan together. We might find that we’re a good fit, we might find that we’re not, but at least you can say that you got a second opinion. That phone number, 800-653-8404
Speaker 2 43:56
All right, let’s hammer this last scenario. Someone with a blended family wants to make sure that both their biological children and their stepchildren are treated fairly in their estate plan. They’re unsure if a simple will is enough to achieve this. What strategies might help them balance their estate distribution?
Speaker 1 44:14
Yeah, exactly. So this is a very common situation, especially with how common it is that we go through things like divorce and get remarried, and we have step kids and biological children. So, for me, this comes back to one of those pillars or building blocks of the financial planning process that we talked about in segment two, and that is the legacy and estate planning side of this, a great way to ensure that your money goes to who you want it to go to when you pass away is to create a trust. Okay, and so a trust is a legal document that helps you outline those wishes with specificity, so that you know that your money will go where you want it. To go now, you do have to go see a qualified lawyer or attorney to get this thing done, preferably an estate planning attorney. We don’t do that in our office. I’m not a licensed attorney, but I can certainly provide you with a referral or two if you need that. So, all that being said, if you’re thinking about the cornerstones or the pillars of your retirement plan: investments, income, social security optimization, tax mitigation, Medicare planning, or even estate planning, legacy planning. Pick up the phone, give us a call. It’s the last opportunity for today’s show to get in to the office for that complimentary visit with our team. Now, when you come in to visit with us, it’s just to get to know you session. You’ll dial 800-653-8404 You’ll meet with us, we’ll get to know you, you’ll get to know us. We’ll share with you our perspective. You decide whether or not we are the right fit. If we are, we’ll find an opportunity to work together. If we’re not, we will go our separate ways. We’ll still see around town, we’ll still shake your hand, say hello, and be really friendly. But it starts with your action, your phone call. That phone number again: 800-653-8404 Time flies when you’re having fun and you’re educating people on retirement planning. Another edition of Retire Smart Maryland Radio. In the books for Prashant, I’m Morgan. We’ll see on the radio next week, you
Announcer 46:22
annuity 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 the 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 referral into 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. A professional advisor 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. Elite Income Advisors Incorporated is registered as an investment advisor with the State of Maryland, and only transacts business in states where the firm is properly registered or is excluded or exempted from registration requirements. Registration as an investment advisor is not an endorsement of the firm by security regulators and does not mean that the advisor has attained a particular level of skill or ability. You should always consult an attorney or tax professional regarding your specific legal or tax situation.
