Guided Path 1-6 Income Planning for Investors Ages 40 to 60

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Now that we have discussed what you need to know as a young investor, we now need to discuss what you need to know as an experienced or wise investor approaching retirement. If you want to know how to retire as early as possible, you’ll want to listen to this episode. In this episode, Zacc Call and Laura Hadley provide professional advice about investing and curating your retirement plan in the later years of life and how you can minimize the time it takes you to retire. Zacc and Laura discuss: - Preventing financial crisis in the later years of life - How to map out your numbers - your debt, future cash flow, and assets - How you can minimize how long it takes you to retire - Why you should use multiple tax structures in retirement And more!

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[00:00:00] Welcome to The Financial Call. We are financial advisors on a mission to guide you through the financial planning everyone should have, whether you're doing it yourself or working with a financial advisor, these episodes will help you break down complicated financial topics into practical, actionable steps. [00:00:17] Our mission is to guide motivated people to become financially successful. Welcome back to The Financial Call. This is guided path episode six of season one. This is the last episode of the first season, kind of crazy. We're getting there. So today we're talking about income planning for investors ages 40 to 60. [00:00:37] So a little bit for the wiser, the older and wiser than last episode today, we are actually not doing video. We're all a lot more comfortable today. Yeah, because of that, right. We didn't have to do our hair. Not as critical. If you noticed in the last episode, we actually don't have video as well. We're just learning as we go, trying to figure things out. [00:00:56] We decided it will be higher quality audio. I think if we [00:01:00] don't have the video, we think that we can do a little bit better job of focusing on the content, the words. And frankly, we think most of our listeners do not watch it while they listen. They're driving, trying to pick up as much as they can. [00:01:11] Well, we're excited today. We've been through lots of different aspects of income planning. This is the last thing as you are in your later years, probably in your higher earning years, this is really to nail down where you're at in regards to retirement, what things you should be thinking about as we get closer to retirement and make that transition. [00:01:29] So I'm gonna go through what we've done already. If you're just picking up with this episode, you may wanna go back and realize that some of our previous episodes are a little longer. Laura and I are trying to get more succinct here and keep, like we said, we're learning, we're learning as we go. Here's what we've done so far in this season of income planning. We believe income planning is the first step to financial planning. [00:01:51] So in the season of income planning, the first was organizing retirement. Then we did one on social security basics. When you prepare your [00:02:00] retirement plan, that's typically where you start around your social security and other fixed income. So the third one is pensions, which is another source of fixed income. [00:02:09] And then the fourth one talked all about retirement income risks. And we've had different guests join each of these to give their expertise. And then we talked about withdrawal strategies as well with that retirement income risks category. And then the fifth one was income planning for investors. [00:02:27] What was the age group? Laura? It was like 25 to 40. I think it was, that sounds right. Clearly it doesn't matter exactly. On the year. It's basically income planning for younger investors. And then today is income planning for wiser investors, right? Wiser. Yep. 40 and up to pre-retirement. So that's today, we're excited to go through this with you. [00:02:44] Let's dive into it. These are three main categories. I'm going to explain the three main categories. We'll go through each one and then we'll recap. So one, you need to map out your actual numbers. You're now 40. 45 years old it's time. And a lot of people don't wanna think about this yet, [00:03:00] but it's time to start actually modeling out your numbers. [00:03:03] Two, you need to start saving a fair amount and we're gonna go through the order in which you're saving and what types of accounts. And we'll go through some tips to retiring early as well. I have a whole episode that I did on retiring early tips and tricks. And that's something. If you wanna really dive deep into those, go back to that episode. [00:03:22] So before we dive into this, we've also covered the four financial fires before, and this is actually something Laura does. Laura and I do this together. We're doing one today where we talk about getting over a financial crisis and preventing financial crises in your life. And then building a strong financial future in three separate presentations. [00:03:39] Laura, tell us about the four financial fires. What are they? And we'll dive into the rest. This is not part of today's presentation, but we think you need to know it before we move on. Absolutely. This is the basics. So we cover this in preventing a financial crisis. These are the four things that you really need to have in place, especially before you dive into all the other extra stuff. [00:03:59] So we're just gonna mention those today. First is having an emergency fund. Second, getting rid of high interest debt. Three, making sure you have enough life insurance and then four not missing now on free money. That's like a 401k or an HSA match you don't ever wanna miss out on free money. So we dive into this in more detail in the last episode. [00:04:20] So if you feel like in one of those areas, you might not be as prepared, go back and listen to the last episode. Because most of what we're going to talk about today comes after you can't have a fire burning in one of these categories. Right? Right. A financial fire burning, and then be talking about your retirement projections in detail, and actually have a good solid projection for retirement. [00:04:39] Okay. You need to map out the actual numbers and to us that looks like mapping out debt. Mapping out future cash flow and mapping out assets. That's a little bit difficult, but we're gonna go through each one of these, like debt would be how much time do you have left on the mortgage? And for a lot of us, you're just paying the mortgage every month. [00:04:57] You don't actually know how many years you're [00:05:00] into it until you go back and think, when did we last refinance? Or when did we buy this thing? What other debt do you have? And try to prepare for retirement with as little debt as possible. We hear it often where someone waits to retire until they have all their debt paid off, which I think is a mistake sometimes. [00:05:17] Although that would be nice to be completely debt free in retirement. It does not mean that it's a requirement. And in many cases, if you think about people who bought homes 20 years ago, a lot of their payments are really, really. Like less than a thousand dollars a month and their income has gone up. So a thousand dollars a month mortgage for another five years in their first five years of retirement is nothing. [00:05:40] It's not a big deal. And a lot of people ask the question, should I use my retirement funds to pay off my mortgage? We get this question all the time. It's not black and white, but a lot of times your interest rate is so low on the mortgage. It's not worth taking that huge taxable distribution from your 401k to pay off the mortgage. [00:05:58] So that's not a requirement [00:06:00] for retirement to have your mortgage paid off, but it is helpful. I think, to have less debt payments each month. Because you do have a limited income in retirement. So it's helpful. I think even emotionally going into a retirement, knowing I don't have all these debt payments is very helpful. [00:06:15] We sometimes build a debt pay down schedule for a mortgage. Maybe they have 10 years left on the mortgage, but they could tackle it within three because. Instead of, like you said, taking one huge tax hit at very high brackets of $200,000 out all at once. It may make sense to pull out 70 to $75,000 a year because they can sneak that out at a lower tax rate over three years. [00:06:38] So it's not a black and white, like you said, it's not all or nothing. You don't have to keep it forever. You don't have to pay it off right away. There's an in between ground there. But the point of all of this is you're in your forties. You need to map it out. You need to start to create an actual plan. [00:06:51] And then your next category. So we're mapping out, we're still in subject one, which is you need to map out the actual numbers and a sub subject to that is you need to map out your [00:07:00] debt. Second category is you need to map out your cash flow. Laura, you do a lot of this with clients. Yes. And what does this mean? [00:07:06] It's so interesting because we will ask people, how much do you think you need in retirement to live the lifestyle you want? Or how much are you spending right now? I would say majority of people have no clue. They really don't know. So it is helpful. If you can get ahead of it. And just start tracking how much you're spending. [00:07:21] You don't need to know the nitty gritty details, but if you can get an idea of how much you're spending and what type of lifestyle you're living now, that will give you a good idea for the future. Don't worry about inflation. As advisors will help adjust for inflation, what that will look like, but just figure out about how much you need each month. [00:07:37] For those of you who don't know, this is a little Intel about Laura. My understanding is that Laura's very frugal and very careful. Some people call it cheap. Yes. We're gonna use the word frugal. This is from, this is actually from her brother-in-law. As we were talking about things in his family, he's like, oh, Laura and her husband are super, super careful with how they spend money. [00:07:56] I actually think to the point where he was a little bit bothered, cuz he's not that way, [00:08:00] right? Yeah. Yeah. The question you said, most people don't know how much they spend. Do you guys know exactly how much you spend regularly? No, it's interesting. As frugal as we are, we don't have a super strict budget. [00:08:09] Like I don't know exactly how much each month we spend, I think because we don't spend a lot. I don't worry about it as much. So it's just natural for you. Yeah. I've always been that way. Oh, interesting. Just like to tuck the money away. and if you listen to the podcast previously, you know, about my fake paycheck method, that's how I figure out how much I'm spending. [00:08:26] Yeah. Bottom line is I just move money from one bank account to the other, and I spend out of the second bank account. And if the second bank account runs out of money, I know I spent more than I moved over. Like that's the only way that I could figure out between my wife and. That we didn't have to disagree or argue or deal with any difficult budget conversations, just because it was a fake paycheck that worked. [00:08:45] But anyway, find your burn rate. How much cash are you burning every month or whatever period you want to use. And you also wanna think about some of the expenses that go away, maybe some of your debts, but also you're not contributing to a 401k HSA [00:09:00] taxes. Usually they go down a little bit. You might be driving and commuting less. [00:09:03] I've even had some people say that they spend less on clothing because they buy higher end clothing when they work and the clothing budget goes down, their sweats are cheaper. Exactly. Perfect. And not anymore though. That's true. Sweats can be super expensive. My wife, this brand Viri or something like that, the clothes are amazing. [00:09:23] She bought me a pair and I'm actually kind of upset about it cause now I, oh, now you know I want more of them stuck to it. Yeah. But those aren't cheap. Anyway, let's go back. So now you wanna think about expenses that will appear in retirement and that might be a little bit more travel, a little bit more recreation or eating out. [00:09:40] And then you said this earlier, use today's dollars. Let the calculators or the advisor figure out inflation. What else would you say about cash? Not much. I mean, if you have big travel goals or things that you're wanting to do, map that out as well, keep track of it. So you can live the life that you want in retirement. [00:09:56] Okay. Assets. So this is your third category of things to map [00:10:00] out. So this is, you need to map out the actual numbers. We've talked about debt. We've talked about cash flow. Now we need to talk about assets. So you go through and you figure out what kind of accounts you have and the tax structure that they are in, whether that be Roth or traditional, or non-retirement, what we call after tax money. [00:10:18] Those assets are going to be accessible at different ages. Some of them might be restricted until 59 and a half. Some might be available at any time. So you'll need to figure. and then you figure out how much money you're going to have in fixed income and figure out how much money your accounts need to produce. [00:10:34] And by fixed income, we're talking about social security, the monthly pension. If you offer any fixed payments that you're getting each month, that's your fixed income. And then we're taking that. Away from your needs. And then that's the difference that you're going to need to take from the nest egg. [00:10:49] Perfect, good clarifying. Okay. So if we're gonna use our own Capital lingo here, it's burn rate minus fixed income, and then the rest is how much you need to get from your [00:11:00] accounts. And there are tools that can help with this. If you go into Excel, there are retirement projection tools. The hard part about a lot of those is they use a fixed growth rate. [00:11:09] And as advisors, we feel like you should use variable markets because markets are not predictable. So we usually throw clients' retirement plans through hundreds of market scenarios, and then get an average and say, okay, on average, here's where you should be. But if markets are really awful, here's where you'll be. [00:11:26] If markets do really well, here's where you'll be. And we try to focus on the average and the bad. If it gets better than average or better than bad, we're all happy. We usually don't try to plan for things to be better on average, you know, what's ironic though, everybody assumes things are going to be worse, and yet we still continue to get average or better than average market performance. [00:11:47] And I don't know what to make of that, but it is kind of interesting, it is helpful to see. Okay. Worst case scenario, you still are gonna be okay. Planning for that. It's helpful to go into retirement knowing, okay. Even if markets do poorly, I'm still gonna be okay. [00:12:00] This is where good advice comes into play and helps you figure that out. [00:12:03] That's category one, we talked about, you need to map out the actual numbers. So if you finally have mapped those out, then what do you do about it? So now let's talk about where to put your next savings or what's going on. So some of the things that we find, this is a nice advantage we have because. We see thousands of people at the retirement transition. [00:12:24] So it's almost like we get to read the end of the book before reading the beginning. And we often times see people who have too much of one tax. For example, they might have two or $3 million, even all in IRA, 401k money. And they are locked into a specific tax rate cause they have no control over that. Had they met with an advisor maybe 10, 20 years earlier who told them about tax diversification, they might have more control in retirement. [00:12:51] We also, you talked earlier about people you've had to deliver the news of you can't spend as much as you think you can, which is a hard piece of information [00:13:00] to. And for the younger people, if you're planning this right before retirement, it's kind of like, yes, this is what you have to spend. But if someone's younger in their forties or fifties, you can show 'em okay. [00:13:09] If you continue how you're doing right now, this is how much you will actually have to spend in retirement. But after you go through the actual numbers, if you see that the difference between your burn rate and your fixed income is higher than what your assets can produce. You can make tweaks and adjustments. [00:13:23] You can start saving more now to be able to hit your goals. So it's helpful to run this through earlier, so you know where you're headed and you can make those tweaks. And the earlier you make, 'em the smaller, the adjustment you have to make. We run into a lot of really lucky people because we work with some employers that have great [00:13:40] plans. We've had meetings where we meet with a lady who I'm thinking of one in particular, she's about ready to retire and she thinks she can't, and she's stressed out of her mind. We ask her a few questions. We log into her portal to see her retirement assets that she's too scared to look at. And she has something like a half, a million dollars in her 401k [00:14:00] and a million dollar pension lump sum. [00:14:02] This lady had a one and a half million dollar retirement plan together and had no idea. And she was fine. She could have retired years ago. And then it also happens the other way when people don't have enough. But anyway, at 40, you really should. At that point, at least know what you're on path for. [00:14:19] Okay. Last one in this category is too much debt. And this one we've talked about as a financial fire. But not all. Debt is a fire. We talked about how it's okay to carry some, but you wanna build a debt pay down plan. And we do have an advisor in our office. His name is. Tim his name is Tim. We won't tell he's not Tim either. [00:14:38] That's getting pulled out or we just leave all that in they say we leave it, leave it. It's great. Okay. So Tim in our office is very technical and he's so good at financial planning and he has some tools. It's in an Excel file that helps you decide how you're gonna pay down debt. And there are different options from using the highest interest and lowest balances. [00:15:00] And anyway, he has some great. Give us a call or use TheFinancialCall.com website to ask for that. And we can just send it to you. No big deal. We should have show notes for each episode. So if you go to our website and click on the show notes, it will show the different resources we talk about. So if we talk about an Excel file or a sheet, you should be able to find it there. [00:15:18] Just FYI. Yeah. Good point. Okay. So this is theFinancialCall.com and then there's guided education at the top. And if you click on that, we are in season one, which is income planning, the last episode in season. That's quite a few steps to get there. It should be intuitive or we didn't do a good job with the website. [00:15:35] Yeah. Right. And let us know if you can't find it. Yeah. You can't find it. Then, then we want that. Do some adjusting back. All right. So now you wanna figure out, okay, so we have all this information, we've projected it out. We know we have enough money in retirement debt. Won't be too much. Now this is the question we oftentimes get is where do I save my next dollar and opinions vary here, Laura, I wanna hear yours. [00:15:56] I wanna hear you go through this first, lay it out for us. Yeah. And there are lots of [00:16:00] different ways that you can do this. A lot of them. Will say this is a basic pattern to follow. So in the first place, get your 401k match. That's one of the financial fires: don't miss out on free money, because anytime you're putting money in there, you're getting a full match on it. [00:16:14] That's a hundred percent return right away, the best place that you can save your money. So get the match, put enough into your 401k to get the match after that. If you have some high interest debt, probably attack that high interest debt. If you don't then go to the HSA, especially if you get a match, put enough in there to get the match in the HSA and then probably max out the HSA. [00:16:34] I don't know if we've talked a lot about the HSA yet. We probably will in the future. The best, the most tax efficient account that you have. So maxing it out is great. You put everything that goes in is tax free. Everything that comes out for medical costs is tax free. No one ever regrets over contributing to their HSA. [00:16:52] So don't worry about over contributing. Yeah. If you had to run into a retiree who was not able to spend their money in their HSA, Exactly. [00:17:00] So max out the HSA, then go back to the 401k. You can max that out. You can also do IRA Roth, IRA contributions, or if you're someone who's hoping to retire before 59 and a half, there are some. [00:17:14] Limitations, which is what we talked about before being able to access the funds in your 401k and your IRA. You can't get access to that before 59 and a half without a penalty. So it might be a good idea to start saving in an after tax account as a non-retirement account, because you don't have the restrictions in that account. [00:17:29] So if that's your plan, you wanna retire early, you wanna make sure you're allocating enough dollars to that brokerage account to bridge the gap until you can access those retirement accounts. So let's go through and I agree on all those things. so, I'm gonna summarize it. Cause if somebody's listening, I'm like, wow, that's a lot to take in that. [00:17:47] Laura just laid out for us. So step one, you said, was get free money, 401k match, but let's say they only have, oftentimes we see a plan where if they contribute 5%, the employer gives [00:18:00] 4%. So you're saying Laura, after they put 5% in. They don't add more necessarily to the 401k, they move to other categories. [00:18:08] Correct. And then, the next category would be high interest debt. So this one's interesting because a lot of people will say pay off the high interest debt before you hit your 401k match. I think those are really close, but maybe we're a little biased, but I think it sets a good precedent for having to save and learning to save. [00:18:29] 5% of your income is really not that much. So you probably should be doing both 5% of your income and hitting your high interest debt. Pretty. Then the HSA match. I think we have a minute. Why are HSA? So tax efficient, so everything that goes in there, you don't pay taxes on. And then everything that you take out, you don't pay taxes on either. [00:18:49] If you're using it for medical costs and it grows tax free. So really that money you're putting it in. You're avoiding taxes. You're taking it out. You're avoiding taxes. There's no other account like it, a traditional IRA. You [00:19:00] deferred taxes to a Roth. You pay it now don't pay it later, but you eventually pay taxes. [00:19:04] The HSA is the only one that you'd never pay taxes on. So you can actually take advantage of the HSA. Not a lot of people know this. So when you reimburse yourself from an HSA for medical costs, it does not have to be in the year that you had the medical cost. So say you had surgery this year for $5,000. [00:19:21] You have $5,000 in the bank. That's not earning anything. You can use that 5,000 from the bank to pay it off, leave your HSA account alone, let it grow. And then 20 years down the road, you could then reimburse yourself. $5,000 for that surgery that you had. And in the meantime, it's growing a ton, all tax free growth. [00:19:39] Exactly. So it doesn't have to be in that year. Obviously the HSA is there for medical costs. If you need to use it, use it, but if you can afford not to, it can be. Big help in your retirement. Okay. So then after we've done 401k match, high interest debt and HSAs, whether that be up to the match for an HSA match or the maximum amount you can put in, then all the other [00:20:00] categories, we view those as a. [00:20:02] At the same level, like we're all on the same step when it comes to maxing out the rest of your 401k IRAs, Roths, or putting money into a brokerage account to buy stocks and bonds and things in just a regular after tax account. And then also that's all personalized to your situation and how strong your plan is and how much money you're putting away. [00:20:23] Some other things to consider would be private investments like rental properties and small businesses. And so all of these other categories. Are somewhat on the same playing field. And this is where it's hard to say for everyone, you need to go through a certain order because your opportunity and your understanding and your risk tolerance for a certain asset class is different than your neighbors. [00:20:45] Like you might be really comfortable with rental properties and you might be all over being a landlord and you might be fine with confrontation when they don't pay rent. That's hard for me. First of all, I don't like my life being disrupted because the renter moves out and I need to spend a week [00:21:00] remodeling the place. [00:21:01] And when they don't pay the rent, I'm kind of a softie and it's really hard to go get money, money, like come out. Yeah, exactly. It's just not my strong suit there. So I have other opportunities I think of that are better for me, but this is different. My brother does property maintenance. That's what he does for his job. [00:21:17] He has a business and so he loves being a landlord. That's what he does. So it's a great way for him to be able to set up a retirement, especially cuz he's self-employed, he doesn't have a 401k match. So that's a great way for him to build his retirement up. So it really is dependent on the person. I think you basically try to get all the free money. [00:21:34] You can try to take advantage of the tax structures that are available. And then after that, all these other concepts, you start to look at comfortability and time and risk tolerance and where you want, what you believe in and what you're willing to put your risk tolerance towards. But even someone who's self-employed. [00:21:52] People don't realize that you could avoid a lot of income tax by doing a self-employed 401k, for sure. And you could put 20,000 or so dollars [00:22:00] into an account and avoid that income tax. Maybe at a high bracket. There are a lot of good retirement options. This is something that you really need to talk about individually with someone, or do a bunch of research yourself. [00:22:09] Happy to help here if you want the last category. So let's review two because I think it's helpful for people. First category was you need to map out the actual numbers. Cash flow assets. Second category is now that you have that information, what do you do about it and how do you invest your next dollar? So what do you do about it? you try to assess if you have too much of one thing, like too much of a certain tax type. [00:22:33] Or do you not have enough money for retirement or do you have too much debt? You're trying to see patterns within the information that you mapped out or gathered. That's step two. And then we talked about where to save your next dollar. That was the, getting the free money using the nice tax structures, especially HSAs that are available to you in Roths. [00:22:53] And then after that, looking at risk tolerance and personal situation. Okay. So now we're just gonna talk about what if you [00:23:00] are so prepared that you're 55 years old and you've mapped it out, you have enough money to retire, but a lot of it is inside retirement accounts and you can't get access to it. We see this every once in a while. [00:23:13] So first of all, recognize that if you're 40. And you want to try to pull off retirement at 55, you probably need to save some money outside of 401ks, IRAs, and Roths or annuities because they all have a 59 and a half age restriction. There are ways that we're gonna talk about right now to get around that. [00:23:32] But if you diversify your tax structure a little bit, It's going to make it easier on you. So if you're in your early forties listening to this episode, or if you're younger and you're just trying to get ahead and you're listening to this episode, be thinking about using multiple tax structures for retirement planning. [00:23:48] Okay. So if you're 50 years old and you wanna get money out of your retirement accounts, there is something called 72 T and I'm not gonna go through the tax code here. That [00:24:00] explains exactly how, but it's called a separate. Equal periodic payment, S E P P. And the concept here is that the IRS is saying, Hey, we recognize that you might be retiring early. [00:24:13] And if you're willing to stick to a specific plan of withdrawals and not alter that and not mess with it for a certain amount of time, then we will let you start taking money out before 59 and a half without a penalty. And the rule works. So. If I'm not mistaken, it's been a while. Again, that tips and tricks episode for early retirement will help. [00:24:33] And maybe Laura, you can confirm this, but I think it's five years or 59 and a half, whichever is longer. I know it's a time period or 59 and a half, whichever is longer. So let's say that you're 50 years old and you need money. You set up your plan to start paying an exact dollar amount and you would need to go for nine and a half years because you'd have to get all the way to 59 and a half, cuz that's the longer of the two. [00:24:58] But if you are [00:25:00] 58 and you start that plan, you'll need to go to 63 because that's five years and that's longer than 59 and a half. So whichever is longer. So. It works and it's helpful, but it definitely ties your hands a little bit and causes you to have some restrictions around your money, which is okay. [00:25:18] And so what a lot of people will do is they will set up a separate account. So let's say that you're trying to do this. You might take $200,000 or $300,000, move it to a separate account and set that separate, equal periodic payment up from that separate account. And that way, like, let's say someone had a million dollars in savings for retirement. [00:25:39] They could carve out that two, 300 and put it in its own account with its own account number. That way when they do reach 59 and a half, like let's say, we're talking about that 58 year old. And they reach 59 and a half. They do have the other 700,000 that they could access without altering their 72 T plan. [00:25:57] And that way you could get money earlier, but [00:26:00] you could also have flexibility later. The problem we see is when people, they just say, okay, I'm gonna take $2,000 from this million dollar portfolio. And then they can't do any more or any less for the five year window, because it looks like they've altered. [00:26:13] Okay, so that's a 72 T plan. Now let's say that we're back to this 58 year old. There's a better way for that person to get money out of their plans than the 72 T plan. If they leave their employer, the technicality is in the year in which they turn 55, then they have the ability to pull money from that employer's plan without the 10% penalty. [00:26:36] And we use that all the time. I have a client who has about two and a half million dollars. He wanted to leave his work, but he wanted to do some other work on the side. And this guy was doing great. He made a couple hundred thousand dollars a year, and then he decided to leave. And in his part-time work, he made $90,000 a year. [00:26:56] Oh, wow. Right. That's a lot of money. Good. Part-time job making part-time. [00:27:00] He went part-time. But he didn't know how long he would go part-time and he didn't even know if he would get a part-time job. And he figured he only needed about 90 to a hundred thousand dollars to live. So we left a half a million dollars in his retirement plan of his two and a half million total in assets. [00:27:16] We left half a million dollars in the 401k plan so that he would have access to that money without the 10% penalty. And he's almost 59 and a half, and he's never touched it. He didn't actually need it, but it was there in case he needed it and it was helpful. It helped him feel. Comfortable that he knew he had access to money without a penalty. [00:27:34] Obviously we could have left it all there. He wanted some other investment options that were outside of the retirement plan. And so we moved it. So just be careful if you're retiring earlier, not to roll your entire 401k into an IRA, leave the amount you want in the 401k to be able to access it. And that's for people 55 and older. [00:27:51] So it's really only the four and a half years between 55 and 59 and a. If you leave your employer, like let's say that you leave your employer. And [00:28:00] then the next year you turn 55, that won't work. You have to turn 55 in that year and then you'll need to rely on 72 T plans or something like that. Or even better, maybe for the last two or three decades, you've been putting money into a, just a regular brokerage account and a Roth and a traditional, you could access your Roth contributions back at any time with no penalty. [00:28:23] And you could sell regular investments at any time and only have to pay Capital gains tax on the growth that's tax diversification, Laura. And I teach that a lot, so that folks who get to retirement five and 10 and 15 years later have flexibility and believe it or not, you can control your tax bracket so well in retirement. [00:28:42] If you have those different categories, I even had, he's a CEO of a company that is also like an engineer and he had a term for this. I've never heard it before he calls it degrees of freedom. Oh, interesting. It's the concept of setting yourself up. So that in the future, you have multiple avenues in which you could go. [00:28:59] So [00:29:00] multiple directions and that's called degrees of freedom. And I thought of that concept, it stuck with me ever since he explained that to me, I taught him about what I call marginal tax bracket management. And then he said, that's just degrees of freedom. That sounds more exciting. No offense, actually. [00:29:12] Right. I know. Marginal tax bracket management. Anytime you throw those types of boards in there. Yeah. I feel like Ned Ryerson from Groundhog day. You're too young for that. I know Groundhog day. I do know that one. Yeah. he tries to sell him insurance on the side of the street every day, cause it's Groundhog day and. [00:29:29] Bill Murray ends up socking him in the face, punching him really hard. Anyway, moving on. Last thing on this before 60 retirement healthcare usually keeps people from even considering retirement. Yeah, I think this is the biggest reason that people keep working until age 65, 65 is when you're eligible for Medicare and people think it's just not doable. [00:29:49] They can't afford health insurance before age 65. So it's probably one of the most common questions that we have and misconception. Run that by cuz like you're doing more of this than I am now, Laura. I mean, as you meet with people [00:30:00] and you see that they're below 65 years old and you start to explore healthcare options, I mean, what do you find and what do you do? [00:30:07] There are lots of different options through Obamacare. You can actually qualify for a subsidy. A lot of people can qualify for a subsidy. If your income is less than 69,000, I believe you can qualify for a pretty good subsidy. You just get a healthcare plan through the marketplace. And a lot of times the subsidy, if you have a really high deductible plan, sometimes you won't have any premium. [00:30:28] A lot of people don't like that though. The high deductible plan, they'd rather have more coverage, lower deductible. So it is gonna cost you, but it's not crazy. I think it's a lot more reasonable than people think. And like Zacc said, if you have different accounts that you can use to keep your income lower, say you're drawing from an after tax account or a Roth account, that's not showing up as income. [00:30:49] So you can still qualify for that subsidy. And that's something that we help our clients with making sure that they're not going over those income limits because there is a cliff. I mean, if your income goes over the limit by [00:31:00] a dollar, you can lose that subsidy. I know for 20, 21 and 2022, they got rid of that cliff. [00:31:05] But as far as I know, that will go back into play in 2023. So you have to be really careful with those plans, but I think it is more reasonable and accessible than people think. I haven't been up on that. The reinstatement of the cliff. That will be an interesting investigation. I've researched it. I don't see anything that shows that it's gonna continue past 20, 22. [00:31:24] Okay. So I'm just playing around with this, cause I wanna give people a feel for this. I think you mentioned this is the biggest reason. I'm hoping to give someone that's listening to this episode. A feel for, oh, maybe I should actually consider retirement and not be so afraid of it. And then I think we'll wrap up. [00:31:39] So what I'm doing here is I'm actually on healthcare.gov and you can mock this up if you want. And I'm just putting in a 60 year old couple, a man and a woman who are 60 years old, and I'm gonna start with $60,000 of income and we're gonna push our way up a little bit. At $60,000 of income, a 60 year old couple would be eligible [00:32:00] for the government to pay. [00:32:02] $1,398 worth of their healthcare premiums. Every month, the government's paying that portion. That's not how much your premiums are. That's how much the government will pay for your premium. And you can apply that to many, many different plans. In fact, there are 97 plans available. I put in my own zip code. [00:32:20] I live in Farmington, Utah at 84,025. And I put in that zip code and the plans are. Area specific, but in my zip code, a 60 year old couple making $60,000 a year could have many plans with zero premium because that subsidy is more than the premium was planned to be. Anyway, now those are pretty high deductible plans. [00:32:40] You mentioned that. So if someone really wanted to have a plan. Where the deductible went down, they might, I mean, I'm scrolling still. And I still can't find a plan with more than a $0 premium, because that is so high. Oh, there we go. I found one, that's a $2 and 40 cent per month premium. That seems reasonable. [00:32:58] Right. right [00:33:00] now. It used to be. That if you went over a specific line, which was 68,000 and now it's higher, but it used to be that if you barely went over this line, you lost the subsidy entirely. And that was the cliff that Laura is talking about. But. They got rid of the cliff and what they did was they made it a percentage of the poverty level. [00:33:22] They figured out, okay, here's the poverty level. You're at this percentage or this ratio to it. And healthcare expenses can't be more than a certain percent of your income. And they figured all this out. So I just changed the numbers to a hundred thousand. So this 60 year old couple is making a hundred thousand a year. [00:33:37] Their subsidy is 1040 $5. So they only have to pay $300 more than the previous couple. And a lot of people only show a hundred thousand dollars of income in retirement. They may actually be spending 120, 150 or more, but they may only show a hundred going back to degrees of freedom. If that person [00:34:00] has various accounts, then we may be able to pull money from the Roth for a couple of years. [00:34:06] Where they don't have to pay any taxes and then pull some money from a traditional experience, low tax brackets on that. Keep the tax bill low enough that they have almost no healthcare premium. I can't tell you how many times I've gone through this and all of a sudden the eyes get big. Of the couple in the room and they realize like, oh wow, we should have been thinking about retirement already. [00:34:28] It gives them another degree of freedom. okay. That is a joke that only us people would like. Right. yeah. True. Well, people like knowing that they can retire earlier. Hopefully everyone can appreciate that. I find that people think it's lame to say marginal. Bracket management until you say it means $4,000 a year back to you and they go, oh, I like that. [00:34:50] And they're like, okay, I'm alright with that. You call it what you want. I'll take that money. Okay. So that is the end of season one. We did it. We did it. That's awesome. And hopefully it just gets better from [00:35:00] here. we're learning. So hopefully we get better. This episode's almost half as long as the others. [00:35:04] I think we got through as much content. So hopefully that's a sign of getting a little better. Okay. Next season. Is that just social security? All social security. So we will jump into all the different details so you can know everything that you need to know about this complicated social security topic. [00:35:23] If you're young, I think I'd still listen to this if you're really young. No, but if you're in this category for today's episode 40 year old person and older. I'd still listen to this. It'll help you understand if you're self-employed and understand how social security is calculated. You'll know, like if you're an S Corp, how much you should pay yourself versus like doing draws. [00:35:42] There's a lot to this that matters at all ages. Some of these episodes are probably not as applicable. For example, if you're subject to penalties, we're gonna go over that too. But hopefully we keep them to about a half hour and then. No skin off anybody's back. Right. It's just helpful. Yeah, exactly. After social security is investing, I think that's where we're gonna capture everybody. [00:35:58] That's season three [00:36:00] and we'll get to it. Thanks for joining. Thank you. This podcast is intended for informational purposes only and is not a substitute for personal advice from Capita. This is not a recommendation. Or solicitation to buy or sell any security past performance is not indicative of future results. [00:36:28] There can be no assurance that investment objectives will be achieved. Different types of investments involve varying degrees of risk, including the loss of money invested. Therefore, It should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or proposed by Capital [00:37:00] will be profitable. [00:37:01] Further Capita does not provide legal or tax advice. Please consult with your legal or tax professional for advice prior to implementing any strategies discussed during this podcast, certain of the information discussed during this podcast. Is based upon forward looking statements, information and opinions, including descriptions of anticipated market changes and expectations of future activity. [00:37:39] Capital believes that such statements, information and opinions are based upon reasonable estimates and assumptions. However, Forward looking statements, information and opinions are inherently uncertain and actual [00:38:00] events or results may differ materially from those reflected in the forward looking statements. 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