Welcome once again taxes to retire smart Austin with Phil Capriotti, Sr. He is the founder of Empower Wealth and tax. I’m your host, Mike Spangle. Phil, how you doing this week?
Good morning. Good morning. Doing great doing fantastic.
Today, we’ve spent a lot on the last few weeks talking about estate planning, tax efficiency very, very important. I’d like to pull it all together and talk about the income plan, the income strategy, how do you create an income strategy in retirement? Is it just taking from the largest accounts? First? How many Americans are overly relying on Social Security? Are we using the proper tools more and more? Let’s start with you with the income strategy. Where do you start?
Most of the folks that come in to talk with us that watch the show and listen to the radio Spike are mainly concerned with tax planning. Now, they because they feel as though they have plenty of assets to get them through retirement, even if they live to 100. And everyone has different goals. The fact is they never put it in writing. The biggest issue with a retirement plan is or folks, you don’t have a retirement income plan, unless you put it in writing, and then review it each and every year to make adjustments along the way. So, it’s a great question, by the way. So, in order to do a complete retirement income plan, number one, you should possess the experience to do such, what I mean is, and again, there are many great advisors out there, no doubt about it. Make sure you’re working with a registered investment advisor who’s a licensed fiduciary and has experience in tax planning and retirement tax planning. Why there are a lot of different software’s out there, what the biggest key are the questions that we ask you, we will ask you questions, and have you provided us data, which helps us get a picture of your overall financial plan and retirement income plan. So here are a couple of areas variables we want, we want to consider. The first thing is when do you plan to retire? My very first question, if they’re working exactly. When do you plan to retire? And normally, we’ll get folks that’ll normally I’m getting ready to retire in two years. In three years, five years, my wife keep pushing me I wanted to call you two years ago, but I never did. I hit the habit procrastination issue and maybe a little bit. Okay. So, you want to look at number one, what’s our timeline to retire? Okay, how many years do we have left to work? And then I want to measure the accounts, I want to look at how much is in that 401k? Hopefully you have one. Maybe you were wise enough and been listening to the show, really paying attention, and started contributing to your Roth 401K, and stopped the buildup the taxable retirement plan. Hopefully that’s there. And then I want to take a look at okay, what do you have in other assets? Do you have rental income? Do you have oil royalties? What other assets do you have, that are going to provide you from an income source? And then we want to build that in? The next step is I want to establish with you and your spouse, what is your goal retirement income after taxes in today’s dollars? So, in other words, let’s assume you’re going to retire today. Haha, got it. You’re right. You’re retiring today. How much today do you need in tax free dollars? You know, you give the government 20 grand, and you get to keep 80? I’m just using an analogy here. How much are you spending? The 80? No, Phil, I need to spend 100. We want 100,000 or whatever the number is, so establish a goal after tax retirement income. Now the next thing we want to do is we want to now align that with your other assets. What accounts am I going to draw from during retirement to make to keep me in that zero to low tax bracket.
Phil, when folks come in, how many times do they say I don’t know how much I’m going to need. I mean I- When you say ‘when am I going to retire’ the first thing literally that popped in my head is I’ll retire when you tell me I’ve got enough money. (Indistinct)
Alright so- And we get that a lot. Okay, absolutely. Get that right. So, this is where the questions come in. Okay. So, we’ll get that a lot, and I’ll ask them okay. Is your house paid off? Yeah, the house is paid off. How much is your- how much it- so we’ll actually go through a spreadsheet. How much is your real estate taxes, how much you paying for Medical? What do you pay for food? How ‘bout entertainment? What do you pay for clothes? So, we have a whole checklist to help folks itemize what they need. Then after that I throw in how about a vacation fund? How about gifting to the grandchildren. So, when we set up a retirement income plan, this thing is comprehensive. And it’s done professionally. Why? We have the expertise to do it, because we’ve done 1000s of them literally over the last 15 years. So, the next thing I want to do is I want to account for inflation. Too many folks don’t account for inflation. Now, inflation has taken a big bite over the last two or three years. Primarily Well, for a number of different reasons. We won’t get into any of that. But the fact of the matter is, it came back in the late 70s. Do you remember folks when we used to have to wait in gas lines, we had the oil embargo. Okay, what happened? Inflation. Gasoline went from 29 cents a gallon shot right on up to 89-99 cents a gallon. I remember watching it, and there was a president there at the time, And his policies weren’t conducive, okay, to bringing oil down. Well, oil unfortunately, even though it’s a fossil full- Ha, a fossil full. Fossil fuel-
I think you were thinking about the President or something in there.
So even though it’s a fossil fuel, it’s integrated in everything that we do. So, we want to establish inflation, I like to use a 3% inflation rate, sometimes we’re going to be in a 1%, inflation, sometimes six, we just came out of eight percent inflation.
8.9, even.
I won’t get into the causes on that. But the fact is, I want to get a reasonable average to a bacon inflation, then I want to plan your income, straight on through age 100. I also want to put a plan together for your survivor’s income. That’s another big mistake that many folks make. And I’m talking about all of you, okay, my buddies that I play golf with folks I haven’t even met that I haven’t played golf with yet. Many times, if we’re managing our own affairs, our own portfolios, our own investments, that’s what that’s not enough for retirement income plan. We want to put it in writing. And then we want to make provisions for what happens. If I’m going, I’ll give you an example, a very good friend of mine, passed away, retired at age 60, went and played around a golf at 62. He passed away after he’s finished 18 holes, horrible, horrible, and a very good friend of mine. We were friends for about 15 years, I always considered him a brother from another mother. And it’s the truth. And now he had set things in place. He said, Phil, if I am not here, this is what I want to make sure you can do for my wife, who’s a retired teacher. Okay, and for my two children. So, we put a plan in place. He managed his own investments, but he had the foresight to know that if I’m not here, okay, he must have had some kind of internal feeling. If I’m not here, I want to make sure I have a plan set up for them. And we did we set up that retirement income plan. And so, the fact that matter is now we want to work on now that we have the plan established and we have all of the variables in there. Now we want to take a look at your portfolio. We want to see just how much that IRA is netting. What is it yielding?
Right, Phil, we’re message break right here, literally about what the firm your philosophy and what you do. So, folks don’t go anywhere. What I do want to tell you about is the Morningstar review, there is no cost to it. What we’re going to do is take a look inside the investments, see how they’re performing for you. What are the costs, what are the fees? Is this optimal for you? I know that we talk a lot about tax strategies and estate planning, but we want to make sure that you’ve got the right portfolio for your needs as well. So, we will do the complimentary investment and portfolio review. call the phone number you see right down here 888-818-6557. For the first five callers, we will set up your complimentary review. We’ll also talk to you about taxes and estate planning more retire smart Austin with Phil Capriotti senior right after this important message. Don’t go anywhere.
For most folks who are getting ready to retire. They’ve spent 3040 50 years paying into Social Security and they haven’t a clue on what claiming strategy best works for their plan. You should feel comfortable, you should feel safe. You should be educated by your financial advisor in all aspects law, taxes, inflation, your wealth management, including your insurance products as well as working with a financial advisor that has their own tax firm has their own legal arm and their own wealth management and insurance firm really tight Azure together, what folks enjoy most of all, is working not only with a fiduciary, but they want to work with someone that does it all. They want to come in they want to do their Roth conversions. They want to do their tax returns. They want to update their wills and their trust and they want to come to one firm that has all of that expertise inside of it. That’s Empower Wealth.
Welcome back to retire smart Austin with Phil Capriotti, senior the founder of Empower Wealth and tax. I’m your host bites bangle we’re talking about creating an income plan in retirement. For most folks who are here in the Texas area. Well, there’s two large things there is the 401 K’s it’s a lot of great landowners, but it’s hard to create income, certainly from raw land and list grows, and we sell it but let’s start with the retirement accounts, IRAs 401K’s got a lot of stock funds in there a lot of bond funds, target date funds, we don’t quite have annuities in there yet. That’s a whole ‘nother show. How do you create an income stream from the funds and target date funds that are in there? Or do you have to transfer it out? Start from scratch create your own portfolio?
Well, it depends on what company you’re in. And it depends on what type of advice that you have. Some of these 401K’s literally have hundreds of different options. Many of the 401 K’s have limited selections. That’s why they go with the target date fund. And then your manager, whoever it might be, whether it’s whether it’s one, one administrator or another will manage it internally. Okay, when I say manage it, they hire a group of portfolio managers that, you know, buy certain stocks, buy certain bonds, all of that. I’m not interested in that. And what I’m interested in is setting up a retirement income plan that an individual can see, it makes sense to them, they can look at age 80. And if I get this yield, and I spend this much with X amount of inflation, and I keep myself in X tax bracket, this is what I’m going to have. All right, this is how long my money will last. So, most folks are concerned about what you know, what about the hiccups? So, I mentioned we might have a vacation fund. Maybe we have 15 $25,000 into vacation fund in addition to meeting our daily needs. Well, many folks, once they stopped taking vacations, what normally happens when they get too old to take vacations.
Well, we’re more around the house and we’re sticking around, or we’re not traveling as much we don’t need those funds there. But we need, I don’t know, home entertainment.
Well, here’s the thing, most folks say Well, I’m not going to need that, that block money anymore, I’ll be fine. So, I’m going to travel for 15 years with my wife and that should be enough. Well, the fact of the matter is once you reach a state, a page in your life, where you’re losing weight where you may be suffering from limited mobility. Well, now we have to look at how about home health care cost. So, what happens is when we construct the plan, we want to make sure that we’re providing for home health care costs, long term care, what bucket of money, what account will that come out of if you do not have the proper Long Term Care Insurance Plan.
So, it’s kind of the fun money becomes the health care money later.
It switches to a different provider, instead of provider providing you with vacations. Now you’re providing yourself with health care. Okay, which by the way, a lot more expensive than vacations. The next thing in that retirement income fund is what happens if like with my buddy, I predeceased my wife, whether it’s a younger age or an older age, how does that affect her Social Security? How does that affect her tax bracket? How does that affect her income? How does that affect her security? So, this is what we want to have the- we want- why (indistinct) when I have the talk.
Or at least, some people might say, well, it would be fortunate if you passed away. Then your spouse has more money. I want to look at both sides of it. Let’s look at the- you don’t pass away, you live longer, but you need to go into long term care. You start drawing out a lot of money. And we can say 7, 8, 9 thousand dollars a month probably at least for long term care.
You know, I’ve seen this happen more. And I’ve warned folks and I’m going back 20 years ago, 15 years ago, many folks spend most of their time putting all of their money, the primarily the large piece of their money in government qualified retirement funds like 401Ks and the light. And when they retire, they may convert it to an IRA or move it out of the company plan into their own. They may not. But I’ve seen situations where folks will say I don’t have long term care. I don’t need it. I can provide for it myself. Well, here’s a perfect scenario where that where that dog really doesn’t hunt. A situation we had with a prospect came into my office about 15 years ago. The majority of his funds he had about 1.4 in his IRA. I may or may not have told the story before, but at any rate, he had medical conditions could not qualify for long term care. So, and he absolutely would not pay taxes on Roth conversions didn’t even want to hear it. And so, the only account of money they had to draw from if he needed home health care, or long-term care, it was the IRA. And I said, Bill, let’s sit down and have an intelligent conversation. If you’re depending to take funds from this account, you have a major tax problem. Because once you take money from an IRA to pay health care, once you trigger that, the money that would the withdrawal you take from the IRA is taxable. The kids- now go into the care of the home health aide or the long-term care, you don’t get a tax deduction for that. So, you’re using taxable money to pay for care while spending now the IRA. Now what happens if you’re there for 2, 3, 4, 5 years? What do we leave them?
Exactly.
What do we (indistinct)?
I’d say even a large account of well, a million dollars? How quickly do you burn through it?
Well, here’s the thing, folks, it’s what if these are the questions we want to ask, we want to sit down, come up like a counselor, okay? We want to sit down and say, what, what are your thoughts here? Because it’s a reality, it’s going to eventually happen if we live long enough. So how are we going to handle it? This is part of a comprehensive retirement income plan. Now, most of all, we want to make sure it’s tax efficient, we have to protect against future tax increases, because of ever increasing debt.
And with this income stream, I also want to bring this up, we’re gonna have to do a little bit of a break here. Maybe I can get you started on Social Security. Well, I mean, we’ve already heard and you’re actually getting statements mailed to you saying, your Social Security could be reduced, as soon as 10 years from now, look, somebody who’s going into retirement this year or last year, want to take a 10% reduction in your income stream?
I have folks that are concerned about that. And they’re like, here’s what I want to do, Phil, I want to take this couple hundred thousand, I want to set it aside, I don’t want to touch it. I want this thing to grow and grow and grow. And if God forbid, Social Security does go bankrupt, I want to turn that income on as an income replacement. So that’s also a great question to answer. Thanks for bringing this up.
Yeah, we’re gonna talk about that after the break, folks, you can call the phone number down at the bottom of the screen here so we can get you started on your own tax efficient retirement strategy. It will include your portfolio, your asset allocation, your fees, tax structuring, making a look at your estate planning, even talking to you things about like Medicare will Social Security, everything but the whole kitchen sink, call the phone number you see right down there on the bottom of the screen 888-818-6557 or open up your phone to the camera function and pointing at the QR code right down there on the bottom of the screen. When you click on that it’ll take you over to our landing page, you can schedule an appointment right there. The first five callers the first five people to click on that will set up a no cost appointment for you the portfolio review the Morningstar review, or with Phil Capriotti and income strategies and retirement right after this.
The work never seems to end until the day it finally does. After nearly a lifetime on the job. You should be rewarded for all the time you spent working. Whether that’s crossing off items on your bucket list, learning a new passion or rekindling the love of an old one. After all, life isn’t over when you stop working, is the start of an all-new chapter, the one where you’re the writer and you get to choose how your story will go. A way to achieve that is by having a clear financial plan to sustain your golden years. The biggest fear most retirees have is if they’ll have enough money to maintain the lifestyle they’ve always enjoyed. Having a plan to help protect you against the curveballs life often throws will help to maintain your lifestyle. Call today to get your free written financial plan. See me live every day to the fullest and enjoy the retirement of your dreams.
income strategies in retirement with Phil Capriotti senior the founder of Empower Wealth and tax, let’s continue on the conversation. Phil, you just mentioned social security. I mentioned social security, you helped me clean it up. We want to make sure that we’ve got consistent income streams but here’s the thing. We’ve saved a lot of money, those tax deferred accounts, we start taking out of it. Number one, we got to pay taxes if we haven’t done Roth conversions. Number two, you’ve got market volatility. If I’ve got to take money out to pay my base to pay for my monthly bills, and the market is going down that month, that year, aren’t I taking a double loss?
Here is the risk that you take on. It’s known as sequence of returns. Okay, let’s assume you retire and let’s assume you’re taking x amount from earnings from the IRA and let’s say that you Do you have a professional money manager, maybe you’re even your own portfolio manager. You have Social Security, you have that. But what many folks don’t realize is that when we see the next 2008 financial crisis scenario, where the market correct it, almost 50%, a little over 50%, the S&P dropped in about a 17 month period. While you’re still taking distributions. What happens is, if you lose 50% in your portfolio, let’s say I have a million dollars, and God forbid, I was aggressive, and the market took a major turn, pick any calamity, it doesn’t matter what the cause. And now that million shrinks to 500,000, but I’m still taking income from it. Okay, not only am I now spending it down, the market took a half a million of it, not me, the market did. Okay. Now, in order to get that million back, I need to admit I lost 50% of my portfolio, I need to make 100% to get back. So, what normally what many folks will do, as part of a comprehensive retirement income plan is limit your market volatility, do not put the portfolio to sleep, I want to have certain accounts, I want to have this account specifically for growth, it may yield 15-16% On the average, but it’s very volatile. But it’s only 10% of my portfolio. So basically, what I want to do is I want to have groups, I want to have buckets, or separate accounts, where my portfolio is managed different differently with different varying risk tolerances, all staying within my own suitability limit.
As Empower Wealth and tax, I’ve heard you talk a lot on taxes. Can I start throwing out those big words: standard deviation, the alpha, the beta? Is this also part of what you’re doing with the portfolios? Or do you just throw in a standard portfolio, let it run?
You know, the funny thing is, when we run your Morningstar report, we also include a portfolio observation, that measures, alpha, standard deviation, and these types of things. Words that are designed to confuse. Basically what they mean-
Standard deviation, I don’t know how those two were-
Well, we look at alpha, and we look at beta, and standard deviation, basically what we’re saying is how much risk is in the portfolio? How much risk and how much am I receiving or return getting a return for that the risk we’re taking your alpha, your beta, your standard deviation are going to determine Do I have low risk adjusted returns? Meaning, am I not making as much as I need to for the risk I’m taking? So basically, what we want to do is we want to measure these variables, or am I taking too much risk? Because maybe my portfolio manager or me as an investment advisor, I’m talking about an individual managing their own portfolio? Am I taking too much risk? How can I adjust it so I can get just the right return that I’m seeking, but reduce my market volatility, so that we when we do see the next financial crisis, I’m not going to get wiped out or my portfolio is not going to have a serious reduction in its overall value?
When you’re saying, man, you say, we will see another 2008 Is that Phil Capriotti being a pessimist? Or is that your- those are just the cycles of how the markets work that we’ll see another 2008, or maybe, you know, a 2000 dotcom in our retirement lifetimes.
I am an eternal optimist. This is not me. These are analysts from across the country. All you have to do is open up your eyes and look at current events. And all you have to do is remember history. And history has a tendency to repeat itself. Okay, we saw this movie back in 2000 789. We saw the same exact movie. And so, I believe it’s, I think irresponsible not to plan for it.
Right. So, we still do want to keep some of it, that portfolio in a bit of risk if we want to say but then you’re also saying we’re portioning off another set that not only doesn’t go down, but literally that you can’t run out of if it’s in the proper product.
I want increasing tax-free income so I can get a little more aggressive with my other investments. But again, once I have my mailbox money, once I have my Social Security and my other income situated, then the and is guaranteed for my lifetime in my spouse’s lifetime. Now it’s time to manage the portfolio within your designated risk tolerance. We don’t want to put the cart before the horse. We want to make sure that we have provisions What if I predeceased by set spouse? Or what if my spouse predeceases mate, you may have a spouse that has a huge pension. They may have also been the high wage earner. But when they took their pension option, they didn’t provide for a beneficiary spousal. In other words, the spouse, the surviving spouse doesn’t get the pension, or it gets 25% or 50%. There wasn’t enough planning, I like to recommend 100% By the way, folks, but the fact of the matter is come in, call 888-818-6557. Let’s sit down and see if your retirement income plan number one is adequate. Number two is tax efficient. And number three, we’ll go the distance, you don’t want to run out of money before you run out of life. And you don’t want to run out of money, especially because of increased taxes, increase inflation, and too much market volatility.
Phil, as we wrap this up, and I really do appreciate you talking about all of the income strategy, let’s say, though, for the viewer out there who doesn’t want to hear about the standard deviation, who doesn’t want to hear about the bait? Who doesn’t want to hear the Wall Street ology? Do you mind explaining it for folks like me and say, Look, this is what it’s going to do, you’re not going to be using the jargon in the office or, you know.
I don’t believe in using confusing terms that folks aren’t used to, I don’t need to impress you with my intelligence or lack thereof. The fact of the matter is, I need to talk to you as a person and help you understand real life events. We have to look at the past, and then we have to protect ourselves in the future, so that we don’t continue to repeat the mistakes of the past. This is something I think more folks should do. Yeah. So, when you come into our office, it’s we’re gonna sit and have a cup of coffee, we’re going to have a conversation, I’m going to get to know about your family, I’m going to get to know about what’s important to you. I’m going to get to know what’s important to your spouse, I want you as many times we’ll be able to have shared values that we can build on. And the whole idea is for me, for you to access my knowledge and my company’s knowledge and our experience and expertise in helping you create a crash proof so to speak, retirement income plan that’s tax efficient, regardless of the crash. God forbid if it happens. I’m going to be okay. And so are you.
Right. And all of this is about being proactive, not reactive, not waiting for it to happen. And yes, folks, we know it can seem overwhelming, but call the phone number, use that QR code. Come on into the office come and come and just sit down and have a conversation with us. This has been retire smart. Also with Phil Capriotti, senior you’ve been watching the show. Most people wait for the life event to happen before they pick up the phone and either change their job, maybe we’ve lost our spouse. We’re concerned about something don’t wait for the life event. Get ahead of the wave. call the phone number you see right here so we can do your complimentary review to get you tax efficient or retirement come up with an income strategy that you can’t run out of in retirement. Caulfield Capriotti senior thank you so much for watching. We’ll be back again next week.
Specializing in private wealth management, we provide education, guidance, and strategies to help you achieve a tax-efficient retirement income.
Investment advisory services offered through Donato Wealth Management, PLLC, dba Empower Wealth Management (“Empower Wealth Management” or “EWM”),
an SEC registered investment adviser that only conducts business in jurisdictions where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment adviser is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability. The firm is not engaged in the practice of law or accounting.
The information presented is believed to be current. It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. You should consult with a professional adviser before implementing any strategies discussed. Content should not be viewed as an offer to buy or sell any of the securities mentioned, or as legal or tax advice. You should always consult an attorney or tax professional regarding your specific legal or tax situation. Personal investment advice can only be rendered after the engagement of EWM, execution of required documentation, and receipt of required disclosures. All investment and insurance strategies have the potential for profit or loss. Asset allocation and diversification will not necessarily improve an investor’s returns and cannot eliminate the risk of investment losses. Past performance is no guarantee of future results. For more information, please go to https://adviserinfo.sec.gov and search by our firm name or by our CRD #305031.
Insurance products and tax services are offered through Senior Tax and Insurance Advisors, PLLC, dba Empower Wealth Group (“Empower Wealth Group” or “EWG”). Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products. They do not in any way refer to investment advisory products offered through EWM. Rates and guarantees provided by insurance products and annuities are subject to the financial strength of the issuing insurance company; not guaranteed by any bank or the FDIC. EWG is not affiliated with or endorsed by the U.S. Government, Social Security Administration, nor the federal Medicare program. You may be contacted by a licensed insurance agent. Calling the number above will direct you to a licensed insurance agent. EWG may not offer every plan available in your area. Any information provided is limited to plans available in your area. Please contact Medicare.gov or 1-800-MEDICARE.
EWM and EWG are both affiliated companies of Empower Wealth, LLC (“Empower”). Investment adviser representatives of EWM may have a financial incentive to recommend tax and insurance products and/or services offered through EWG which presents a conflict of interest. This conflict is addressed by EWM’s adoption of its Code of Ethics, which requires that all EWM’s Associated Persons place the interest of clients ahead of their own. Clients of EWM are also free to choose their own tax and/or insurance professionals and are under no obligation to utilize the services offered through any related entities or persons associated with Empower.
Strategic Partners listed on this page are not employees of EWM and are not affiliated through common ownership.
We do not offer every plan available in your area. Any information we provide is limited to those plans we do offer in your area. Please contact Medicare.gov or 1-800-MEDICARE to get information on all of your options.
© Empower Wealth Management All Rights Reserved.
