We all want to retire and enjoy the entirety of it with no problem, however, people tend to take the preparation aspect for granted. For some, they get stuck because they don’t know how in the first place. Learn about required minimum distributions, Social Security, Medicare, taxes, and more in the book The Roadmap to Retirement: Navigating Your Way to Peace of Mind. The Thrive experts break down all the things people need to know about retirement. Follow the road map while walking along the way to understand tax reform, retirement expectations, and investments.
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Required Minimum Distributions
David, I want to give you the honor and the opportunity to talk about the new publication of the book that was just released.
We are definitely excited. The whole group at the office is totally pumped up about our new book that we put out. We’ll have some announcements about it and how you can get it. We took a while. We went out and we wanted to write a book for our audiences to understand how to navigate retirement. The name of the book is Roadmap to Retirement: Navigating Your Way to Peace of Mind because that’s what we’re trying to bring to the people that we serve. We want people to have that ‘sleep well at night’ feeling, that peace of mind that they’re on track for retirement and that they’re going to be able to enjoy retirement, not sweat it. There are a lot of moving pieces to retirement and that’s how we put the book together. We thought that rather than writing your traditional book like most people do in our industry, we went out and put a group of financial professionals or at least people who are circling the financial arena, CPAs, accountants, estate planning lawyers, people in the reverse mortgage business, anything that someone in retirement may ultimately have a need for.
We went and interviewed these folks and asked a lot of pertinent questions that we think retirees would ask. We also asked them what are the typical mistakes that you see your clients making in retirement and we got some great feedback. It took a couple of months before we got it together, Roadmap to Retirement: Navigating Your Way to Peace of Mind. We’re feeling very festive so we’re going to pull it out. We’re going to talk about two ways to get the book. One is it’s going to have a debut on Amazon. We’re going to have one day where people can download to Kindle for free, the whole entire book, not a preview of it. They can go to our website at www.ThriveFinancialServices.com. There’ll be an announcement on there but if you go to Amazon, you’ll be able to download that for free.
David, it’s a fantastic way to transition into our topics and into our menu of conversation. Bret, you’re going to be along in the C-block to talk about tax reform. It’s everywhere because it’s in the news and it is confusing.
There’s definitely some things to do at the end of the year. These are the biggest tax reforms that we’re updating information daily as it’s being leaked out. We’re going to talk about some things to do that we’ve been doing to prepare for the end of the year. Definitely some more things that I’ll add to the plate of some things to prepare for tax efficiency.
As David, Karen, and Brett continue with their mission to educate, we’ll deal with tax reform and we’ll have a good report on that. Karen Bezar is with us as well. Karen, you’re going to talk about retirement expectations. It’s not a general topic. It’s a conversation that all of us define differently.
At some point, we all want to retire so it might be good to listen up and see what some information is out there for us.
David is on our final segment and it’s going to be investment related. I’ll give you an opportunity to let the audience know what we’re going to get to towards the tail end of the program.
I can’t tell how many phone calls we’re getting on a daily basis from our existing clients and saying, “What do you think about the markets?” It’s the biggest question. Can these markets continue to keep rising and rising the way they are? One of the things that we’ll talk about are there high levels of greed in this US market that we’re seeing. What we’re going to try to do is separate the emotion from the logic because a lot of times, you get the typical people going, “This market looks appetizing. I’ve missed out on the first run. It might take another run higher and I don’t want to miss out on that, so I want to get in.” The old adage is to buy low and sell high, not buy high and sell low. That, unfortunately, is typically what happens to the consumers. We’re going to try to give some good understanding, try to take the emotion out of it a little bit so people can make good sound decisions about how to invest their dollars.
The book has been released, Roadmap to Retirement: Navigating Your Way to Peace of Mind. That is what Thrive Financial has tried to do on this program and we’ll continue to do as the program rolls forward. David, just to share with the audience, you’re in the mood to be generous to share some of that information on Roadmap to Retirement and people can get it now.
The other thing we’re going to be doing, and this might be an added value for folks, is we’ve got some upcoming workshops where we’re going to be talking about the tax reform and how to take action. Anybody who attends the workshops, we will give away copies of the book as well. They can see that on our website. We’re going to announce where they’re located, the dates and times, but there is a page on our website that lists all the workshops that we’ve got for the rest of the year. If they decide to attend the workshop, they’re going to get great information. An hour and fifteen minutes of good information to help you make sound decisions.
Krause, we’re excited to get that information out there. It’s not an infomercial for any product or anything like that. It’s a collaboration of professionals who are giving us things, changing our mindset, how things have been during our working lives, and starting to change as unnatural. It’s starting to create that mindset for retirement.
Karen, I used that introduction of the book to transition into retirement expectations, which is your topic or your subject matter. The book is Roadmap to Retirement, retirement expectations certainly fit into that conversation.
I’m going to try and go over a few things, about five if I get to them. The things that are coming to you in retirement that no one may have told you about. When we sit down with clients, this is definitely everything we cover. When we go over it, people in the audience might say, “I didn’t know that.” When we sit down with clients, they say the same thing. They didn’t even know that. It’s our passion and our mission is to educate people on this so that they can enjoy their retirement. At some point, I’m looking forward to retirement and you might be too.
[bctt tweet=”Separate the emotion from the logic to make the right decisions.” username=””]
I fall right into the category. My timeline and my spectrum are different from each individual audience as it is with you, but still, there are some general categories that are very important to cover.
I’m going to touch on them as we go through. If people have any questions, they can certainly email them in and we can always address them. My first one is required minimum distributions and they can seriously raise your costs. What do I mean by costs? Our required minimum distribution is something that when you turn age 70 and a half in the United States, you are typically required to take money out of your traditional IRA or 401(k), some type of retirement plan that you have set up other than a Roth IRA. Why can that derail your retirement? Because people might not realize that it’s taxed as income and the effect it would have on you is twofold.
Distribution, there’s a formula that the government has set up and they start at a relatively small amount, but each year the money coming out of your IRA or your qualified account increases as a percentage of your account balance each year. Even if your money’s growing, which is great, each year you have taken more and more out. That’s because Uncle Sam wants his fair share. You’ve never paid your income tax on that and that’s the next point that I’m getting to. Withdrawals from these accounts are treated as taxable income, which means you’re going to owe income tax on the amount that you got distributed out of your account.
There’s no choice there. The distribution must occur.
It absolutely must occur. Sometimes this happens with several clients. You might have more than one qualified account that you have to take your required minimum distributions out of. We will make sure that you take the right amounts out and we tell you, “Perhaps you might want to take it all from one account instead of all five accounts.” This is a side note. If you don’t take the right amount out for your RMD, Uncle Sam will give you a present of 50% penalty on the amount that you were supposed to take out. This has happened not to our clients but has happened to people that we have met with in the past.
Also, it’s going to increase your taxable income and it might expose your Social Security benefits to taxation as well. I’m not sure if you’re aware of this, but up to 85% of your Social Security check can be taxed. That’s Federal taxes. At least for the state of Pennsylvania, we don’t pay a state tax on our Social Security checks, but up to 85% of your check can be taxed. When we sit down with clients, our goal is if we can prevent this, we do a tax efficiency report with them. If you get in here early enough before retirement, five years before retirement or earlier, sometimes there are ways to distribute money in certain ways that you’re not going to have a big chunk of your Social Security check taxed. It seems unfair since you already paid taxes on that money, but some people are shocked that taxes even come out of it.
Another area is Medicare premiums, which can eat up all your Social Security increases. I’m not sure if you’re aware of this. If you’re not on Social Security or heading towards taking the plunge and starting to get Social Security benefits, they do receive an inflation adjustment every year and that helps keep pace with the rising costs of your Medicare. As we know, Medicare part A is included so we don’t have to worry about that. If there is an increase in the premium, there will be something called the Hold-Harmless Provision and any hikes in Medicare part B premiums can eat that all up. What it basically says is that the premium might increase, but the increase of the premium is going to be taken care of by their cost of living increase. They’re never going to make the premium increase higher than your cost of living.
It’s substantially harder to wait out a bad market once you retire and this is very important. Everything is great, the market’s doing great. Some people out there might remember 2008, 2009 when the market took a plunge at about 40%. While you’re working and adding money to your retirement accounts, your salary covers your costs of living, so you’re not worrying about that. You have time to make up the money that you lost if you’re going to be working for another ten or twenty years. Once you retire, you start pulling money out from your portfolio to cover your costs of living. You’re draining your accounts and you’re not adding back to them, so you’re not going to be able to make up that difference. What we suggest is if you need to sell stocks or take money out of mutual fund accounts, you should have at least a five-year buffer in case there isn’t a down market. We can offer alternative investments to help alleviate or not be prone to having market risks.
That’s five retirement expectations and it ties in line with the Roadmap to Retirement: Navigating Your Way to Peace of Mind. There are so many layers of information within each one of those categories. I’m trying to take notes as you’re giving the information, and each note I take leads me to three more questions, which is why we want our audience to get in. As Karen referenced during the last segment with the five bullet points, there is so much information that they want to educate you on and they want you to learn all about it. Bret, there’s no absolutely no chance that we’re going to cover everything under tax reform, but I’m sure you’re going to give it your best shot.
I apologize if I’m going to have you drink from a fire hydrant, but it’s important to get through some of these changes. Karen did a great job going through those five points there. It doesn’t matter where we have a lot of money or little money, Wells Fargo is at it again. All the fun that they’ve been in the press where their compensation plan to their financial advisers came out. Simply said, Wells Fargo is rewarding the ones who have booked businesses with at least 75% of their clients with at least $500,000 under management with them. If you don’t have a lot of money under Wells Fargo and you’re not getting the service levels that you’re looking for, there’s a reason why. They’re trying to do addition by subtraction so they’re back at it again. Digging into that because everybody needs help with the tax reform and a lot of the rules that are getting ready to change. This is being updated on the fly.
[bctt tweet=”What’s popular isn’t always right and what’s right isn’t always popular.” username=””]
We saw that we had the first version of tax reform passed through the Senate and some dramatic changes that we’re looking at. The very first one is tax brackets. The House approved the bill a little bit earlier, but they have a little bit more Republicans on that side, so not as many people on the Senate side. The last bill passed, 51 to 49. What I’m going to be giving you now is more of what was passed through the Senate of what we feel is inevitably what’s going to get passed.
They’re still keeping seven tax brackets like they did before. The biggest differences are that those brackets are changing. For example, the high end for you to hit the largest tax bracket, you get the merit to filing jointly. You had to earn greater than $470,000. Whereas if you were earning that same income, it’s going to go down to 35% wherein that first or that largest tax bracket doesn’t kick in until $1 million dollars of income. That’s a big deal. Some of those changes that are happening are especially on the upper end, but it’s starting to boil down into the weeds because those are the easy ones that we see out there.
We’ve talked about tax favor, the ability of long-term capital gains and dividends. The good thing is that the tax favorability is not changing at all. Krause, if somehow the radio could become the TV, everyone would see the software that we use interactively during our workshops called Tax Clarity. We give a quick demonstration of it during the workshop and then when the people come in from our workshops, we get overwhelming responses and people coming out saying, “I’ve never been through this type of planning before.” If you’re interested in a product that’s not us, if you’re interested in a plan, we’d love to have you come in and share with you this Tax Clarity software that we utilize that’s going through all these puzzle pieces of what’s happening.
One big change that’s happening is something called FIFO, which stands for First In, First out. If we’re selling our stocks, mutual funds beyond, all these changes I’m talking about are going to be here until the tax year 2025. Before, I could say I want to sell these 100 shares of X, Y, Z stock and I could dictate which shares I wanted to be sold. Now, with First In, First Out, we have to sell our earliest shares that we have in there, so we’re not able to be as strategic. It’s something that we may want to do this year, especially when we talk about if there are any losses that are out there, capital losses are not going to change. The idea is we want to realize any losses that we can this calendar year because we’re not going to have those choices of picking and choosing which stocks that we have the ability to realize those losses.
What does the software, Tax Clarity, do? Does it allow you, as an individual, to get a better direction or a better understanding? How does it work?
We talked about forward tax planning all the time. We do a good job and we have plenty of account in France where they’re, a lot of times, reporting what happened yesteryear where we want to do more forward planning. A great example was when we had a client who came to our Ludington workshop down at Bryn Mawr. She came in and we sat down with her. She’s using a pretty prominent accountant and the brokerage, a financial adviser. She didn’t ever want to be very familiar with it and I showed her through using the software. We spent no time talking about solutions or anything like that but focusing on taxes that she has the ability. She’s going to be able to pull $40,000 from her IRAs and convert them to either a Roth IRA or put that money in her savings account. We’re talking about which makes the most sense and she was not being advised that. She was paying over $40,000 to her advisor and the accountant. She thought they were collaborating and looking at her best interest.
Bret, before you continue, given the best part of it is that she didn’t pay taxes on that distribution.
That’s a big deal. She’s able to do that Roth conversion or put that money in our savings account. Krause, what’s it like to pay nothing in taxes, nothing, zero? That’s what we do a lot of times in that third and fourth quarter is sitting down with Jane Doe like the young lady that I was speaking about $40,000. When she hit 70 and a half, she’s 68, she’s going to pay 25%. That’s $10,000 we saved in addition to the outrageous fees that she’s paying into her advisers. If you’re interested in a plan, not a product we’d love to sit down with you. We always need to have that plan for investments, taxes, healthcare, legacy and income distribution. It’s putting all those puzzle pieces together in harmony, but if I will, let me continue with some of these changes.
Come in, make a phone call, and get an appointment on the calendar. All we’ll do is take your information and we’ll run it through our Tax Clarity map software and come up with a situation where we could potentially save you taxes. The Tax Clarity, the tax map software is the process that will help analyze and help put the plan in place, David.
Standard deductions, which is $6,354 for a single individual and $12,700 for a married couple, is changing. It’s going to a flat $12,000 and $24,000. In addition to that, for every person that was in your household, we used to get over a $4,000 exemption but those are going away. They’re simplifying this tax plan no ifs or buts. Here’s a stat for you, some planning to do for the end of the year, 94% of people are estimated to be doing a standard deduction, which means things that we’ve been itemizing, mortgage interest, property taxes, state and local income taxes, medical expenses, etc., isn’t going to happen.
Here’s an Idea for you. Pay your mortgage payment for January and December. Why? That mortgage interest right off, we get to take that where it’s a pretty good chance that I’m not going to be itemized in any way. Here’s another big one. If you have your mortgage through a home equity loan line of credit, you are no longer able to write off that interest. That what’s being proposed right now. That’s a big deal. We used to do that all the time when we were in banking. It may be something to think about, “I need to start thinking about refinancing my home equity loan to a mortgage. I’ll be able to write off that interest.”
Bret, one thing I’m hearing is with the new tax reform, it’s so hard to know where you fit and what decisions you have to make based on the changes.
To try and figure it out and not being in our world, God bless you. If you’ve figured it out, we’re looking for people like you. We’d love to chat with you because we’re always trying to grow our team as well. It’s what our clients turn to us for. They want to enjoy retirement. They don’t want to sit here and have to go through the weeds and figuring all this out. Krause, you used to be able to sell your house and get an exemption up to $250,000 per person, $500,000 per couple. You had to live in that house two of the previous five years. The new rule changed, you need to have lived in that house for five of the previous eight years. A lot of people move over and over and over. You didn’t have to worry about an exemption of not having to pay taxes on that. That’s a big deal on the housing side of it.
We’re no longer going to be able to deduct the amount of money that we’re paying in state and local income taxes, that’s going away altogether. That’s a big deal, unreimbursed employee expenses. We have a lot of teachers who are our clients who spend a lot of money on their classrooms. They’re not going to be able to deduct those expenses anymore. There are a lot of changes that are getting ready to happen. Gift taxes, don’t change that. If you have gift taxes, don’t move that as well.
[bctt tweet=”Try to take the emotion out of people so they can make good sound decisions.” username=””]
David, there are always going to be, from the audience and from all of us, so many questions specific to the market and what’s happening on. I was on a drudge report looking at stories about the market.
We’ve been in the business, Joe, for almost 29 years and when we see these highs that we’ve experienced in the market, it’s always the same questions. I want to get a little philosophical because I think about this stuff and why do people do what they do making those and why do people get wrapped up in what the crowd does. One of the things I say to folks is what’s popular isn’t always right and what’s right isn’t always popular. There are two words that are rattling around in my brain, fear and greed.
Their battle for dominance creates a dangerous situation for people. It’s like being a drug addict. Investors know the bull market might kill their wealth at some point in the future, but they don’t do anything about it. When we do our workshops and we talk about the markets, we’re not anti-market. We have a registered investment advisory firm. We believe people should be invested in market. As a matter of fact, I hope to have time to reference this chart about how to do it correctly and great statistics all the way back to 1926. In these workshops, we tell people, “What do you think? Do you think it’s going to happen during your retirement years meaning the next 25 or 30 years?” People say, “The market will probably come down during that time.” My next question is, “What are you going to do about it? Have you done something about it?” Very few hands go up at that particular point.
I was reading the New York Times and there was an article entitled Investors Push into a Resurging Market: House Flipping. I haven’t heard that word in a while. If you go back to the financial crisis, house flipping is what was going on. Investors are putting their hard-earned cash back into funds that invest in shaky real estate deals. The article says, “House flipping, which declined after the financial crisis in 2008, is on the rise again thanks to low-interest rates and rising home prices. With the renewed interest comes investors looking for a high return. 5.7% of all home sales were actual flips and that’s the highest level since 2006.” It’s going to come to an end at some point and that’s what unraveled the markets the first time around.
I saw a story where the number of cash purchases for homes is back on the way up, David.
We’re shopping for real estate in Florida. It’s crazy. It’s like there’s bidding after bidding. These things don’t even go at the asking price, they’re going above asking price. I said to the realtor, “I’m in the financial field. I don’t want to get caught again. You keep trying to get me in and catch the market rising, but why not wait until it comes back down then get in at the low market? Remember, buy low, sell high.” Joe, there are other signs, there’s fear in the market. As a matter of fact, for months, we’ve seen investors begin moving away from stocks. Statistically, we saw that there was about $30 billion pulled from the stock market. About $30 billion has been pulled out of stocks. Investors pulled $24.36 billion from stock funds.
Net outflows increased despite the market rising, at that point, the fourth straight time. We’re starting to see that there are a lot of challenges happening. Our goal for our folks, Joe, is to not look at the short-term, but look at the long-term. It takes dedication and patience. I’m sitting with a client, “David, you need to put this portfolio together. I’m not getting the same type of gains that my friends are seeing.” I said, “Bill, if you remember when we sat down, you said you had enough money saved for retirement. You were comfortable with that number and you didn’t want to lose anything. We designed a portfolio that was made up of investments that aren’t going to mirror the market but are going to protect you in the downside.”
We do that through an exercise called Riskalyze. Another software tool that’s become the platinum standard in the industry. What we do is we identify what someone’s risk tolerance level is. We call that the Agita Level. It’s when you get that upset feeling in your stomach if you lost a certain amount of money and we get a numerical value between one and 100, 100 being the most speculative gambler out there. One means the money is buried in the backyard in a cookie jar.
Most of the people we talked to in long-term prospects come in somewhere around 30, 35, meaning that they’re very conservative in nature. Then we take their holdings, every single individual holding, we put it through an analysis and we get a numerical value through that analysis for each holding. We aggregate it all together, get a composite number and we compare that against their risk tolerance level. If they’re lined up well then, we say, “Everything’s great.” if there’s a discrepancy, a wide enough discrepancy between the two, then we’ve got some work to do.
We’re fee-based financial planners so typically, we charge $250 an hour for the work that we do, but we’re willing to not only do the Tax Clarity map, we will also do the Riskalyze analysis on people’s investment portfolios. We stress test them and see if they are good. It’s a very valuable tool. We put a lot of heart and soul and brainpower into it to come up with what we feel is the best presentation of an investment portfolio and we’re willing to do that. If the people will call us at (800) 516-5861, they can schedule a time to come in. They’re not only getting a Tax Clarity map but also getting a Riskalyze analysis.
It’s a great stuff for our audience to take advantage of. The gift could be the book Roadmap to Retirement: Navigating Your Way to Peace of Mind. For David Bezar, Karen Bezar and for Bret Elam, I’m Joe Krause. We’ll see you next time.