Don’t go anywhere Texas, this is retire smart Austin with Phil Capriotti senior He is the founder of Empower Wealth and tax and we have a jam packed show. Phil Capriotti, how’re you doing this week, buddy?
I’m doing great. It’s good to see you again, Spike. And we have a pretty hot topic, for today, actually several-
At least three of them. And we I’ve got to keep the ball moving right now our producers in my ear. We’ve got to go through tactical management. We’re going to talk a little bit about annuities. And then you wanted to bring up QCDs, our series on estate planning. We’re getting so many questions stick around, don’t go anywhere. This retire smart Austin is for you folks to make sure that you can be and stay retired. Phil, we hit last week on your portfolio management, we had a lot of questions on it. You said it’s more about tactical management. You’ve heard buy and hold and then there’s chasing effort, you know, the ups and downs of the market? Can you explain a little bit give me a little more color on tactical management?
Well, first of all, it’s funny, I’ve actually heard advisors refer to tactical and active management as one in the same item. They’re not. Okay, so let’s kind of set that to rest. So, the first thing is when you’re looking at or considering tactical or active asset management, this is what they’re talking about. An active portfolio planning enables adjustments along the way. And the idea there is to curtail or limit risk. Okay, that’s considered active management, you’re actively moving in and out. Now, you shouldn’t be doing these types of things yourself. We use analysis, we do research, we have literally analysts that measure the data, their professionals look at the data and then we follow trends. So, this is known as active. Tactical management or tactical adjustments. This relates to capturing gains during a potential upcycle. So, what and in order to maximize returns. So that’s second number that’s, that’s two, we want to maximize returns. Number three is risk management. And this is really my most important priority with clients that are retiring, especially after they’ve done Roth conversions, we have to measure downside risk, we can make as many changes in the portfolio as we need to based on whatever environment or economic cycle we’re in. But once we pay the taxes on that Roth conversion, we want to make sure that we’re in my opinion, achieving somewhere between a six and 9% return, and no more than about eight to 15-16% Market Risk total. So, we want to gauge the drawdown, or we want to limit the drawdown. Why? Because after I got finished paying an average of 20% in taxes, the last thing I want is my portfolio to lose 25 or 30% in the market. So, this is another reason why many advisors don’t want to touch Roth conversions. Because they may be in most cases, exercising, quarterly rebalancing, but all they’re really doing is passive management, not active or tactical.
Okay. Now, when you’re talking about this tactical management, and I’m seeing the complexities of it, and all of the different portfolios, probably hundreds and not quite at 1000, but many, many different portfolios. How are you doing this? What part of it is what you’re doing? How much are you delegating? How much are you the head football coach putting this all together? Who helps you with the tactical management.
Our senior portfolio managers, and we have quite a number of different senior portfolio managers. That’s another thing. I don’t believe in working with one particular group or one particular portfolio manager, I want to look at a portfolio manager that maybe works with growth. Okay, strictly growth, I want to I want to look at another portfolio manager that may just use bonds, we want to look at varying different portfolio managers. So, we have our home office, we have our own analysts and advisors. We even have a group of proprietary advisors that we use from Blackrock that actually do build portfolios for us or color Core Series. I don’t want to get into all of that, but I want to use different portfolio managers. I don’t want to be glued to one company or one set of portfolio managers. Diversification really is the key. And what that comes down to is that enables adjustments in diversification based on changes in the market, I may be diversified in one way for a healthy market, I may need to change those allocation to read diversify. When we get into a downward economic cycle, that type of a market, if we’re looking at new legislative changes that are going to cause an industry to grow, again, I need to diversify into that I have to do it as it occurs. This really is considered also considered a form of tactical portfolio management now,
Now the en- huge key points there, but how, how do you know when to make those moves? You said we need to do it as it’s happening. That’s the problem is with what we are called folks, the retail investor, the investor who’s looking at your news reports from your phone or whatever online source and they go, Oh, I think I’m supposed to chase after this trend or Oh, The markets are gonna go down I better get out now. How do you know when to tactically move like that?
It’s a combination of common sense and education to be honest with you, Spike, okay. For instance, I’m on multiple calls one on Monday sales call on Monday called a sales call. It’s basically a market call. And on Friday, and every single morning we’re touching it, we can take a look at and adapt to economic conditions. And do I do all this? Do I do all the research? Good Lord, no. Good Lord, no. We have teams of analysts, we have teams of researchers and we have varying different portfolio managers. So, I comment set you can see it like, give me one example. Before I know domain, you know, we’re getting into the evening, the market, everything’s green, green, green. Okay. Do you think having AI and AI? Do you think having that in your portfolio is important? Yeah. Now, let’s say there’s a war against that, or war on fossil or whatever. So, we want to look at trends. And then we want to slightly adjust the portfolio. But I didn’t mean to interrupt you.
Yeah, or AI gets cancelled, or we’ve heard there’s seven different platforms right now all of the bigs out there all those technology bigs that are chasing after it, but which one of them is going to end up being the winner, which is the one that’s going to be most prevalently used right now we know the one AI provider. That’s online, and who knows, maybe it’s gonna switch.
Philip Capriotti 07:23
I believe you have to use it all, you have to look at global events, okay, for instance, active planning, you have to navigate what based on geopolitical events. And take, for instance, the two wars we’re fighting over here. And it seems like we just can’t get away from this stuff. But geopolitical events also have positive and negative consequences in your portfolio, it must be weighed as data in order to make adjustments on the fly.
I said something key than that, it’s got to be weighed as data, not emotion, it is hard not to know that that’s what so many people are doing right, and we will react to it. And when you do that with your portfolio, your portfolio is agnostic, it doesn’t care. So, you need to have an agnostic approach to it. (indistinct) and her one other, I will say brilliant firm, like your’s say, we don’t just have one money manager, we have several, we have several who are looking at it. Because I’ve heard this before. What happens if you’re one money manager? What if they get it wrong? When they look at it through a certain lens, and they get it incorrect.
I’ll tell you exactly when it happens in my firm, we had one money manager and we were absolutely in love with this group of money managers, one particular firm, I won’t mention any names, and they got it wrong. They got it really wrong. Now, if when, when any when I see a money manager gets something wrong, completely wrong. What do we do? What do you do with a bad employee? you fire them. It’s up to me and my firm to pick and choose the best money managers available to service myself, my family, and especially my clients.
I was just about to say, And especially your clients, and that’s why you have a diversification of perspective. Folks, if you’d like to learn a little bit more about that, don’t go anywhere. I know you want to get up, go get that soda, maybe go get some pretzels and chips to watch the rest of the program. Don’t move, stay right here. This message is about Phil and the firm a little bit more about him. But if you would like to get your own complimentary retirement investment, review your Tax Review, call the phone number below. We can only do it this week for the first five callers 888-818-6557 You can use the QR code down to the bottom of the screen as well if you don’t know how to use it. I’ll tell you more about that later in the program with Phil Capriotti right after this.
I watched my parents work, work themselves really to the bone. I saw my father retire at 63 and pass away. Six months later once you stop work and my mom looked at me and she said you better be an accountant. You better learn to tell AXA. I went to a private school, got a great education, lived in the library and graduated without any debt. I realized the benefit of being debt free at a very young age. And I also realized the benefit of educating and speaking to people and I liked working with folks who actually needed help. I started my company 17 years ago, and now we employ two CPAs and two licensed tax professionals. We have a legal arm that helps folks design trusts as well as wills. We have an insurance, and it offers property casualty insurance, we sell health insurance, Medicare Supplements, long term care, life insurance annuities, and we have wealth management that I started to work with Ed slot looking at tax efficient ways to have retirees or soon to be retirees retired tax free. If your accountant or CPA is not also your financial advisor, you really have a conflict of interest.
Welcome back to retire smart Austin with Phil Capriotti, Sr. I got a question actually from one of our radio listeners, who is Madison from kissel in Texas, saying I want to know your stance on annuities. Now, that’s a very general question. But stance on annuity can you have this like, is this a people getting emotional, again, about investments?
You know, Spike when a question like that comes in with all due respect, I understand that the individual asking the question probably doesn’t know much about annuities. Okay. And the reason they’re not giving me a specific annuity, if an individual says what do you think about a variable annuity? And with certain funds in it? What do you think about a fixed, fixed annuity that gives me, you know, straight 5% interest for three or four years? What do you think about an indexed annuity that provides me with increasing income? So, the question annuity shouldn’t be painted with such a broad brush, why there’s close to 2000, different annuities and seven different types. So, with all due respect, I’m going to make an assumption. And I’m going to assume that you’re talking about a fixed indexed annuity designed to create a pension using 401 K funds, okay, because the individual does not have a pension. So, this individual wants us to design his own pension. So here are a few things that are musts, when it comes to buying an annuity for me and for our company. The first thing is you need to be able to lock in your annuity gains each year at any time, you should not have to wait for the anniversary of the contract to lock in your interest for the year, we’ve had a number of folks with some annuity who had certain annuities, they’re up 16, 17, 18%, they have the ability to lock it in and July, the anniversary date is until January. And by the time we get from July to January, okay, the interest is down to 2%, or 3%, or 4, they didn’t allow the client to lock in a high watermark for interest. So that’s number one. That’s one of the moving parts I do not like so I have to be able to lock interest at least once a year on every single interest crediting index amusing. That’s another thing. Number two, it has to have multiple indices to choose from. I can’t just use one indicee, just the S&P, just the Dow, just the Barkly or a number of others, I want multiple. So, when we look at products and companies that offer these products, we want to make sure that they have multiple, literally a dozen of different indices are better, much, much better. The next thing with these annuities is they should have zero market volatility in them. If the market has a bad year, you should at the very least make zero that year, and then have your indexes reset for the following for the following (indistinct) period
So, it’s got a zero because you said no market volatility, and then you were just talking beforehand about the indexes that it’s tied to, but you mean a no (indistinct)?
Yeah, we want to- I don’t want- I don’t really particularly care for variable annuities. And reason is they have extremely high fees averaging between 3, some of them upwards to 3.75% a year and they have market volatility. So that’s another story. The other thing with annuities if you’re in an IRA and your advisor is not talking with you about converting that annuity over to a Roth IRA before you turn on income, seek a tax professional immediately and I mean, get on the phone call our 888 number because we specialize in this type of planning. If you’re going to set up a guaranteed income because you do not have a pension, you have to be able to number one have no cap on the earnings in the good years. Number two have no market volatility in the bad years. Number three, you should be able to turn income on at any time, preferably after it becomes tax free Roth income. Number four, we need to be able to lock in our gains at any time during the year and number five, it better cover my spouse for unlimited income.
All right, so I had to correct my own broadcaster I said Kingsland, Texas. So, I have a feeling as well that Madison might be being pitched something, it was maybe looking for a sound bite, are annuities good or bad? And annuities aren’t necessarily good or bad. They’re just- is it a proper tool for what you’re trying to do?
It depends on the client situation, does the client truly need this annuity? We literally complete an entire explanation on why we recommended this particular annuity for this particular client and what the purpose was. We let lay that out in the notes to the insurance company, number one for a couple of reasons. I want to make sure it’s suitable. I want them to make sure it’s suitable. But I want the client to remember from year to year why we did this.
Okay. And if somebody is considering these right now, is there a better age timeframe, do we need to let these cook and work for a while, immediate annuities? The reason I’m asking is from the part where you said Limra has reported now, as we’re wrapping up 2023 record breaking annuity sales two years in a row now I’m talking billions and billions of dollars, are people moving to this because of the fright of the market volatility or have the instruments become that much better.
They’re concerned about a crash in the market. And they know that these insured, annuities are insurance contracts with a guaranteed income, many of them with increases as well to accommodate for inflation. The other thing is now that we’re in a high interest rate environment, pardon me. The value to the annuity, the returns on the annuity are extremely high. There’s one company that has a fixed indexed annuity, and this is one of the probably the top company in the industry, okay, that actually pays a fixed rate of 7.75%. In first year, guaranteed, guaranteed, and so, where before the guarantees were three, so because interest rates are so much higher, the insurance company is designed to keep that money protected, they can get a higher return without market volatility. So, it may be a great time to trade in some of those older annuities that have had caps and spreads and the inability to earn double digit returns and updated with a 1035.
We’re gonna do a very quick message. What Phil is talking about here is a concept called refinancing your retirement. When interest rates go down, you look at refinancing, things like your mortgage, when interest rates go up, what do you look at, you could refinance your retirement, putting more money in your pocket every single month. And what Phil was saying there is that there were very good annuity products that were offered over the last couple of years. But the rates were not that great because of where interest rates were. Well, guess what, over the last couple of years, interest rates have nearly doubled, tripled from where they were. So, you could have an opportunity to possibly refinance your retirement and keep more money in your pocket have better growth. What can you do? Call the phone number below. Let Phil and his team do a review of the products that you’re using right now. There’s no cost to this. If it doesn’t make sense to you. If it isn’t in your best interest. Phil will pat you on the back and say keep using the tool that you’re using. refinance your retirement, keep more money in your own pocket call 888-818-6557 QCD is we’re hitting all of the topics today as many as we possibly can. What exactly is it? What can we do for our community with a QCD, Phil will tell you when we get back 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. It’s 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 always enjoyed. Having a plan to help protect you against the curveball. wells 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.
Welcome back to retire smart Austin with Phil Capriotti senior, the founder of Empower Wealth and tax, we’re hitting as many topics as we can today. We just we were on tactical management. We talked a little bit about annuities. And now I’ve got a question from Greg right here in Austin. He was saying, Well, I want to be able to leave some of my assets behind for the community, which, which is a wonderful thing. I’m wondering, do I just do I leave this behind in my will? Do I need to? Do I need to gift it over a period of time? Or is there a more efficient way that I’m not aware of?
Well, it depends on the charity. And it depends really on your whole financial picture. First of all, believing he’s, he’s referring to QCD as that’s a qualified charitable donation. Now, you shouldn’t do these things on your own. You can if you want, but you should enlist the professional like our firm or any other firm that’s used to doing this. And, folks, what a QCD is making that a charitable donation, I’m just going to give you a couple of uses for it. When you are of age where you are receiving required minimum distributions from your IRAs. Right now, it’s 7273 74. If you are not using this money, what we want to add, you are charitably inclined, at any rate, what we want to do is we want to pay that required minimum distribution directly to the charity. Now when we pay that distribution directly to the charity instead of directly to you, and then you write a check to the charity that comes in as income on your tax statement. So many of these are MDs, with these larger IRAs. They I’ve seen RMDs of 90 100 120 $140,000. What you can do, and then I’ve had folks say, but I have 20 different charities fill. And I say, well, we’ll complete 20 Different QCD forms, we need the EIN number for the company, and then how much and then how frequent you want it once a year, do you want to twice a year. So, when we when we contribute directly to the charity, using QCDs, this circumvents your income, thus, potentially having less tax effect on your social security, potentially opening up additional room for you to do Roth conversions in a lower tax bracket, okay? Because it can convert an RMD. But if I give it to the charity, that will lower my income if I don’t accept, okay, okay. So, it reduces your taxable income, whether you’re doing Roth conversions or not, and the charitable impact is measurable. So, each year when you have an RMD are required minimum distribution. Normally, you have a shrinking age, uniform life expectancy, you know, you live you have one year less to live, let’s look at it that way. And an increasing Ira balance, hopefully, it’s being managed properly, which equates to a larger and larger RMD each and every year. So, you can actually staggered each year that each charity, your favorite charity, and it really listed in order of priority, what amount how much, and then what type of increase, you can literally take the entire retirement required minimum distribution and send it to your charities not having to write the check and believe me, your charities don’t pay a penny attacks. And neither to you it’s a win-win, for the charitably inclined.
And putting something together like this. The steps of it again, because Greg’s question was fantastic. And I think this is some of the things that people misunderstand is so wonderful that you want to be charitable minded, but the gift tax of being able to give it away, leaving it in your will that can be fought and probate and so forth. It’s not worth it. You want to make sure that you do it properly. Now as far as this estate planning part of it, how much does Empower Wealth and tax? Are they able to help with something like this?
We do all of it. Yeah, we do all of it. And we don’t charge an extra fee for that as well. Jenna, one of my key employees. One of my many key employees. Yeah,
Jenna’s the only one who responds back to my emails, Phil.
Well, I don’t know about that, because we have the other ones doing other busy work.
No, I mean between me and you! At least she gets back to my emails!
Well, she’s my personal assistant. She has access to everything. I have Jenna on one side, Diana on the other side, and they pretty much they keep me right in the the keep me-. They’re my work wives we’ll go with that.
Thank you, Jenna, for always getting back to me because he doesn’t always. No, I appreciate it, you guys are great.
The fact that matter is, I tell Jenna, (indistinct) please respond back to Spike because I’m too busy. At any rate, so basically what we want to do with these QCDs, I want to lower your adjusted gross income. Okay. And the other thing is, their simple. Now getting back to who does them, Jenna was talking about, she said, I just got done doing, Mr. So-and-So, Mr. & Mrs. So-and-So’s QCDs for this year, coming up in January for 2024. I said great. How many charities that they have? She says 54. Guy has several million dollars in his IRA, and he simply doesn’t spend it.
No kids? Or did they have kids, and this is what th-
They had kids, but they, what they’ve done is they’ve set up a wonderful plan, with our help. We started this plan 10 years ago; we converted as much of the IRA over to the Roth. So, they’re living off the Roth income, Social Security and a small pension. The rest of the IRA, that he’s receiving (indistinct) RMDs from we’re contributing to this charity. So, we did planning. The IRA Roth income is tax free, causes the social security to be tax free. The QCD from the RMD, from the, we’ll say, reduced IRA is now paid to his charities, while the current RMD was like $70,000. And so, I said, So, what are you telling me Jenna? She says, yep. I filled out 54 QCD charitable donations, he’s all set. I said, How much time did it take? She said, Well, I was prepared. Because last year he did 40, she said, so I had it all prepped and ready to go for when he came into the office just to take the new information.
And the beauty of all of this is the giving to the community, excuse me, 54 different charities, still taking care of the kids taking care of the heirs and for himselves in their own estate, being tax efficient. All at the same time.
He told me he said, Phil, I’ve been blessed with my entire life. I made way too much money. I’m never going to spend it I will not spoil my children with it. Okay. And I know what he meant. They all have great education. They have their own careers. He said, I believe in being charitably I believe that the more you give, the more you receive anyway, it’s just in my nature, and I don’t need all of this. This goes to the church. This goes to the SPCA, and so any other 52 charities that were on his list.
Phil, thank you so much for taking us through a whole round robin of topics today we were just talking about tactical management annuities, how you could leave to charities folks, the retirement plan is about you and what you want to do. Call the phone number at the bottom of the screen for the first five callers we want to put together your own tailored retirement plan 888-818-6557 Thank you so much for watching with Phil Capriotti, senior of Empower Wealth. We’ll be back next week.
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