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January 26, 2019 8:30 am
In Ecclesiastes, it says “ To everything there is a season.” Retirement is a season in life that is full of change, including your taxes.
Taxes are different in retirement; there is Social Security, Medicare, IRA withdrawals, and for some, work income. Prosperity can come in your season of retirement from not having the tax burden you had while you were working. The only way to reach this prosperity though is to plan for it before this season hits.
Hans discusses a client who retired when he was 73 years old. After retiring, he started to withdraw money out of his traditional IRA to live off of. In a short amount of years, his over $500,000 IRA became an $80,000 IRA. These withdrawals, combined with his other income, meant that he paid taxes on all his income. This is when he sought Hans’ help; he needed money to live off of for the rest of his life. Hans was able to look at his budget and get him the money he needed to live, tax free. The IRA is now there for this client to make charitable donations out of, using a QCD.
It is important to note though, for everyone, tax free isn’t the way to go. It is very important to look at your specific situation. It can be achieved much easier if you begin planning in your 40's, 50's, or even 60's.
Don’t forget to get your copy of “The Complete Cardinal Guide to Planning for and Living in Retirement” on Amazon or on CardinalGuide.com for free!
Welcome to finishing well brought you by Cardinal Drive, certified financial planner belongs agile, best-selling author and financial planners helping families finish well for over 40 years of finishing well will examine both biblical and practical knowledge to assist families in finishing well, including discussions on managing Medicare IRA long-term care life insurance and investments and taxes. Now let's get started. Finishing well welcome to finishing well live a this show were kind of talking about these gases and talk about everything turn turners season well there is a season right where things change in your life as you stop in retirement and stop receiving the same kind of income but in those seasons. You know how to we minimize the tax that we pay because a lot of things change. I did not realize. Honestly Hans I'm here with certified financial planner on child. Of course Cardinal Drive, but Hans the whole game, just changes on a different lot of different levels and so understanding that in planning for this really helpful to leverage that for the kingdom will yeah so we start talking about income taxes and income taxes and retirement early in today's show, the what I want to teach everybody is that taxes are different in retirement than they were for those of you that are 5055 60 in planning or younger planning on retiring. You got some time now to prepare for this retirement season in your tax situation is going to be intact. This can be better look upon and taxes right has everything at end. Jeremiah 2911 says you know you know the plans I have for you to prosper you not to harm you, and so there's prosperity that can come in this season as part of not having the tax burden that you have when you are working yeah well and so I want to talk about one of the clients that I'm just working with now that didn't retire until he was 73 years old which is great. He still work part-time and he has drawn his IRA in five years, from $507,000 with a 550,000 down to about $80,000.
So that's the most part gone and all those drawdowns for those five years have a good bit of that money is gone pay in taxes cassettes on top of all his other income so he's kind of learned about taxes and retirement the hard way and he's in to see me to see what he can do about she's been living off his IRA and now we got admit live off of something else.
So he's seen taxes in retirement really kind of on the dark side and so as I begin to help him I'm seeing now how much of them of this money that you were making her have been making over these five years. How much have you been actually spending and using okay to support your lifestyle and we found that more than 1/3 of it is going to taxes like about 2/5 of that is actually going to pay taxes so the net amount that he needs to live on when you include his Social Security and the money he was drawn out of his IRA minus the taxes back on the Social Security minus the date we put all that together was about about 60 grand or so that he needed her knee needs going forward, to live off of, but he needed to realize for taxes.
About 90 grand 200 grand just to have 60 left over so the first thing comes to my mind, if I could bring his tax rate to zero. All you gotta do is find 60 grand a year for and their structures there once in retirement that you know.
Just begin with right you don't have to pay the first of all, he makes 40 grand a year between he and his wife Social Security so you take 40 grand a year and you put all this other income on top of the taxable income he he was paying to the IRS taxes on 85% of the Social Security the time you get done paying that taxi was really only left with about 25, 26, 27,000 of that 40 grand so if I could just get him to be able to keep the whole 40 grand. I value because it's possible infective. If you are living off your Social Security. There's no taxes on correct severe. No other income he he he got 40 grand to work with was not enough but what was causing him to pay taxes on his Social Security was all this other taxable income that he was realizing every year.
So one of the solutions for him and I wish I'd met in five years ago because we could've work this a bit better is to start drawing money out of some of his other assets. These are the pay taxes right in and the more I talk to about that. The more I realize, wow, there's a lot of places that you could have income or you have assets that you've Artie paid taxes on so as as you use those about us.about a savings account right.
The bank now most people don't have big amounts there and that can do about a CD coming if we got up 50 or hundred thousand or $200,000 CD or an assortment of CDs regarding pay tax on that money. If he had 200,000 in CDs. That's 20 grand a year for 10 years without making any interest that he could just pull in and spend his income and he would have to pay tax to get asked a lot of places where our Roth IRA sounds really good but does and so a lot of people his age really don't have too much and Roth IRAs and those they were smart enough to do a conversion before they retired or they really can't jump the Roth IRAs 20 years old, but a lot of folks didn't really jump on it right away. And so it's more people in their 60s and 50s Summit is a bit he doesn't have any Roth IRA money, but if he did, that would be a simple solution and pointing out other no taxes so you know what I was able to do or I'm in the process of doing for him is really getting to where he has five grand a month or 60 grand a year coming in tax-free okay and I can make his Social Security totally tax-free. By getting their other taxable income below a certain level and we've already figured out a way to do that and it simply by pulling money out of like a brokerage account or CD and living off of that instead of IRA money so we can just pull out a net amount and the pretty easy to do.
He's thrilled and then the frosting on the cake with IRA is if it's it's out there you still have that to the 80 grand that we still have in the IRA. I'm leaving exist as a tither I met him in church and I certainly want to encourage people get this whole tax problem. I don't think is giving is really what took him into it into a financial difficulties and the tax problem and I certainly want to keep that and so to see soberness simply because he's over 70 and half a 78 were to leave that remaining 80 grand that he thought was going to disappear over the next 9 to 12 months working to keep that there and make our contributions to the church out of that and that's can be a totally tax-free transfer product so your list into a finishing well and certified financial planner Hans Sholl and all these are based on his book the complete cardinal guide to planning for living in retirement and as always we have a free copy of a PDF of the chapter that were talking about firstname.lastname@example.org under the seven were established when being income tax at an you know that whole thing is available either through the PDF we can get the book easy enough online it is and what three dollars is not even that's a dollar 99 for the Kindle 799 for the paper book.
If you're a prime member. It's free shipping if you going cardinal guide.com anybody that's listening to the show and you'd like a copy of either book. Either the digital or paperback will get one in the mail to you is give us your contact information. No charge were roiled on the business of selling books is much as we are educating people in the we've been real blessed in our business that a lot of people that read read about this year. The message they seem to be plenty of them calling us up and looking for help and today show again talking about income taxes in retirement being such a completely different and a ballgame or different season really the way it's explained in an Ecclesiastes, but I actually enough for everybody. Tax-free isn't the way to go in there it's a it's a real honor to pay taxes and a benefit in a way that that and I know that I'll never forget my boss one time and put his head in his hand and sample hour-long for the days right to pay taxes again. I've been there begotten ended so focused on right off that I've been successful nine losing money and I get to write that off great. I'd rather make money and pay taxes yet another strategy that I'm speaking about doesn't work for everybody, especially if you have a higher income needs and may be a net of 50 or 60 grand a year and you got have a big Social Security check as part of that somebody that needs $100,000 a year to live. Net, which means that they need to pay taxes on all of it. They're going to need to draw about 150 grand.
There going to be paying taxes on the Social Security discovery panel a lot of tax so the people that are fairly well-off.
We have strategies to lower taxes for them, but they're not specifically were talking about in the show here, but this covers a lot of people were talking about here that you know need didn't add around 50 or $60,000 a year to live. They got several sources to draw their money from it applies to a lot of people right so there's the different seasons and the neat thing is that there's all sorts of technologies that are there and available we come back to find out more about what's in this season of taxing Adam maximize kingdom impact because it may be through paying taxes, but it also may be using that money tax-free for the benefit the kingdom or your family and other ways will be right back, certified financial planner Hans child again.
Always remember cardinal guide.com you go and find out all these resources and the rest of the show if you hear about podcasting passion, love Eric. Cardinal guide Hans and I would love to take our show on the road to your church, Sunday school, Christian or civic group. Here's a chance for you to advance the kingdom through financial resources and leveraging Hans expertise and qualified charitable contributions veterans aid and attendance IRA Social Security and care and long-term care. Just go to cardinal guide.com and contact Tom to schedule a live recording of finishing well at your church Christian or civic group. Contact Tom to cardinal guide.com that's cardinal guide.com welcome and well provide financial cardinal guide.com. The course ignores Fidelity's resources cardinal guide.com, including the getting it in the beginning of the show when you know how income taxes were talked about today in retirement and how this is really a different season, but really, for those of us are familiar with the moved my cheese you know if you're used to having a certain strategy for income taxes when you going to retirement. Hans it's it's a whole new ballgame and and different things apply for different people with different needs, especially with when there are so many different kinds of assets that they could have would you ideally going to retirement.
We know you can have the Social Security checks that's not ideal. You mean pretty much everybody's got that some people don't.
But most do that even spouses that didn't work or people that are were spouses and then there has been most postponing retirement of Social Security check in Social Security is taxed by the other income that you have. So if you know other income you don't pay taxes on Social Security, but most folks have other income is Social Security is generally not enough to live on, but United said ideally you'd have three buckets of money to be able to pull money from one would be Social Security second one would be an IRA or a former 401(k) are still for no money that you're going to pull from that has been taxed yet and then 1/3 bucket which should be a brokerage account could be a CD savings account could be something you sell mean it's just real estate real estate, it would be a bucket of money or bucket of resources that you can pull money from that you don't have pay taxes okay and if you have three sources of income when you're retired, you're able on a year by year.
This year, but you can't decide amateur Social Security checks can be for the year. You can take the amount that you need and access your Social Security check. And you can divide that up between the taxable bucket and the nontaxable bucket and create a cash flow so that you're effectively in control your taxable income right in that gets back to wow you know creating those, buckets earlier on in life. Even if you're in your 40s to say wow that Roth IRA makes a lot more sense is when you get here, you know, then you've got an a different kind of bucket to use and really, if effectively reduce your tax burden at that point we see a lot of folks ask us if we do taxes and the answer that question is yes, but typically only for the folks that were doing or have done financial planning for because art focus is different than doing your 2018 taxes, which now is the season we do those for probably a couple hundred clients a year which is a lot of clients when you're doing this.
We've got 5000 clients a summary just calls the substances we do our taxes, but I guess we consider it, but we typically would refer them to someone else.
We have a CPA that works within our firm or actually outside the walls of our firm, but is connected with us that does taxes. What we do differently then a CPA's were not looking at 2018 were looking at 2020 2021 were still looking at 2019 because were sitting here in the beginning of the year with our clients were saying how much tax do we want to pay this year. How much tax is acceptable to you as people answer that with zero you know those people that need that kind of income of 100,000 what you're talking about it and I kind rather pay to axons. If I get that but it never should have that kind of leverage for the kingdom. Sure, sure, and there's there's things you can do for those people is not talking about them in the show today.
I just wants him speak into something simple here that you can do and frankly if you don't have that other bucket of money which is you've already paid taxes on his kindhearted created 70 some years old.
Other ways but you can sell something or whatever, but I'm really speaking a lot to the people who are 5055 6045 in your 40s you want to be planning so when you get to retirement. You can draw on income from something a monthly income that you can pay no taxes on the money coming in every month and annuities are posted.
You could do that with an annuity or you could be partially taxed on that but the ideal product is a Roth IRA. So if you're younger, as we we consider somebody younger when they're 60 and artworld. Thanks a lot out of that hat and study how old I am, or 50 year isn't really you still got time to accumulate money in a Roth IRA or perhaps to convert some of your Roth some of your traditional IRA money into a raw so when you get around to about 65, 68, 70 and you start retiring, then you'll have a bucket of money to pull from her. You don't know any income tax in that way you can pull from your taxable bucket of money just enough that you don't pay taxes on your Social Security and that's the game we play with a lot of folks and we manage year-by-year and who doesn't want bucket of money but there is every area saving except in the discipline for doing without planning ahead of you there you go, but yet another story it in your book that will I do mean I hadn't had a gentleman who came to me and it is actually in the book. The sky was about four years ago you and I was looking for his name, but you'll find them throughout the book in I know his real name, but that's not in the book the end we've dealt with him in heat he had simplified he had delayed his Social Security till 70. He was just like 66 Andrew 68 actually was 68 had delayed till 70 getting Social Security be just retired, so he went to a major stock brokerages that I need 70 grand a year I get this much money can you make that much for me and so they just completely ignorant of taxes came up with some kind of a plan that little iffy to me to and did to him to make him 70 granny I set down with him. I said what do you really need 70 granny year amateur Social Security on delay and that the 70 that okay anyhow he's the guy we went through in the book and we discovered that he still had a kid in high school and so we were able to get him his Social Security plus another Social Security check in time where all done we had like 50 grand.
Of the 70 coming in for at least a few years in Social Security. Now the question comes to have to pay taxes on that Social Security and that of course is affected by how much other income you have in long story short, we were able to pull for a few years. Enough money out of his already paid tax on the money bucket that he didn't really pay almost any tax at all and none on his Social Security.
He had his 70 grand. He lived well and then we are able to take his retirement accounts and just crank them up and invest them a little more for the long-term. And then, still is Social Security were to be able to go out for quite a while just pulling little income from those taxable accounts and and so this in account. It shows how circulator so much of this information is at 107 hours tablet Social Security in deciding G2 I take that 66 though I take it at 67, undertaken at 70 and and all those things require a lot of information to make a good decision right you got to know a lot of things like this man had a child that was still in high school.
That was a significant issue for his so scared now were on the Social Security chatter in heat. Here's a guy that has young children and so he he could have been filing for Social Security two years earlier and collecting on the kid all along, which would've been far more than the extra Social Security by delaying he'd done all research's a smart guy on his own miss that one and he was so focused on delaying till 70 getting that extra money. The just economists. The whole thing and we pointed that out to. He's a very happy camper. Which just speaks to all the different pieces of the equation and and one of the pieces that I wonder about is is I'm in this stage of my life with my dad and and my mother-in-law and all that you know wow long-term care is is something that could be coming your way and what what we do with that. When Kelly annexes right yeah now with taxes means to the if we need to pay for it. You need to pay for some long-term care for your dad out of his money to go find his IRA and wouldn't pay the bills of the IRA in no reason were going to do that is working to create taxable income and then the medical expense which long-term care is in home healthcare and all that is a tax deduction. It's a tax deductible medical expense not dollar for dollar, but no, in other words, if we spend another 30 grand a year on home healthcare then working to pull that 30 grand out of his IRA and create taxable income. On the one side, take a tax deduction for the medical expenses so that you just cannot wipe each other out. So that's the advantage of knowing all the different angles to the piles of money to say what about long-term care. You know the answer that is planned for me to just one more thing we gotta plan for taxes. It's all the seven worries that we have in there. We need to plan for taxes and need a plan for long-term care. We need a plan for healthcare and Medicare. We need a plan for Social Security you know we need to plan for retirement income. We need to plan estate planning and we need a plan for death and are survivors in the generations so let's think about is getting back to Jeremiah which Nina really gives me hope Hans when he says I know the plans you know he eat eat at a place up up up up is going to prosper you and not to harm you, you know, and often I know these people come to see you. They got this look a big worry on their but actually there's a lot of reasons for hope when absolutely we we little to me people to bring us problems if we cancel getting in beginning to look at things in a different way sometimes of some self discipline issues sometimes as tax issues. Sometimes people are reluctant to talk about their problems because are just carrying the burden themselves.
They feel like they're letting their family down or they've let them down mid many times the solution to the problem is even where they think it is we don't have too many problems that we can work out for folks to an end and it's really cool to hear the stories and again all this information as well as a lot of the actual stories are there in the complete cardinal guide to planning for living retirement sconces, but it's there at the seven worries chapter you get all seven chapters. If you will not be a PDF or you just go get the Kindle for a dollar 90 or or email Hans in a while you're there if you got a question for Hans resentment you want information you know that's why we don't go to cardinal guide folks don't I don't mention this enough. We have an office in Durham.
Young office in Greensboro right by the airport and we got an office in Charlotte Randolph Sharon amity and independence to anybody that wants to come see us and we made a lot of our clients over the phone, but we we got offices in these folks, places, and would be glad to sit down with you, talking on the phone. We we really want to get you educated and get you to value really planning in the whole planning process exit from Weston will CMX bring on. We hope you enjoyed finishing well brought you by cardinal guide.com visit cardinal guide.com for free downloads of the show previous shows on topics such as Social Security, Medicare and IRAs, long-term care and life insurance, investments and taxes as well as constant best-selling book, the complete cardinal guide to planning for and living in retirement and the workbook once again for dozens of free resources past shows you get Hans book go to cardinal guide.com if you have a question, comment or suggestion for future shows. Click on the finishing well radio show on the website and send us a word. Once again, that's cardinal guide.com cardinal guide.com