If you prefer to listen while you are on the road, click below!

Transcript

Mike:

First spouse dies, surviving spouse says ‘hey, I still want the same level of income. Basically. I still have the same expenses’, but the tax bill goes from 21,000 to, in this case, $34,000. Oh my gosh. Like a 50 plus percent increase and the same income. Why? Because we’re a single tax payer, right? Not a married taxpayer. Here’s the question. Has anybody told them about that before they came to see us?

Zach:

Probably not.

Mike:

No. Nobody tells them this stuff

Zach:

Welcome back to retirement today. I’m your cohost Zach Holcomb, and alongside me we have Michael Reese, he’s a certified financial planner and founder and president of Centennial Advisors. On today’s program. We’re talking all about the three key steps you need to take to have complete financial security, right? Mike?

Mike:

Yeah, that’s it. And I know we talked a little bit about this blueprint. We’ve developed here at the end of the last segment. Heads up. This is a personalized one page blueprint it’s customized for you and your unique situation. The goal of this is to give you an easy path. So you can ensure that you have complete financial security, not partial complete. So we just got done talking about things like asymmetrical investing versus symmetrical investing, right? And it’s really nothing more than saying, Hey, if you average an 8% rate of return, say, Hey, are you risking 25% of your money to get that 8%? Are you risking maybe 5% of your money to get that 8%, right? That’s really what it is. Right. You know, given the option, obviously it’s a no brainer. I’d rather risk a smaller amount of my money to get the same return. Right? So step one is let’s find out where you are from your investment your, your money management side of things. Are you making great choices there or is your advisor making great choices now would be a wonderful time with markets at all time highs to figure that out. Right. All right. Let’s move on to the second thing. And you know, this is the one near and dear to my heart. Your favorite topic, taxes, taxes, taxes, taxes. This is just like the Brady bunch, you know, episode where it’s Marsha, Marsha

Zach:

Taxes, taxes, taxes, Mike, Mike, Mike, Mike is

Mike:

Like taxes, taxes, taxes. Right? So here’s the thing. As time goes on the IRS, they’re just going to want a larger slice of your savings. Right? You know, most people, if you’re like most people, the majority of your money’s probably in your 401k, that’s what we’re told to do. Yeah. 401ks, 403bs, 457s. That’s where the money is. The problem is that that money’s never been taxed. And at some point down the road, the IRS is going to say to you, Hey, you got to pull the money out and we’re going to take a chunk of it every time you do. Right. But it’s worse than that because they don’t just take a chunk of that money. Many times when you take distributions from your 401k or your IRA, especially if you’re in retirement suddenly not only do you pay tax on that money, you pay more tax on your social security right before you took the money out, your social security, maybe it was tax-free.

Mike:

Maybe you paid a small amount of tax, but suddenly, oh, I took an IRA distribution or a 401k distribution. Suddenly I’m paying tax on almost all my social security. That’s called double taxation. Right? Your capital gains, you might be in a tax bracket where you pay little to no tax and capital gains suddenly, oh, I pulled some money out of my 401k. Suddenly I’m paying tax on my capital gains. Now we’re at triple taxation. Right. And it goes on and on. And what are they talking about in Washington, DC. They want to do what increase the amount of taxes that they charge. You guess? What, if you look at usdebtclock.org, you’re going to learn that this is not a one-time thing.

Zach:

Right? I’m shocked to hear all of this.

Mike:

Yeah. Taxes are going up. You know, what’s kind of interesting is, you know, we talk about how bad taxes are today. If you look historically, we are kind of near all time lows, like the top tax brackets right now are what? 37 to 40% historically there was a 50 year period of time where they were over 50. Wow. Top tax brackets were 70%. They were heck after world war II, it was 94, which is crazy. Right? So here’s the thing, taxes. I mean, you’re living in a cave. If you don’t think tax rates are going to increase, it’s going to happen. The question is to what are you just going to be like an ostrich? Are you going to sit there and bury your head in the sand and ignore it and say, all right, I got to take it. Yeah. It’s just, it is what it is. Or are you actually going to pay attention and plan for it? So I’m going to give you a real world example of that, right?

Mike:

A couple comes in, they have a, and I’m going to just round these numbers off. Okay. call it a million dollars in their 401k. Again, you might have more than that. You might have less, doesn’t matter. I’m just using this example to give, because it’s a round number. It’s easy to work off of. You got a million dollars in their 401k. They’ve got some social security. They want to live on $7,000 a month. That’s their deal. They want 7,000 a month to live on. They want it to grow with inflation. And you know, we, the math for them and like, Hey, check it out. You guys are in great shape, but let’s talk a little bit about the tax road you’re on. And we learned that their first year of retirement, 84,000 of spendable income that they want, you know, 7,000 a month, times 12 is 84,000 say, Hey, we want to live on 7,000 a month.

Mike:

Their tax bill on that Zach, it was like $6,000. And if you think about it, 84 K, that you’re living on that 6,000 tax, you have to pull out 90 to live on, you know, pay six to the IRS, live on 84. That’s pretty low tax bracket. It’s not too bad, not a big deal. Right? But as they age, you know, inflation creeps up their income. They hit age 72. 401K is required. Distributions their taxes go up every little year. A little bit, a little bit, a little bit.

Zach:

It’s kinda creeping up on them.

Mike:

Yeah. They creep up by the time, then their seventies, early seventies. Now it’s like 11,000 a year on the same income. By the time they’re in their mid eighties, 21,000 a year on the same income gone from 6,000 to 21,000. It’s more than triple, right? Why? Well required distributions.

Mike:

They’re being forced to pull more money out of their 401k than they then they’re spending. So they just have to reinvest it, I guess. Right. But then here’s the real kick in the pants. Husband dies. Cause we’re never going to say the wife dies first. That would be-

Zach:

Always gotta attack the man.

Mike:

Never pick on the wife, always pick on the husband. Right? Right. First spouse dies. By the way, it could be. It doesn’t matter who dies. First, first spouse dies surviving spouses says ‘Hey, I still want the same level of income. Basically. I still have the same expenses’, but the tax bill goes from 21,000 to, in this case, $34,000. Oh my gosh. Like a 50 plus percent increase and the same income. Why? Because we’re a single tax payer, right? Not a married taxpayer.

Mike:

Here’s the question. Has anybody told them about that before they came to see us?

Zach:

Probably not.

Mike:

No. Nobody tells them this stuff. And if you don’t know, I mean, you just, you just head buried in the sand. You don’t know how do you know if you have a problem.

Zach:

Then you’re not doing anything about it.

Mike:

Now with planning with planning. What if we said, well, what if we did some Roth conversions or something let’s put together a rough conversion schedule over the next, maybe over the next seven years, right? Or five to seven years, let’s convert some of that IRA to Roth or that 401k to Roth. And if you do it the right way now when they’re in their eighties, instead of having a $21,000 tax bill, it’s like $2,000 instead of the surviving spouse paying 34,000 tax, they’re paying 3,400. I mean like 90% tax reduction later in life, all by paying a little bit of tax upfront.

Mike:

Right? And over time in this particular case, it’s saved that couple over 188 that’s right. Almost $200,000, $188,000 of tax saved over their lifetime. The life-changing amount, that’s 188,000 that they were able to keep in their pocket and not give to the IRS. Love that question. They spent like a total of two hours with us over, you know, a couple of meetings. Do you think that was worth their time?

Zach:

Yeah, absolutely.

Mike:

I mean, duh. Okay. What about you? Let me ask you this question. What about you? Do you know, do you know what your future tax liability is going to look like? If you want complete financial security, part of that means that you not only, you know, what your future looks like from a tax perspective, but you’re also actively engaging in tax planning each and every year. Not I do it this year and I’m done each and every year to make sure you’re giving the IRS the least amount of money over time.

Mike:

It’s not just what you paid this year. It’s what you’re paying in the future as well. Are you doing that? Do you know if you’re married? What your surviving spouse’s tax bill would be if you passed away? I mean, Zack, I bet I I’ll bet you 95 plus percent of people have no clue.

Zach:

I’d agree with that.

Mike:

They have no clue because nobody talks about it, but it’s important. It’s very important. If you could save a hundred fifty thousand two hundred thousand three hundred thousand of tax, heck if you could say 50,000 of tax over time, when you want to know how to do it.

Zach:

Yup.

Mike:

And that’s why we want to make it easy on you though. Right? We want it to be easy. So that’s why, again, first 10 collars, we will provide for you free of charge, a personalized one page, complete financial security blueprint. Folks. This is easy. One simple page.

Mike:

We’re able to drill it down and say, look, these are the key areas you need to look at. And what it does is we personalize it to you. We have to get some information from you of course, but we personalize it to you so we can tell you here’s where you are. Here’s what’s possible. How you doing in the, each of these three areas? How are you doing with your money management, your taxes and your protection planning, which we’ll talk about later. This is free. It’s easy. And it’s simple. Why would you not want to take advantage of this? Zach, What do they need to do?

Zach:

You just have to give us a call at 512-886-5850. Again, that’s 512-886-5850 to get this free financial blueprint.