One For The Money

Welcome to the 4th annual "Case for Optimism" episode! In the midst of global challenges—from ongoing wars to economic uncertainty—this episode highlights why we still have so many reasons to be hopeful.

Each year, I dedicate one episode to stepping back, taking a broader perspective, and focusing on the positive trajectory of human progress. From unprecedented advances in technology and medicine to dramatic reductions in global poverty, this is a reminder that—despite what the headlines may say—the world continues to move forward.

We also dive into why the U.S., despite its current political divisions, remains one of the most dynamic and productive nations in history. Plus, in the Tips, Tricks & Strategies segment, I’ll share how travel can be one of the most powerful ways to foster optimism and gratitude.

• 📈 Why the global trend line of human progress is more positive than you might think
• 📉 How extreme poverty has fallen from 80% to under 9% worldwide in just two centuries
• 🤖 How technology, especially AI, is supercharging our capacity to learn, create, and connect
• 🏞️ Why the United States remains uniquely positioned for success, both economically and geographically
• 🌍 How spending money on experiences, especially travel, can help you cultivate joy and a more hopeful mindset

• Global economic growth: The world economy has grown 100x in the past 200 years.
• Poverty decline: From 80% in extreme poverty (1800s) to less than 9% today.
• U.S. wealth boom: American net worth has grown by $100 trillion over the past 15 years.
• Technology leap: AI tools are now doing in minutes what used to take humans weeks or months.
• Starlink growth: From 2 satellites in 2018 to over 7,200 in 2025—connecting even the most remote areas.
• Quote of the episode: “If you had to choose blindly what moment in history to be born, you’d choose now.” – Barack Obama

• HumanProgress.org – Data-driven optimism about global development
• A Wealth of Common Sense: $100 Trillion in Wealth Creation
• Basic Economics by Thomas Sowell – A powerful explanation of economic principles and America’s geographic advantages
• Mark Twain’s quote on travel and open-mindedness

Tip of the episode:

Use money to create perspective and joy—travel!

Explore national parks or international cultures to gain insight, gratitude, and lasting memories. Travel helps you appreciate what you have and opens your eyes to the beauty of other ways of life.

If you enjoyed this episode, be sure to check out previous “Case for Optimism” episodes:

• Episode 17
• Episode 32
• Episode 63

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Remember: A better life is a result of better planning.

Welcome to One for the Money! In Episode 88, we explore retirement as a journey—and each important stop along the way. From your 20s through your 60s (and beyond), you’ll learn what to focus on at each stage, how to avoid costly pitfalls, and how to test-drive retirement with a mini-retirement that just might change your life.

🔑 In This Episode, You’ll Learn:

• The 5 key retirement milestones: Before 50, 50, 55, 60, and 65—and what you should be doing at each one.
• How to use catch-up contributions at age 50+ to turbocharge your savings.
• Why age 55 offers hidden opportunities for penalty-free withdrawals and boosted HSA contributions.
• The “Danger Zone” around age 60 and how to protect yourself from market volatility.
• Why claiming Social Security early (at 62) may cost you big time—and how to decide when to claim.
• What to know about Medicare deadlines at age 65 to avoid lifelong penalties.
• The latest updates to 401(k) contribution limits and Required Minimum Distribution (RMD) ages for 2025.

🧠 Tips, Tricks & Strategies Segment: The Power of a Mini-Retirement

Taking a break between jobs? Consider a mini-retirement—a planned sabbatical where you rest, recharge, and test-drive your future lifestyle. Learn:

• What a mini-retirement is (and why it’s more than just a vacation).
• How mini-retirements can offer massive tax advantages (yes, really!).
• Why experiencing other cultures in your 40s or 50s might beat waiting until your 70s.
• How to time it right when switching jobs for minimal disruption and maximum impact.

📺 Referenced Episodes:

• Episode 6: Making Retirement Meaningful
• Episode 26: Mini-Retirement & Tax Benefits

📌 Key Quote:

“We don’t rise to the level of our dreams—we fall to the level of our planning.”

✅ Action Steps:

1. Review your financial plan at each milestone age: 50, 55, 60, 62, 65, 67, 70, and beyond.
2. Assess your plan using the 5 Domains: income, investments, insurance, taxes, and estate planning.
3. Explore the option of a mini-retirement—especially during a career transition.
4. Talk to a Certified Financial Planner (CFP®) to optimize your strategy.

📬 Want More?

👉 Subscribe to One for the Money on your favorite podcast platform.

👉 Ready to plan your ideal retirement? Schedule a free consultation with our team.

Welcome to episode 87 of the One for the Money podcast. Retirement is the ultimate dream for many, but there are realities of retirement that everyone needs to be aware of. Better retirement planning will incorporate these realities so it leads to a better life in retirement. 

In the tips, tricks, and strategies portion, I will share ten tips when you are 10 years from retirement.

In this episode...

• Your Biggest Expense Isn’t What You Think [2:08]
• Your Biggest Fear is Misplaced [3:20]
• Regret is More Common Than You Think [4:40]
• The Real Risk Isn’t a Market Crash [5:08]
• Your Most Expensive Years Are… Surprising [5:59]
• Your Health = Your Wealth [6:26]
• Identity Crisis Incoming [6:48]
• Estate Planning is About More Than Money [7:30]

We often forget that retirement is only a recent invention. It hasn’t been around for that long. For most of human history, people worked until death or until their family could care for them when they were unable to work any longer. Retirement allows one to enjoy a life of leisure even though one is still capable of work. It really is a more amazing concept than we give it credit, and it truly is an absolute luxury of both the modern and first world. It’s amazing to think that a person can work and invest for 30-40 years and then live off that work for another 30-40 more years. 

Your great-grandparents would’ve thought that was science fiction. And honestly, for billions around the world, it still is.

If you are literally and figuratively fortunate enough to enjoy such a dream as retirement, here are the most important retirement realities as I see them.

💸 Retirement Reality #1: Your Biggest Expense Isn’t What You Think

When I ask people to guess their largest retirement expense, I hear the usual suspects: housing, healthcare, maybe travel, or groceries. But nope. The winner — and it's not even close — is taxes.

Yes, Uncle Sam (and sometimes Cousin State) will still want a piece of your pie. Social Security? Taxable at the federal level and in some states. IRAs and 401(k)s? You bet. Medicare surcharges? Yep, that’s a thing.

But here’s the kicker: the folks who pay the least in taxes during retirement aren’t lucky. They’re prepared. They’ve been implementing smart tax strategies years — even decades — before they stop working. We’re talking Roth contributions, conversions, HSAs, pre-tax vehicles, cash balance plans — all the good stuff.

And to do it right, you need a plan customized to your current and future tax situations. That’s exactly what we do for our clients — because the less you pay in taxes, the more you can spend on what actually matters: time, travel, and tacos with the grandkids.

😱 Retirement Reality #2: Your Biggest Fear is Misplaced

Everyone fears running out of money. But statistically, what they should be afraid of… is dying with too much.

No joke — a study by the Investments and Wealth Institute found that 84% of retirees only spend the earnings from their portfolios. They never touch the principal. It's called the "decumulation paradox." They’ve got the money — they’re just afraid to use it.

Why? Two big reasons:

1. Lifelong savers have trouble flipping the switch to spending mode.
2. The “just in case” fund: just in case the kids need help, or a health crisis hits, or Aunt Sally’s dementia story plays on repeat in your mind.

But here's the thing — the real tragedy isn't running out of money. It's running out of time to enjoy it.

Using the well-known 4% rule, retirees in over two-thirds of cases ended up with twice their original wealth, even after withdrawing every year.

So yeah, have a plan. But make it one that helps you live now, not just preserve your balance sheet.

As Mark Twain so beautifully put it:

“Twenty years from now, you will be more disappointed by the things you didn’t do than by the ones you did.”

🔧 Retirement Reality #3: Regret is More Common Than You Think

In a past episode (shoutout to episode 62!), more than 60% of retirees say they would do retirement differently if they had the chance.

Why? Because too many people go into retirement with a “wing it” strategy. No structure, no vision, no plan.

Every single regret we hear from retirees could have been avoided with proper planning. Don’t let that be your story.

📉 Retirement Reality #4: The Real Risk Isn’t a Market Crash

People fear stock market crashes like they’re retirement’s Grim Reaper. And yes, they can hurt, especially during the "danger zone," the 5 years before and after retirement.

But here’s what’s worse: playing it too safe. Inflation is the silent killer. Cash, bonds, even real estate can’t keep up over the long haul — only stocks have historically done that.

That’s why we use a time-based strategy:

• Money you’ll use in the next 1-5 years? Conservatively invested.
• 6-10 years? Moderately.
• 10+ years? Growth-oriented.

The goal: protect your near-term needs and grow your long-term bucket. This structure helps our clients sleep better because they know their short-term money is safe, and their long-term money is working.

🏖️ Retirement Reality #5: Your Most Expensive Years Are… Surprising

Retirement spending forms a smile: High in the early years (you’re healthy and adventurous), lower in the middle, and rising again in later years due to healthcare and long-term care.

So don’t waste your early years! That’s when you’re most likely to enjoy travel, grandkid adventures, and the bucket list. Plan to maximize that window before Netflix becomes your best friend by default.

🏥 Retirement Reality #6: Your Health = Your Wealth

Want to enjoy retirement? Prioritize your health. The best financial plan in the world won’t matter if you can’t move or hurt every time you try.

Start now: 5-7 hours of exercise per week before retirement. Your future self will send you a thank-you note.

🧠 Retirement Reality #7: Identity Crisis Incoming

You’ve had structure, colleagues, Zoom calls, purpose — then suddenly... you don’t.

You gain 2,500 hours a year, and no idea what to do with them. For some, it’s bliss. For others, it’s a blindside.

Work gives us identity. And when that’s gone, the void can be jarring. Add in shifting relationship dynamics (hello, 24/7 spouse time!) and surprise grandparent duties, and suddenly retirement looks less like a dream and more like a confusing second act.

That’s why retirement planning has to go beyond money. Purpose, structure, and social connection matter just as much, if not more.

🧾 Retirement Reality #8: Estate Planning is About More Than Money

Most people think estate planning is about transferring money efficiently. But it’s way more about preserving your legacy, which is family unity. Because if you don’t think your family gets along great now, wait until you throw a bunch of money and real estate in the middle, and the fights will only get worse.

An unclear or outdated estate plan can turn a loving family into a war zone. Don’t let decades of hard work — and beautiful memories — go up in flames because you didn’t have that conversation.

The plan itself is important, yes. But how well you communicate it can make all the difference.

✅ TIPS, TRICKS & STRATEGIES: 10 Things to Do When You’re 10 Years Out

These are straight from episode 53 — go there for the full breakdown — but here’s your 10-year checklist:

1. Check your savings. Know where you stand.
2. Boost contributions. It's crunch time.
3. Review income sources. Social Security, pensions, and rentals. Learn the amounts and viability of each. 
4. Assess your debts. Pay down what you can. Low-rate mortgages are fine. Higher interest rate auto loans and especially credit card balances are not. 
5. Start a regular exercise routine. Future-you demands it.
6. Review healthcare options pre-65. Especially if you’re retiring early (see episode 5 of this podcast!).
7. Project your taxes. Mitigation starts now. Maybe it’s Roth contributions, Roth conversions, backdoor Roth contributions, pre-tax IRA contributions, cash balance plans, bunching charitable contributions every other year. There are so many ways to legally pay less in taxes.
8. Evaluate your housing. Stay? Downsize? Move closer to family? Can your current house suit your needs when you are older? Is it a one-story or is your master bedroom on the first floor?
9. Plan for long-term care. Earmark money for “just in case.” We make a legacy/long-term care fund for clients. If you need LTC, great, you have the money. If you don’t, your kids, grandkids, and charitable endeavors get a little more.
10. Update your estate plan. Dust it off, review your POAs, and make sure it reflects your current wishes. Your uncle Rico may be your POA, and you may not want him making those decisions anymore. 

We help clients with all of this — and more. Because with better planning, you’ll have a better retirement life— not just in dollars, but in joy, time, and memories.

Welcome to episode 86 of the One for the Money podcast. In the late 1960s and early 70s, a famous psychological study was conducted that has since been called the Stanford Marshmallow test. The study was designed to explore the concept of delayed gratification. In this episode, I’ll share how life might be considered one giant marshmallow test.

In the tips, tricks, and strategies portion, I will share a tip regarding how to not eat the entire marshmallow.

In this episode...

• The Marshmallow Test [0:36]
• Delayed Gratification in Personal Finance [2:23]
• Investing Rewards Patience [10:01]
• Teaching Financial Discipline [10:46]

In the late 1960s and early 70s, a psychologist named Walter Mischel at Stanford University conducted what has become a famous psychological study. The study was designed to explore the concept of delayed gratification — the ability to resist the temptation for an immediate reward in order to receive a larger reward a short time later.

Here is how the Experiment was set up:

600 preschool-aged children, roughly 4-6 years old, participated in the study. Each child was placed in a room with a marshmallow placed on a table. The researcher told the child that they could either eat the marshmallow immediately or wait 15 minutes without eating it. If they waited without eating the marshmallow, they would be rewarded with a second marshmallow.

The researcher then left the room, leaving the child alone with the first marshmallow. 

The Key Findings as a result of this research were that Individuals had varied Self-Control: Some children immediately ate the marshmallow, while others were able to wait the full 15 minutes for the larger reward. 

Now you might be wondering what a 4-6-year-old eating a marshmallow has to do with personal finance? Well, that’s what was most remarkable about this study was what the follow-up studies revealed. The outcomes were very successful at Predicting Future Outcomes: Over the subsequent decades, Mischel and his colleagues followed up with many of the children who participated in the experiment, and the results were astounding:

It found that the children who were able to wait for the second marshmallow, decades later, tended to have significantly better life outcomes in terms of higher SAT scores, lower rates of obesity, more likely to be financially stable as well as to have greater job satisfaction. The ability to delay gratification was a more accurate predictor of future success than their scores on an IQ test.

Now it should be noted that while the Stanford Marshmallow Experiment became a widely discussed study about the power of self-control, later research showed that the environment in which a child grows up, including factors like trust in caregivers, socioeconomic status, and stability, can influence how well they are able to delay gratification. For instance, children in more unstable environments may have less reason to trust that the promised later reward will actually come. 

But suffice it to say, the Stanford Marshmallow Experiment remains one of the most influential studies in psychology, because it exposed the impact that self-control has on later life outcomes.

I’ve read about this study numerous times over the years, but recently it has led me to this thought: is life really just one giant marshmallow test? Is delaying gratification part of the better planning one needs to implement to have a WAY better life?

As I thought about this more, I came to the belief that generally speaking, life is one giant marshmallow test and that individuals can both learn and develop the skills so they too can have much better life outcomes. It also seems to me that businesses and politicians can hijack our desires for immediate gratification to their advantage.

Individuals who can gain an understanding of the power of delayed gratification can have a much better life. 

Let me provide just a few examples of where this is the case:

Credit cards are a tool for individuals to pay for goods or services and not having to carry around a bunch of cash. They are incredibly convenient. It’s remarkable how you can tap this piece of plastic on the machine and pay for things all around the world. You can use it to ride the tube in London, pay for some gelato in Rome, or buy some clothes in Bangkok. Credit cards can be a convenient way to pay for everything from groceries to travel. These can be decent tools provided you already have the money in the bank.

But far too often, individuals use these to pay for things they can’t afford right now, essentially eating the marshmallow now.  Maybe they are a few weeks away from their next paycheck, so they use the credit card as a short-term loan.  But one unexpected expense later, and wa-la, you have recurring debt. Credit cards are an easy way for individuals to “eat their marshmallow now", but too often, CC users pay dearly for it later. 

This is evidenced by the tremendous revenue these credit card companies generate. In 2020, interest payments (which are made by people who couldn’t afford the original purchase) accounted for $76 billion, or 43% of all credit card company profits. Fees charged to stores that accept credit cards accounted for $51B or 29% of CC company profits. 

But some might think, ah, but jokes are on the credit card company because I’m getting air travel points, etc. Nope, the joke is still on the consumer as credit card companies are recycling our own money for a steep fee. As I just mentioned, 29% of their revenues ($51B) come from the fees they charge retailers to accept their credit cards. These fees are around 3-4% on every transaction. The businesses don’t pay these costs, but instead pass those fees along to the consumers by adding 3-4% to the price. So the credit card company indirectly charges an additional 3-4% on every purchase and generously gives credit card holders anywhere from 1-4% in return in the form of cash back or travel points, depending upon the category of the good or service purchased. Oftentimes, those travel points are not used or come with numerous restrictions. 

In fact, I recently purchased some marketing materials for my Better Planning Better Life business, and they included a 3% credit card processing fee charge on the invoice. I instead paid by electronic check to avoid the charge. It took some extra effort, but it saved me a few hundred dollars. I’ve also noticed a small sign by the cashier at the Greek restaurant near my office, which states that there will be a 3% charge for the use of credit cards. 

For individuals who use Credit cards the wrong way, they are not succeeding at the marshmallow test. The average balance on a CC in America is over $6700 as of the 3Q of 2024, and those between 44-59 have an average balance of over $9500.

CC companies hijack consumers' reward centers by enabling them to eat the marshmallow now.

In the news recently, there was another example of how businesses make money by helping people eat the marshmallow. This isn’t via a credit card but through a microloan.  There is an online lending company called Klarna, and they recently partnered with DoorDash to finance people’s takeout meals. This way, you could literally eat the marshmallow. Talk about your signs of the financial apocalypse. If we are at the point where people are financing their DoorDash, we are in for trouble.  

Automobiles are another prominent way where many individuals fail the marshmallow test and eat it now. In episode 85 of this podcast, I share how data shows that over 80% of new car purchases in 2024 were financed, and the average monthly car payment is $742 for new cars and $525 for used ones. 

Too often with automobiles, we eat the marshmallow. We falsely believe that because we can qualify for a loan that we can afford a car. For some individuals, it can make them feel good initially that they can “afford” such a nice car. But if you aren’t paying cash, then you really can’t, but there are plenty of banks and car companies that would be happy to finance the belief that you can. As I shared in episode 85, Americans aren’t becoming automatic millionaires... because they’re spending too much money on automobiles. Because they want the new car (ie, marshmallow) now, they are spending tens of thousands of dollars on vehicles and not saving this money instead. 

Credit cards and auto loans are too often used to essentially rent a lifestyle we cannot actually afford. If you can’t pay cash, you can’t actually afford it.

There are positive aspects to the marshmallow test. Investing is a great form of the marshmallow test. For those who can wait, the rewards are nothing short of astounding. The incredible power of compound interest requires an extended period of delayed gratification, but given the magical ingredient of time, miraculous things can happen. 

For example, if you made a one-time investment of $10,000 and it grew at a rate of 10% per year for 4o years, it will have grown to over $ 452k. And if you invested $10,000 each year for 40 years, your $400k total investment would grow to over $4.8M. That’s the power of waiting for the additional marshmallow.

Now, does that mean we should just delay gratification in every aspect of our lives for as long as possible? Certainly not. In many episodes of this podcast, I’ve shared the importance of spending one's money on experiences throughout their lifetime.  The problem is that far too many spend other people's money on those experiences, namely the credit card or auto financing companies, and consequently, pay more for that experience in the end, and then have fewer experiences later because they financed the first few ones. 

My general rule of thumb for budgeting is focused on not eating the marshmallow. I call it the 20/50/30 budget, which is a play on the 50/30/20 budget idea. I use the 20/50/30 order intentionally because your first 20% should go to savings (paying yourself first), the next 50% of your budget should go to your needs (food, clothing, shelter, transportation, healthcare, etc), and the remaining 30%  can go to your wants. 

 By spending what is left after saving instead of saving whatever is left after spending, make certain you don’t eat the marshmallow now, but will enjoy many marshmallows later.

It’s important to note that if you’ve eaten the marshmallow too quickly in the past, it doesn’t mean you won’t always do so in the future. As I’ve shared throughout these episodes on this podcast, I’ve eaten the first marshmallow many times and made plenty of financial mistakes (borrowing money on a credit card, buying cars and other things I couldn’t afford) but I later corrected those mistakes and did enough things right, that it has worked out for a much better life. Sadly, that was not the case for many of my family and extended family. I have relatives who had noble professions, made great incomes, but had nothing in the way of wealth because they consistently ate the marshmallow. I was also richly blessed with two loving parents, who taught me the value of showing reverence to God and his creations they also taught me the importance of serving the unfortunate and, showing kindness to all people, the also showed me how to work hard and obtain education, but unfortunately, they didn’t teach me much about personal finance or not eating the marshmallow. Directly at least. Indirectly, my parents and other relatives gave me a lot of good examples of what not to do. Which was sad because they were all so incredibly kind and decent, and their lives could have been so much better.

I share all of this because it's imperative that we teach our children and grandchildren the importance of delaying gratification. If you didn't come from a financially responsible family, you need to make sure a financially responsible family comes from you.  Set a good example. Don't make money a taboo topic. Teach kids the things you wished you learned about waiting to eat the marshmallow and the times you didn’t. Both your good and bad examples will be hugely helpful. Otherwise, if you leave financial assets to your family without financial education, it is almost a guarantee that it will be wasted.

Delaying gratification and not eating the marshmallow now makes certain that we consider the future in our financial choices. As I share with people, I always represent two people when I develop a financial plan. They initially believe, I’m referring to me and them. But the two people I actually referring to are their present and their future self, and my sole job is to make certain that both of them are happy with our decisions. 

Welcome to the tips, tricks, and strategies portion of the podcast, where I will share tips regarding how to get better at delaying gratification.

One thing that is helpful to me is paying yourself first through automatic contributions to your 401 (k), IRA, or non-retirement account. This is the 20% in the 20/50/30 rule I discussed earlier. It gets even better when you periodically increase the contributions to these accounts. It’s the set-it-and-forget-it plan to build wealth.

Another thing that is helpful to me is to have something I’m looking forward to in the future. It’s much easier to delay gratification now if I know I’m saving the money for a much better experience later. For example, I can skip eating out at restaurants in southern California for the next six months if I know I will get to use this money instead to eat gelato in Florence or Pad Thai in Bangkok. It should be noted that delaying gratification isn’t always about waiting years or decades to spend it, but that you can delay it for just a few weeks or months instead. These experiences can then help supercharge your ability to further delay gratification because you know what experiences they can provide.

References

Stanford marshmallow experiment - Wikipedia

Welcome to Episode 85 of the One for the Money podcast! Some of you may remember that best-selling book The Automatic Millionaire. It told readers how to easily become a millionaire with a few simple steps. But in this episode, I’ll reveal the sad truth: too many people aren’t becoming automatic millionaires because they’re spending too much money on automobiles. Yes, cars and trucks are putting the brakes on a better future for many Americans. I'll also share the massive benefit of driving one’s car until the wheels come off.

In the tips, tricks, and strategies section, I’ll share some car-buying tips.

In this episode...

• Automating Savings [1:23]
• The Financial Impact of Car Ownership [2:04]
• When Is It Ok to Buy a Nice Car? [6:35]

The Automatic Millionaire, written by David Bach, became an international bestseller because it gave us that magical formula for becoming a millionaire. 

Bach’s magic trick? Automating your savings and spending. He basically tells you to set it and forget it. You set up automatic contributions to your 401k or IRA, and it’s that easy to be on the road to riches. He even argues that you don’t need to be making a six-figure income to become a millionaire—you just need to make sure your savings and spendings are adjusted on autopilot and viola, decades later you reap the rewards.

And yet, despite this brilliant advice, millions of people are still missing the automatic millionaire bus, and they’re doing it by throwing too much of their money at automobiles. While an automobile is designed to take you places, far too often, it takes owners to a future that is much poorer and less fulfilling than it otherwise could be.

Now, you might ask, is car ownership really that impactful? Let’s look at the numbers from 2024:

• Americans owe around $1.655 trillion in auto loan debt. That’s right, trillion with a T.
• Over 80% of new car purchases in 2024 are financed, and the average car payment is $742 for new cars and $525 for used ones. (That’s a lot of money that could be used to build wealth instead.)

Now, why is this a problem? I mean, cars are cool, right? But here's the thing—unless you’re driving a classic car like a 23-window VW van (I can dream), cars lose value. In fact, a new car drops thousands of dollars in value as soon as you drive it off the lot. So, people are paying $525-$747 a month for years... for something that’s losing value fast. In fact, over 30% of people with car loans have negative equity, meaning their car is worth less than what they owe. Here is something even scarier: When a car is damaged, such as in a natural disaster, insurance will either pay to repair a car’s damage or give the driver a lump sum equal to the value of the car. When the damage is severe, insurers usually choose the lump sum. That means if your car with negative equity is totaled. You will be out of a car and still have money you owe on it. Even when the damage isn’t severe, it can still pose a huge financial challenge. An Oct 2024 article from the WSJ featured a 34-year-old gentleman who had noticed the main display screen on his new vehicle would often disappear. The car’s backup camera didn’t always work, and the car would make a screeching noise when in reverse. He decided to bring the car into a local dealership, hoping to trade it in. Only to have the dealership tell him it was worth roughly $24,000, which was just under half of the roughly $50,000 he still owed on his loan. 

Now, I should confess that I drive a 15-year-old Toyota Prius that I had purchased used. It’s been a great car, and I hope it will continue to be for years to come. My wife’s car is 7 years old, and it replaced her 16-year-old car at the time. 

However, I must also confess that like many others, I have also made a huge mistake when purchasing a vehicle. So I have been on both sides of the Automobile purchase decision. I’ve made both good decisions and bad. 

Here are the details about my poor choice. A few years after graduating high school, my twin brother and I purchased a used Jeep Wrangler. It had far superior features than a new Jeep model we were also looking at. The used vehicle had a lift, hard top, and much better rims and tires. It looked so much better than the new Jeep with its rag top, smaller rims and wheels. We were excited about the purchase of this cool-looking vehicle, but sadly, that excitement lasted for less than 24 hours when it broke down. The Jeep couldn’t drive and so we thought we would be fine since we also had purchased drive train insurance. Instead, we were told by the dealership that insurance didn’t cover this particular issue. We continued to have numerous and expensive problems with the Jeep that the “drive train insurance” didn’t cover. Finally, when our speedometer stopped working, the dealership was quick to offer to fix it. We were relieved that finally, this insurance covered something. Only later did we learned why: because a broken speedometer was evidence that the Jeep's odometer, which measures the mileage driven, had been tampered with and that the Jeep had tens of thousands of more miles on it than advertised. We were told by a friend of the previous owner that he had unhooked the odometer so he wouldn’t rack up tens of thousands of miles to preserve the value of the Jeep.

The moral of the story? You can lose a fortune over the years buying cars you cannot afford. 

Does that mean buying nice cars is wrong? Absolutely not, provided you have all the other things in place first (emergency fund, on track for retirement, etc). I am personally enamored with classic cars. They made them with so much more style back then. In fact, every Spring, the City of Seal Beach hosts a classic are show, and my family and I enjoy going to it every year. There are some proud owners of these vehicles. Some inherited them, others rescued them from old barns, and others bought them. It’s really cool to see the cars parked from my office window. 

But collector cars are different than daily drivers. Classic cars can be a viable investment, provided you have everything else in place, such as life insurance, your emergency fund, no high interest debt, you are on track for retirement, and you can pay cash for the vehicle.

But interestingly, most wealthy people don’t drive fancy cars as their daily drivers. While some wealthy Americans drive luxury vehicles, an Experian Automotive study found that a whopping 61% of households making more than $250,000 don’t drive luxury brands. Instead, they drive less showy cars, like Hondas, Toyotas, and Fords.

Dave Ramsey noted that most millionaires don’t drive flashy cars.

While an automobile is designed to take you places, far too often, it takes owners to a future that is much poorer and less fulfilling than it otherwise could be. But if you plan to drive an old and not so flashy car, your life could be much wealthier and better because of it.

TIPS, TRICKS, AND STRATEGIES

Welcome to the tips, tricks, and strategies portion of the podcast, where I will share some tips regarding buying a vehicle.

The best thing one can do before buying a vehicle is to develop a plan. You need to determine what you can afford, the type of car or truck that meets your needs, and do a lot of online research regarding prices and features. 

You need to have a firm number on how much you can afford. Without a plan, it is far too easy to walk out of a dealership with the keys to a much more expensive car than you can afford. In fact it is far better to buy a used vehicle and pay for it entirely with cash. If you can’t pay cash, then that may be your first clue that you are very likely looking at a car that is too expensive. It can make sense to buy a used car at the dealership as there can be risks with purchasing a vehicle privately, but there are likely added expenses with buying a used car at a dealership as well. 

There can be a case for buying a new vehicle if you own a business. Normally, you can write off the purchase of a work vehicle over a few years, but using Section 179 of the Internal Revenue tax code, you can fully depreciate a vehicle in a single tax year, provided it weighs over 6000 lbs. This can save the business owner a lot on taxes. In fact, I knew a business owner who had the option to pay taxes or purchase a Porsche Cayenne. As a business owner, I would choose the latter as well. 

But for most Americans, they will purchase a vehicle that won’t provide a tax deduction.

A nice car can be very exciting for a little while, but these have eroded far too much wealth for Americans who automated their way to not becoming a millionaire by purchasing vehicles they could not afford. I know it's not the most exciting thing to buy a used car but the best things one should do rarely are. 

Well, I hope you found these helpful, and until next time, remember a better life is a result of better planning, and that must include better car buying. Have a great one!

References

The Cost of Car Ownership Is Getting Painful - WSJ

Dave Ramsey: Here Are the 10 Cars Millionaires Drive These Days

The New Math of Driving Your Car Till the Wheels Fall Off - WSJ

Their Car Is Totaled, but They Still Owe Years of Payments - WSJ

Welcome to episode 84 of the One for the Money podcast. This episode airs on April 15 which means it’s the tax filing deadline. Now no one likes paying more taxes than they have to, and a great way to accomplish this is by using a Roth Retirement account. In this episode, I’ll share how everyone can have a Roth. 

In the tips, tricks, and strategies portion, I will share a tip on how for the same amount of money it may make more sense to complete a Roth conversion than a Roth contribution.

In this episode...

• What is a Roth Retirement Account? [1:56]
• Direct Roth IRA Contributions [2:46]
• Roth 401ks, SIMPLE IRAs, and SEP IRAs [3:44]
• Roth Conversions [7:36]
• Backdoor Roth IRAs & Pro-Rata Rule [8:36]

I remember years ago a coworker of mine shared with me that she and her husband hoped that their income would one day be high enough that they would no longer be eligible to contribute to a Roth IRA. It’s true, that certain individuals, can make too much income to contribute to a Roth IRA. But in this episode, I will share how everyone, regardless of their income level can contribute to a Roth IRA or put differently, how everyone can Roth this way. Okay, that was pretty bad but I had to try. 

But first, it would be helpful to provide a brief explanation of what exactly a Roth retirement account is and how they came about. A Roth retirement account is merely a retirement account on which you invest monies on which you already paid taxes. Because you are contributing money after it’s been taxed all of the growth and all of the distributions are 100% tax-free (provided you follow the required distribution rules; age 59.5, etc). These are a fantastic way for individuals to build a tax-free bucket of money that they can utilize in retirement that won't have any taxable implications.

Roth IRA Contributions 

The first way to contribute to a Roth IRA is to make direct Roth IRA contributions. For the 2025 tax year, individuals who earn less than $150,000 or married couples who earn less than $236,000 can contribute directly to a Roth IRA. For those under 50, they can contribute $7000 and for those 50 and older they can contribute $8000. Roth IRAs are a fantastic way to build a tax-free bucket of money for retirement. I set these up for my wife and me early in our marriage and I’m so glad I did. These can be especially great for kids as well. I call them Kid Roths and I’ve set these up for our three boys. That way they can benefit from decades of compound growth. If you are early in your career it can be a great time to invest in a Roth IRA.

Roth 401ks/Simple IRAs and SEP IRAs

Roth 401ks/Simple IRAs and SEP IRAs are another great way for anyone regardless of income level to contribute to a Roth investment account. For whatever reason, Roth 401ks, Simple IRAs, and SEP IRAs have no income limits like Roth IRAs do. So regardless of one's income, they can contribute to a Roth 401k. Roth 401ks are great for lower earners as they can allow you to put away even more money on a tax-free forever basis. Individuals can put up to $23,500 in 2025 and for those 50 and older they can put away an extra $30,500. Oddly enough, for those specifically between the ages of 60-63 they can put away $34,750. Why especially those ages, not sure, you’ll have to ask Congress.

Roth Simple IRAs have lower contribution limits namely $16,000 for those under 50 and $19,500 for those 50 and older. Roth SEP IRA limits are based on a percentage of one's income. 

These all are great vehicles where individuals can put a lot more money away on a tax-free forever basis. These can make a lot of sense for individuals in their lower-income years such as those early in their career or for those that are late in their career when they are working part-time prior to retirement. 

However, these can also make a lot of sense for much higher earners who also happen to have very large pre-tax retirement account balances. As I explained in episode 82 the reason why high earners with large pre-tax retirement accounts should consider stopping contributions to these accounts is because they will be forced to take out huge sums when they reach 75 via required minimum distributions. You haven’t paid taxes on these funds yet and the IRS finally wants to get their slice.

For example, if at age 60 you had a balance of ~$2 million in your pre-tax retirement account, at a modest 7%/annual rate of return it will be $5.5M at age 75. You will then be forced to take out $223,000 at age 80 it will be $316,000 and at 85, it will be $418,000.

And it's not just extra income tax you will pay. With all the extra income you’ll have to pay a lot more in Medicare Part B premiums which are based on income. It could be as high as $591/month vs the lowest premium of $185/month (and those are 2025 numbers).

And if you think you can leave this problem for your kids, they’ll have even more tax problems they will now as they will have just 10 years to withdraw 100% of the funds which will occur during some of the highest earning years. 

 You’ve got to hand it to Congress, it is an incredibly stealthy way to raise tax revenue by making the inheritors pay the taxes. Because who feels sorry for beneficiaries inheriting money and having to pay more taxes. But with proper planning, more of that money can be spent by the actual beneficiaries and not by the government.

Another way to contribute to a Roth IRA is via a Roth Conversion which has been around since 2010, that was the year the income limit for Roth IRA conversions was removed entirely. This allowed individuals with higher incomes to convert their traditional IRAs into Roth IRAs, thus opening the doors for many wealthy individuals to take advantage of the tax-free growth. 

There are no income limits for Roth IRA conversions, so regardless of your income, you can convert any amount from a Traditional IRA into a Roth IRA. However, the converted amount will be subject to taxes. I complete these for many of my clients in the early years of their retirement. Consequently, we are able to save them hundreds of thousands and in some cases millions of dollars in taxes they would have paid had they let things go without the conversions. For more details on Roth Conversions, see episode 49 of this podcast.

The final way to get money into a Roth is via the backdoor. It is literally called a Backdoor Roth IRA. This is a strategy used by high-income earners to get around the income limits for contributing directly to a Roth IRA. This method also takes advantage of the ability to convert a Traditional IRA into a Roth IRA.

Here’s how the Backdoor Roth IRA works, step by step:

The first step is to contribute to a Traditional IRA. Unlike Roth IRAs, Traditional IRAs do not have income limits for contributions. However, the contribution might not be deductible if the individual is covered by a workplace retirement plan and their income exceeds certain thresholds.

Even if the contribution is non-deductible, meaning no tax break is received on the contribution, it is still allowed. The individual can contribute up to the annual limit (e.g., $7000 in 2025, or $8000 for those 50 and older)

Once the money is in the Traditional IRA, the next step is to convert those funds into a Roth IRA. This is where the "backdoor" part of the strategy comes into play.

Many people perform the conversion shortly after the contribution to minimize the amount of earnings that would be subject to tax. This is particularly helpful if the Traditional IRA has little to no growth.

But there are a few important caveats to Keep in Mind when it comes to backdoor Roth contributions. 

These are subject to the 

Pro-rata Rule: When you convert money from a Traditional IRA (or other tax-deferred account like a 401(k) if applicable) to a Roth IRA, you must pay taxes on any pre-tax contributions or earnings you convert. The pro rata rule comes into play if your Traditional IRA contains both pre-tax (tax-deductible) and after-tax (non-deductible) contributions.

The pro rata rule essentially requires you to treat the pre-tax and after-tax portions of your account as a combined pool when you do a Roth conversion. You cannot pick and choose which portion of your IRA to convert; it will be a blend of pre-tax and after-tax money, based on the proportion of each type of contribution in your account.

This can be avoided by rolling over any pre-tax IRA money into an employer-sponsored retirement plan (like a 401(k)) before making the Backdoor Roth conversion. Lots to consider so I would speak with an experienced Certified financial planner about these. 

Now If you think these are impressive ways to get a Roth wait until you hear what the legendary investor Peter Thiel accomplished with a Roth. He started his Roth IRA with just a few thousand dollars. He then invested these funds into buying pre-IPO stock opportunities in FB and PayPal. He bought these shares for a fraction of a penny and as a result, he has a completely tax-free Roth IRA with a balance of over $5 Billion, with a capital “B”. That’s like having 5000 Roth IRA accounts each with 1 million dollars.

Roths are an incredibly powerful tax-saving strategy that everyone, regardless of income can create for themselves. I strongly encourage you to speak with a certified financial planner, who can help you consider your options. We’d be happy to assist you. 

TIPS, TRICKS AND STRATEGIES

Welcome to the tips, tricks, and strategies portion of the podcast where I will share tips to determine for the same amount of money, it makes more sense to complete a Roth conversion or a Roth contribution. 

For those under 50, the most you can put away in a Roth IRA is $7000. that would be a great contribution to get some money in a Roth IRA. But if you really wanted to get more money into a Roth so more money would be tax-free forever it might make more sense to spend the $7000 on the taxes paid to convert funds from a pre-tax IRA to a Roth IRA instead. For example, if you had $50,000 in a pre-tax IRA and you paid taxes at a 14% rate, you would have a $7000 tax bill. But instead of having just $7000 in a Roth IRA, you would have $50,000. That’s a lot more tax insurance. You could just contribute $7000 to the Roth and still have the $50k in pre-tax, but remember, that pre-tax IRA could become a ticking tax time bomb as we have no idea what tax rates will be in the future. But it’s likely higher because we have historically low-income tax rates as well as a historically high deficit of over $35T. Thank you congress. 

Well, I hope you found these helpful, and until next time, remember a better life is a result of better planning and that must include Roth IRA planning. Have a great one!

Welcome to episode 83 of the One for the Money podcast. This episode airs in April, which means we are in the final days of tax season. I’ve never met anyone who likes paying more taxes than they have to, and in this episode, I’ll share how you can utilize the standard or itemized deductions so you don’t have to pay them. Hence the title of this episode, not your standard tax savings strategy. 

In the tips, tricks, and strategies portion, I will share a tip regarding how paying it forward can save you on taxes. 

In this episode...

• Standard vs. Itemized Deductions [2:15]
• Tax Planning Strategies for Deductions [7:04]
• Benefits of Donating Stock vs. Cash [9:17]
• Importance of Tax Planning in Financial Strategy [11:32]

MAIN

One of the best financial planning quotes I’ve read is this “In America, there are two tax systems; one for the informed and one for the uninformed. Both are legal.”

How true that is. But the challenge with being “informed” about taxes is that Taxes are incredibly complex. Just the federal tax code alone is over 6700 written pages, and the US treasury’s interpretations of the tax code, because it isn’t sufficiently clear, are tens of thousands of pages more. For these reasons and others, many individuals ignore the tax laws altogether and consequently pay more taxes than required. However, with a little bit of better tax planning, you can have a better life because you will pay less in taxes and have more money to spend on great experiences.

A particular area that many taxpayers don’t understand is the deductions everyone receives on their income. Deductions are the amount of your income that is not taxed at all. Taxpayers will take one of two forms of these deductions, which are known as either the standard deduction or itemized deduction. The standard deduction is a default amount of income that you would pay no taxes on. The itemized deductions are for those individuals who have certain key items (such as medical expenses, mortgage interest, gifts to charity, and state and local taxes) that would provide a higher amount of their income that is not subject to tax.

Just what are the amounts not subject to tax, well in 2025 the standard deduction for an individual is $15,000, and for a married couple it is just double that or $30,000. A reminder, what that means is on the first $15,000 of income an individual pays 0% in taxes. So if a person has $65,000 of income in 2025, they would only have to pay Federal taxes on $50,000 because the first $15,000 of their $65000 salary is not taxed. 

I should note that the standard deduction wasn’t always this high, but back in 2019 when the Tax Cuts and Jobs Act was passed, it doubled the standard deduction from what it was previously. Before this doubling of the standard deduction, just over two-thirds of taxpayers took the standard deduction and just under one-third itemized deductions, but now with the increase of the standard deductions, over 90% of taxpayers claim the standard deduction with just around 9% taking itemized deductions. That’s a good thing for most tax payers as lower earners had more of their income not subject to tax.

Just what are these itemized deductions? Itemized deductions are when individuals have items on which they spent their income, that in total, were higher than the standard deduction. Itemized deductions are captured on Schedule A of the tax forms. There are primarily four items. The first is Medical expenses, the second is mortgage interest on your primary and secondary residence, the third is state and local taxes, and the fourth is charitable contributions.  

For medical expenses, it is only for those that are above 7.5% of your AGI. So if your adjusted gross income was $100,000, you would include with your itemized deductions any medical expenses that were more than $7500 for that tax year. So if you had $10,000 worth of medical expenses, you would include $2500 in your itemized deductions.

The next item included is interest on your primary or secondary mortgages. If your interest paid was $5000, then that would be added to your itemized total. 

The next item you include is the state and local taxes paid. This includes state income taxes as well as property taxes. For individuals in high-income tax states like California or NY, this would seem like a benefit, but the Tax Cuts and Jobs Act limited the amount you could itemize to just $10,000. So if you paid $20,000 in state and local taxes (which includes property taxes) you only get credit for $10,000. 

The final item you would include with your itemized deductions is charitable contributions. These are cash or other donations (donating your car for example) that are made to any non-profit organization such as the American Red Cross, the Salvation Army, or even your church. 

If you gave $10,000 to the American Red Cross, then that would be added to your itemized deduction amount. 

Now, if the total of your itemized deductions is more than the standard deduction you would have more of your income not subject to taxes. Let me share an example for clarity. Let’s say an individual paid $5000 in mortgage interest, another $6000 in State and Local taxes, and gave another $5000 to charity. Their total of itemized deductions is $16,000. Now this person could elect to take the itemized deduction of $16,000 or the standard deduction of $15,000, which is the default that everyone gets. Of course, the person will elect to take the itemized deduction because it’s $1000 higher, and therefore $1,000 more of their income would not be taxable.

Here is where better tax planning can come in and help save an individual from paying even more on taxes. One such better tax planning strategy is to plan so that a person’s itemized deductions are even higher. An example would be when you would combine your charitable contributions from multiple years into a single tax year. This would then increase your tax savings. 

Let me provide an example for clarity. The example I previously shared was of an individual who paid $5000 in mortgage interest, another $6000 in State and Local taxes, and another $5000 to charity. That raised their itemized deductions to $16,000 which is higher than the standard deduction of $15,000. Now if this individual planned to contribute $5000 every year to charity, what if instead of giving $5000 in two consecutive years he gave $10,000 in the first year and $0 in the second? In the year that he gave $10,000 to charity, his itemized deduction would rise to $21,000 instead of $16,000. That’s an extra $5000 not subject to tax. Then in the following year, his itemized deductions would only total $11,000, $5000 for the mortgage interest, and $6000 for SALT. Because this would only add up to $11,000, he would take the standard deduction instead and have $15,000 not taxed. Over the two years combined, he contributed the same amount to charity, he also paid the same amount in property taxes, and he paid the same amount in mortgage interest, but overall he paid less in taxes because he made adjustments so $9000 was not subject to tax. Now of course this was a hypothetical example. The amount of mortgage interest usually decreases each year and the standard deduction amount is adjusted each year for inflation, but you can get the general idea of how bunching charitable contributions in a single year can save you a lot in taxes over both years. This is a great example where those who are informed can pay less taxes than those who are uninformed. 

Staying with Charitable contributions can make a significant difference for individuals and couples to save on taxes. Now we don’t give to charity to save on taxes, but instead, we give to causes or organizations we believe in. Because we are giving that money to another cause or organization, we don’t have to pay taxes on that portion of our income. 

But for individuals or couples that own stock there are much better ways to give to charity that can greatly benefit both you and the charity you are donating to. The single worst way to give to charity is to sell stocks and give the proceeds to the charity. You would have to pay taxes on any gains and the charity would receive the proceeds less the taxes paid. The better way to donate to charity is by directly transferring stock from your non-retirement account to a charity. This way you don’t have to sell the stock. The charity receives the stock and then they can sell it and won’t pay any taxes since they are a non-profit organization. The individual donating gets a larger contribution for their itemized deductions and the charity will receive more in the process. 

But here is another way that an individual can benefit from contributing highly appreciated stock to a charitable organization. Let’s say this individual bought stock in XYZ company for $5,000 and it has grown to over $25,000. Let’s say this individual also plans to give $25,000 to charity this year as well. But he doesn’t want to sell his XYZ stock because he still thinks it has more room to grow. 

A great option for this individual would be to donate the $25,000 in stock to the charity or charities of their choice and then use $25,000 to purchase stock of company XYZ. He still owns $25,000 of stock in XYZ company, but he doesn’t owe any taxes on this stock at present because it's equal to the amount he paid. The stock he donated to charity had a $20,000 gain and by donating the stock, he eliminated any capital gains on his original purchase of XYZ stock. He has the same amount of stock, but no longer has a tax problem. 

I share again the quote I shared at the beginning of this episode “In America, there are two tax systems; one for the informed and one for the uninformed. Both are legal.”

Being informed regarding the tax code, or working with a financial planner that utilizes better tax planning strategies can lead you to have a better life because it will be full of more experiences paid for with money you saved from taxes.  If you or your financial planner are not considering tax planning as part of your overall financial strategy, you need to consider working with someone who does. We implement quite a number of tax-saving strategies for our clients such as Roth Contributions, Roth Conversions, Pre-tax IRA, 401k, and cash balance plan contributions. We also ensure clients fund their health savings accounts as well as implement the strategies explained earlier in this episode. 

TIPS, TRICKS AND STRATEGIES

Welcome to the tips, tricks, and strategies portion of the podcast where I will share tips on how you can pay it forward, so to speak, and save on taxes.

As a reminder, itemized deductions are comprised of certain key items (such as medical expenses, mortgage interest, gifts to charity, and state and local taxes).

Earlier I shared how increasing charitable contributions in certain tax years can make a big difference for individuals to save on taxes but is it possible to increase other itemized categories as well? You can do that with state and local taxes as well as mortgage interest. 

You do this by paying next year's taxes and some of next year's interest in the current year. This can be done by making your January mortgage or property tax payments in late December. Those additional amounts would be reported in the previous tax year and could potentially save you even more via itemized deductions. 

Now let me take a moment to note that some might think it’s not fair that homeowners receive a break on their taxes because of the mortgage interest they pay. Renters don’t receive a break whereas homeowners do. I have to say that I completely agree, but those are rules Congress wrote and I’m sure the real estate and mortgage industry lobbyists worked to get that included. As another saying goes, the golden rule really is those that who have the gold write the rules.

Now being able to get a deduction on interest paid, isn’t a reason to purchase a home. There are many other more important reasons, but that could be a potential bonus. I should also note that the wealthy don’t necessarily benefit from the mortgage interest exemption. Because with the Tax Cuts and Jobs Act (TCJA), you can only deduct interest up to $750,000 of mortgage debt. This is for mortgages taken out after December 15, 2017. For mortgages taken out before that date, the limit is $1 million. So mansion owners shouldn’t benefit. 

Well, I hope you found these helpful, and until next time, remember a better life is a result of better planning and that must include tax planning. Have a great one!

Welcome to episode 82 of the One for the Money podcast. This episode airs in March which means we are in the midst of tax season and there are numerous ways to reduce taxes. One of those ways is to make pre-tax contributions to your 401k or IRA. You don’t pay taxes now but will pay taxes later in retirement when you withdraw these funds. But in this episode, I’ll share a perspective that argues that certain high earners should halt pre-tax 401k and IRA contributions.

In the tips, tricks, and strategies portion, I will share tax savings tips utilizing a trust.

In this episode...

• 401(k) Contribution & Tax Efficiency [1:20]
• Higher Earners & Pre-Tax Contributions [2:47]
• Beneficiary Impact [6:59]
• Tax Mitigation Strategies [9:09]

In the episode before this one, I shared that saving in a 401k is a great way to ensure you have sufficient income in retirement and a 401k can allow you to do it in an incredibly tax-efficient manner. With a traditional 401k or IRA, you can contribute funds on a pre-tax basis, this is also known as a traditional 401k or IRA.  This will lower your taxable income for the year of the contributions. You will pay taxes later when you take distributions from the account in retirement.

And recently Congress passed legislation to help certain individuals save even more.  Those are individuals that are between the ages of 60-63 who can now contribute an additional $3750 to their 401k accounts. For those under 50 they can put away in a 401k up to $23,500, and those between 50-59 and 64 and older put away up to $31,000 but retirees between ages 60-63 will be able to contribute up to $34,750 in 2025. Why those specific ages, 60-63, and not 65 or 67, well you’d have to ask Congress. 

While this may seem like something one should take advantage of, Ed Slott, a well-recognized tax and retirement expert has argued that certain higher earners should stop funding pre-tax 401ks and IRAS altogether. 

Now Ed Slott is a certified public accountant and is a nationally recognized IRA and retirement planning distribution expert, best-selling author, professional speaker, and television personality. So he’s no crackpot. He has even hosted several public television programs, including his latest, Retire Safe & Secure! with Ed Slott which was featured on PBS.

But the key is understanding the specific people that Ed Slott argues should stop contributing to their pre-tax IRAs and 401ks.  Specifically, it is for people who have very large pre-tax 401k and/or IRA balances that should stop because the income forced out of these plans in retirement, via required minimum distributions, will result in them possibly being in even higher tax brackets than they are now.

This highlights an issue that I see countless times in my own financial planning practice which is that far too often tax saving strategies can be very short-sighted. The focus often is on how to get a larger refund in the current year and not considering the ticking tax time bombs that we may be setting ourselves up for in the future. The absolute best tax mitigation strategies consider both short-term and long-term implications when it comes to lowering your lifetime tax bill.

The reason why high earners with large 401ks and IRAs should consider stopping funding is that when they reach the required minimum distribution age, they may have to take some significantly high distributions. People would be amazed by how many of the retirees I work with don’t want these distributions. And my financial practice isn’t alone. There are a number of advisors who work with individuals who don’t want the funds from their IRAs.

I’ll share a hypothetical example to give you an idea. Let’s say you have a large pre-tax retirement account at age 60 with a balance of ~$2 million and it grows at a relatively modest 7% until age 75 which is the age your required minimum distributions begin. At that point, your balance would be just over $5.5M. At 75 your required minimum distributions which are based on life expectancy tables show that such a person would have to take out $223,000 in the year they turn 75 and each year they will have to take out a higher percentage. At age 80, even with taking distribution each year prior, a person would be forced to take out $316,000, and at 85, they will be required to take out $418,000. I don’t know many 85-year-olds who need $418k to spend. 

If you think these higher income taxes are bad, it gets worse because these higher incomes will also result in you having to pay much higher Part B premiums for Medicare as they are based upon the AGI from your tax return from two years prior. In 2025 a $400k income would result in a monthly premium of $591/month vs the lowest premium of $185/month. That’s a steep difference.

This is why high-earners with large pre-tax 401ks and IRAs should consider not funding these or funding Roth 401ks instead. I mention 401k only because there are no income limits on contributions to a Roth 401k like there are with Roth IRAs.

If you think that is challenging, wait until you hear about the impact on the children who inherit retirement accounts. I’ve had clients share with me that they won’t need the pre-tax IRAs or 401ks that they are funding and they plan to leave these to their kids. While that may sound like a great plan, especially for the kids, it’s a strategy that could lead to you and your beneficiaries paying a lot more in taxes. 

Maybe you are asking, just how would you and your beneficiaries pay more in taxes. As I mentioned, you’ll have to take RMDs from 75 until you pass away.  But your beneficiaries will have to take out all of the money in a much more accelerated time frame. The SECURE Act that was passed a few years back dramatically changed the distribution rules for beneficiaries. Prior to the Secure Act, non-spousal beneficiaries, children, for example, could distribute their inherited IRAs over their entire lifetimes. I have several clients doing just that right now. But for any non-spouse, ie child, that inherits an IRA after Jan 1, 2020, they will now have just 10 years to withdraw 100%of  the funds. The shorter the window, the larger the required withdrawals—and the higher the resulting tax bracket. I have several other clients that are now subject to this new rule. So imagine those who plan to leave their large IRAs to their children. That means the children will have just 10 years to take out the funds, and most likely these distributions will occur when the beneficiaries are in their late 40s 50s, or even early 60s which is often some of the highest earning years. That means, that while you are earning the most money in your career, you are required to take large amounts out of your beneficiary IRAs as well. You’ve got to hand it to Congress, it is an incredibly stealthy way to raise tax revenue by making the inheritors pay the taxes. Because who feels sorry for beneficiaries inheriting money and having to pay more taxes? But with proper planning, more of that money can be spent by the actual beneficiaries and not by the government. 

So what’s a person to do to plan better to avoid such a situation? Well, there are a host of strategies one can consider.

The first is to max fund the Roth 401k. You will pay taxes now but you will do so at historically low tax rates. It is likely these tax rates will move higher because we also have a historically high Federal deficit. Both can’t continue. Now with an inherited Roth IRA, your children will still have to take the money out within 10 years, but none of it would be taxable. 

The second best option is similar to the first. But instead of contributing to a Roth 401k, you can complete Roth conversions of your traditional retirement accounts.

Roth conversions work just as they sound, you convert portions of your not-yet-taxed retirement accounts to never again taxed Roth accounts. There are no income limitations but since you will be paying income taxes in the year of the conversion it makes the most sense to complete Roth conversions in the years when your income is lower. For example, if you work part-time in the years prior to retirement that is a great time. Another fantastic time to consider Roth conversions is during the years just after you retire and before you have to take RMDs. You will want to have savings in the bank to live on, to make this possible but during those years you could have really low income which would be ideal to begin some Roth Conversions.

I do these for many of my clients. Using my tax return analysis software coupled with my financial planning software I determine what their income is now and what it will likely be in the years to come. This will include income from social security, pensions, rental properties, etc. From that, I determine what their tax rates will be both now and in the future and we convert amounts up to a pre-determined tax bracket.

There are a lot of factors to consider so I would refer you to episode 49 for more details. 

The third best option is to put the money instead in a high-yield savings account so you can build up an account that you can live on during the first few years of retirement that will allow you to have low income and complete even more Roth conversions.

The fourth best option is to fund a non-retirement account. This is a great way to build a taxable account that has some advantages over a retirement account. For one they don’t have RMDs, and two there is a step-up in basis when the owner passes so all the account passes to the beneficiaries tax-free. 

A fifth option is Life insurance: Taxpayers age 59½ or older could use the net proceeds from pretax retirement account withdrawals to purchase insurance on their own lives, payable to descendants. The tax benefits of life insurance can be exceptional. But you really want to consider a lot of different factors before considering life insurance, such as your health, life expectancy, and the type of permanent insurance. One example of that type would be a GUL type that has little to no cash value and is solely for legacy planning. That type would make the most sense. Sadly that’s not the type of insurance most agents will recommend because their commissions are lower. 

A sixth option is to make Charitable donations directly with your RMDs. : Those taxpayers who have already reached age 70½ or are older should plan on making their charitable contributions directly from their IRAs via qualified charitable distributions (QCDs). These donations count as RMDs but not as taxable income, so they allow IRA owners to reduce their tax-deferred balances without paying taxes. That way, appreciated assets in taxable accounts can remain there, without being donated, and eventually pass to heirs with a tax-favored step-up in basis.

Young or old, people with philanthropic intent should cancel all bequests of non-retirement assets to charity; instead, favored causes can be named as IRA beneficiaries. The money can be removed from the decedent’s IRA with no tax for the beneficiary.

As I wrap up this portion of the podcast I must say that for certain individuals it may make sense to pause or stop their pre-tax 401k or IRA contributions and for others it may not. Which camp you may fit into will depend upon a full analysis of your financial picture in its entirety. At my firm, Better Planning Better Life, Inc., we take a root-to-branch approach for our clients. We analyze their tax return with the latest tax analysis software. Next, we project investment balances, and their future RMDs, and run scenarios that can greatly lower their lifetime tax liability. I have to note that all of this is aligned and realigned with the ideal life they shared with us. It’s always exciting to help our clients live a better life because of the better planning we implement, which includes ways to pay fewer taxes. 

Thank you again for listening and I hope you found this helpful, now on to the tips tricks, and strategies portion of the podcast.

TIPS, TRICKS AND STRATEGIES

Welcome to the tips, tricks, and strategies portion of the podcast where I will share tax-saving tips utilizing a trust.

One tactic to consider lowering the taxable implications from your pre-tax IRAs and 401ks is to name a charitable remainder trust (CRT) as an IRA beneficiary. Money flowing to charitable beneficiaries won’t be subject to income tax. What’s more, the value of the trust’s assets expected to pass to charity is excluded from the estate tax, which might be a major attraction since the estate tax exemption is scheduled to decline in the future with the sunset of a 2017 tax law. 

While we’re on the subject of trusts, remember also that it may not be a good idea to name a trust as beneficiary of a traditional IRA if you are giving the proceeds to your children or grandchildren. It’s far better to name the children and grandchildren as direct beneficiaries and not the trust. Otherwise, it would be taxed at the trust tax rate which is 37% which is met at only $15,000 of income.  The required minimum distributions alone on larger IRAs may easily exceed $15,200 and can be taxed at that rate if income is retained in the trust, which may be the case for a discretionary trust that is the IRA beneficiary.

While a trust can allow for more control over how and when the funds are distributed to certain individuals, you will pay a lot in taxes if such a trust is funded with a pre-tax IRA or 401k.

A solution would be to have such a trust be funded with an inherited Roth IRA as there will be tax-free income.

Taking the right steps can result in larger legacies with less taxes owed.

Well, I hope you found these helpful, and until next time, remember a better life is a result of better planning, and that must include tax planning. Have a great one!

References

High Earners Should Halt Pre-Tax 401(k) and IRA Contributions

Welcome to episode 81 of the One for the Money podcast. I am always glad and grateful you have taken the time to listen. There are a host of options when it comes to investing and there is an order of priority in which these should occur. In this episode, I’ll share my thoughts on that order. 

In the tips, tricks, and strategies portion, I will share a tip regarding 401k contributions for those nearing retirement.

In this episode...

• Cash Flow Management [1:58]
• Emergency Fund [4:17]
• Contributing up to Company Match  [5:51]
• Paying Down High-Interest Debt [6:20]
• Funding an HSA [7:50]
• Saving Further into a 401(k)/IRA [9:03]
• Extra Savings [10:12]

I recently re-read the classic book, The Richest Man in Babylon. It’s a great story on how simple steps can help one build wealth, even those who are mired in debt. The truths contained therein are conveyed so well through the story that I’m having my oldest two boys read the book.  

In the book The Richest Man in Babylon, its emphasis was more on savings than investing. Presently there are almost countless ways one can invest. For that reason and others the investment world can be overwhelming and as a result, many choose not to participate. And that is literally and figuratively unfortunate as far too many fail to make small changes that over time have massive results. This episode is meant to help demystify which investments one should select and in what order. 

But of course, before we can even think of investing we need to ensure we are monitoring our cash flow. That is the money coming in and the money going out. Some call that a spending plan others call it a budget. I’ll go with the former as it seems more palatable and less restrictive than a budget.

The general rule of thumb when it comes to spending plans is pretty straightforward. One should allocate ~20% of your spending plan to your savings. Those savings can include an emergency fund as well as your retirement and non-retirement savings vehicles. I mention savings first as you should always get in the habit of paying yourself first. It’s an absolute game-changer. As Warren Buffett said so well, Do not save what is left after spending but spend what is left after saving.

Approximately ~50% of one’s budget should be spent on their needs. This would include housing (be it a mortgage or rent), groceries, electricity, transportation, etc. Finally, ~30% of your budget should be allocated to your wants such as a gym membership, eating out at restaurants, travel, etc. However, this should only be the case if all one’s higher interest-rate debt is paid off. I would define higher-interest debt as over 6% which is not your mortgage.  Now some might argue that one’s health is paramount and that you should devote money to gym memberships, etc.  I agree that one’s health is critical as I recently shared in episode 78 how the first wealth is health, but one can work out without the need of a gym. Additionally, one can eat without the need to go to a restaurant. For those reasons, these are considered “wants instead of their needs” expenditures. 

Now that I’ve set a framework regarding cash flow planning the next step is to consider what should be the order of where one puts their money. This may seem similar to the baby steps that Dave Ramsey has made famous. I will share a few key differences between those steps. Dave’s Ramsey’s Baby Steps are great as a general rule and the impact he has had on thousands upon thousands of Americans is nothing short of remarkable so I’m in no way trying to belittle his steps. 

The first step, which I will call 1a, which is similar to Dave Ramseys, is building up an emergency fund.  As JP Morgan notes in its Guide to Retirement - Life is uncertain –spending shocks and/or job losses can happen at any time. Emergency savings can help pay for these uncertainties and keep retirement savings intact.

The resource also notes that Workers typically encounter spending shocks more frequently (about once every three months) than income shocks (about once a year) and that one should consider setting aside 2-3 months of pay. If your spouse isn’t working you will want to increase that to 4-6 months of pay as you only have one income to rely on. It’s much like a single-engine vs twin-engine plane. If the engine goes out on a single-engine plane, drastic action needs to take place, but if one engine goes out on a twin-engine plane, you have a few more options. The same goes with households with 1 income vs 2 incomes. Those with 2 incomes can have fewer funds allocated to an emergency fund.

JP Morgan also notes that Retirees encounter more spending shocks in larger amounts than workers, likely due to unpredictable costs such as health care, and that retirees should consider setting aside 3-6 months of income. 

 The next step I would call step 1b, which is contributing to your company retirement plan up to the company match. For instance, if your employer matches 4% of your contributions to your retirement plan, you should contribute up to the company match as that is a risk-free and simple way to double the money going into your retirement account. This should happen simultaneously while you are building your emergency fund. Hence I call these steps 1a and 1b. 

Step 2 is building up a more significant emergency fund. Now this is where my advice and Dave Ramsey’s advice will differ. He advocates building a $1000 emergency fund and then paying off any high-interest debt before you contribute money to receive the company match. His reasons are all about maintaining momentum in getting debt-free, but given that a company match is free money that doubles your contributions, I don’t think one should pass it up. 

Now, if you have higher-interest debt to pay off you shouldn’t contribute beyond what the company will match. Most companies match in the 3-4% range, although I have seen some contribute in the 10% which is remarkable. 

I also generally recommend that people build up a slightly larger emergency fund initially than a $1000 starter fund before starting to pay off higher-interest debt. That way a larger emergency fund could cover 2 to 3 months worth of expenses. Building up a slightly large fund is a great way for people to strengthen their savings muscle and as their savings continue they can in turn use portions of this emergency fund to help pay down higher-interest debt. The challenge of having a small, $1000, emergency fund is that it doesn’t provide much of an emergency cushion, especially in 2025, and if there is a job loss. 

Step 3 I’d recommend is paying off higher interest rate debt. This would be debt that has an interest rate above 7% that is not mortgage-related. 

Step 4  would be contributing to a Health Savings Account before contributing further to a 401k or individual retirement account like an IRA. The HSA has many more advantages than a traditional retirement account. I have spoken on these in many episodes.  These are the only investment vehicles that are triple tax-free. Yes triple!  The contributions are tax-deductible, and both the growth, and distributions (if used for a qualifying medical expense) are tax-free and so with HSAs, you pay $0 taxes. However, not all people are eligible to invest in an HSA.  You must have a qualifying high-deductible medical plan.  Additionally, the contributions are limited to the following amounts in 2025: Individual $4150, and Family $8300. For those 55 and older you can contribute an additional $1000.

You can use the money in the HSA at any time to cover health care expenses. That’s why they are ideal for early retirement. But if you don’t need to use these then you can really see the benefit when you let the money grow and pay for current health care expenses from other sources of personal savings when possible.

But what if you don’t need all of the money for Healthcare Expenses?  It essentially becomes just like a Traditional IRA.  Distributions are taxed at ordinary income rates.

For my clients who are younger or “youngish” who think they can wait until later, remember that the earlier you invest your money the longer it has time to grow, and that growth can be significant. Just $2000 invested in an HSA each year for 30 years that earns a 7% rate of return would grow to over $200,000. That would go a long way to help offset health care expenses in your early retirement.

Step 5, would be further contributing to your 401k/IRAs to get to that 20% level of savings. For those who don’t need the savings for other goals (such as a house down payment) and if they are planning to retire after 59.5 you can put 10-15% of that money into a retirement account such as an IRA, Simple IRA or 401k, etc with the remainder in a non-retirement investment account. For those anticipating needing some of those funds before age 59.5 (for a house downpayment or even early retirement), I’d generally recommend saving 10-15% in a non-retirement account and the remainder in a retirement account.

Whether one contributes to a Roth vs a Traditional account depends upon their income tax rate. 

The 6th step has numerous options. You can use these extra savings to enjoy extraordinary experiences. Better seats at concerts or sporting events, and more immersive travel experiences. It’s important to have these travel experiences while you have the health to enjoy it. 

For others who may want to invest in RE, they can build up funds to purchase these assets. For those wanting to become completely debt-free, they can use these funds to pay off their mortgage.

If your mortgage is fixed at around 4% or less, mathematically it mostly likely doesn’t make sense to pay it off early. But if paying it off early makes you feel psychologically much better, then it can make a lot of emotional sense to pay your house off. I always thought I’d pay our mortgage early but because it’s below 3%, I’ve chosen to invest these extra payments instead.   

In conclusion, the order in which you make financial decisions can have a significant impact on how quickly you can realize your goals. I would recommend that as you make it through each step you take a moment to celebrate. Go for a nice meal or a weekend getaway. It’s important to let yourself embrace and fully experience the accomplishment you just made. Just don’t celebrate so extravagantly that it knocks you back a step or more. Far too often people don’t take the time to stop and “smell” the roses of their accomplishments. 

TIPS, TRICKS AND STRATEGIES

Welcome to the tips, tricks, and strategies portion of the podcast where I will share a tip regarding 401k contributions nearing retirement. 

Saving in a 401k is a great way to ensure you have sufficient income in retirement and a 401k can allow you to do it in an incredibly tax-efficient manner. Congress recently passed legislation that allows individuals of certain ages to boost their savings evenings further. The 401(k) contribution limit for 2025 is $23,500 for those under 50 and those over 50 can contribute an extra $7500 or $31,000 in total. But beginning this year, 2025, those between ages 60 and 63 will be eligible to contribute up to $11,250 instead of $7500 as a catch-up contribution. This means those 50 to 59 or 64 or older will be able to contribute up to $31,000 in 2025 but those 60 to 63 will be able to contribute up to $34,750 in 2025. 

I recommend you speak with a certified financial planner to see if it makes sense for you to maximize your contributions. Feel free to schedule time with me using the link on my betterplanningbetterlife.com website.

TRAILER

Welcome to episode 80 of the One for the Money podcast. I am always glad and grateful you have taken the time to listen. This episode is part 2 of a 2 part series on Medicare, which is the Federal health insurance program that helps pay for the health care costs of retirees. In episode 79, which was part 1 of this series, I shared what one needs to understand about Medicare and in this episode I’ll share the most common Misunderstandings and Mistakes people make with Medicare.

In the tips, tricks, and strategies portion I will share a tip regarding choosing between Medicare Advantage and Medicare Supplement Insurance.

In this episode...

• Medicare Isn't Cheap [2:23]
• Late Medicare Enrollment [4:47]
• Skipping Part D [5:46]
• Enrollment isn't One-time [6:48]
• Ignoring Pre-existing Conditions [7:50]

MAIN

In Episode 79 of the One for the Money podcast, I shared how expensive healthcare can be in retirement, even with Medicare covering a lot of the expenses. According to a survey released by the investment company Fidelity in August of 2024, most individuals expect healthcare costs in retirement to be~ $75,000 per person or $150,000 per couple but the actual expenses are $165,000 per person or $330k per couple. That is more than double what people estimate they will have to shell out. 

Medicare will play a major role with regard to their health care in retirement. However, the Medicare system itself can be challenging to fully comprehend given the various coverage options, expenses, and deadlines involved.

Due to these misunderstandings far too many American’s make critical mistakes regarding their Medicare coverage. Here are five of the most common mistakes

First, many Americans might assume (given that they've paid into the Medicare system through payroll taxes throughout their careers) that Medicare coverage is completely free. Whereas, in reality, several parts of Medicare (e.g., Part B medical coverage (doctor visits) Part C, and Part D (which provides prescription drug coverage) require you to pay premiums. Further, even if one understands that they will have to pay premiums, they might not be familiar with Income-Related Monthly Adjustment Amount (IRMAA) surcharges (aka IRMAA), which apply to retirees with higher incomes in retirement which can increase their costs further. And so the Mistake people make is thinking Medicare is inexpensive or free but Medicare does not cover 100% of your healthcare  costs.  

• Medicare part A covers inpatient hospital care, skilled nursing facility stays, hospice care, and some home health care,

Part A Deductible and Coinsurance Amounts for Calendar Years 2024 and 2025

by Type of Cost Sharing

2024

2025

Inpatient hospital deductible

$1,632

$1,676

Daily hospital coinsurance for 61st-90th day

$408

$419

Daily hospital coinsurance for lifetime reserve days

$816

$838

Skilled nursing facility daily coinsurance (days 21-100)

$204.00

$209.50

• Medicare Part B (Medical Insurance):.
• Part B is optional and available to anyone who qualifies for Part A. It requires a monthly premium, regardless of work history.
• Part B covers doctor visits, outpatient care, medical services like lab tests, and most preventive services.
• Premiums for part B in 2025 as low as 185/mo or as high as 628.90/month based on your income from the previous years. Those higher premiums are a result of the IRMAA charges I mentioned previously.
• Medicare parts C and D also have premiums. In 2025, the average monthly premium for Medicare Advantage (Part C) is projected to be $17, but it can vary from $0 to over $200
• The average projected premium for 2025 for all Part D plans is $47/month
• Healthcare in retirement is much less expensive with Medicare but it certainly it isn’t close to being free. 

The second Mistake people make with Medicare is  Enrolling in Medicare late 

Speaking of costs, one mistake that can increase your monthly costs is Enrolling late in Medicare incurs penalties that result in higher premiums — for life. The later you enroll, the heavier the penalties.  

There are different enrollment periods, depending on your  situation.   For example are you working past age 65 and will you be covered by an employer healthcare plan?

It is  important that you know which period applies to you, so  you  don’t  enroll late.  

Late penalties apply mostly to Parts B and D of Medicare.

The important enrollment deadlines (e.g., the 7-month-long initial enrollment period, which includes the 3 months before they turn 65, the month they turn 65, and the 3 months after they turn 65), which, if missed can lead to penalties on premiums for the rest of their life.

A third mistake people make with Medicare is assuming they don't need to sign up for a Part D prescription plan because they currently don't take many prescription drugs.

 Not signing up for a prescription drug plan 

You may think, “Why should I pay for a prescription drug plan if I don’t take prescription  drugs?” Things change, unfortunately, and you might need to take them in the future. 

Without prescription drug insurance, you could be paying a great deal for medicine. 

If you wait to sign up until you need coverage, you must wait until  the next open enrollment period  and  pay late penalties for life. 

All Rx drug plans have a catastrophic coverage provision, an out-of-pocket threshold above which you have no copays or coinsurance. Even an inexpensive drug plan is better than none. 

Mistake #3A: Enrolling in the same prescription drug plan as your  spouse just because your spouse is enrolled in that plan.  Given that you will likely have different prescription needs, each might benefit from different types of plans (e.g., how different drugs are covered).

The fourth mistake Americans make with medicare is assuming that Medicare enrollment is a one-time task and that they will remain on the same coverage for the rest of their lives; however, the annual open enrollment period offers the opportunity to make a range of changes to coverages (given that premiums, deductibles, and/or coverages for certain plans can change each year).

Don’t do  that! Unless the plan adequately addresses your own health needs, too. 

Mistake #4A: failing to review your Medicare Advantage also known as Medicare part C coverage annually . 

When you enroll in a Medicare Advantage plan, you will receive an Annual Notice of Change (ANOC) every September. It is critical to review this document each year to be aware of any changes to your plan. 

Mistake 4B is not understanding the difference between Medicare Advantage or Medicare Supplement. One is not required to enroll in Medicare advantage instead one can enroll in a Medicare Supplement Plan which are also referred to Medigap plans. I go more into the differences at the end of this episode.  

The 5th mistake people make with Medicare because of their misunderstandings is  assuming pre-existing conditions don’t matter.

Pre-existing conditions  don’t  matter when you  first  enroll in Medicare.  

When you first enroll in Medicare Part B, you have  six months  to enroll in a  Medigap plan, or switch plans, with “no questions asked”.  

This initial six-month period is called the  Guaranteed Issue (GI) period . 

It occurs only once for most people; it is  not annual! 

There are a few exceptions where your guarantee issue period can be renewed but those tend to be rare.

What I have just shared are 5 of the more common misunderstandings that lead to mistakes regarding Medicare. Now, if all of this information regarding Medicare, has you confused, It’s completely understandable. Most every9one thinks you retire and you get free health care provided by the government. But when you start getting into all of the details it can get incredibly overwhelming. For example there's Medicare parts A part B part C part D there's Medigap and then there's Medicare supplement and then there's Medicare advantage it can make your head swim. 

And while healthcare in retirement can be expensive even with Medicare (165K per person or $330k per couple) and can be even more expensive than that if you don’t plan well when selecting your Medicare options.  

I strongly recommend my clients and others to engage with the specialized Medicare experts that understand this information. There are companies out there that provide this such as boomer benefits, or health pilot. I'm not endorsing these necessarily but wanted to give you an idea of what you can use to help you make some of the most important decisions you will make in retirement.

TIPS, TRICKS AND STRATEGIES

Welcome to tips, tricks and strategies portion of the podcast where I will share a tip regarding choosing between Medicare Advantage and Medigap also known as Medical Supplemental Insurance.

Medigap vs Medicare Advantage 

The right plan for someone depends on different factors including someone’s budget, health status, lifestyle, personal preferences, and more.

Medigap Enrollments

If you enroll in a Medigap plan during your one-time open enrollment window (within 6 months of your Part B effective date), there are no health questions. The insurance company will approve your application. A majority of Medigap enrollees will enroll in a Medigap plan during this window.

There are also no waiting periods or pre-existing condition exclusions when you apply during this window. If you miss this window and apply later on, then you will usually be required to answer a number of medical questions and be underwritten. Underwriting rules will vary with each carrier and state. The underwriter at the insurance company can accept or decline you based on your medical history.

About Medicare Advantage 

More than 54% of beneficiaries choose to enroll in Medicare Advantage policies, which are private insurance plans. They usually have lower premiums than Medigap plans….sometimes even a $0 premium on some plans in some areas. There are several kinds of Advantage programs such as HMOs, PPOs, PFFS (private-fee-for-service), and SNPs (Special Needs Plans).When a plan has a $0 premium, it means that you will pay no additional premiums for the plan itself. You will still pay for your Part B premiums monthly.  A beneficiary must be enrolled in both Medicare Part A and Medicare Part B to be eligible for a Medicare Advantage plan. However, you don’t need to enroll in a Part D plan since most Advantage plans include prescription drug benefits.

If you want to keep your doctor and they are not part of a medicare advantage plan, then you definitely want to stay with medicare supplemental plan. If you want your services bundled, including a drug plan all while paying lower premiums, than you should consider Medicare Advantage plans. But if you need more health care Medicare Advantage can cost more than Medigap plans. Finally, if you plan to travel a lot during the first few years of retirement, also known as the go go hears, then you may want to consider Medigap plans as they provide international coverage.

There are many other factors to consider, so I would enlist the help of Medicare specialists to help you weigh your options. 

References

Fidelity Investments® Releases 2024 Retiree Health Care Cost Estimate as Americans Seek Clarity Around Medicare Selection

 The Five Biggest Medicare Mistakes - Sensible Financial Planning

5 things you need to know about signing up for Medicare | CMS