Retirement Planning’s “Hidden” Questions

Plan With The Tax Man

The retirement planning world is filled with plenty of advice and suggestions, but there are critical questions lurking in the shadows – the unasked, the overlooked. These are the questions that can help define the comfort and security of your retirement future. On this episode, we unearth and tackle these hidden, but essential questions about retirement.

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Transcript:

Marc Killian 00:36

Hey, everybody, welcome into the podcast. Thanks for tuning in once again with Tony and myself as we talk investing finance and retirement here on plan with the tax man and Tony is the tax man at tax Doctor Inc, serving folks all around the area. So if you've got some questions, got some concerns, need some help? When it comes to all things with your retirement reached out to Tony, who is a CPA CFP and an EA of 27 plus years experience and a great resource for you to tap into it. You're planning proz.com? That's your planning proz.com? Tony, my friend what's going on, buddy? How are you?

Tony Mauro 01:08

I'm doing good. As we as we're taping this just kind of getting ready to wrap up the 2022 Filing Season, believe it or not so well upon the extension deadline.

Marc Killian 01:17

That's, that's so wild that is that that late, you know. Yeah. But hopefully you didn't have to struggle to hopefully, hopefully anyway.

Tony Mauro 01:25

Yeah, hopefully not. I mean, in, you know, a lot of people starting to think about, you know, you're in tax planning and next year. So this is a good, good time to talk about some of this stuff.

Marc Killian 01:34

Yeah. And, you know, I've got, we're kind of called this hidden questions or overlooked. And I think a lot of these that we're going to go through a couple of them here, Tony, I think people probably we all know a lot of this, but I think what happens is, we often tend to get our focus in one or two areas, sometimes when it comes to retirement planning, or whatever the case might be, we tend to often focus, you know, really on like this larger item, and then some of these smaller ones, while we are aware, they maybe don't get the attention that they should unless, of course, you're working with a financial professional. So let's talk about them a little bit, and just discuss it obviously, you know, as a tax practice, as that's a huge part of what you guys do as well, you know, a question might be eventually, hopefully, people realize, hey, you know, in the end, what's these tax deferred savings accounts going to actually cost me in taxes? Because at some point, you know, again, if you think about focus, it's easy to go, Well, hey, let's kick that tax burden down the road. So I don't get to deal with it for a while, but eventually, a while shows up, right? Eventually, you got to pay the piper. So

Tony Mauro 02:32

yeah, and, you know, this is the biggest question that we try to answer for people, and try to let them know that, you know, you have a partner it generally with with it with this handout, and I, you know, I we make fun of the government, because that's Uncle Sam, you know, so, you know, a lot of people don't realize that, you know, a part of this money you have, you have an IOU to the federal government. Well, in the States, maybe for that matter for

Marc Killian 02:56

this training, you know, and I think, Tony, I think we realize it, right, I think we just forget it, because if you spend 20 or 30 years, punting, you know, the tax ball, then you kind of go all the sudden one day you go, Ah, crap, right? Yeah, I forgot about then,

Tony Mauro 03:10

1. So what we try to do, though, is with our retirees, especially, is to let them know, if you do have tax money in tax deferred accounts, that there when you start pulling that money out, right, you know, some of it is going to be taxable. And what we try to work with them on is using other monies first, and then filling up the tax brackets that they're already in, and not jumping to the next one, because they've already got, you know, a tax issue. Let's not compound it and make it worse. And so I think that's important to work with your tax person or advisor, especially in retirement to make sure you're not just needlessly pulling money out. Yeah. So you can kind of control your tax bill a little bit, but there are, you know, for the younger people, the Roth and things like that Roth 401, K's where you're not going to have this issue, and so those will become attractive. But yeah, that's a whole nother conversation. Yeah,

Marc Killian 03:58

for sure. And, you know, if we kind of set this framework around the hypothetical numbers, we'll just go with the easy million dollar math, you know, million dollars in a 401. K, and we can kind of use this for a couple of these questions here. Yeah, you know, you sit there and say, and I get it, it's sexy. It's like, who I'm a millionaire, I can't wait to say that, or whatever. And you're not to your point, because you're really more like a 700,000 year or so. Because, you know, you gotta give Uncle Sam bell 30%, you know, or roughly right, depending on every situation can be different. So you don't really have the million and that leads to my second question, which is, you know, how much can I withdrawal from my savings each year? And if we're using that same million dollar analogy, Tony, a lot of people, they they hear the 4% rule, they think, Hey, that's a good place to start the conversation. And it can be it's a good place to start the chat. But that's, you know, if you go with 4%, you're talking about 40 grand a year off the million but as we just said, you may not have a full million because you got to still pay the taxes because you've been deferring. So now you got what 700 grand that's what 28,000 A year right. So I mean, it just starts To change all the numbers,

Tony Mauro 05:01

it does. And what we look at it when we're working with people is we either use the four, sometimes 5% rule, and just using the 40,000 a year because most people don't want to dip into their principal, they want to say, well, what can I earn? And, you know, if we if we get something conservative in urine and 4% of the 40? Well, we have to tell them again, you're not going to get 40, because we have to pay tax on that. And so it's going to be, you know, a little bit different. And that's when they get a little surprised. Like, what I didn't know that. And so we don't want what their first response is, is, like I said, they said, well, I'll just take out more say, Well, yeah, but then you're gonna have the next tax bracket potentially in kind of all kinds of issues. So it's important that where I think this is where the visor can really show their their value or worth is being able to work with this and keeping your taxes to a minimum.

Marc Killian 05:51

Yeah, I mean, because think about, you know, the future you right. So we often, you know, with these first two categories, Tony, we were kind of punting or wondering what we're going to do later on, don't forget that later, you is standing down the road somewhere waving at you going, hey, don't forget about me, you know, we got to be efficient with not only our spending and our budgeting and things of that nature, I know, everybody hates the B word, but still just having some sort of a, an incoming out, you know, outflow kind of projection is certainly important. So those are the first two. Number three is the life insurance question, right? So again, maybe not necessarily hidden. But if we've been trained, just like we have with the tax deferred accounts, to have life insurance, when we're in our 30s, or 40s. And our kids are younger, and, you know, case, something happens, income replacement, send

Tony Mauro 06:37

them to college, if I die, that kind of thing. We're trained on that we're also trained that, well, we probably don't need that when we're an older person, right, when we don't need it when we're over 70. But life insurance has changed so much that it could actually be a real swiss army knife for a lot of things. No, it could. And I think the question should be, you may not need the same type of insurance, that when you were young, but if you've got a policy that you know, you bought a long time ago, it's still viable, there may be some very useful uses for these policies. Because just because you have, like you said, everything paid off and kids out, you may still, like, in my own case, if my wife dies, you know, a big part of her retirement is IPERs. And which is a pension she can't outlive. But if she were to pre deceased me that I would get a payout on that. But that wouldn't really be enough to cover a lot of years in retirement for me. So for me life policy on her still makes sense. Even if she's retired, especially, you know, if I've got it, and it's doesn't cost a whole lot. Now, I think where people get a little confused is like, well, you know, I'm 65 years old or something, life's too expensive. It may be at that point. But we're talking more, you know, something you bought a while back. So I think in certain cases, again, another issue that you need to talk to your advisor about all of these, I think you should, but because it may not be Who've you just to cancel them all, especially depending on your situation. And then

Marc Killian 08:05

of course, if you if you did cancel something because you just under that old school mindset, and then you do need it, it's harder to get it back. Because your order and back. I mean, the insurance, right, we're all one blood test away from being uninsurable. Right. Yeah, exactly. Depending on what could happen there. And so lots of different ways to consider and again, I think, again, life insurance could be a real utility, Swiss Army Knife kind of thing for folks. There's the death benefits. Sure, there's still the living benefits, there's income replacement. I mean, you might still need income replacement in your seven you might Yeah, you know, tax free retirement, just lots of different things to at least have the conversation on. For sure. So number four, medical coverage. So a kind of a hidden question or might be alright, again, maybe not hidden, but just kind of we well, I got Medicare so groovy. I don't do any anything over and above that, though, in the answer is probably right. You're probably gonna need something. District Medicare. Yeah.

Tony Mauro 08:58

Yeah. I always tell clients Well, the short answer is yes. I said, but if you want to, don't want to take my word for it, let's the first time you're sick, wait till you get that bill, and watch what Medicare does not cover. So there's a lot of things. This is a whole profession. Now. I was gonna say to you and of itself. Yeah. Do you guys have somebody in house? Or do you refer people? A lot of advisors definitely suggest for folks to talk to Medicare specialists? Yes. I don't have anybody in house. I refer people out okay, to a local guy who's a Medicare specialist, you know, that can help them. Explain what Medicare covers and what it does and then all the different options they have because you can you can buy a lot of gap policies and supplements so that you can really feel good about okay, I'm pretty much covered for everything, but you obviously got to know the cost. Sure, because it does add up. Yeah, but yeah, I think Medicare for me, what I tell people is that's going to cover major things, and that's a good start. But, boy, if we're all living too long, we all hit you know, people start to get ailments. You're gonna We spend a lot of money quick on other types of medical care if you just have Medicare, so I strongly encourage them to visit with somebody.

Marc Killian 10:08

And if you think about, really what retirement can entail nowadays, depending on you know, the walk of life you're in or where you find yourself, you know, you almost really do truly need a team or a group of folks. You know, you need that financial professional, you need that CPA right. Now, if you're lucky, you might have somebody who's a CPA and a CFP on one like, Tony, right, but you need that tax person, you need that planning person. Elder Law, probably some sort of attorney. Yeah, right. And then maybe a Medicare specialist. So it's almost like, you know, it's part of the basketball, no pun here. But I was like the dream team, right? You need three or four players to help you out. You're the fifth, you go, that was four different categories. And we're the fifth. So there you go. There's our dream team. That's our basketball team. Alright, number five, how much am I really paying in those fees? And commissions? This is the only one probably that is truly a hidden question on this, that I think we, you know, most people just don't even realize how much stuff is actually hidden in the fine print. Because Tony, many people will go, Oh, my guy or gal charges me 1%. Right. And they think that's the end of it. So Tony charges me 1%. That's all I'm paying. Yeah, but what do you have? And what do those products have inside them?

Tony Mauro 11:19

That's right, because and we try to educate clients that Yeah, even though you're an advisor relationship with us, if we're managing assets for you, whether it's 1%, or three quarters of 1%, if you have funds or different things, outside of just plain old stocks, there are expenses inside those funds, you never see because they always, you know, basically take it off the return before anybody ever talks about returns. And so it's important to try to drill down and just make sure you understand, you know, all of the expenses you've got. And sometimes, you know, it's worth it. And sometimes it's not, we try to keep expenses low, because obviously at the end of the day, it cuts into your return, which means that, you know, less money for you. But at the same time, which I you know, I think we do a fairly good job of educating the client of, you know, nobody does anything for free, the mutual funds don't work for free, we don't work for free, right? Hopefully, you're getting some value out of this. But just so that they know, and the bad part is, is we have to re educate usually about every year, every other year, depending just to make sure that they haven't forgotten because they do they just they've completely started getting oblivious to it. Yeah, very true. Very true. But most of them, they always defer back and say, Well, you know, we just kind of hope you're gonna watch those fees for us, which we do. And we you know, but, you know, if you have concerns, I would definitely say, don't be afraid to ask your advisor, because if they're good, they're going to explain this to you and make sure that you understand how it works.

Marc Killian 12:52

Yeah, and have a fee analysis done, right. Because, you know, sometimes people will have that they get that delusion in their head, or whatever you want to call it, that they're paying, you know, the 1%. And, but then, you know, alright, I've got this, you know, Product X, and it's paying me, you know, 5%, and I'm only paying 1% to my guy or gal, so cool, I'm making four. And then you want to do an n Fe analysis and looking at what's inside that product X that you've got, and maybe there's another percent or percent in a quarter in there. And so now you're only making you know, 2.75, right, or something like that. So it which may be fine, but it may drive the vehicle, but it may not either, right? So find out and have that conversation. So that's why these are five questions that can get a little hidden or overlooked. You know, sometimes they straight up high. And other times, it's just we take our focus off of it. We take our focus off of the you know, the the money we've been saving for retirement if it's all tax deferred, because we forget, after so many years of doing it that eventually we got to pay Uncle Sam, we know it, but yet we tend to you know, look away from it. So lots of these reasons why these hidden questions can come back to bite us. And that's why it's important to talk with a qualified Pro. Like Tony, if you're not already working with him, or if you are and you've got somebody who might benefit from the podcast and maybe having a conversation. Often financial advisors do complimentary reviews and consultations just to see if it's the right fit. So reach out to get on his calendar. Have a conversation if you're planning proz.com It's your planning proz.com. And don't forget to subscribe to the podcast, very simple. Just hit the heart or the Follow button depending on what app you're using. Plan with the tax man is the name of it on all the major platforms Apple, Google Spotify, type that into the search box or just find that at Tony's website. You're planning proz.com Tony, my friend thanks for hanging out and breaking some of these questions down for me. All right, we'll

Tony Mauro 14:38

see you next time.

Marc Killian 14:39

I always appreciate you I know we're getting into the end of October here. So have yourself a happy and safe Halloween. And we will see you next time here on plan with taxpayer.

14:53

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