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This is the Truth Network. Welcome to Finishing Wealth, brought to you by CardinalGuide.com, with certified financial planner, Hans Scheil, best-selling author and financial planner, helping families finish well for over 40 years. On Finishing Wealth, we'll examine both biblical and practical knowledge to assist families in finishing wealth, including discussions on managing social security, Medicare, IRAs, long-term care, life insurance, investments, and taxes. Now let's get started with Finishing Wealth. Darrell Bock Oh, wow, have we got a Finishing Wealth for you today.
How about tax-free income for life at 70 and beyond? Actually, it's a case study that we're going to share with you. But as I was listening to this whole situation, I couldn't help but think about Jesus' name. And for those who might be aware that Jesus in Hebrew is Yeshua, and you might hear that A sound at the end of Yeshua because it's the last letter in Jesus' name. Of course, we'll probably study Jesus' name from now until eternity and never really fully understand it all, but it's an ayin.
You can hear that A sound. And an ayin in Hebrew has to do with your eyes. And to actually look at it, it looks like a Y, because you've got two eyes, but you only see one vision. In other words, Hans is looking at me right now, but he only sees one. Because your eyes, you know, they're connected by an optic nerve to your brain, and that idea of what you're seeing is brought into one vision. Well, the cool thing is as you enter into a relationship with Jesus, what happens is you begin to get his vision, right?
And actually, you take on his yoke, and a Y looks like both a yoke and, you know, two eyes, you know, like that idea of a Y. And so you might know that Jesus said, you know, where there's no—or actually it's in Proverbs—where there's no vision, the people perish. And here comes the idea of salvation, which is what Jesus means in Hebrew. Is it salvation when you get a vision, right? And so in our case study today, the man had a problem, and fortunately he came across Hans, who had a vision to see how he could keep him from actually lost a quarter of a million dollars, as this case study would be, over, you know, what happened in the stock market. So he was looking for a vision, and he was looking for salvation. Of course, when we get it with Jesus, we'll have a tax-free eternity, right, to enjoy in that vision. Dr. Darrell Bock Sure.
You just got to get to there. Or one of us that may—one of a couple may be a lot longer than the other. And so this guy had the unfortunate situation where he retired at the end of 2022 or beginning of 2023. And so his million dollars that he has in his 401k was 1.3 million at the peak. And he was just freaking out because, you know, he had planned on delaying his Social Security for a while, but he didn't have a specific plan. He just kind of liked the idea of waiting a little while and getting a little more money.
Hadn't really put it to paper. But once he lost all this money that he never really had in his hands, he was kind of freaked out. He says, well, I'm going to take Social Security because his estimate—and we confirmed that in the financial planning—is $6,000 a month is what he needed to live off of after taxes. That's the kind of income they were looking at. And he could get $5,100—his Social Security check would be $3,400 if he took it a little early at 65 now.
And hers would be $1,700 or effectively half of his because they're both the same age—$5,100 a month. And so he only had $900 to make up. He wanted to leave the million dollars in the market in the 401k because he just said, surely this is just going to bounce back. And, you know, I want to be in there, so I just don't want to draw much out of that.
And I don't have to, you know, if I just draw out $900 a month or $1,000 a month to live. He was really ready to start spending some of his $200,000 of savings to live because he's got $200,000 of after-tax money, which he's done very well as a saver to build up that much money. He wasn't getting much interest on it because he wanted to keep it liquid because he was so scared of everything that's going on.
And he was just a bit frozen up, or both of them as a couple were. And so we really, we sit down and we look at the whole thing and, you know, I didn't like him taking his social security early, okay? And I also didn't like the fact of just leaving, because he really wanted to get the money out of the market, but he just felt this knowing that this potentially, when we look backwards, could have been the worst time to sell. And it could be. I mean, it could be that you say, I was just dumb enough to sell all my positions in 2023 because I just thought that this was now the good time to get out.
And then if we look to the future, all of a sudden the market goes up for two or three or four years and he's feeling like he made a really dumb move. And so I said, you know, you really don't want to look backwards. We have no way of knowing that. I don't know that. People don't know that. We don't know what it's going to do.
But what I do know is you're not in a good place right now. And you're worried about this just at the beginning of your retirement when I want to see you experience some joy. So if we get to the 6,000 a month, how would it be if I could show you a way to delay social security, okay, until 70 for five years, still have your 6,000 a month, still have your million bucks, but now we're going to add some certainty to that.
We're just going to get you completely out of the market and just be dealing with fixed interest rates. And we can do that without paying a whole lot of income tax. And he liked all that.
And he liked the fact that the 6,000 a month now is after tax. And so, I mean, that's a whole lot. So how are you going to do that? Well, okay.
What we ended up doing right off the bat... Maybe I can summarize that, sir, to catch everybody up. Essentially, he's got all these things that are coming due in his retirement. But what he was facing as far as he had an uncertain future on what was going to happen to the million dollars, that could go away big time, just like he lost a third of it. Yeah. I mean, once I peered down, that's really what he wanted to do. He was scared he's going to lose more.
I mean... Right. So he had that problem. And then he was standing to lose by taking his social security early. He was going to lose the benefit of leaving that money in the account. But overall, what he was really wanting to do was going, how do I live to 90 with the money that I have?
So when we're talking about tax-free income for life, we're talking about if he lives to 120, we're still good here, right? Oh, absolutely. Absolutely. And so there's the vision that really...
I mean, who wouldn't want that? So this case study is really an eyewitness to how you can take your assets in a given moment with the proper planning to create this scenario where you don't have any of those worries. Well, yeah. And I guess one of them that I overlooked, now that I'm looking at this thing, is the inflation risk too, because that's tapered a little bit over the last couple, three months. And so it's maybe a little less worry, but at the time we're dealing with this case study, we... I mean, and still today, I mean, we got to think in different terms is that it may take way more than 6,000 a month to buy him the same things 15 years from now. So part of this plan included some real inflation protection as well. So what this guy wanted is what everybody wants, is he just didn't want to have to spend his retirement worrying about a whole bunch, didn't want to pay a whole bunch of taxes. He didn't really want to take his social security early. And so we were able to just kind of chop up this IRA into some different things and get him his 6,000 a month after taxes and get him a whole bunch of escalating income, tax-free income, all throughout his 70s, okay?
And into his 80s and 90s or however long one of them lives, or both of them, okay? So the first move was we took $362,351 and put it in a vehicle that is going to pay him 6,600 a month for five years. So we elected to delay the social security based upon taking 362 grand to the million and putting into this thing, it's just going to pay him 6,600 a month over five years. Now the balance of the thing, $638,000 is going to be invested in something that has a guaranteed return. So it's going to be growing back toward the million dollars over time, but we actually spent the $362,000 to buy an income to buy us five years of certainty, of 6,600 a month, because we got to pay 600 a month in taxes, is what it really boils down to.
So if I'm following you, and I'm trying to, that he needs 6,600 net income in order to gross income, gross income, he needs 6,600 gross income in order to meet his obligations. To net 6,000 of net income to meet his obligations, and I feel pretty certain he's got some cushion in there, okay? And taking his social security now, he was only going to get 5,100 a month. If he waits five years, he's going to get 6,600 a month. And he won't have to pay tax on that 6,600. Probably not, but so it's more than just 50, it doesn't sound very good to wait five years to get the money, and you only get a $1,500 a month raise, but what we're really preparing for when you hear the rest of the deal here is so that his other income besides social security is going to be tax free, because a good bit of it's going to be in a Roth by then, okay? And so he's going to be able to draw off Roth money in addition to his 6,600. He's going to be able to have all the money he wants, you know, within reason, depending on when he turns the income on on these things. Wow, okay. So we want to remind you as you're listening to this vision that we're talking about today that you can find all this information at cardinalguide.com, and clearly, wow, this would be under which worry tab today, since we've got so many different- It's going to be under the income worry tab, and it's also, there's a YouTube on this thing that is going to have all the show notes, and it's going to walk you through all these numbers that I'm expecting you to get listening to the radio, and so I hope I'm not throwing too much at you, but you're able to go to Cardinal Advisors on YouTube, and you can find the whole show and watch the video and pull down the show notes, and it's probably going to be a little easier to follow.
Right. Again, cardinalguide.com will get you right there on the income tab, right? But you can see the link right there to the video there as well, as well as get contact information for Hans, which is critical, and his book, The Complete Cardinal Guide to Planning for and Living in Retirement. Again, it's all there, cardinalguide.com, but again, we're giving you an example today to show you some strategies that you may want to get in touch with Cardinal Guide yourself.
So we'll be right back with a whole lot more with, oh my goodness, tax-free income over 70 for life. Investment advisory services offered through Brookstone Capital Management LLC, abbreviated BCM, a registered investment advisor. BCM and Cardinal Advisors are independent of each other.
Insurance products and services are not offered through BCM, but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency. Welcome back to Finishing Well with today's show, Tax-Free Income After 70 for Life, a case study that were the eyewitnesses to how to do that today. And so Hans, where do we go from here?
Okay. Yeah. So we have this guy who, a couple who retired or getting ready to retire right when 2022 hit and their 401k is now a million dollars. It was 1.3 million and he was really counting on the 1.3 million. And then he was counting on delaying his social security a bit because they're just both 65. He wanted to get to full retirement age and he was just kind of freaking out. And he came into us with a plan of taking his social security now early and his wife's spousal benefit, getting the 5,100 a month. He had calculated out that he needed about six grand a month to live and he was just going to take out enough money out of the 401k to make up the difference of the social security and just kind of march along worried about the whole thing. And so once he came into us and we looked at the whole thing, I said, you know, we need some kind of a plan to address your fears because just leaving the money in the market is once I talked to him a little bit, he said really his preference. He, he, he thought about getting out a few times during the decline and we don't know. I told him, I don't know what it's going to do over the next year or two or three. I can give you all kinds of predictions from all kinds of people over the next, you know, I'd say over the next five to 10 years is probably up.
Um, but again, we don't know that. And I also very few people can get out at the perfect time. I mean, you know, you just, if, if, if you'd have retired in 2021 and you had that 1.3 million and I just showed you a way to get out now, you'd have probably said, oh no, I can't get out of that. I'm making too much money.
So once he kind of got over the fact that he lost something, he never really had his hands around the million bucks starts looking pretty good. And so what we did is the first thing we did is we got him to agree, let's wait five years to start social security. Let's wait till 70 because that's going to yield just 6,600 a month. Doesn't sound like that much more. And I guess it's not, but when you start paying taxes, you're going to see that it's a lot more because I'm going to show you a way that at 70 to 6,600 a month between the two of you can be, you know, if not entirely tax free, almost tax free. So you can actually spend that money. And then I'm going to show you how the other money can be almost tax free or tax free that you need in addition to the 6,600.
And that will go up with some inflation over the next five years. So when you get to 70, both of you, it will be more. Right. And so as we, as we talked about at the beginning of the show, like, man, if he lives to 120, that social security is going to keep paying. Oh, it is. And the other stuff that we did to show you, it's going to keep paying as long as either one of you is alive.
Okay. So then of the remaining 600 and about $40,000, we took $500,000 and we put it in five different annuities that are all alike of $100,000 a piece. And you say, well, why did you sell him five $100,000 annuity? Why didn't you just sell him one $500,000 annuity? And it's really difficult to convert part of an annuity to a Roth IRA.
So you got to do it's all or nothing. So we split it up so that every year between now and 70, the plan is to convert one of those $100,000 annuities to a Roth. And he's going to pay the tax out of the $200,000 of savings. Ah. Okay.
Right. So I'm not going to get you into all the numbers, but cause that'll be additional tax every year. But at the, by the time he turns on his social security, all his conversions will be done. So he'll have 500,000 of now of the original money that's in a Roth and that will have grown to some point.
It probably will not have made up for the whole 362 that we spent on the five year of income living annuity, but it's made some of that back. But the point is, is the plan is not to ever cash in those annuities is to turn on the income. So now that they're in a Roth, he might turn on one of them at 71 or 70, you know, ish. And if he turns on one of them, it's going to pay him about 10,000 a year for life.
Okay. At 70, if he waits till, uh, later for, excuse me, it's going to pay him. If you turn them all on, it's going to pay him at 70, it's going to pay him $50,750 a year tax free for the life of the free for the life of both of them so that he could pay himself a big raise at 70 by just turning on the income. But if he doesn't need it, there'd be no reason to, right?
There would be no reason to. And so we've got the big chunk of money that's just continuing to grow both tax free, right? Because it's tax free.
The growth is tracks free. And then, you know, again, as he takes her proceeds out of that, it's tax free and he's not paying any tax on his social security. So like you had described at the beginning of the show, we were looking at a tax free income for life of a substantial amount of money, right? Well, what he's probably going to do is he's going to turn on one of them at 70 and take the $10,000 a year. And then he's going to wait till like 73 or 74, and then turn on another one for 10,000 a year and so on and so forth. And by the time he reaches 80, he's going to have all of them turned on. But by staggering these, it gives him some inflation protection. It also, once he turns this thing on, it's going to pay that number as long as just one of this couple is alive. So, yeah, I mean, it's just, it's really hard to beat.
I mean it. So what would happen, you know, just I guess being the devil's advocate at typecasting anyway, if he were to die, you know, say at 72 and he hadn't turned on the income on three of those things? Well, it doesn't matter whether he's turned on the income or not. All five of them are going to have substantial cash value.
If they both died at 70, they have to both die. It's just going to pay the cash value, which is in excess of the 100,000 that they put in in each one of them. And so if there were 300,000 with no income turn on, you know, that's going to be worth, I don't know, 350, 400,000. And that's just going to go tax-free to their beneficiaries. And then the two that he had already turned on is going to have some deductions made for the income that they'd gotten.
But it's still, most of it's still there. So that'll all pay out to their beneficiaries tax-free. And so if he's got, you know, let's say he lives to be 85, right? And he's realizing at this point in time, wow, you know, I wanted to leave, you know, a half a million dollars to whoever he wanted to leave a half a million dollars to. And now he's realizing now he's realizing he's going to run the money out of these annuities. Could he then buy life insurance to make a difference? You can't buy it at 85. I mean, he could buy it now.
But the reality is we haven't spoken for all the money. I mean, and if he turns them on on a staggered basis and he lives to 85, he didn't tell me whether his wife's still alive or not. Okay. And if his wife's still alive, she's still getting the checks. So it really matters when the second one of them dies.
Okay. Right. And then if the annuities were all empty, let's say they both died at 85, right? The annuities aren't going to be all empty because some of them were turned on in their late seventies. So there's still going to be some cash value.
If the second death happens at 85, if the second death happens in the nineties, they're all probably all going to be drained. But he has other money like the 200,000 that we paid the taxes out of, but that's been built up. He's probably not going to spend all the income that he's taken out of the annuities. He's going to give it away.
So it's going to be built up. So he's going to have some substantial net worth of the whole time, but that's not really his biggest worry. That's kind of an afterthought. His biggest worry was just knowing that he's going to have plenty of money to live on tax-free. And we still have left 130 some thousand in an IRA that we have to start taking minimum distributions at 73, but we're going to probably give that away to the church in QCDs so they won't have any effect on his taxes.
So we've thought of all the angles. I mean, what I want people to get from this is there's a way, I mean, Social Security's involved, your tax bracket's involved. If you want to do Roth conversions, it's nice if we can do them before we're drawn Social Security so that we don't run up the taxes on the Social Security while we're doing the Roth conversions. I mean, there's a whole bunch of factors going on, but if you're worried about your balances, this guy went all out and basically put the majority of his money into some form of annuity and just was left with a couple hundred thousand in the bank.
I mean, you can go look at it on the video. Maybe you don't want to go to such extremes. There's ways we can do pieces of this and still leave some money in the market, maybe manage that for you. So this is just a case study and an example to show you some of the things we can do to really lower your tax bill and increase your Social Security check, which is a check for life. Right. And essentially at the end of the day, get rid of the worry and give you a vision where you can see that, wow, I'm okay.
And I can go about doing the things that God's given me to do to finish well, which is the whole idea. Sure. And if estate planning and passing on to those kids had increased importance, because I've shown you how they take, we might not have used these annuities. We might have used life insurance. Right.
And again, we can provide guarantees and then that'll all go tax-free to the kids too. Very cool. All right. Well, again, you can find out all this information at Hans's website, which is cardinalguide.com. Under the income worries tab, you're going to even find a video with all sorts of in-depth information on what we talked about today. But most importantly, at cardinalguide.com, you can get up with Hans, right? Who will come up and custom make a plan for you, help you get a vision for your individual situation.
That's there at cardinalguide.com, as well as Hans's book, The Complete Cardinal Guide to Planning for and Living in Retirement. Great show, Hans. Thanks.
Thank you and God bless you. The opinions expressed by Hans Scheil and guests on this show are their own and do not reflect the opinions of this radio station. All statements and opinions expressed are based upon information considered reliable, although it should not be relied upon as such.
Any statements or opinions are subject to change without notice. Investments involve risk and unless otherwise stated are not guaranteed. Past performance cannot be used as an indicator to determine future results. Any strategies mentioned may not be suitable for everyone. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for you. Before acting on any information mentioned, please consult with a qualified tax or investment advisor to determine if it's suitable for your specific situation.
Finishing well is designed to provide accurate and authoritative information with regard to the subject covered. Investment advisory services offered through Brookstone Capital Management LLC, abbreviated BCM, a registered investment advisor. BCM and cardinal advisors are independent of each other.
Insurance products and services are not offered through BCM but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency. Again, for dozens of free resources, past shows, or to get Han's book, go to cardinalguide.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 cardinalguide.com. Cardinalguide.com. This is the Truth Network.
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