Author: Kevin Lao

4 Bear Market Retirement Income Strategies

The 2022 bear market hits retirees the hardest

As we prepare to close out 2022, retirees and pre-retirees are facing the worst possible scenario, a triple bear market.  US stocks, along with international stocks will likely be down double digits.  US bonds will close in the red 10%+ year to date.   And cash, although yields have risen, are experiencing negative returns net of inflation.  All in all, the traditional 60/40 investment portfolio model for retirees has many questioning whether this strategy is still viable.    

Many of you will need to take a distribution to satisfy your RMD (“Required Minimum Distribution”) for 2022 and 2023, or simply need income to live on during retirement.

But, you have probably heard the old saying, “Buy Low and Sell High.”

Well, how do you implement a retirement income strategy during a bear market, particularly one in which both stocks and bonds are experiencing record losses?

Here are 4 retirement income strategies to consider during times like these.  Let’s not forget that bear markets, on average, happen every 5 years.  So, in a potential 30 year retirement time horizon, you will experience roughly 6 bear markets!  

Let’s dive in.

#1: Asset Dedication

One way to hedge bear market risk involves what is called the “Asset Dedication Strategy.” This strategy incorporates aligning a CD or individual bond ladder with specific cash flows, in this case retirement income. Let’s say your RMD is estimated to be $50,000 in 2023.  A basic example would be to purchase a high quality bond or CD for $50,000 (or a combination), that will mature at the time the cash flow is needed.  This is my personal favorite when working with clients because it eliminates the uncertainty of where interest rates might go in the future.  In general, when interest rates rise (like in today’s market), the value of bonds go down.  If you own an individual bond and hold it to maturity, the par value is redeemed in addition to the interest payments you received.  Therefore, who cares what the price fluctuation was along the way?

The challenge for bond mutual funds or ETFs is they have to deal with redemptions (other investors selling), which will inevitably impact the price of that particular fund, and ultimately its performance. 

Depending on your time horizon and risk tolerance, we would create a bond and/or CD ladder to satisfy 2-10 years of those expected distributions. 

If done properly, you will never have to sell your stocks when markets are down.  As your bonds mature and are paid to you as retirement income, you would then re-balance your portfolio (sell some of the winners) to add the next “rung to your ladder.” 

The frequency of the re-balance will depend on market conditions and how well your other investments are performing.  So, if markets rise rapidly, you might find yourself adding several rungs to the fixed income ladder by taking gains off the table.  That way, when markets are down, you have plenty of wiggle room to wait until things recover.

If the strategy involves a taxable account (non-retirement), you might consider municipal bonds, depending on your tax rate.  These interest payments are exempt from federal income taxes, and could also be exempt from state income taxes depending on the bond you purchase.  If the strategy involves a tax free or tax deferred account, investing in corporate bonds and/or government issuers will work just fine, as taxes are not a concern.

BONUS Strategy

I have to add a bonus strategy as not all bond mutual funds and ETF’s have done poorly in 2022.  In late 2021, with the help of our friends at Wisdom Tree Asset Management, we added the ticker AGZD as a core bond holding for all client accounts.  The more conservative the account, the more exposure to AGZD.  This strategy involves using traditional fixed income securities coupled with derivatives within the treasury market to hedge against interest rate increases.

Sound complicated?  Well, it is somewhat.  But in essence, when interest rates do rise (like in 2022), this strategy helps preserve principal unlike your traditional bond mutual fund or ETF.

Year to date this strategy has returned a positive return of 0.63%!  Compare that to the average bond mutual fund at -12.79%, wow!  This strategy, coupled with individual bonds, has allowed our clients to protect their retirement income during this particular bear market.

#2: “Income Flooring”

creating a retirement income floor

“Income Flooring” with annuities is another strategy that works extremely well during volatile markets. This involves purchasing an annuity to generate an income floor that can be relied upon regardless of market fluctuations.  Social Security might represent a portion of your fixed income needs in retirement, but what makes up the gap?  If you are relying solely on securities that have price fluctuations, what do you do in a market like 2022? 

An income floor will invariably reduce the amount of cash needed from a distribution, and therefore will allow your riskier assets to recover during a downturn. 

The beauty of this strategy in today’s market is that interest rates have risen sharply.  Therefore, insurance companies have been able to increase their payout rates, thus making income flooring much more attractive than it was 3-4 years ago.   

I like to compare this to purchasing an investment property designed to pay a fixed income stream.  The difference is there are no repairs, unexpected maintenance costs, or tenant vacancy gaps. 

On the flip side, it’s not an asset you can “sell back” to anyone to recoup your principal.  Additionally, there is no price appreciation like you would expect from buying real estate.

For the most part, these annuities are not liquid and should not be relied upon for an unexpected expense or emergency fund.  Therefore, I typically would not recommend exchanging a large majority of your investible assets for these contracts given the lack of flexibility. 

However, if structured properly, it can serve as a compliment to Social Security and other guaranteed income streams.

A good rule of thumb is to calculate your non discretionary expenses, and compare that to your projected fixed income payments (Social Security and Pensions).  If there is a shortfall, you might consider backing into how much money would need to be exchanged into an annuity to fill that gap.

If you have yet to claim Social Security, this strategy can be even more powerful so you avoid tapping into longer term investments for current fixed income needs.

Caution

These contracts are complex and not all annuities are created equal.  It’s important to consult with a fiduciary financial advisor who can work with you and multiple insurance carriers to select the most appropriate product.

#3: Cash Value Life Insurance

Cash Value Life Insurance is one of the highly debated products in the financial services industry.  Insurance companies tend to “sell the sizzle” and often fall short on fully educating the consumer. 

On the other hand, most investment advisors tend to default to the advice of “buy term and invest the difference.”

I started my career at a large insurance company, and now run my own fee only financial advisor firm, so I have sat at both sides of the table. 

I wrote an article titled “5 reasons to own life insurance in retirement” that I would recommend reading to get my insights on the topic.  For this article, I want to focus on using the cash value as an income strategy to hedge a bear market. 

Here are the basics:

  • Cash values within a fixed life insurance policy have a guaranteed interest rate + a non guaranteed interest rate. They are paid to the policy owner in the form of annual dividends that can be used to purchase more life insurance, increase the cash value (or both), and pay premiums. 
  • Cash values can be surrendered, at which point taxes will be due on any gains (if applicable)
  • Cash values can also be borrowed tax free while also keeping the policy in force

Example:  Let’s say you have a policy with $100k in cash value.  You are also retired (or planning to retire) and need $50,000/year from your investment portfolio to supplement other income sources.  In a market like 2022, you might find it difficult to take a distribution from your investment portfolio, unless you implemented strategy #1 or #2 as previously mentioned.  Therefore, instead of selling a stock or bond at a loss, you might consider borrowing $50k from your $100k cash value on a tax free basis.  The loan will be charged interest, but there is still interest credited to you on the loan.  My personal policy with Northwestern Mutual has a net charge of 3%, which isn’t bad in today’s market.  

Let’s say you borrowed from the policy and avoided selling your longer term investments.  Now what?

You have two options. 

One, you can let the loan ride, and simply ensure that the policy doesn’t run into issues down the road.  This involves reviewing your policy on an annual basis using an “In Force Illustration.”

When you pass away, the loan proceeds will be subtracted from the death benefit paid to your beneficiaries.

Or two, pay the loan back once the market recovers. 

I prefer option two if you plan to utilize this strategy again in the future.  At some point, this market will recover, and we will set new market highs.  Who knows if that will be in 2023, 2024, or even 2025.  But at some point, you might experience substantial gains within your stock portfolio that you are comfortable with taking $50k off the table and paying back that policy loan. 

In essence, you are using the cash value as a re-balancing tool in lieu of other fixed income assets.

Here’s the challenge.

You need to have the cash value in the policy to take advantage of the strategy in the first place.  This involves buying life insurance and funding the policy adequately to build up adequate cash value.

Therefore, this strategy is best suited for those of you approaching retirement that have adequate recourses to fund a policy for at least 5 years, and you’re healthy enough to buy it.  If it’s designed properly, this will give the policy time to work properly and set you up for this defensive hedge that you may need 4-5 times throughout an average retirement time horizon.

Caution

Much like annuity contracts, life insurance policies are also not created equal.  The design of the policy is key and will impact the viability of policy loans as well as the tax implications of using the cash value. 

Furthermore, this strategy works best if you have a legacy goal of transferring assets to the next generation, and the cash value is more of an ancillary benefit.

Consult with a fiduciary advisor and licensed agent to create an optimal strategy best suited for you!

#4: Tap into Home Equity

home equity line of credit and reverse mortgage strategy

Leveraging a HELOC (Home Equity Line of Credit) or Reverse Mortgage to access home equity is my fourth and final strategy.

With home values shooting up the last few years, you might find yourself with a large chunk of cash available to tap into via a home equity line of credit or reverse mortgage.  This should be done carefully as it involves leveraging one of your most important assets, your home.  However, if done properly, it could create an infusion of cash while letting your longer term investments recover. 

A reverse mortgage could be tapped into as a form of life income payments, a line of credit, or both.  At death, the loan amount would be offset by the sale of the home.  For a HELOC, the loan would generally need to be repaid within a specified term.  With rates increasing, you might be hard-pressed to find a HELOC for less than 6.5%.  However, some of you might already have a HELOC established at a lower rate and can tap into the funds cost effectively. 

Also, the challenge with reverse mortgages is that a higher interest rate will result in a more expensive loan and thus a lower payment.  However, if you are in a bind, it’s worth consulting with your financial advisor and mortgage specialist to see if it’s a viable option.

In Summary

2022 has brought unique challenges to retirees.  However, a well thought out retirement income plan is critical to weather this storm, and future storms during a 20-30 year retirement time horizon.

If you have questions about your retirement income plan, or are wondering how this bear market has impacted your long term goals, feel free to book a 30 minute initial conversation with me by clicking on the Schedule Now button below.  

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Retirement planning = reduce stress and worry less!

Blended Families – You Need a Long-term Care Plan!

Don't have a Long-term care plan? You are not alone!

Nobody likes to think about the possibility of a family member caring for them later in life.  However, the number one concern I hear from my clients is “I don’t want to be a burden on my children.”  When I ask about how a long-term care event would impact the family, most people have never thought about it.  Or, they’ve thought about it but have yet to create an actual game plan.  

Now, what about long-term care for blended families?  If there are adult children from previous marriages, how does that impact the actual long-term care plan for Mom/Dad?  

In this article, we will dive into the facts about Long-term Care planning, the challenges for blended families, and the top solutions to consider!

The basics

Despite the fact there is a 70% chance you will need long-term care later in life, less than half of retirees over 65 have Long-term Care insurance.  Furthermore, 70% of caregivers are NON paid family members.  So what does this mean?

Even though the probability of needing care is high, people simply ignore long-term care planning.  Or, they simply assume buying insurance is too expensive or they will simply pay out of pocket.  

And despite not wanting to burden their loved ones, they many end up doing just that.  In fact, more than 60% of caregivers have other full time jobs in addition to being the primary caregiver! 

Many people believe Medicare or Medicaid will cover Long-term Care expenses. 

Medicare does not pay for custodial care after 100 days.  Sure, if you are in a rehab facility and expect to improve, you can rely on Medicare to help subsidize those costs for a very short period of time.  Medicaid, on the other hand, does pay for custodial care.  However, most of you will probably not qualify for Medicaid given the financial requirements of income and assets.  And sure, you might assume that your family members will hire help, but the reality is they are NOT hiring help.  Perhaps they believe they can’t afford it, or they are afraid they will burn through assets too quickly and won’t be able to maintain financial independence for themselves.  Both of these are legitimate concerns.

Long-term Care Planning Challenges for Blended Families

Blended families are becoming much more common nowadays.  In fact, 40% of weddings today will form a blended family!  For blended families planning for retirement with adult children, this can provide challenges in three ways:

  1. Who’s assets will be used to pay for long-term care expenses?
  2. How does a long-term care need for your spouse impact your ability to maintain financial independence?
  3. Who’s children will be available to coordinate care?

Who’s assets will be used to pay for long-term care expenses?

which assets to use to pay for long term care

What if you remarried and brought a much larger pool of assets to the marriage than your spouse?  You might have the goal of passing on a financial legacy to your children, but at the same time making sure your spouse is taken care of for life. 

As I discussed in my previous article, 4 Retirement and Estate Planning Strategies for Blended Families, the functionality of a trust for blended families is important.  A trust would allow for you to pass on assets to your spouse, but making sure the next beneficiary is your children once your spouse passes away.

But what if your spouse needs long-term care later in life?  Perhaps they don’t have their own pool of funds to pay for that care.  Inevitably your trust will have to be invaded to pay for those long-term care costs.  The question is, how does this impact your intergenerational wealth planning goals

What about your financial independence?

If your spouse needs care and you spent down a large chunk of your assets to pay for it, how does this impact your ability to maintain financial independence after your spouse dies? 

When your spouses passes away, the household will automatically have a reduction in Social Security income.  There could also be a reduction in pension and annuity income, on top of assets being spent down for long-term care.

If you were cruising along and on track to meet your retirement and estate planning goals, how does a long-term care event impact your ability to maintain those goals? 

As we illuded to earlier, most of the time the spouse will care for the other.  Remember, 70% of long-term care is provided by unpaid caregivers.  This means you might forgo hiring professional help in efforts to save your financial resources, but this could negatively impact your mental and physical health.  We’ve seen caregivers get sick after their spouse passes away, simply because they took on the lion’s share of caregiving and are flat out worn out.

 

Who’s children will be available to coordinate care?

blended family finances

This is the most difficult part of the equation.  Sure you might have enough resources to pay for care.  But, like Jean Ausman shared in our retirement readiness checklist, “a checkbook is not a long-term care plan.”

Who is going to manage the care?

Who is physically going to provide the care?  What if that person is a stepchild? 

Who is going to manage the financials and decide which accounts to tap into for care?

These are all touchy subjects, especially with a blended family where the adult child handling these issues isn’t the biological child of the one needing care.

What is a Long-term Care Plan?

As I discussed in a previous article, Long-term Care Planning, I mentioned the fact that 40% of retirement aged clients have long-term care insurance.  If you read that article, you understand that I am agnostic as to what the solution is, but we need to have a plan.  

These are some questions to get you started:

  • Where will care be provided?  If care is provided at home, you will likely have family providing the bulk of the care.  On top of this, you might hire some professional help to give relief for the family members.  If you need specialized care in a nursing home or memory care, the price tag goes up substantially.  Check out Genworth’s stats on this below.

 
  • What assets will be used to pay for care?  Different accounts will have different tax consequences.  Additionally, certain accounts are better to spend during your lifetime instead of leaving to your children.  Make sure you designate which accounts (in order) should be spent down first if there is a long-term care need.  Take a look at our article on how to divide assets in a blended family.
  • What’s the strategy to mitigate the tax impact of accelerated withdrawals? You might have multiple accounts to draw from, and accelerated withdrawals on certain accounts like 401ks or IRA’s might push you into a higher tax bracket.  Additionally, it could result in higher Medicare premiums as a result of “IRMAA” (income related monthly adjustment amount).  Therefore, you might work with a fiduciary financial planner who also does tax planning to ensure you are making tax efficient withdrawals.  
  • Who is the caregiver coordinator? This job can feel like a full time job, even if the individual isn’t the one providing the care.  The ongoing hiring, firing, financing, and other issues can result in major headaches for the coordinator.  For blended families, what if that coordinator isn’t your biological child?  Or, what if your biological child is the coordinator for your new spouse (their step parent)?  These are touchy issues and can cause a divide amongst the family.  It’s very important to be proactive with all of the children on who is responsible for what.   You also might consider hosting a family meeting so all of the children are on the same page.
  • Who is going to manage the assets? If you plan to hire professionals to provide the care, some additional asset management will need to be considered.  Which investments are being sold when?  How does selling those investments impact the long term viability of the portfolio?  What’s the tax consequence of selling an investment to pay for care?  How does selling an asset impact your legacy goals?  

For traditional families with shared estate planning goals, it can be perfectly acceptable to “self-insure,” as long as the plan is laid out for the decision makers. 

With blended families, particularly those with separate estate planning goals, I highly recommend Long-term Care Insurance

The potential challenges for the adult children and your spouse are endless depending on the relationship dynamics, and insurance removes them from the equation (for the most part).  

The benefits of Long-term Care Insurance for Blended Families

  1. Caregiver Coordinator benefit

Immediately after a triggering event, a Long-term Care policy will most likely have a caregiver coordinator benefit.  This allows for the client to call the carrier, and request a specialist to come out to the home.  This specialist will help create a plan to provide care within the framework of the insurance policy’s terms and budget.  Additionally, they can help make recommendations on home modifications to suit the needs of the family.  From there, if there is additional care needed, the family will then decide if they will pay out of pocket or coordinate efforts to provide care.  Nonetheless, the family will have an objective third party to help them with these major decisions.

 

  1. A long-term care benefit pool

Some policies provide for reimbursement, some provide cash benefits immediately upon the triggering event.  Either way, there is a defined pool of dollars that are specifically meant for long-term care needs.  In addition, the payouts are income tax free, which will eliminate unnecessary tax increases from accelerated retirement account withdrawals.   Why do you think ultra high net worth individuals own Long-term Care Insurance?  Of course they could “self insure,” but they would rather keep their long term investments on their balance sheet instead of liquidating them for care.  

The best part is, having a defined pool of assets will eliminate the question of “do I hire help or provide care myself?”  Instead of putting your spouse or adult children at risk of carrying the weight of caregiving, the insurance essentially forces the family to hire professional help.  You can’t put a price tag on preventing that burden.

 

  1. Hybrid policies

Over the years, I’ve had clients bring up the concern of “what if I never need care?”  Statistically speaking, there’s a good chance you’ll need care.  In fact Genworth estimates 70% of those 65 or older will need care at some point in life.  But the question is valid.  What if you don’t?  

Hybrid policies were designed to address this issue.  The gist is there is a life insurance benefit with a long-term care benefit.  Some policies are life insurance focused with a long-term care rider.  Others are long-term care focused with life insurance rider.  Either way, if long-term care is not needed.  Or, if only a portion of the benefit pool is used, there will be a death benefit when you pass away that can be left to your beneficiaries.  These policies are certainly more expensive, but you get what you pay for.  What’s also nice is all of the policies I am familiar with are guaranteed to not increase in premiums.  This has been another pain point for the long-term care industry and these policies were also designed to eliminate that concern. 

For those that are interested in leaving a financial legacy to their children, these hybrid policies are a great solution!

Final thoughts

All in all, if you are a blended family with adult children, you must absolutely have a long-term care plan.  If you are similar to a traditional family in the sense of having shared estate planning goals, long-term care insurance might be optional for you.  However, the tax benefits and having a dedicated plan for care makes insurance extremely appealing for all families. 

For blended families with different estate planning goals, long-term care insurance is the top solution!  It’s important to consult with a fiduciary financial advisor that specializes in retirement planning and specifically long-term care planning to create a plan that’s right for you.  An objective third party who can review your goals and balance sheet is invaluable.

If you are interested in discussing your long-term care plan, feel free to start with a no obligation Zoom call with us! (see the link below)

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The 7 Most Tax Efficient Retirement Income Strategies

Tax efficiency maximizes retirement income!

When I started my first job as a soccer referee at 12 years old, my Mom used to tell me; “it’s not what you earn, it’s what you keep!” 

I’m not sure if working at 12 years of age is legal any longer, but I’ve had a job ever since.  My Mom instilled in me the value of forced savings and paying yourself first.   (thanks, Mom!)

I’ve been practicing financial planning now for over 14 years, and I find this quote is highly relevant for taxes.

Tax inefficiency of retirement income is one of the biggest drags on returns.   In fact, taxes are likely the largest expense for retirees, even more so than healthcare costs!

While we can’t control the stock market, we can control our taxable income (to a certain extent).

This article will outline the 7 most tax efficient retirement income withdrawal strategies so you can maximize spending on your lifestyle, not the IRS. 

1. Roth IRAs + other Roth Accounts

As you know, this is one of my favorite tax efficient income strategies for retirement.  Sure, you will forgo the tax deduction for contributions, but in exchange for a lifetime of tax free (“qualified”) withdrawals.   I’ll take that tradeoff any day!

Here is the nuts and bolts of how these accounts work:

  • You make a contribution (whether it’s payroll deductions with work or IRA contributions).
  • You invest the money according to your goals and risk tolerance.
  • Enjoy tax free withdrawals, assuming they are “qualified”:
    • The account is at least 5 years old (for an IRA)
    • You are 59 ½ or older

Your contributions in these accounts are always tax and penalty free, but you might have taxes and penalties on earnings if your withdrawal is “nonqualified.” 

There are some exceptions like for first time home purchases, educations expenses, etc.  But if you are reading this, these will likely not be of interest to you anyhow!  Why would you cash in your most tax efficient retirement vehicle for anything other than retirement?

There are some limitations on these accounts.

Contributions:

  • For Roth IRAs – the max contribution for 2022 is $6,000/year (if you are over 50, you can contribute $7,000/year)
  • For a Roth 401k/403b – the max contribution for 2022 is $20,500 (if you are over 50, you can contribute $27,000/year)

These contribution limits are per person.  If you are married, your spouse has their own limits to take advantage of.

Income phaseouts:

If you are over a certain income threshold, you might be phased out completely from a Roth IRA contribution (don’t worry, there may be a loophole).

Roth 401ks/403bs etc. are NOT subject to income phaseouts.  You can make $1million/year and still max out a Roth 401k.  Check out your 401k plan rules to see if there is a Roth option in lieu of the traditional.

Enter the backdoor and mega backdoor Roth contributions

In 2012, the IRS lifted the income limits for “Roth conversions.”  A Roth conversion simply means you convert all or a portion of your Traditional IRA to your Roth IRA.  You will then be responsible for any taxes due at that time.  However, you may find this compelling based on your expectations on where taxes might go in the future.

Here’s the loophole…there is no income cap for non deductible IRA contributions.  Therefore, savvy tax planners can make non deductible IRA contributions, and immediately convert those dollars into their Roth IRA!  This is known as a backdoor Roth contribution!

Pro tip – be careful of the IRA aggregation rule or your conversion may not be tax free!

Now, companies are starting to allow for “Mega Roth 401k/403b conversions!” Depending on your plan rules, you can not only contribute the maximum to a Roth 401k, but you can make an additional non deductible contribution up to the 402g limit.  That non deductible contribution can then be converted to your Roth 401k to enjoy tax free growth!  

Sound too good to be true?  Well, lawmakers are looking to shut this down ASAP, so take advantage while you can and read your plan rules to see if it’s allowed.

tax planning for retirement

2. Health Savings Accounts (HSA)

Healthcare will likely be one of your largest expenses in retirement, so why not pay with tax free income? 

In order to participate in an HSA, you must have a high deductible healthcare plan.  Talk to your HR team about which plans allow for these accounts.  

In general, if you are going to the doctor frequently or have higher than average medical bills, a high deductible health care plan may not be right for you.  However, if you are pretty healthy and don’t go to the doctor often, you might consider it so you can take advantage of the tax free HSA.

HSA’s have a triple tax benefit:

  • Tax deductible contributions
  • Tax free growth
  • Tax free distributions (if used for qualified medical expenses)

This triple tax benefit is the reason it’s one of the most tax efficient retirement income strategies!

You can also use an HSA to help pay for long-term care costs or even pay long-term care insurance premiums tax free.  

Try not to tap into this account early

You might be tempted to reimburse yourself the year you have a major surgery or other medical bill.  If you can pay out of pocket, do that instead!  As your account grows, you can even invest it according to your risk tolerance and time horizon.  This helps amplify the benefit of tax free compounding!

Save your medical bill receipts

There is no time limit on when you reimburse yourself.  You could have surgery in 2022, and reimburse yourself anytime in retirement tax free!

Planning a major trip in retirement?  Take a look at some medical bills you paid 20 years ago and reimburse yourself from the HSA…now you have more money to enjoy that trip instead of paying Uncle Sam!

Don’t leave this as a legacy

Your beneficiaries (other than a spouse) will have to liquidate the HSA the year you pass away, which could create an unnecessary tax bill for your heirs.  Spend it while you can, name your spouse as beneficiary, and enjoy this triple tax advantaged account!

3. Life Insurance

Life Insurance is an often misunderstood, misrepresented, and misused financial tool for retirement.  However, it can be used as a tax efficient retirement income strategy, or a tax efficient intergenerational wealth strategy (dual purpose!).

I started out with a life insurance company and am so thankful I did.  First and foremost, I was taught to load up on life insurance while I was young and healthy (even before needing it), to lock in my insurability and health profile. 

Secondly, I was taught the benefits of permanent insurance and loaded up on this as well.  Again, before having any insurance needs at all! 

Over time, the cash values have grown, and I’ve been able to tap into this asset class at opportune times when other asset classes were temporarily at a discount! 

Ever hear of the concept “buy low, sell high?”  Well, how do you buy low if all of your assets are down at the same time?

As we’ve seen with the market in 2022, bonds are not immune to significant drops in performance.  Life insurance keeps on keeping on!

Long term, my plan is to keep the insurance as a tax free legacy for my three boys (and hopefully grandbabies!).  There is no other financial vehicle that provides an amplified tax free death benefit like life insurance. 

Which type of insurance should I own?

Raising children is expensive.  Inflation has made it even more difficult!  If you are strapped for cash and are worried about making rent or your mortgage on time, you should buy some inexpensive term insurance and protect your family.  

Pro tips:

  • Buy lots of coverage – a rule of thumb is 10x – 16x your gross income, but some insurance companies allow you to buy 25x your gross income!
  • Make it portable.  If you are healthy, buy a policy NOT tied to your workplace, as you never know how long you will stay there.
  • Make sure it’s convertible.  Even though you may not be a good candidate for permanent insurance today, that may change over time.  Perhaps when your kids are out of the house, or your mortgage is paid off, or your income has skyrocketed.  Being able to convert to a permanent policy without medical underwriting is extremely helpful.  

For those of you comfortably maxing your tax advantaged retirement plans and HSA’s (as discussed previously), overfunding a permanent life insurance policy can be a great supplemental savings tool.  

There are multiple flavors of permanent life insurance that we won’t go into detail on in this article.  But in general, you can invest in fixed products or variable products.  This feature will impact the performance of your cash value, and potentially your death benefit.  

You can also add a long-term care rider on some policies to kill two birds with one stone.  That way, if you are someone who never needs long-term care, your family will still receive the death benefit.  

What I have found is that the intention might be to use this cash value as a tax efficient retirement income strategy, more often it’s used for the death benefit.  All of you diligent savers will accumulate assets in your 401ks/IRAs, taxable brokerage, HSA’s etc., and you might realize that this amplified death benefit is best used to enhance your intergenerational wealth objectives.  Plus, it gives you a license to spend down your other assets in retirement “guilt free.”

Don’t worry about making that decision today, but just know this asset can be a flexible vehicle throughout your lifetime.

4. Taxable Brokerage Accounts

This bucket is one of my favorite tax efficient retirement income strategies for three reasons:  

  1. There is no income restriction on who can contribute
  2. There is no cap on contributions
  3. There is no early withdrawal penalty

The title of this account sometimes leads people to believe it’s not tax efficient.

And this can be true if you invest in certain securities within the taxable brokerage account.

However, if you are strategic with your security selection, you can have minimal tax liability during the accumulation phase.  

In retirement, you can then use losses to offset gains, sell certain blocks of securities with limited capital gains, and use tax free income as cash flow by investing in municipal bonds (if appropriate).

I find this tool is great to maintain flexibility for funding college, saving for retirement, or any other major expenditures along the way. 

Intergenerational Wealth Planning

Certain assets are better used during your lifetime instead of passing on to your heirs, as we discussed with the HSA.  However, taxable brokerage accounts are extremely tax efficient for intergenerational wealth planning

When you pass away, your beneficiaries will get a “step up in cost basis” which will limit their tax liability if/when they sell that asset themselves.  

All in all, this can be a great multi functioning tool for retirement income, legacy, or any other major opportunity that comes along!

minimize taxes in retirement

5. Non Qualified Annuities

I find consumers have a negative connotation associated with the term annuity.  And, rightfully so.  These products, like life insurance, are often oversold or inappropriately utilized.  

In it’s purest form, annuities are used to provide a guaranteed income stream in retirement.  Think Social Security or a Pension. 

Creating a “retirement income floor” is one of the most powerful things you can do for yourself.  Believe me, when the markets go south, you don’t want to be worried about how to fund your basic living expenses in retirement.  

However, if Social Security + Pension + Annuity income covers your basic necessities, you can avoid losing sleep at night when the markets do take a dive (which they will!).

The tax efficiency components are twofold:

  1.  Tax deferred growth, much like a traditional 401k or IRA
  2. Exclusion ratio for lifetime annuity income

For you high income earners, you will want to limit tax drags on  your savings.  However, once you are maxed out of your qualified retirement plans, you’re going to be wondering where to go next.  One of the  benefits for annuities is the tax deferred growth.  You won’t receive a 1099 until you start the income payments in retirement!  

In retirement, instead of the gains being withdrawn first (“LIFO”), you can take advantage of the exclusion ratio.  This allows for a portion of your retirement income to be a return of basis, and a portion to be taxable income.  Therefore, it’s a great way to spread the tax liability over your lifetime. 

In retirement, if you decide you don’t need this income stream, you can flip on the switch to fund other tax efficient vehicles like life insurance or long-term care insurance.  

Intergenerational Wealth Planning

In years past, annuities were a terrible way to leave a legacy for your children.  Beneficiaries were often forced to take a lump sum distribution or take payments over a short period of time.  Now, some annuity contracts allow for the children to turn their inherited annuities into a life income stream.  This can also help spread out the tax liability over a much longer period.

I still recommend using these accounts during YOUR retirement phase and leave other assets to your children.  Having your beneficiaries deal with the death claim department within annuity companies can be a nightmare!

6. Reverse Mortgage

One of the largest, if not the largest, asset on your balance sheet over time will be home equity.  However, many retirees don’t maximize their home equity as an income tool, which could be a mistake. 

In simple terms, a reverse mortgage allows the homeowner to stay in their home as long as they live.  These products essentially flip your home equity into an income stream.  The income stream now becomes a loan with your home as collateral. 

Because it’s a loan, the income is not taxable to the borrower! 

Instead, the loan will be repaid from the home sale proceeds when you move, sell your home, or pass away. 

Creating this essentially tax free income stream can allow you to preserve other liquid assets on your balance sheet, like the ones mentioned above. 

It can also be a part of the “retirement income floor” concept that we mentioned previously.

7. Real Estate Income

You often hear of real estate investors paying little to no taxes.  The basic reason is the ability to deduct ongoing expenses from the income.

  • mortgage payments
  • taxes
  • insurance
  • maintenance
  • property management fees
  • And the “BIG D”  – Depreciation!

This depreciation expense is the real wildcard as it can essentially wipe out any taxable income you would otherwise have to report.  Depending on the property type, this can amount to approximately 3.6% of the cost basis year after year!  There is some “true up” at the end when you go to sell the property, but it’s a huge advantage to minimize taxable income while your property still cash flows! 

And once you sell the property, you can even take advantage of a 1031 tax free exchange and buy another investment property that better suits your overall financial goals.

Investing in real estate is not for everyone.  And it’s certainly not a passive activity, even if you have a property manager.  Studying your market, analyzing trends, upgrading your property and dealing with bad tenants are ongoing challenges.  

However, if you do it right, this can be an extremely tax efficient retirement income strategy.

Final word

Minimizing taxes in retirement is one of the most impactful ways to maximize your cash flow!  

However, most people don’t think about taxes in retirement…until they are about to retire!

These strategies only work if you begin building the framework 10, 20 or even 30 years before you quit your day job.  Furthermore, not all of the strategies discussed will make sense given your goals and financial circumstances. 

It’s important to consult with a fiduciary financial advisor that can take a comprehensive look at your financial plans.  

If you are interested in scheduling a call, feel free to use the calendar link below for a 30 minute “Mutual Fit” meeting over Zoom.

Also, make sure to subscribe to our mailing list so you don’t miss out on any retirement planning insights!

Until next time, thanks for reading.

-Kevin

Ep. 13 – Planning for Healthcare Costs in Retirement – Medicare Considerations

(transcription) - Planning for Healthcare Costs in Retirement - Medicare Considerations (featuring Ari Parker, Lead Medicare Advisor @ Chapter)

Kevin Lao (KL):

Hello everyone, and welcome to the planning for retirement podcast, where we help educate people on how retirement works. I’m Kevin Lao, your host. I’m also the lead financial planner at imagine financial security. Imagine financial security is an independent financial planning and investment firm based in Florida.

However, this information is for educational purposes only and should not be used as investment legal or tax advice.

This is episode number 13, called planning for healthcare costs in retirement. Hope you enjoy the show. And if you like what you hear, leave us a five star review and make sure to subscribe or follow and stay up to date on all of our latest episodes.

I’m very excited today to be joined by Ari Parker. Ari is the head Medicare advisor of Chapter, and is one of the country’s leading Medicare experts. He’s helped thousands of Americans sign up for Medicare, breaking it down into simple bite size pieces. I like that simple.  His work has been featured in Forbes, CNBC, CBS money, watch market watch Huffington post, and many other publications.

He’s a graduate of Stanford law school. He trains and leads Chapter’s team of 30 plus licensed Medicare advisors and lives in Phoenix with his wife and two dogs. His book is coming out in September.
“It’s not that complicated” is the title of the book, the three Medicare decisions to protect your health and money.

Their website is ask chapter.org and Ari’s email is Ari@Ask chapter.org. Ari. Thank you so much for joining today. Appreciate it.

Ari Parker (AP):

Pleasure to be with you, Kevin.

KL:

So I am excited to have you on mainly because my firm, obviously being in Florida, I specialize in retirement planning and oftentimes healthcare and Medicare questions come about.

And I’ve been doing this for 14 years now and I still feel like Medicare confuses me. How do you feel about that?

AP:

Absolutely. It can be very confusing. People aren’t sure which enrollment deadlines apply to them, whether they need to sign up for it or not.

This is why I wrote a book on it. And it’s something that our team helps people with every day.

KL:

Love it. Love it. Well, for this episode I reached out to you earlier this week.  I like to do episodes based on real life questions that I field from my clients.  This one, I’m gonna call them Jack and Diane.  Jack is 66. Diane is 57. Okay. Their daughter just had twins. I can relate, I’ve been there.

We had twins a couple of years ago, understandably so it takes a village to raise twins. So now they want to sell their house here in Northeast Florida and move closer to their daughter. Um, so instead of Jack working a few more years and getting Diane closer to that age, 65, that magical age, 65 of Medicare eligibility, and also his age 70, which would be the full social security benefit.

They’re wondering, Hey, you know what if Jack retired tomorrow and they moved closer to their daughter to be near their twins?  Now the decisions are what do they do with healthcare, right? I mean, we’ve got Diane who’s eight years away from turning 65 and being Medicare eligible.

And then we’ve got the decision for Jack and he needs to then enter into this world of complexity of Medicare, which hopefully you can break that down. So what I thought we would do is maybe start with the Medicare decisions, and then we can transition into Diane’s decisions around healthcare pre-Medicare.  So why don’t we just start with the basics of Medicare?

Let’s pretend I’m Jack, what would you say to me?

Basics of Medicare

AP:

I’d like to summarize.  Jack is 66 years old and has retired. Diane is 57 years old, but isn’t working.

KL:

Correct.

AP:

It is very likely that Jack should enroll in Medicare.  Jack by virtue of having retired from a large group employer, which is defined as 20 employees or more has a special enrollment period to start Medicare, that enrollment period lasts eight months.

Jack probably doesn’t want a gap in his coverage. So it’s important to do it sooner than later. You don’t wanna wait until the end of the eight month period. You don’t wanna miss that period either because then you’re in a whole world of pain.

KL:

You get slapped with penalties, right?

AP:

Yes. I’m happy to get into the penalties, but it is very likely that Jack should enroll in Medicare. It’s a five minute process. He can do it online through his ssa.gov portal. And then yep. Happy to get into what Medicare covers.

KL:

It’s very easy to enroll in Medicare. But you hear all of these questions like, okay, what you do with original Medicare versus Medicare advantage? I think I read a trend recently that the number of people buying Medicare advantage plans has been going up by roughly 34% per year which is substantial.

So it’s gaining traction. Why don’t we talk about the differences between traditional Medicare versus the Medicare advantage route?

Medicare Original vs. Medicare Advantage

AP:

Original Medicare has two parts, part a is hospital insurance, which covers you when you’re inpatient. It also covers hospice care, skilled nursing facilities. It means you’re inpatient.

Part B is outpatient coverage. It’s visits to the doctor to specialists, ambulance services, durable medical equipment, even outpatient surgery, all covered under Medicare part B. For Jack because he’s paid federal income taxes for at least 10 years. Part a hospital is premium free. There’s a charge for part B.

However, that charge will be $170 and 10 cents per month for 2022 and might go up for next year. We don’t know yet those numbers will be released in the fall.  But there’s a charge for part B and most Americans pay $170 and 10 cents. Mm-hmm what Jack will get in return is 80% of his medical services covered.

He’ll owe the other 20% out of pocket with no cap. My mom just had a knee replacement, $40,000 procedure. Original Medicare picked up $32,000. If she hadn’t had any additional coverage, she would’ve owed eight, $8,000 out of pocket, plus all the pre-op post-op physical therapy.  Which is why you would then think about that.

KL:

They call this medigap coverage, right? The supplemental coverage, correct?

AP:

Exactly. There’s only two types of additional coverage (or Medicare advantage. Medigap sits on top of original Medicare and covers the 20% remainder. Here, we’re talking about plan letters like plan F plan G, or plan N.

Those are the three most common types. And what those do is preserve the flexibility of original Medicare. There’s no PPO or HMO restriction. You can see any doctor who accepts, accepts Medicare nationwide. If you live in St. Augustine, but wanna see a doctor in Houston, it’s no problem. You can go and see that doctor as long as they accept original Medicare.

So it’s really flexible for someone who likes to travel or has a second home outside Florida, for example.  Also importantly, the Mayo clinic accepts Medigap, which is a very important consideration for people who live in Florida.

On the other hand, you have Medicare advantage.

Medicare advantage is managed care. These are also known as all in one plans or part C.  William Shatner talks about it on television, Jimmy Walker, they’re advertised heavily and they’re going be advertised even more heavily as the fall approaches. Now, what people like about these plans is it comes with additional benefits like prescription drug, coverage, vision, dental, hearing, transportation benefits.

What people like less about it is that it’s managed care and here there’s prior authorization that’s there’s restrictions. And so it, it’s just important to understand the trade offs involved in the decision between Medigap and Medicare advantage.

KL:

So the advantage, just to clarify for the listeners, the advantage would be replacing the original Medicare route.

Plus that supplement, and there’s some advantages to that in terms of additional benefits. I’ve also heard some advantages in terms of simplicity. But there also could be some disadvantages, that managed care piece that you mentioned.

So with Medicare advantage, you might actually have to go see a primary doctor before going to get a major procedure done or getting an MRI done or knee replacement, things like that. Is that what you’re saying?

AP:

Exactly. What people really like about Medigap is the flexibility. You can see any doctor nationwide who accepts Medicare.

You don’t have to ask for permission, you don’t need a referral. It also has coverage outside of the United States. In fact, I had a client who was vacationing in Paris and suffered a heart attack. They had Medigap plan G and their plan G has 80% coverage abroad for the first 60 days.

You’re outside the United States. Now the great news, it was a $35,000 hospital bill from the heart attack, but he recouped 80% of the cost because he had coverage. And so it’s a big decision to make, and it really depends on your lifestyle factors, which is something you can be useful to discuss with an independent advisor.

There’s no charge to work with one now.  And the industry is set up that way. It’s great. You get the same price, whether you work with an independent advisor, as you would, if you call the carrier.

KL:

I went through the same situation being pre-Medicare and launching my own business.   I had to go out and buy my own insurance.

It was nice to work with someone who’s an expert.  My premiums are the same, but I can get someone to give me advice on those little things that I would’ve never thought about.

AP:

And you have a dedicated point of contact it’s not as if you call the carrier you wait for customer service to answer, and then you get a different customer service representative every time.

No one likes that experience.  Instead, when you work with an independent advisor like chapter, we’re an example of one, then you get a dedicated contact and that is your person who will help you troubleshoot any issues that come.

Medicare decisions if you travel or are a snowbird

KL:

You mentioned an interesting point about travel.  It seems like if I’m working with someone or you’re someone who is big into traveling, whether it’s domestically or, or overseas, or perhaps you’re a snowbird.  Maybe you live six months minus a day in Maine or New York or New Jersey, and then the other six months plus a day in Florida.

You might have a little bit more flexibility in the networks with the original Medicare, right?   Rather then going with the Medicare advantage coverage there’s is that correct?

AP:

There’s no network restriction with original Medicare.  So if you wanna preserve the flexibility of original Medicare, then you ought to strongly consider a Medigap plan.

If you’re comfortable with managed care restrictions and you’re not planning to travel too far away from your home. Then a Medicare advantage plan might work really well.

KL:

Now Medigap has a higher premium than Medicare advantage plans, right?

AP:

Cost depend on where you live, they can cost anywhere from $90 to about $185.

And if you live in New York, it’s a lot more expensive than that.  But in Florida’s around 175 to $185 per. Medicare advantage plans on the other hand have a very low premium, in fact, many plans have a $0 premium, but there are trade offs.

KL:

And the trade offs from what I understand, it’s more like your traditional health insurance with the deductibles and copays and things like that.

So if you’re, if you’re going to the doctor a lot that original Medicare, even though the premiums are higher, that actually might be more advantageous because you’re saving money on a much lower deductible. Right?  I think the deductible is $300 per year or something like that?

AP:

You, you got it.

The, the deductible is exceptionally low. The deductible for original Medicare is $233 for 2022.

KL:

Is that per individual or per couple? It’s probably per individual, right?

AP:

There’s no Medicare family plan. It’s individual.

Many advantage plans have a $0 deductible, but as you mentioned, it’s pay as you go insurance similar to work provided coverage. For example, if you go see a specialist you’re going to owe a copay and your doctor needs to be in network. If your doctor’s out of network, then you might have co-insurance or the visit might not be covered at all.

KL:

Okay. So if you’re like my wife that loves to just go to doctors and do a lot of things, you might wanna go with original Medicare. Right?  You’re not going to have those copays and things out of pocket along the way, like you would with advantage.

AP:

That’s exactly the type of conversation we’d have with someone in a 15 minute introductory call, we would talk through how often they go to the doctor or the types of doctors they see, because it goes doctor by doctor.  And Kevin, it’s even as granular as choosing a doctor based on the location where they practice.

One location might be in network with a plan. But the other location that the doctor practices out of might be out of network.

KL:

So that’s an important thing.  You can almost back into it, like if you have doctors that you’re a big fan of, and you’re making this healthcare decision, see if they are in network obviously.

I think with original Medicare, I think I heard this stat that 98% of, of practices actually allow for original Medicare, right? Whereas advantage the percentage is much lower. So, if you’re gonna go that route with the lower premium and things like that, you might just wanna make sure that the doctors that you really are in network, right?

Medicare Open Enrollment Planning Opportunities

AP:

Exactly people who don’t go to the doctor very often tend to be quite happy with a Medicare advantage plan. As long as the doctors that they do see are in network with the plan. Now here’s the rub. This changes every single year. The plans themselves change, the doctors you see change, the care that you need changes, and your prescriptions change too.

And a lot of the reason people like Medicare advantage is because it’s all in one. Many of the plans include prescription drug coverage as well. So it’s really important to shop all your options every year. The time to do that is coming up. That window is October 15th to December 7th, October 15th is when you can shop all options available to you for 2023.

KL:

That’s for advantage, original or both?  Do they both have the same open enrollment?

AP:

The, the saying is if, if you go Medigap, you typically marry your Medigap and date your drug plan.  You wanna review your prescription drug plan every single year, because there are savings to capture here.  Now it’s good to review your Medigap plan every few years, but really it’s set it and forget it.

Keep paying your premiums. You know exactly what you’re paying for. You’re paying for it to cover the other 20% that Medicare otherwise wouldn’t. On the advantage side, it’s really important to review your options and the time to do that is in the fall. So you should, if you go the Medigap route, you should review your prescription drug coverage.

Every fall. If you go the Medicare advantage route, you should review your coverage every fall. If you’re on original Medicare and didn’t get Medigap or Medicare advantage when you first signed up, then the fall is also an opportunity for you to choose a Medicare advantage plan or to change or adjust your prescription drug plan.

KL:

Interesting.  So that actually brings up another question I had. At one point, I heard that if you start with a certain type of insurance and then later decide to change that, potentially you might have some medical underwriting or some sort of health questionnaire.   And if something changed with your health, that might impact your insurance.

Am I misremembering that?

AP:

You’re bringing up something that’s really important, which is that in the state of Florida, you have a one time open enrollment opportunity, a one time golden ticket to get a Medigap plan with no underwriting. That is no question about your health history.

If you miss that window, unless a Medigap protection applies, you have to answer questions about your health history, and people get dinged all the time.  Let’s say they’re on three medications for high blood pressure, for example. A carrier is going to look really closely at that.  Same thing with type two diabetes, or an issue with your back or your kidneys or your liver, your heart.   Those are all things a carrier would want to know about.

If you miss your open enrollment period, which is the six months after you start Medicare part B.  And it’s good to act early here. It’s actually good to do it even before your Medicare begins, because you want to secure that one time opportunity to get a Medigap plan without answering questions about your health history.

KL:

So this is, this is within six months of starting B, right?  And the trigger of starting B is turning age 65, or if you’re still working, you can delay that decision for B and just do it when you retire. If you have employer healthcare coverage, right?

So it might even be like age 68 or 67. Like in this case, Jack would be 66, right?

AP:

That’s right.  There are three ways to start. The first is by way of turning 65.  The second is by way of a special enrollment period. And here that would be Jack. Jack is coming off work provided coverage. His employer is 20 employees or more.  Jack has a special enrollment period to sign up for Medicare. The third way is through the general enrollment period, which is January 1st to March 31st, but the general enrollment period is really only if you made a mistake, it means that you should have signed up for Medicare already and you waited too long.

Now, if you have a disability or if you have end stage renal failure, for example, then you get Medicare. But that those are special circumstances. And if that applies to you, happy to be a resource here, you can reach out to me by email Ari@askchapter.org.

Special Enrollment for Medicare and Medical Underwriting

KL:

So this is super important, that special enrollment period without medical underwriting.  I think some people, especially clients that I’ve talked to in the past, they say “Hey, you know what, Kevin, I’m healthy now.  I’m not going to the doctor very much. I can get away with an advantage plan. Maybe keep my premiums low.”

But then later on, if they decide to switch to original because maybe their health changes, maybe there’s a recent diagnosis that’s not favorable.

That’s a problem. You’re making a bet. Yeah. That your good health will continue.  And so, what would happen? I mean let’s say Jack hypothetically started with advantage and then later on wanted to switch to original and something did change with his health.

Could they just exclude him or would his premiums be higher? Or how would that work?

AP:

There’s no underwriting for a Medicare advantage plan.

For context, what Kevin is talking about here is if Jack wanted to go from a Medicare advantage plan to a Medigap.  And Jack’s health history declines.  In 46 states, Jack unfortunately would have to answer questions about his health history. Now, hopefully his health hasn’t declined that much and a carrier would still accept him.

The carriers ask different questions about your health history, and it varies state by state. And so interesting here, we had to build a database to sort through all the complexity.  It would be worth exploring whether Jack qualifies for a Medigap protection, because if he’s moving for example, and let’s say he moves to Maine, Maine is a guaranteed issue state.

What that means is that Jack can get a Medigap plan. 

KL:

But that’s why talking to someone like you is helpful because you’ve got to know the rules.

AP:

Exactly. I mean, the rules are changing. The rules vary by state.

KL:

Could one spouse start with original and the other spouse choose advantage? I mean, they’re sort of independent of one another, right?

AP:

Yeah. We see this all the time, especially with couples in Florida where there’s a lot of competition, Florida has a very rich Medicare advantage market.

There’s a lot, especially south Florida, has a lot of competition across carriers. And it’s growing in north Florida too, but that just goes to show you that it’s important to shop all your options every year because the options are changing.

Usually they make the same decision. If one is on a Medigap plan, they both go Medigap. If one, doesn’t go to the doctor at all, then they might do great on a Medicare advantage plan while the spouse might go to the doctor a lot and instead would prefer to be on Medigap, it’s individual coverage.

KL:

Yeah. I could see that being my wife and I, when we’re Medicare eligible, my wife is gonna go original. I might go advantage, but we’ll see what happens at that point.

AP:

I see that with my spouse too. 

Avoid penalties!

KL:

Now you mentioned the special enrollment. I wanted to bring this up. I was reading something recently about.

If you’re 65 and you’re still working.  You don’t have to enroll in Medicare, right. As long as your company has 20 or more employees. Right?  But if your company has fewer than 20, you have to enroll. Is that right?

AP:

Yes. You must. In order to avoid penalty.

KL:

What’s the thought, what’s the thinking there?

What’s the rationale around, requiring that 20.

AP:

The rationale is that for small employers and small employer is defined as 19 or fewer employees, then Medicare is supposed to be your primary insurance.

You can remain on the company plan, but the company plan pays secondary to Medicare. So in effect, what that means is if you work for a small employer, 19 or fewer employees, then what will happen is your work provided insurer can start denying claims for the ones that Medicare should have covered as primary insurer.

So Medicare as primary insurer is supposed to pick up 80% of the coverage. If you didn’t start Medicare, then there’s no one on the hook for the 80%.   The small group employer insurance could deny claims.

KL:

I’ve had a few people over the years that turned 65 and they say, “Hey, I don’t need to worry about enrolling in Medicare” because that’s maybe what they’ve read or heard from a friend.  But I’ve had a few of those people work for small businesses and they must enroll.

Otherwise you get hit with some penalties when you do go to enroll later on.

AP:

Yes, you get hit with penalties and it’s also dangerous because then your insurance can deny claims where Medicare should have been paying as primary.  And of course, since you haven’t started Medicare, you have no one to cover those primary obligations.

What are the total costs for original Medicare vs. Medicare Advantage?

KL:

So before we transition to what to do with Diane’s coverage, all in premiums if you went original Medicare Par A plus Part B plus Part D and the Medigap coverage, what’s a price range?

AP:

First, we have to start with what they owe for Medicare part B. Do Jack and Dianne earn less than $182,000.

KL:

No.

Medicare part B premium with no IRMAA, which is income related monthly adjustment amount. So let’s assume a standard premium. Okay. The standard premium for part B is $170 and 10 cents.

And it’s non-negotiable unless you qualify for Medicaid, which is for the low income. So regardless of whether they go Medigap or Medicare advantage, they owe the $170.10.

Now if Jack starts taking social security, the $170 and 10 cents per month will be deducted from his social security.

If he hasn’t started, then he’ll be invoiced on a quarterly basis.

In terms of Medigap, if Jack lives in Florida will range anywhere from 120 to $185, depending on whether he chooses plan N or plan G.  Then Jack would need a standalone prescription drug plan unless he has prescription coverage, at least as good as what Medicare provides. And there are separate late enrollment penalties here.

So it’s really important to not miss the enrollment period to sign up for a drug. Drug plans typically costs anywhere from 10 to $25 per month, depending on the prescriptions one takes. So Jack’s cost picture if he goes Medigap is $170 and 10 cents, plus 120 to $185 per month for Medigap plus 10 to $25 for the standalone prescription drug plan.

KL:

So like $310ish to 370ish. Per month. All in for original Medicare and then out of pocket after that.  The only Medicare related expense Jack would see would be the $233 charge for the annual deductible.

How does your income affect Medicare premiums?

You brought up a good point about the 170 or less of adjusted gross income.  I’m sorry, 182,000 or less. Your part B premium, for those of you that don’t know, this is based on your income, your adjusted gross income.

And so there is a, a premium range. Okay. So, um, hypothetically, if you were the next premium band up, which is 182,000 to 228,000, your part B premium goes up by about $700 per year. For single filers that premium band would be 91,000 to 114,000, your premiums go up by about $700 per year.

The next band up for singles 114 to 142. And then for married filing joint, it’s 228 to 284. And the premiums are basically double than what they were on that first band. So this is a big part for me as the numbers guy, I like to help try to mitigate as much as possible my client’s taxable income in retirement. There are several ways to do it, but, income tax free withdrawals are the primary way.  And so those are Roth distributions, distributions from things like health savings accounts or life insurance, even non-qualified annuities, reverse mortgages could be another option or real estate income.

So by reducing taxable income in retirement, you could also in essence, reduce what you pay in Medicare premiums, which could also help alleviate that pressure on drawing your assets down too quickly during those retirement years. But thanks for breaking down the premiums for original.

What about advantage?

You hear the premiums are much lower, but what are some ballpark ranges of what you can expect for premiums?

AP:

Sure. Jack would owe $170.10 for Medicare part B. And then there are advantage plans as low as $0 premium. These plans would also likely come with prescription drug coverage wrapped in.

We would need to make sure that Jack’s prescriptions are covered affordably. What matters here is the name of the medication. Whether Jack can tolerate a generic or has to go brand name.  The dosage and the pharmacy that Jack likes to go to each of these factors influence price. And so it’s actually a really complicated equation.

What’s also important is making sure that the additional benefits appeal to Jack and that they meet his lifestyle needs, but there are great $0 Medicare advantage plans that would be available if Jack decides to go that route. And here Jack would need to, in exchange for that $0 premium, accept the network restriction.

KL:

Got it. So researching those doctors, looking at the prescriptions that he may or may not be taking and backing into the decision that way. But it sounds like your premium could be 50% less, right?

AP:

Yes. It would be 50% less. There are some things to consider. First there’s co-pays when you go to the doctor. Costs if Jack sees specialists.  The bill’s going to rack up if he sees those specialists more than once per month. So if he goes to see a specialist twice per month, then the copays will start to add up.

Also importantly, Jack needs to make sure that if one of the doctors is out of network, let’s say Jack would need to accept the consequences, which is that the carrier could deny coverage in that case. Or there might be onerous co-insurance requirements.

KL

Okay. And that’s something I assume you can run some numbers, right?

Some hypotheticals based on how much they’re going to see certain specialists or how many times they anticipate going to see the doctor, and prescriptions. And then you can do a cost benefit analysis.

AP: 

It’s important to shop. It’s important for Jack to shop all his options every year because the plans change.

KL:

So let’s talk about Diane a little bit.  So she’s got eight years until she gets to 65. So we’ve got some time, what are her options?

One thing we talked about was Cobra for her.  I mean, could she get on Cobra to continue on the group plan or does she just have to go straight to the private market, which would be the exchange?

AP:

Diane can Cobra for up to 36 months as a result of Jack’s retirement.

So that’s an option for her. That’s one option. Another option would be to look at the affordable care act exchange. There are generous federal subsidies right now, depending on Jack and Diane’s earnings. Diane might qualify for some of the subsidies and could find a lower cost plan that might be more comprehensive then Jack’s former employers work provided CORBA.

KL:

Okay, so she can use Cobra. He cannot use Cobra because Medicare needs to take over as the primary. So he’s gotta go Medicare.

She has the option of whether it be Cobra or individual insurance through the exchange, healthcare.gov.   I think those subsidies just got extended through 2025.  Yes, the subsidies were extended under the inflation reduction act, which passed Congress last month.  And it’s cool because, you know, on the, um, and I did these calculators too, when I was doing my own coverage for my family.

You could go in there and type in a hypothetical income that you think you’re gonna earn for the year. And they’ll actually quote you what those subsidies might be per month.  And so that’s another benefit of having a tax free income in retirement, right? Because if, if you retire before 65 or before your Medicare eligible and you lose group health insurance.  If you can keep your income or your taxable income low enough, you can potentially qualify for a lot of subsidies and keep those premiums down until you turn 65. Right?

AP:

That’s right.

We’re Medicare experts. Only Medicare.  But yeah, so for Diane, she’s got those two options. She could Cobra, she can look at the exchange.  Compare the two and see which one’s more comprehensive and which is more cost effective as well.

KL:

Well, this is great, Ari. I don’t know if there’s anything else we missed that you think the listeners should know about?  I think you, you covered a lot of good stuff but any final thoughts.

AP:

Yeah. The fall is coming fast which means only one thing, annual enrollment period. It’s time. If you’re Medicare eligible to shop all of your options. Unfortunately over 70% of people won’t do it, but there’s huge cost savings to capture here. It’s helpful.

If you use an independent advisor to assess all your options, chapter is an example of one, and you can visit us at our website at askchapter.org.

KL:

That’s awesome. I mean, I think that’s a huge benefit. And, and I, as you know, the reason I met you, I have several clients that use chapter and that know you personally and love the service.  And you can kind of take over that responsibility because you know, when they think of fall, they’re not thinking of Medicare open enrollment, they’re thinking of, traveling to the mountains to see the foliage.  Or kick off for their favorite football team. They’re thinking of spending time with their grandchildren.

Well thank you so much a for joining and helping clarify this complex topic and making it simple.  I’m also excited to check out your book in September.

It’s not that complicated, so I love the title. If you guys have questions directly and want to reach out to Ari, his email is Ari@Askchapter.org.  Thank you everybody for tuning into today’s episode, I heard hope you learn something valuable and we appreciate all of you and hope that you follow us and give us a subscribe and make sure you continue to tune in.

Until next time, this is Kevin Lao signing off.

How to divide assets in a blended family

Benjamin Franklin said “the only two certainties in life are death and taxes.” 

As a fiduciary financial advisor, one of the most important topics to address is how to divide assets in a blended family.

If something were to happen to you, how do things play out?  How do you divide an estate with step childrenHow do you protect your assets from stepchildren?   What about the effects of an unequal inheritance?  What about estate planning for a blended family with adult children

Each situation is unique.  Take what applies to you, and make a plan!

How to divide your estate with stepchildren?

The reality is that blended families are almost as common as a traditional family.  A blended family is a marriage that involves children from a previous marriage or relationship. 

It’s important to consider your own family dynamics when dealing with retirement and estate planning issues.

A remarriage when children are young is very different than becoming a blended family when the children are adults

You might think if the children are young, it’s more likely you will handle your estate planning and wealth transfer strategies like your “traditional family.”  And that may be correct in the sense that you want to divide your assets equally to your biological children and stepchildren. 

One potential hurdle to look out for is guardianship issues of your minor children.  If something unexpected happened to you and your spouse, it’s possible that an ex-spouse might have guardianship rights over your child or stepchild.  Additionally, if your children are minors, the guardian will take custody of their assets until they are age of majority

You probably want to avoid your ex spouse taking custody over your children’s inheritance.  Instead, consider setting up a trust and naming a successor trustee (someone other than your ex of course). 

How to protect assets from stepchildren

The most basic form of an estate plan is a will.  A will allows you to name specific beneficiaries that will inherit your assets when you die (among other important decisions).  You could name your spouse, children from your previous marriage, and even perhaps your stepchildren.  You can also exclude anyone you wish within certain limitations.

The issue with having a basic will is that if you do predecease your spouse, all of the assets you leave to your new spouse will be his/her property outright.  This means that after his/her death, the remaining estate will be property of their beneficiaries, likely their children (your stepchildren)

This could be problematic if your ultimate goal was to leave your remaining estate to your children, not your stepchildren.

The way to get around this issue is to set up some sort of marital trust, the most common being a Marital Bypass Trust.  This can allow you to name the trust as beneficiary of your assets.  The trust could be the beneficiary of all, or a portion of your estate. 

First and foremost, this type of trust will ensure your spouse is taken care of for their lifetime.

Once your spouse passes away, the remaining trust proceeds will then be left to your children (or other remaining designated beneficiaries).  This will prevent any other “unwanted beneficiaries” from receiving your estate. 

If you have an existing trust, make sure it’s been reviewed and updated in accordance with the SECURE Act rules.  Otherwise, there could be some unfavorable tax consequences for your beneficiaries.

blended family estate planning

What about adult children in a blended family?

If you are a blended family with adult children, it’s possible one or more of the following might apply:

  • An age gap with your new spouse
  • You or your spouse have accumulated substantial assets before your remarriage
  • You and your new spouse might have children together and separately
  • Your new spouse might be closer in age to your adult children

If there is an age gap in the remarriage, it’s likely that you will have two separate estate planning and wealth transfer strategies.

  1. Take care of your spouse for their lifetime
  2. Leave a financial legacy to your children

As discussed earlier, the likely solution here is to set up a trust that allows for your spouse to benefit, and then ultimately your children.

However, you may consider leaving some or all of your assets to your adult children if:

  • your spouse is financially independent
  • you don’t want your children to wait until your spouse dies to receive their inheritance

If this is appealing, you must be aware of the elective share rules in your state.

Elective Share

For community property states, assets accumulated jointly are assumed to be owned by both parties.  However, in non-community property states you can own assets separately despite being married.  You can leave those assets to another beneficiary other than your spouse, as long as you leave your spouse a certain % of your total estate (this is known as the Elective Share).

Florida, for example, has an Elective Share rule stating 30% of your assets must be left to your spouse, regardless of what your estate plan says.  Additionally, there is no requirement for how long that new marriage lasted! 

Even if you set up a trust, certain trusts might fail the elective share test.  Therefore, be careful if you have goals to leave a larger portion of your estate to your children instead of your spouse.  

If you and your spouse are financially independent, you might consider signing a prenup or a postnup.   This will ensure that you have the legal right to “disinherit” your spouse and overrides the elective share rules.

Consider Life Insurance

Life Insurance is a great tool if you have multiple estate planning and wealth transfer goals.

Here’s an example: 

Let’s say the bulk of your assets are inside of a 401k or IRA and you get remarried. 

Let’s say your adult children are on their own, building their careers and growing their families.  

Because of this, you’d like to leave your kids money when you die, but you also want to make sure your new spouse is taken care of during retirement.

First, you may consider setting up a trust for the benefit of your spouse and naming that trust the beneficiary of your 401k or IRA.  Your children would be the contingent beneficiary of the new trust.   This will protect against any stepchildren or new spouses from inheriting your assets.

If the trust is set up properly, your spouse can maintain favorable life expectancy rules when it comes to required minimum distributions.

Now that your spouse is covered, you buy a new life insurance policy with your children as primary beneficiaries.  This way, they aren’t waiting for stepmom/stepdad to pass away to receive their inheritance.  If you already have life insurance, you could make sure it’s structured properly and simply name your children as primary beneficiaries.

This also gets around the issue of the elective share.  The calculation for the elective share will typically not include death benefits from life insurance.  However, it might count cash value, so make sure you structure the policy properly in accordance with your state’s rules.

If the goal is to own the policy throughout retirement, you will want to make sure it’s a permanent policy, not term.  Term insurance is more likely to expire before it pays the death claim, and you don’t want to be shopping for permanent insurance when you’re 70.

blended family with adult children cooking

Effects of an unequal inheritance

If you have multiple sets of beneficiaries, you might be thinking of the effects of an unequal inheritance

Let’s say you have adult children that are well off financially.  However, you also have children with your new spouse that are still 100% dependents. 

In this scenario, you might consider leaving a larger percentage of your estate to the side of the family that needs it most. 

If you consider this strategy, I highly recommend setting up a trust.  This will reduce the likelihood of issues being contested in court, and the terms of the trust remain private.  Additionally, it’s likely your dependent children are minors and would need someone to oversee their inheritance (a trustee) until they are responsible adults.

Another consideration for an unequal inheritance is the impact of income sources that will be lost for the surviving spouse.  This could include Social Security, pensions, annuities, distributions from IRA’s and investment accounts.

Upon the first spouse passing away, the surviving spouse is entitled to the larger of the two Social Security benefits.  However, this still results in a reduction of Social Security income for the survivor. 

If you have a pension or annuity that stops at your death, you also need to consider the impact of this lost income.

If your IRAs or 401ks are left to your children instead of your spouse, could your surviving spouse maintain their standard of living for years or even decades to come? 

Additionally, would your surviving spouse be able to pay for long-term care if a large portion of your estate was left to your children? 

These are all issues you should think through to help divide your assets within your blended family

One final thought on this topic is that it’s not just about how much you leave, but how you are remembered.

The act of making things easy to manage for your loved ones is a big part of how you will be remembered!  Leaving a big mess to clean up won’t help that cause, regardless of how much money you leave behind.

Tax Considerations

consider taxes for estate planning

The types of assets that are left to children, your spouse or a trust are all important from a tax standpoint.

Qualified Retirement Accounts

Leaving your qualified retirement accounts to your spouse outright will create the optimal tax benefits.   These include IRAs, 401ks, 403bs, 457bs, TSPs etc.

On the other hand, leaving qualified assets to your children will likely trigger the new 10-year rule.  With the SECURE Act coming into effect in 2019, these accounts can no longer be stretched according to the child’s life expectancy.  This will likely result in an acceleration of taxes that could have been minimized had these accounts been left to a spouse.

Naming a trust as beneficiary of a qualified plan also presents some challenges.  Tax brackets are significantly higher for trusts versus an individual. 

In 2022, a Married Filing Joint taxpayer would have to earn over $647,850 in taxable income to cross the highest tax bracket at 37%. 

For trusts, the highest tax bracket threshold is only $13,450! 

If you name a trust as beneficiary of a retirement plan, make sure your attorney has revised or drafted the documents to align with the SECURE Act rules.   This could mitigate unnecessary tax implications.

Taxable Investments

Investments including stocks, bonds, mutual funds, ETFs, real estate, tangible property and even crypto assets would fall under this category.   This assumes these investments are held outside of an IRA, 401k or other qualified retirement plan. 

The major tax benefit for these assets is the step up in cost basis after death.

How does the step up in cost basis rule work?

Let’s say you bought $100k of Apple in 2000 and it’s now worth $500k.  If you sold $500k worth of Apple, your capital gain would be $400k (500k – 100k). 

If you die before selling it, your beneficiary gets a “step up in the cost basis.”  Instead of your beneficiary paying taxes on the gain of $400k, their new cost basis is now $500k.  If they sold the stock immediately thereafter, they would have little to no capital gains taxes due!

For married couples, there are some additional rules that are based upon the state you live in.  For community property states, assets are assumed to be owned jointly, and therefore only ½ of the basis is assumed to be stepped up upon the death of the first owner.  Upon the death of the second owner, than the full step up rule is applied. 

In non-community property states, you could in fact own assets separately from your spouse so they can take advantage of the FULL step up at your death.  This could be accomplished with a revocable living trust in your name only, OR perhaps individual ownership with your spouse as beneficiary (via TOD or POD designations). 

Make sure you consider your estate planning and wealth transfer goals before making any changes to your asset titling!

Life Insurance

We’ve already discussed the functionality of leveraging life insurance to take care of one or more of your wealth transfer objectives.

From a tax standpoint, this is one of the most tax efficient assets to leave a beneficiary.  It’s 100% income tax free and probate free!  Additionally, you can structure this strategy to pass outside of your estate by way of an Irrevocable Life Insurance Trust (ILIT). 

If you have a beneficiary with special needs, you could also fund their “Special Needs Trust” with life insurance. 

Action Items

Your estate planning and wealth transfer strategies should be personal to you!

Make sure you are taking care of your loved ones the way you intend to. 

Make sure you have the proper documents in place that align with your intentions.

Make sure you update and revise all of your beneficiary designations.

Make sure your financial plan is coordinated with your estate plan and wealth transfer goals.

And finally, do your best to make things simple for your loved ones.  Communication and clarity are critical to avoid unnecessary conflict.  You don’t want your loved ones to question “why” things were set up a certain way.

I hope you found this information valuable!

Make sure to SUBSCRIBE so you don’t miss out on any of our retirement planning insights!

SCHEDULE A ZOOM call if you want to discuss your current situation with a Fiduciary.

And finally, join our “BLENDED FAMILY RETIREMENT AND ESTATE PLANNING” Facebook group for ongoing dialogue and insights from our team of experts!

Episode 12: Should I pay off my mortgage early?

(transcription) Should I pay off my mortgage early?

Kevin Lao 0:17
Hello, everyone, and welcome to the planning for retirement podcast where we help educate people on how retirement works. I’m Kevin Lao your host, I’m also the lead financial planner at Imagine financial security. Imagine financial security is an independent financial planning and investment management firm based in Florida. However, this information is for educational purposes only and should not be used as investment, legal or tax advice. This is episode number 12. Should I pay off my mortgage early? I hope you enjoy the show. And if you like what you hear, leave us five stars, it really helps and make sure to subscribe or follow to stay up to date on all of our latest episodes.

So this is such an important question and one I get all the time for not just folks that are approaching retirement, but younger folks that just took out their first mortgage and they’re trying to figure out, you know, should they pay it off in 30 years?

Should they pay it off early? And this particular question was was fielded because my client was speaking to a work colleague that’s several years of senior to her. And they recommended that she take $500 a month and apply it towards principle every month, and that would essentially pay down the mortgage after 20 years instead of 30. I mean, that sounds great on paper, I mean, after 20 years, you have no mortgage and free cash flow that you can do whatever you want with. You can invest all of that free cash flow at that point in time. But what is the opportunity cost to not investing that $500 a month, let’s say in a side fund? And so that’s really what we’re going to be addressing today. And really, the concept of paying down your mortgage early or not, comes down to three things. Number one is your personal risk tolerance. And number two is your ability to generate a certain rate of return in that side fund. And then number three is liquidity concerns. Okay, so we’re gonna address all three of these. So the first thing to talk about is risk tolerance. The first challenge of investing that into a side fund versus paying down the mortgage early is that the side fund is generally not going to be a guaranteed rate of return. Even if you look at CDs, or Treasury rates,. Yes, certainly interest rates have come up a little bit, but where are you going to get a four and a half percent, or even a 5% guaranteed rate of return? Nowhere, it doesn’t exist at this point in time. And so paying down the mortgage, just for the simple fact that it’s a guaranteed rate of return of four and a half percent. And that might be aligned with your risk tolerance. In this case, maybe you do pay down that mortgage, over 20 years, because four and a half percent is a pretty damn good rate of return on guaranteed money. Okay? Now, let’s say we take that out of the equation, we understand that the money in the side fund is not going to have a guaranteed rate of return of four and a half or 5%. But let’s say you’re okay with that. You say, Hey, I understand diversification, I understand how investing in stocks work or mutual funds or ETFs. And I am confident I can get a five or six or even 7% rate of return in the side fund over time. What happens to that side fund over 20 years or 30 years or 40 years? Okay, and so that’s what I did for her I crunched the numbers, I just pulled up Excel and I literally just took the the mortgage calculator amortization schedule from bankrate.com. And I plugged everything into Excel. And we calculated after 20 years that mortgage would be fully paid off if she applied that $500 of additional additional principal every single month for that 20 years. Okay, then I ran the second scenario. So let’s call a client a, let’s call client a the one that pays the mortgage down in 20 years, okay, and let’s call client b be the one who pays the mortgage off over 30 years, which is the scheduled amortization. And they invest that $500 a month into let’s call it a side fund. And I ran three different scenarios, let’s say you earn 5% or 6% or 7%, what is the difference over the duration of your life expectancy. So the first thing we found out is that after 20 years, client a has paid off the mortgage but client B has enough in their side fund to pay off the remaining principal if they wanted to, assuming a 5% return! And so this goes back into what I mentioned earlier about liquidity. Your house is not technically liquid. Sure you can tap into it via a cash out refinance which would then reset a new amortization schedule or you could do a HELOC, but that’s also debt against your property. And so it’s not technically a liquid asset whereas the side fund if you set it up properly, it is 100% liquid, you can tap into it at any point in time. Now, of course, if you’re investing that money into a 401 k or a 403 B plan, there’s penalties if you tap it before 59 and a half, but you might not really care about that. On your balance sheet, you have enough saved and invested assuming a 5% rate of return, that equals the remaining principal on your mortgage. In my opinion, client B is winning here, because they have money on their balance sheet that’s 100% liquid. And if they felt like it, they could pay off the mortgage just like client a did. Now, after 20 years, what happens to client A is they have 100% of that principal and interest payment to invest in the side fund. So now they begin their side fund after 20 years as opposed to on day one. So then I tracked after 20 years, what happens to the side fund of client B versus the new side fund of client A. Assuming a 5% rate of return, assuming we stay disciplined, and we’re investing those payments every single month. For client B, it’s that $500 per month of excess principal that they weren’t applying against the mortgage. And now for client A, it’s roughly $31,000 per year that they’re now applying to the side fund. Well, after another 10 years, once the mortgage is fully paid off for client B, client B still has 10% more (just over $40,000) in their side fund, then client A. So if you look at it mathematically a 5% rate of return for someone that’s reasonably aggressive, maybe a balanced investor, they mathematically have more money in their side fund, then did client A even after client a paid off the mortgage, and then reinvested all of those payments into that side fund. Now, what happens when you do 6%, or even 7%? Well, now the multiples go up even higher, instead of having 40,000 more, client B has over $200,000 more in that side fund than client a assuming a 7% rate of return. And if you look at the s&p 500, historically speaking, just over nine and a half percent annually over the course of the last 30 years. I mean, who knows a lot of people think returns are going to be lower over the next decade or two, no one has a crystal ball on this. But I think 7% is a reasonable return for someone who’s fairly aggressive. And so again, it goes back to the first point of risk tolerance. Are you comfortable with taking on some more risk? And are you comfortable with understanding that comparing this to paying down your mortgage is not apples to apples. Paying off your mortgage is a guaranteed rate of return of whatever the interest rate is. Whereas if you invest in the side fund, you might get six, you might get five, you might get seven, but you might not. Maybe we go through a period of time over the next 10 or 20 years, like the lost decade of 2000 to 2010. No one has a crystal ball on this. But if you understand that, you know what your appetite for risk is, and you apply that principle to paying off the mortgage or not, it’ll help make a decision that is best for you. Now, how you invest that side fund, there’s also many factors there. Are you disciplined with the investments? Are you investing in a very well diversified portfolio? Or are you trying to hit homeruns by investing in let’s say, digital assets, or, one or two concentrated positions or stocks that you really, really think you like. Because if those don’t pan out, that negates the entire purpose, because the likelihood of you earning that 7% over the course of the 20 or 30 years, is lower than if you’re well diversified, well disciplined, and well positioned to capture the market returns, as opposed to swinging for the fences. And the last thing is liquidity. All along the way, as you’re investing into that side fund, that money is liquid on your balance sheet, if you had an emergency pop up, let’s say it’s a major medical expense or you lost your job, you could tap into that side fund, whereas during emergencies, you might not be able to tap into the home equity. Maybe you lost your job. How are you going to take out the HELOC or do a cash out refinance? No bank is going to give you a loan. Or what if you have a major medical bill? It might take 30 to 60 days to underwrite your home equity line of credit or do the cash out refinance. So having that side fund that is liquid right away on day one is a huge benefit to that client B who is investing into the side fund versus paying off their mortgage sooner. Personally if you want to know I am client b. I like to leverage the bank’s money, I like to stretch out the debt as long as possible just given how low interest rates ar. The first home I purchased in 2016 had a three and a half percent rate. This home that we just purchased has a 3% mortgage, so I’m confident I can get a five, six or 7%. And that’s a much higher multiple than comparing it to what my interest rate is on my mortgage. But I understand the risk there on the side fund, I understand it’s not guaranteed. And I also understand that I have much more liquidity in that side fund than I do in my home. Now, as interest rates continue to go up the argument to paying off that mortgage early pendulum is beginning to swing in that favor, especially if rates go up to maybe 6%. Then, your appetite for risk needs to be fairly high to to accommodate that higher return in that side fund.

Now, with all of that being said, I talk to clients all the time that are approaching retirement, and they’ve had this goal of being debt free in retirement for many, many years! 15, 20 or even 30 years! Using math to convince them to invest more on their balance sheet versus paying down the mortgage by the time they retire is completely irrelevant to them. Because the qualitative factor of owing nothing to anybody is that much more important than how much they have on their balance sheet. So if that is you, pay off that mortgage by the time you retire, get aggressive, figure out that amortization schedule that lines up with your anticipated retirement date. And don’t feel badly about losing out on those opportunity costs. Because the psychological benefit and that peace of mind you’re going to have by checking that box off of being debt free in retirement is that much more meaningful for you.

Thanks, everybody, for tuning into this episode of the planning for retirement podcast. I hope you learned something valuable. We really appreciate your support and following our podcast journey. If you have any feedback on the show, or even if you have questions that you want answered on the show, send me an email at info@imaginefinancialsecurity.com. Just write in the subject line “podcast” and who knows, maybe your question will be answered on the next episode. Until next time, this is Kevin Lao signing off.

Retirement Readiness Checklist

You are in the final stretch of your career!

Congratulations on a successful career!  You’re in the proverbial 7th inning stretch, ready to finish strong and start the next chapter.   Along with all of the excitement is a bit of uncertainty about the unknown.   Use our updated “Retirement Readiness Checklist” to help you prepare for whatever is next!

Step 1: What is your vision for "retirement?"

The word retirement means different things to different people.   Maybe you want to travel the world for the next 10 years.  Perhaps you want to spend more time with loved ones.  Or, you might have a business venture you’ve always wanted to pursue. 

This is the most exciting part about retirement planning.  You define what success means during this next chapter, not your current or former boss. 

Write down your biggest hopes and dreams you wish to experience.  If you are married, you and your spouse should sit down together to craft your vision.  You will be surprised at how much you learn about one another!  My wife and I do this on an annual basis, and I’m always learning new things about what’s on her heart and mind. 

You should also decide whether you will work in any capacity during retirement.  You might find yourself wanting to work part-time for the same company, or perhaps pursuing opportunities with a different firm. 

This is also known as a phased retirement, where you “try it out” before fully retiring. 

This is perfectly acceptable as it might be tough to quit your job cold turkey.  It also provides some financial incentives including; delaying retirement account withdrawals, deferring Social Security, and continuation of group benefits.

 You might decide not to work at all, and that’s okay too! 

Perhaps you dedicate your time volunteering for a passion project that excites you!

Whatever it is, this is your time to create your ideal schedule, which brings us to step 2.

Step 2: Create an ideal day/week

ideal week during retirement

Many people don’t realize that depression is more common than you think in your retirement years. 

According to Web MD, over 6 million people over 65 are impacted by depression.  However, only 10% receive treatment.  One of the reasons is the feeling of embarrassment.  Why would one feel depressed if they achieved financial independence?

Upon retiring, most people want to check off things on their bucket list.  It might be a dream vacation, or moving into their forever home, buying a boat, etc.  This can cause a spike in excitement in the early years which we call the “Go-Go Years.”  However, as you enter the “Slow-Go” and “No-Go” years in retirement, that excitement fades and depression can begin to set in.

If routines or structure aren’t in place with how you are spending your time, and with whom, the feeling of losing purpose can have a negative impact on mental health.  

Also, it’s more likely you have experienced the loss of a loved one or close friends. 

How do you solve this issue? 

Create an ideal day or week and decide:

  • Who do you want to spend your time with?
  • What are you spending time doing?
  • Where are you living and whom are you living close to?
  • Where are you traveling?
  • What are some new hobbies you wish to start?
  • What do you want to learn?
  • What activities can you eliminate from your schedule?  (preferably ones that are draining your energy)

This will help maximize your fulfillment in retirement and avoid that feeling of loneliness or isolation. 

Step 3: Make a Budget

Stay with me on this one! 

I know, nobody likes to make a budget.  However, I find this exercise creates a ton of excitement around an otherwise mundane topic. 

Make a list of anything that will cost money, but divide them into three separate categories:

    • Needs
    • Wants
    • Wishes

 Examples of NEEDS are:

  • Housing
  • Utilities
  • Food
  • Clothing
  • Transportation
  • Insurance
  • Healthcare needs

A Quick "Aside" on The Housing Decision

Once you have decided on where you will be living in retirement, you will need to discuss whether or not you want to pay off your mortgage. 

Having a mortgage in retirement isn’t necessarily a bad thing.  It’s all about personal risk tolerance and liquidity needs.

If you are comfortable with taking on some risk with your investment portfolio, you could earn a higher return relative to the interest rate on your mortgage.  All while keeping your investments liquid.

If you decide to pay off your home with a lump sum, how does that impact your liquidity needs?  Sure, you could take out a home equity line of credit or cash out refinance, but your home is not truly a liquid asset. 

As interest rates have been creeping higher, this debate has begun to lean slightly more in favor with paying off the mortgage.   However, you might be locked into a 3.5% (or even better) interest rate, so keeping your funds liquid and investing in other asset classes could pay off in the long run.

With all that being said, there is a legitimate argument that having no debt in retirement provides a psychological benefit.  I’m all about helping people with peace of mind, and if paying off the mortgage can help with that, let’s do it (forget the math)!

Aside from the mortgage issue, you are likely going to consider whether or not to stay in your current home, downsize, or even move to a new city.  The conventional wisdom has been to downsize in retirement. 

However, I have found that not having enough space in the home might limit your adult children and grandchildren’s ability to visit (if that’s important to you)!  In other circumstances, I’ve had clients downsize and absolutely love the reduced maintenance and upkeep…but usually after the period of de-cluttering, selling, or giving away “stuff.”

Additionally, moving to a new city might sounds appealing given a lower cost of living or more favorable tax advantages, but it’s a big decision that should not be taken lightly. 

If you do decide to either downsize or move to a new market, you will need to factor in how this will impact you financially in this first category of “needs.”

home equity line of credit and reverse mortgage strategy

Examples of WANTS are:

  • Travel
  • Home Improvement
  • Major Purchase (Boat, RV, Pool, Hot Tub etc.)
  • Education funding (children or grandchildren)
  • New Home
  • Wedding

“Wants” could be reduced or even eliminated, if needed, during a period of unfavorable financial circumstances or as you begin to slow down.

Examples of WISHES are:

  • Leaving a financial legacy
  • Major gifting/donations
  • Dream vacation home
“Wishes” are things you would love to accomplish as long as your needs and wants are covered throughout retirement. 
 
Enjoy this exercise and make it fun and interactive!
 
 

Estimate each cost

I find most people know what their “needs” cost on a monthly or annual basis.  However, certain expenditures in the “wants” or “wishes” categories might be more difficult to estimate. 

Do your best.  Remember, you can always revisit these on an annual or semi-annual basis, as we will discuss in Step 10. 

And finally, tally up each category for your projected retirement income goal!

Step 4: How much of your retirement income will come from fixed sources?

The first pillar of your retirement income is your guaranteed or fixed income.  These resources may include:

  • Social Security
  • Pension
  • Annuities
  • Employment Income

These sources are immune to market fluctuations, and you can rely on them for either a fixed period, or for life. 

Social Security represents over 40% of retirement income for those over 65.  Therefore, it’s important to make the right Social Security decisions.  Some of the factors you might consider when choosing when to begin taking Social Security are:

  • Age at retirement
    • The earlier you retire, the longer you will need to wait until your full retirement age (between 65-67)
  • Life expectancy
    • If you have longevity in your family and are in good health, you might decide to delay Social Security past full retirement age. Age 70 is the latest retirement age where your benefit will be the highest.
    • Another consideration if you are married is your spouse’s life expectancy. Even if you are not in great health, delaying benefits could help maximize the survivor benefit to your spouse.
  • Other assets/income sources
    • If you have other assets or income to draw upon early in retirement, you might consider delaying Social Security for the reasons mentioned above.
    • However, if you need the income sooner to avoid draining your investment accounts, you might consider taking the benefit earlier (or working longer)

There is no “one size fits all” answer to taking Social Security.  I wrote another article on Social Security considerations that you can read here, but I also recommend speaking to a qualified fiduciary financial planner to address this important issue.  Of course, we can help with this 😊!

Step 5: Determine your income gap

what is a safe withdrawal rate in retirement?

What is a safe withdrawal rate for retirement? 

Once you have calculated your total expenditures for your needs, wants and wishes, and have tallied up all your fixed income sources, it’s time for some basic math. 

The first part to the equation is how much of your “needs” are covered by guaranteed income?  If the answer is 100%, you are in great shape! 

If it’s less than 100%, you will need to make the decision on how to draw income from your other assets like 401ks, IRAs, brokerage accounts etc., to fill the income gap.

It’s okay if your guaranteed income does not cover 100% of your needs.  Most of my clients will draw income from investments to cover the income gap. 

However, this brings about the question, “what is a safe and reasonable rate of withdrawal in retirement?” 

A reasonable withdrawal rate is relative to your goals and risk tolerance, but anywhere from 3% – 7%/year could be reasonable.  The higher the rate of withdrawal, however, the more risk of your plan failing.  The lower the rate of withdrawal, the lower the risk of your plan failing. 

Step 6: Make the decision on how your investments will be managed

Once you have determined the income gap, you will need to decide on the process of how investments will be managed.  If you are a “do-it-yourselfer,” make sure you have a process in writing!  This includes:

  • What is your optimal asset allocation?
  • Which investments will you use to create your optimal asset allocation?
  • How often will you re-balance and monitor your accounts?
  • How much will you withdrawal each month, quarter, or year?
  • Which accounts will you withdrawal from first?
  • The tax impact of withdrawals
  • A process to determine which investments to liquidate and when

For the “do-it-yourselfers” out there.  If something ever happened to you:

  • Death
  • Disability
  • Incapacity

What is the contingency plan?  Who is stepping in to fill that role?  Is it a spouse?  Adult child?  Sibling?

Do they have the ability, AND the availability to step in as the new “investment manager?” 

One of the primary reasons I find clients hire my firm or another fiduciary financial advisor is because they are the investment guru, but their spouse/son/daughter/sibling is not!  Or, their children don’t have the time to take on this role given they are busy with their own family and career! 

Therefore, my “do-it-yourselfers” want to be involved in the process of hiring a fiduciary financial advisor to help manage the affairs if/when something does happen to the them.

For those of you who have no interest or capacity, make sure you hire a fiduciary!  A fiduciary is someone who looks out for your best interests, always!  And yes, we can help you with this!  Our firm specializes in retirement planning including investment management.

Step 7: What to do with your old 401k and employer benefits?

When you are implementing your investment strategy and income strategy, you will need to decide on how to best consolidate accounts.

Perhaps you have several 401ks or 403b plans.  Maybe you have multiple brokerage accounts with different institutions. 

You might consider consolidating accounts to simplify your balance sheet.  I find most retirees want to avoid complexity!

By doing so, it will make managing your investments easier during retirement, particularly when it comes to making withdrawals. 

It will also help clean things up for your beneficiaries or powers of attorney, and we will discuss this topic more in Step 8.

The argument against doing a 401k rollover might include:

– Plans to work past 72 and defer required minimum distributions

– Certain proprietary investments within an employer plan that are not offered elsewhere (fixed annuities etc.)

Otherwise, rolling over those plans into one consolidated IRA will open the door for more investment options and diversification.  Additionally, you have more control over liquidity and fees within the investments you select.

Other Benefits to Consider

  • Life Insurance
  • 401k Contributions + Catch Up
  • Health Insurance
  • Legal Benefits
  • HSA (Health Savings Account)

Reviewing the checklist of benefits  you will lose is an important exercise when gauging your retirement readiness

You should begin to think about how you will replace these benefits when you retire, and maximize these benefits while you are still employed.

For Life Insurance, consider whether you will want to own some life insurance in retirement.  If so, purchase an individual policy that is portable after you retire.   If you can’t buy an individual policy, see if you can extend coverage with the group for a period of time.

401k’s and 403b plans allow for catch up contributions after you turn 50.  Take advantage of these catch up contributions while you can!

Here are the limits for 2022 on certain qualified plans:

  • 401k/403b/457:  $20,500/year + $6,500/year catch up
  • SIMPLE IRA:  $14,000/year + $3,000/year catch up
  • IRA/Roth IRA:  $6,000/year + $1,000/year catch up
  • HSA:  $3,650/year (single), $7,300/year (family) + $1,000/year catch up (age 55+)

In that final stretch of planning for retirement, your children might be done with school and you finally have some extra cash flow.  Take advantage of this final decade as it can pay huge dividends in your later years when healthcare costs tend to rise!

For legal plans, you might consider having your estate documents reviewed and updated before you officially retire.  These legal plans often have an estate planning benefit that can save you thousands of dollars while you are still employed.

Finally, consider health insurance options.  If you are retiring and are eligible for Medicare, compare the Original Medicare with Medicare Advantage.  Shop for plans, use a broker to help find you the best deal based on your medical needs. 

If you are retiring before you are Medicare eligible, consider your options for health insurance.  Perhaps your spouse will continue to work, or you may work during the early phase of retirement. 

Otherwise, you may need to buy an individual policy on the exchange (healthcare.gov).  These policy premiums are based on your income, so there could be some planning opportunities to keep your income low until you reach age 65 and qualify for Medicare. 

Step 8: Update your Estate Plan, and keep it up to date!

meeting to review estate plan

How will your assets transfer to your loved ones?  Who will step in to make decisions if you are unable to?  How are your assets titled?  What is the tax impact of the assets transferred to your beneficiaries?  These are all questions that you need to consider for your Retirement Readiness Checklist!

The basic estate planning package that everyone needs includes:

  • A Will
  • Financial Power of Attorney
  • Medical Power of Attorney
  • Living Will/Advanced Medical Directive

Others might need to supplement these documents with a revocable living trust, an irrevocable trust, a special needs trust, or a marital bypass trust.  Speak to a qualified attorney who specializes in estate planning in your state! 

An Estate Plan, however, is not simply what documents you have drafted! 

  • Do you have three IRAs and two 401ks that can be consolidated into one?  Do you have physical stock certificates in a safe that can be moved to electronic custody? 
  • Do your beneficiaries know where all of your life insurance policies are, or which financial institutions you have accounts with?
  • What about passwords? 

An estate plan is also about making things simple for your loved ones!

  • Keep key decision-makers in the loop as to what their roles are (and are not)! 
  • If you name one adult child as Power of Attorney, have that discussion with them. 
  • If you have other children, make them aware also. 
  • It could be difficult, but you need to be the one to speak up on “why” you made certain decisions.  Otherwise, it could impact how you were remembered and/or the relationships between your children.
  • Finally, keep an “important document list” that outlines where your accounts are and at least one point of contact for each institution.  (I have a template you can use, and I’d be happy to share it if you send me a Linkedin connection request asking for it!)

Step 9: Medicare or Healthcare Decisions

Are you 65 or older and eligible for Medicare?  Well, make sure you take advantage of the special enrollment periods!  That way, you can avoid penalties and unnecessary medical underwriting.  

If you are eligible for Medicare, the primary decision is whether or not you will go with “Original Medicare” or Medicare Advantage.

Original Medicare is great because there is no “network” or managed care.  You can pick and choose whatever specialists you want to see without worrying about a referral.  The deductible is also extremely low (less than $300/year)!  You will need to buy supplemental policies to cover prescriptions as well as gaps in Medicare part A and part B.  Either way, it’s a great way to plan for how much your healthcare expenses might be.

Medicare Advantage has been growing in popularity, but sometimes people are misled into thinking it’s the less expensive route.  If you are going to the doctor frequently, or have special medications, you might find yourself paying more for Medicare Advantage despite premiums being lower.  Also, be sure to check out the network of providers as you may find your doctors don’t take certain insurance policies.  If you are a snowbird, make sure the network is robust in both areas that you live.  

There are some great independent Medicare advisors out there that I would recommend speaking with:

I interviewed the lead advisor for Chapter, Ari Parker, on one of my podcast episodes.  Give it a listen for his insight on the topic:

Episode 13:  Planning for Healthcare Costs in Retirement

If you are younger than 65 and not Medicare eligible, you are going to buy private coverage through the exchange.  There are a variety of plans to choose from.  The online marketplace is a great place to go to search for plans and screen for what features are most important to you.

Healthcare.gov

Step 10: Make a Long-term Care Plan

I discussed this topic with Jean Wilke-Ausman, the Director of Long-term Care Solutions at Stewardship Advisory Group; she gave a phenomenal headline to kick this topic off.

“Why a checkbook is not a plan for long-term care.”  

Just because you have the means financially to pay for long-term care expenses, does not mean you have a plan.  Furthermore, just because you have insurance doesn’t mean your plan is complete.

Medicare doesn’t cover custodial care, so you will ether pay out of pocket, buy insurance, or some combination of the two.

Some considerations if you decide to self-insure:

  • If you needed care, how would it impact your surviving spouse?
  • How would it impact your financial legacy goals?

Jean also added these issues to consider when self-insuring:

  • “Who is going to manage the liquidation of assets?”
  • “What about considering market fluctuations while managing withdrawals for care?”
  • “Who is going to manage the caregivers providing the custodial care?”
  • “What about changes in the real estate market”
  • “What about navigating taxes when liquidating certain assets?”

Perhaps your spouse has been managing your care for months or even years, and it’s now time to hire a caregiver.  “Having insurance provides that liquidity need,” added Jean.  “Having insurance can avoid you having untimely withdrawals from investments that have other purposes.”

Partner up with experts like a fiduciary financial advisor who understands long-term care planning, and someone like Jean who can be a quarterback to finding the right coverage. 

There is no one-size-fits all with long-term care planning, but being proactive will help prevent you from becoming a burden on your loved ones later in life. 

Step 11: Communication and Ongoing Review

family get together retirement

Life will change!  Your family will evolve!  You will welcome new family members, and unfortunately say goodbye to others.

Make sure you continue to revise your plan.  Keep your plan flexible.

Communication is important in all aspects of life, but particularly when it comes to dealing with issues in retirement.  Active communication with your spouse, children, grandchildren, friends, work colleagues, neighbors, and other acquaintances, will help you stay connected during your retirement years. 

It’s easy to unplug after retirement but staying involved with relationships can help you enhance your legacy well beyond how much you leave behind financially.

In the event of an unforeseen circumstance, it’s best for your loved ones to know who is in charge of what, and there is no question what your intentions are!

Nobody wants to leave a mess for their family to clean up, so keeping open lines of communication is paramount as we all go through the aging process.

Final word

I hope you found this information helpful. 

Just remember, you are likely feeling a ton of excitement mixed with uncertainty.  This is completely normal.

Our clients that have successfully retired started by planning early!  If you aren’t technically starting to plan early, it’s okay too.  My Mom loves to say, “better late than never!” 

And guess what, planning doesn’t end the day you retire.  Your plans will evolve and become more clear once you have more time and energy to think about the future.  Therefore, continue to adapt and adjust based on what life throws at you.

Control what you can control, and the rest will fall into place.

Make sure to subscribe below so you never miss our retirement insights!

If you would like to schedule a Zoom with me to ask specific questions, you can access my calendar below.

Thanks for reading and I look forward to hearing your feedback along with suggestions for future topics!  You can drop me a line at kevin@imaginefinancialsecurity.com

What is a flat fee financial planner?

Primary service models for financial advisors

There are so many different terms for “financial advisor,” it could make your head spin!  Financial advisor, financial planner, fiduciary financial advisor, wealth management advisor, financial consultant, flat fee financial advisor, financial therapist, and the list goes on. 

To make things simple, professionals providing financial advice can be categorized into one of three ways:

1. Broker/Commission Based Advisor:  These advisors sell products to the consumer for a commission paid by the insurance or investment company they are representing.

2. Fee-Based Advisor:  These advisors can sell products for a commission and provide investment and financial planning advice for a fee.  The fee is typically a percentage of assets under management, and the commissions vary widely depending on the product.

3. Fee-Only Financial Advisor:  These advisors don’t receive any compensation from an insurance or investment company, and work directly for the client within the scope of their financial planning and investment advisory agreements.   There is a sub category within the Fee-Only space known as a Flat Fee Financial Advisor or Flat Fee Financial Planner

I will cover all of these definitions later in the post.

There are also professional designations like Certified Financial Planner (CFP), that consumers might believe is a type of financial advisor.  The reality is, not all CFPs are created equal, and they can work under any of the three primary service models listed previously.  A designation, like a CFP, is meant to describe the education and experience an advisor has within the industry.

While the CFP is the mostly widely recognized and respected from a consumer standpoint, there are other designations that are well respected within the industry. 

Just to name a few:

Retirement Income Certified Professional (RICP) designation is for those who specialize in retirement income planning. 

Chartered Life Underwriter (CLU) is for those who have an in-depth knowledge around life insurance. 

Chartered Financial Analysit (CFA) is for those specializing in investment analysis and portfolio management.

These designations are of course helpful when determining if a prospective advisor can serve your needs.

Just remember, the designation doesn’t describe the service model, and ultimately how the advisor is compensated, which are both important factors when choosing who to hire.

Broker, or Commission Based Advisor

If you’ve ever seen movies like Boiler Room or Wolf of Wall Street, brokers portrayed in them give financial professionals a bad reputation.

Stocks can now be traded for zero commissions, and the traditional/old school brokers are becoming less and less sought after by the consumer given the distrust.

Nowadays, the most popular products that are sold for commissions are mutual funds, annuities and insurance.  I would argue that annuities and/or insurance products should be used in the majority of financial plans.  

Commission based mutual funds, however, are being phased out with the rise of no sales load ETFs and no load mutual funds.  These products perform just as well, if not better, for a fraction of the cost.  However, there are still brokers and even fee-based advisors that sell these types of loaded mutual funds. 

One of the most important factors to note is that a broker is not a fiduciary.  The fiduciary standard requires that the advisor always puts the client’s interests ahead of their own.  In the case of a broker, he or she is representing the firm they sell the product for, not the client. 

Some of these brokers will engage in limited financial planning, but most don’t. 

Another issue at hand is that the Broker/Dealer might limit which products they can or cannot sell.   Additionally, certain products might pay a higher commission than others, even if the products are identical.

These are just a few of the reasons why consumers look to other service models if they wish to engage in a long term, mutually beneficial relationship.

Fee-Based Financial Advisors

Fee-based advisors can charge both commissions and advisor fees for investments and/or financial planning.  This language is often misconstrued with the term “fee-only financial advisor,” which I will explain next.  Fee-based advisors oftentimes charge a percentage of the assets their firm is managing, hence the term “fee-based.”  Additionally, they can sell insurance, annuities or other investment products for commissions paid by their broker/dealer. 

The cost will typically range anywhere from 0.75% – 2% for the assets under management fee, and anywhere from 3%-12% for commissions on other products. 

Some of these advisors do comprehensive financial planning extremely well.  However, many do not do financial planning at all, given their fee is technically for managing the investment assets only. 

Here is the confusing part. 

Fee-based advisors act as a fiduciary…sometimes.  When providing advice for assets their firm is managing, they are a fiduciary.  However, other services in which they engage through their broker/dealer are not part of the fiduciary standard. 

Oftentimes, you might hear these advisors claim they are fiduciaries, but really they are a fiduciary “sometimes.” 

This makes it extremely difficult for the client who thinks they have hired someone to look out for their best interests, when in reality they are representing a third party instead.

Fee-Only Financial Advisor

Fee-Only Financial Advisors are fiduciaries throughout the entire relationship, period.  There are three ways these advisors can charge clients:

  • Percentage of Assets Under Management (anywhere from 0.75%-2%/year)
  • Ongoing retainer fee or flat fee (monthly or quarterly) ranging anywhere from $100/month – $2,000/month
  • One-time financial planning arrangement (ranging from $1,000 – $10,000)

These advisors are often much more comprehensive when it comes to the financial planning relationship than a fee-based advisor or broker.  The reason is because the fee they charge is for financial planning and investment management, not for selling a product for a third party.  Here are some examples of services fee-only financial planners provide that fee-based advisors and commission based advisors typically do not:

  • In Depth Retirement Planning Analysis
  • Income Distribution Planning
  • Social Security Optimization
  • Tax Optimization
  • Objective Long-Term Care and Life Insurance Review
  • Roth Conversion Analysis
  • Charitable Giving
  • Medicare Planning
  • Pension Maximization
  • Required Minimum Distribution Planning
  • Major Asset Purchase or Sale
  • Estate Planning Coordination
  • Debt and Cash Flow Analysis
  • Mortgage Review

Clients appreciate this dynamic because if they need a certain product that requires paying a commission, such as life insurance or long-term care insurance, their advisor’s compensation is not tied to the product!  It creates a relationship where they decide what they need together, as opposed to a cliche’ sales pitch.

Many clients who are doing their research are gravitating towards these types of planners, and they can be found on third party association websites like:

These advisors are not affiliated with any broker dealer, wall street company or insurance company, and therefore no compensation is received by anyone other than the client.

They will typically sign a fiduciary oath where if breached, they could be penalized monetarily or lose their license to practice as such. 

flat fee financial planner

Flat Fee Financial Advisor, Flat Fee Financial Planner

A  flat fee financial planner is a type of fee-only financial planner.  The difference is the fee is not based on a percentage of assets the firm is managing. 

Many of these firms charge based on what their hourly rate is, or based on your financial complexity. This method of compensation is gaining a lot of traction.

The reason is simple.  If you have two similar prospective clients.  One has $1 million of assets and the other has $2 million of assets.  The question is, are you doing twice the work for the client who has $2 million? 

The response from flat fee financial planners is a simple “no.”  In fact, the workload is likely the same for both of those clients, so how can the fee be justifiably twice the amount?

Some flat fee financial advisors do not manage investments, and these are known as advice-only planners.  They simply give you a second set of eyes on your situation, or help you create a roadmap on how to get where you want to go.  The client is presumably comfortable with the implementation and maintenance of those recommendations on a go forward basis.

There are other flat fee financial advisors that will manage investment assets, but it’s inclusive of the overall flat annual/quarterly fee that is charged.  Unlike the asset-based advisor’s fee, as your investment account grows, your fee doesn’t go up because of it.  Conversely, if your investment account goes down, your fee doesn’t go down either. 

This keeps the focus on financial planning and doing what is right for the client, regardless of the amount of assets under management. 

Why did we choose to be a flat fee financial planner?

flat fee financial advisor

After starting in the broker world and moving to fee-based, I decided the best way to serve my clients was as a flat fee financial planner/flat fee financial advisor

My firm, Imagine Financial Security, is a flat fee financial planning firm that includes investment management. 

We have two separate offerings:

  1. We serve those who are close to retirement, or have already retired, that need help with their retirement income plan, tax efficiency, long-term care planning and estate planning strategies.
  2. We also serve younger professionals (generation X and Y) who are aggressively saving to retire early, also known as the FIRE (Financial Independence Retire Early) movement. 

Our niche is serving blended families planning for retirement.  These families have children from previous marriages, assets accumulated before marriage, wider age gaps, and other challenges that make the financial picture slightly more complex. 

I find the flat fee model allows our firm to focus on comprehensive financial planning without conflicts of interest that are inherent with other service models.

Resources to find a flat fee financial advisor or financial planner

I’ve compiled a few links below that include other flat fee financial planners who are doing great work in the financial planning community. 

Tenon Financial has a list of flat fee financial planners who specialize in retirement planning and investment management.

7 Saturdays Financial has a list of flat fee financial planners who specialize in working with younger accumulators.

Wealthtender has an article about flat fee financial advisors.

Sara Grillo interviewed Andy Panko on the flat fee financial advisor movement.

Measure Twice Financial has a list of advice only financial advisors who do not provide ongoing investment management.

In summary

Your situation is unique, so hiring an advisor who specializes in working with others with your profile is extremely important.  Additionally, understanding how advisors are compensated should help you determine how you want to be served.

There are good and bad players in every industry, and financial services is no different. 

There are also good and bad advisors in each fee model, and simply hiring an advisor solely based on their fee structure may not be prudent. 

There are high qualify advisors doing great work in each category, even the commission based world. 

However, we recommend hiring someone who has a deep understanding of how to serve people like you, and who can always look out for your best interests.

 Here are three simple questions (among others) you should ask a potential advisor:

  1. Which service model do you fall under?
  2. What credentials/designations do you currently hold, or are currently pursuing?
  3. What is your firm’s niche?

Here is a link for the CFP Board’s 10 sample questions to ask a prospective financial planner.

I hope you found this information valuable as you look for the right partner to help you achieve financial independence. 

If you have any questions or want to schedule a call with me, click the link below to coordinate our schedules. 

Make sure to subscribe to our blog below to get our latest insights on retirement, tax and financial planning!

Episode 11: What is tax planning vs. tax preparation?

What is tax planning vs tax preparation?

What is Tax Planning vs. Tax Prepartion

 


Kevin Geddings 0:21
Six minutes now after 11 o’clock, we’re live from St. Augustine, we hope that you’re having a good day so far. Kevin Lao joins me here live in the studio. And of course, he is an expert when it comes to financial planning and the like, Kevin, how are you doing?

Kevin Lao 0:36
I’m doing well, Kevin, thank you for having me. As always, yes,

Kevin Geddings 0:39
Imagine financial security, just imagine it if you can. I know a lot of our listeners are a little nervous these days, you know, they made the really bad mistake of looking at their January 30. Second quarter, you know, IRA statements that rolled in in the second week of July, you should never have opened those,

Kevin Lao 0:57
you know, a lot of clients, and people are telling me that they’ve been throwing their statements in the fire pit. So maybe that’s a good solution.

Kevin Geddings 1:03
Kevin has been doing this work for a long, long time. And he’s based right here in Northeast Florida. He’s worked with people from all over the country. And we’re going to talk today about tax planning versus tax preparation. And I know what you’re thinking, hey, it’s July, what? Why are we talking about taxes? You don’t do that until the end of the year or April? But no, there’s a reason why you would want to talk about tax planning now, right, Kevin?

Kevin Lao 1:25
Yeah, this is, first of all, please don’t take this as tax advice. Everyone has their own unique situation. But you know, there’s two different schools of thought you have tax preparation, and you have tax planning. And, a lot of people think tax preparation is tax planning. What that means is, in March or April, you gather your 1099s and your W2s and you throw them at your accountant last minute and make them work to death until they file your returns and figure out how much you owe. Or if you have a refund. And there’sonly a few things that you can actually do to impact your tax liability at that point in time. Whereas tax planning is proactive, where you’re not even just looking at the current year in terms of your tax projections and opportunities to reduce your taxable income now, but you’re looking years into the future, to look for opportunities to mitigate your tax exposure, particularly in your retirement years.

Kevin Geddings 2:17
Yeah, there are specific things you can do. And it’s amazing, so many people don’t do these things. I know, you may be thinking, well, you know, the government or somebody can give you some advice or guidance is really on you, or it’s on us individually to figure out a way to minimize, you know, our tax risk.

Kevin Lao 2:35
And it’s a boring topic, I was telling one of my neighbors, I was like, Hey, I’m gonna jump on the radio and talk about tax planning. He’s like, that sounds exciting. It’s not exciting for most people. And so that’s one of the main reasons they hire a firm, it’s not just for investment management, but it’s for this tax planning concept. And one of the basic things that pretty much everyone can do that’s contributing to, let’s say, a 401 K plan or an IRA, and they’re still in the accumulation phase, as to whether, weigh the pros and cons of whether or not you’re doing a traditional 401K or an IRA contribution versus a Roth 401 k or IRA contribution. And the basic concept of it is, do you think taxes are going to be higher or lower for you in the future? If you think taxes are going to be higher for you in the future, whether it’s because your income is going to be higher in the future, or you think potentially the government’s going to raise taxes in the future. Remember, at the end of 2025, the tax cuts and Jobs Act is sunsetting. So tax brackets, in general, unless they change, things are going to go up for most people. So if you’re in the camp, Hey, you think tax rates are probably going up over time, you may want to consider doing a heavier dosage of Roth contributions, whether it be in a Roth IRA or Roth 401 K. And you know, you’ve got to be careful with this. Because once you enroll in a 401 K plan with your company, the default for 99% of companies out there is in the traditional 401 K plan. And so you need to look and see your options. Can you do a Roth 401 K contribution or 403 B contribution or Roth TSP, if you work for, you know, military or government. And so this is a an easy sort of analysis to figure out, those Roth versus traditional contributions for retirement.

Kevin Geddings 4:07
Hey, if you’re just hopping in the vehicle, that’s the voice of Kevin Lao. And of course, he is the principal at imagine financial security that’s located right here in Northeast Florida. And they work with individuals just like you and me, and he will help you get to a better place in terms of your retirement. We’re all worried, Kevin, about running out of retirement savings, you know, outliving our retirement, but you help people with that all the time.

Kevin Lao 4:31
Yeah, I mean, that’s, that’s the number one concern, they don’t want to be a burden on their loved ones. You know, and a big a big part of that is health care. And, Fidelity does a study every year. Right now, a 65 year old couple is expected to spend $300,000 on health care costs alone during retirement, and that’s not even including long term care costs. That’s a totally different issue. One of the things that I’m a big proponent of, if you have five or 10, or even more years of working, is whether or not you can qualify for a Health Savings Account better known as an HSA. I wrote a blog post about this on my website, I believe this is the most tax efficient vehicle you can utilize to save for retirement. It is a triple tax benefit, tax deductible contributions, tax free Growth and Tax Free distributions, as long as those distributions are used for healthcare related expenses. Now, the trick is, don’t get super aggressive spending those HSA contributions during your working years. Do the best you can to pay out of pocket for a lot of those healthcare costs. Because what you can do is you can turn around and invest that HSA take advantage of the market being down invest that HSA to let that grow for the next 15-20 years of tax free growth. So you can actually pay for those health care costs that Fidelity mentioned in retirement.

Kevin Geddings 5:48
So you can actually take HSA funds and invest those in the market. Yeah,

Kevin Lao 5:52
Most of the time, once you hit $1,000 in savings. There are limits, once you’ve contributed more than $1,000, then you can start to invest the surplus, so you have to keep a certain amount of cash, and then you can invest a certain amount. For me, I invest every dollar that I can in the HSA and I do my best to never touch the HSA. You can touch it before 59 and a half for health care related expenses. So, if you have an emergency medical event that happens, by all means you need to consider this as an option. But if you can let those continue grow tax free, it’s the most efficient vehicle you can utilize to save for retirement because it can be also used to pay for those long term care costs that I mentioned, it could also be used to pay for long term care insurance premiums tax free. So there’s a lot of benefits that you can utilize with the HSA, once you get to retirement.

Kevin Geddings 6:34
Wow. And there’s no cap in terms of how big that HSA account can become?

Kevin Lao 6:39
There is no cap on how big it can become, there is a cap on how much you can contribute. So for 2022 for if you’re single $3,650 If you’re married filing jointly $7,300 per year in annual contributions. So think about that. $7,300, over a 10 year period, you just contributed $73,000 into a tax free health care plan that hopefully you’ve invested wisely. And hopefully that doubles a couple of times over the next 20 years. And all of a sudden now you have 210 $220,000 in an HSA.

Kevin Geddings 7:10
These health savings accounts, Kevin Lao. I mean, sometimes you’ll see little ads at your bank, are there other ways? I mean, how would you recommend setting up these accounts and can they be set up through an investment account approach? Or how does that normally work?

Kevin Lao 7:26
Ya know, there are a lot of different carriers The first qualification to use an HSA is you have to have a high deductible health plan. If you don’t have a high deductible health plan, you can’t qualify for an HSA. And there’s some rules around that. So, just do a Google search and say, Hey, do I qualify for an HSA? But if you’re with an employer, a lot of times, they’ll say, hey, this type of health program, you can utilize an HSA, this one, you cannot. For military service, or government, if you’re on TRICARE, those cannot qualify as high deductible health care plans. So you cannot use an HSA if you’re military tricare. But if you’re civilian, and you’re working for an employer that has different healthcare options, go to them and say, hey, which which of these offers a high deductible plan with an HSA and which of them are kind of your traditional health care programs. And they usually partner wit a broker to set up the actual HSA account.

Kevin Geddings 8:17
moving funds into an HSA a health savings account, that’s just part one aspect of tax planning that Kevin Lao can help you with, once again tax planning is taking advantage of all the legal vehicles that are out there that will reduce your tax exposure, right?

Kevin Lao 8:33
Absolutely. Yes, I mean, a big one right now, we were talking a lot about this off air, with the markets down, we’re officially in a bear market since last time I was on the show. Which is basically measured by a 20% drop from a previous high. So many people out there might have some losses, some embedded losses in their investment accounts. And a lot of times, like we talked about, people are kind of throwing away their statements, they’re burying their head in the sand, but these losses can be utilized to offset potential capital gains or income in the future. And so the strategy is better known as tax loss harvesting, it has to be done inside of a taxable account, it cannot be done in an IRA, whether it be a Roth or even a 401K plan, it has to be in a non qualified account. But if you recognize the loss, meaning you sell that investment at a loss, now you actually have a Realized loss. And so let’s say you sold an investment at a loss for $50,000, that loss can be utilized to offset capital gains, whether it be this year or in future years, or reduce your taxable income, up to $3,000 per tax year. And the best part is, there’s no limitations on how many years you can carry that forward. So if you’re recognizing a lot of these losses, while the markets down, you can sell these investments at a loss, and we’ll talk about reinvesting that in a second and utilize those losses for many, many years to come. Now, the key is to avoid the wash sale rule. And so what that means is you cannot sell an investment and then turn around within 30 days and buy the same investment, or a substantially identical investment. Okay? So if you buy an individual stock, it’s pretty simple. You can’t sell Apple and buy Apple in the next 30 days. Otherwise, it’s a wash sale rule, it’s the same investment. But let’s say you have a mutual fund, like fidelity s&p 500 fun if you sell that, and bought, let’s say, the Vanguard s&p 500 fund, that might be a substantially identical investment. So you’ve got to be careful with that wash sale rule. The rule is within 30 days, you can’t turn around and buy an identical or the same security within 30 days otherwise, the tax loss harvest doesn’t work.

Kevin Geddings 10:36
Hey, we’re talking about tax planning versus just tax prep. And obviously Kevin Lao knows his stuff. Imagine financial security that’s imagine financial security located right here in Northeast Florida, you can always reach him at imaginefinancialsecurity.com cleverly enough, imaginefinancialsecurity.com or call the office number 904-323-2069 That number again, 904-323-2069. We’re gonna put all of Kevin’s information up on our social media platforms as well at WSOS radio on Facebook and Instagram. We’ll be right back.

Kevin Geddings 12:10
The Beatles here on 103.9. We had to play tax man because while we’re talking about tax planning versus tax preparation with Kevin Lao, he, of course is the principal at Imagine financial security, imagine financial security located right here in our part of the world. And he helps individuals, with all sorts of financial issues mostly focused on trying to get you ready for retirement. That could be retirement for you in the next 10 or 15 years. Or maybe you’re one of these, you know, super successful 20 Somethings that wants to retire like Kevin at age 40.

Kevin Lao 12:39
I wish. Having three kids under three, I think I’ve got a little ways to go. But yeah, that’s a good point. Early retirees is definitely a hot topic and it’s not necessarily retiring, and then not doing anything. It’s retiring from your day job, and then at 45 or 50, doing a passion project and having that financial independence to do so. So I think we talk a lot about the FIRE movement, financial independence to retire early. So it’s gaining a lot of traction.

Kevin Geddings 13:09
If you know somebody who’s in that situation, or you’re in that situation, I would encourage you to reach out to Kevin. Today though, we’re talking about tax planning, some various aspects of it. In the last segment, we talked about health savings accounts and how they can be a very interesting vehicle that can be more than you think. The way I was thinking of it before Kevin stopped by today, which is, well just a pool of money that you set aside tax free, and then you spend it down on your eyeglasses and things like that. But it can actually be a much more creative vehicle than that. So he has a great blog posts at his website, imaginefinancialsecurity.com that you can read about his thinking on health savings accounts. We were talking about, obviously, tax loss harvesting, with a lot of investments that have taken a hit here in 2022. There’s some benefits there. Let’s talk about one of the old school things even baby boomers out there, we’ve been told all of our lives, hey, you make a charitable contribution, give some money to the Salvation Army and you get to write that off your taxes.

Kevin Lao 14:03
Absolutely. This is probably one of the one of the topics that is that is misunderstood by just about everybody. They think they’re donating to charity, and they’re getting a tax deduction for it. But studies have shown that nine out of 10 taxpayers since the tax cuts and Jobs Act Act went into effect in 2017. Nine out of 10 taxpayers are taking the standard deduction. So it doesn’t matter what you’re doing with charitable donations. It’s technically not making a difference from a tax standpoint, because the standard deduction was multiplied by two with that legislation, which is, set the roll off at the end of 2025. But for now, most people are not itemizing deductions, and therefore those charitable donations don’t matter. Except for $600 for a couple and then $300 For a single if you’re if you’re doing the standard deduction and you’re doing charitable donations, you can take $300 If you’re a single filer and $600, if you’re married and actually reduce your taxable income, but everything above that is not dedutible if you’re taking the standard deduction.

Kevin Geddings 14:59
So I would imagine people that worked with you. And some of our listeners have some significant retirement savings. If they want to make charitable contributions, you can give them some advice, right?

Kevin Lao 15:08
Yes, one of the big ones, one of my favorite strategies is called a QCD, or qualified charitable distribution. Okay, so this is for individuals that are over 70 and 1/2 that have Ira plans, they can donate up to 100,000 dollars per year from their IRA to a charity. And this works extremely well, when you turn 72, and you’re taking required minimum distributions. The amount you have to take out per the IRS rules based on your life expectancy table. So if you’re taking out, let’s say, $50,000, because the IRS makes you, and normally you give, let’s say, $10,000, to charity, okay, well, you can take $10,000 from that required minimum distribution and donate it straight to charity. And that is never included in your ordinary income. Okay, so it’s better than a tax deduction. So don’t even worry if you’re itemizing, or taking a standard deduction that is not included in your ordinary income. So now, it looks like your distribution was only $40,000, not $50,000. So for folks that have, let’s say, Social Security income coming in, or they have maybe a pension from the military, or government, maybe they don’t need all of the required minimum distributions, and they’re sitting there complaining, oh, the IRS, they make me take out all this money. And if they’re charitably inclined, or maybe they just want to reduce their taxable income, they can start to do those QCDs each and every year and have a QCD plan is what I like to call it. Especially if it’s going to reduce your tax bracket. And that’s another thing, we can get into all day long, but tax brackets also impact what you pay for Medicare premiums, and QCDs work extremely well coincided with both of those two topics.

Kevin Geddings 16:41
It just strikes me, Kevin, there’s so many folks that don’t know this stuff, because the government doesn’t say, Hey, here’s a little pamphlet where we’re gonna explain how we’re going to nail you on taxes, you really have to go out there and search and find on your own.

Kevin Lao 16:54
Yes, all this information is online. That’s like the nice thing about the internet, you can do Google searches all day long, and read about QCDs and required minimum distributions or charitable donations. I think the value that my clients find, in working with someone like my firm, or other financial planners out there is that we can get that information that you can find yourself and apply it to what is relevant to your situation, and maximize those rules in your favor based on your circumstances and your financial situation.

Kevin Geddings 17:27
Well, what you do with people is you work with them in a tailored way, right? Because it sounds cliche, but the reality is, we are all different. Even if you have the same amount of money, you have half a million or a million in assets, or 2 million, or what have you, how you want to utilize those funds in retirement is greatly different from person to person.

Kevin Lao 17:45
That’s why that’s one of the reasons why we named our firm what it is, I like to have people imagine what financial security means to them, it means different things to different people. You know, one other thing real quick if we have time to talk about is the donor advised fund which is also the acronym d A F, donor advised fund. And so if you’re not 72, if you’re not taking those required minimum distributions yet, what you can do is you can make these contributions to a donor advised fund, which think of it as like your own personal charity. So if you’re charitably inclined and you typically make, let’s say five, or six, or even 10,000 dollars per year to a certain charity, but you’re not getting a tax deduction for it because you’re taking the standard deduction. It doesn’t really matter how much you donate to charity, you’re already getting that standard deduction, what you can do is we call it bunching, bunching those contributions. So in one year, make a larger donation into this DAF, this is still your account. But the nice thing is, let’s say you put in $50,000, which might be five years worth of donations, now you can deduct those contributions, because it’s above that standard deduction. And then what you can do with that DAF is completely up to you from there. It has to be used for charitable donations going forward. So you can’t donate it to, you know, little Johnny’s college fund, or pay yourself a salary, it has to be a legitimate 501 C3 organization. And you can start to make donations from that donor advised fund on a tax free basis. And the cool thing is similar to the HSA, like we talked about, you can also invest that donor advised fund in a diversified pool of funds. So you can set that account up with fidelity or Schwab or Vanguard or whatever it might be. Get that invested according to a plan that works for you and your risk tolerance. And you can actually potentially have more money to give to charity over time. And it’s also kind of a multigenerational tool. I see clients utilize it teaching their kids to be charitably minded, those types of things. And again, you can actually take the deduction for those contributions because of the bunching rule.

Kevin Geddings 19:43
And that’s the voice of Kevin Lao. If you just hopped in the vehicle, and we’re taking a little break from the music we’re gonna get back to the songs are here in just a second. And we’re talking about tax planning versus tax preparation, what can be done to minimize your tax risk, regardless of the income that you have or whatever your assets are? Kevin works with individuals on the He’s issues and on investment issues overall to make sure that you have the retirement that you always wanted. So we’ll be right back. Talk to me about Medicare planning.

Kevin Lao 20:17
Yeah. So Medicare planning is an interesting one. When you turn 65, you’re going to enroll in Medicare, and you’ve been paying into the system for your entire career. Your employer takes out a certain percentage of your paycheck to pay into the Medicare system, what a lot of people don’t realize is that your premium for Part B is dependent on your modified adjusted gross income. Okay, and so based on that modified adjusted gross income, you might pay what’s called an Irma penalty, okay. And so, if you look at if you look at different things, like your Social Security, or a pension that you might have, or perhaps it’s required minimum distributions, once you add all that up, you need to see, hey, is your premium going to be higher for Medicare, and that also coincides with those Roth conversions to potentially pay a little bit more tax now to not only save in tax your tax brackets going forward, but also to reduce what you might pay for your Medicare premiums? Once you’re 65 or older.

Kevin Geddings 21:15
if you have any questions about tax planning, or just investing in general and getting ready for a secure retirement, you can get in touch with Kevin Lao by going to the website. Imaginefinancialsecurity.com. That’s imaginefinancialsecurity.com. So Kevin Lao, we see all these ads on television all the time for life insurance, that you can be 70 years old, and be a diabetic with one of your arms falling off, and you can still get a term life insurance, you know, but you help people with these issues, right, figuring out whether life insurance is a good investment or not?

Kevin Lao 21:47
I know a little bit too much about life insurance and long term care insurance. But it’s a topic that’s super important. And I think it’s one that’s often misunderstood by by the consumer. But the basic idea around life insurance in retirement is, if you have a goal to leave a legacy to your children, or a charity, or maybe you have an estate tax issue, life insurance could be one of the most efficient tools you can utilize to pass on to the next generation, because it’s income tax free to those beneficiaries. Whereas if you think about your 401 K, or an IRA plan, those are going to be taxed to your beneficiaries, assuming those traditional contributions are tax deferred contributions. And, think about the secure Act, which is another piece of legislation that passed at the end of 2019. It’s made the rules on on passing those 401 ks and IRAs to the next generation, extremely tax inefficient. So, if your kids are working at Google, or some big tech company or Amazon, they’re making way more money than you ever made, you need to think about that, what is their tax situation going to be if they inherited your IRA tomorrow? So life insurance can be a good solution to offset some of those tax liabilities upon the inheritance of those 401Ks and IRAs. And again, it’s it’s one of those things, the earlier you do the life insurance planning, the more cost effective it can be. And so I work with my clients in terms of shopping carriers with them, looking at all of the different landscapes, all these different contracts, and help them understand what they currently have and what they might potentially need. Because these contracts are extremely complicated. I think the insurance companies, they like to make things complicated, but that’s one thing I can help my clients is like looking at their current life insurance, looking at their current long term care, does it make sense to refresh and upgrade based on what the markets doing now, and based on what their long term goals might be?

Kevin Geddings 23:41
Yeah, well, it’s a great vehicle. There’s all these different vehicles that are out there, whether it’s health savings accounts that we were talking about earlier, you know, obviously taken advantage of some of the investment losses that many of us have experienced, since the beginning of 2022, charitable donations, how those can be structured with donor advised funds, all that stuff. I know if it all sounds like a foreign language to you, that’s okay. Because it’s not a foreign language to Kevin. That’s what he does all day long, and he actually enjoys it. It’s fun. You can tell. I enjoy getting to spend time with Kevin on the radio because not everybody loves what they do. But he actually loves what he does.

Kevin Lao 24:18
I you know it’s fun. I mean, helping people plan for retirement. It’s an exciting time in people’s lives. But it’s also very unnerving, because there’s a lot of uncertainty, a lot of unknowns. The media likes to play on fear. So people read things and they say, hey, does this apply to me? Does this not apply to me? So I think I think my clients really appreciate an objective third party that’s not affiliated with the media, telling them what what is relevant for them and what they need to be concerned about.

Kevin Geddings 24:43
I highly recommend working with Kevin once again, imaginefinancialsecurity.com That’s imaginefinancialsecurity.com The phone number 904-323-2069. As promised, here’s the phone number 904-323-2069. You’ll get a sense of Kevin In his bio, his thinking on a variety of financial issues, if you check out the website, that’s where you may want to start. Imaginefinancialsecurity.com. Kevin LAO. Thank you very much for coming by. We learned a lot.