Plan With The Tax Man

We all know there are things in life you probably shouldn’t trust — like gas station sushi or an email from a Nigerian prince. But the same principle applies in retirement planning. Sometimes what looks safe, easy, or even “guaranteed” isn’t so trustworthy when you peel back the layers.

Important Links: Website: http://www.yourplanningpros.com

Call: 844-707-7381

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Transcript: 

Walter Storholt:

Well, we all know that there are things in life you probably shouldn't trust, like gas station sushi or that email from a Nigerian prince trying to send you some money and get you to send them money. But the same principle applies in retirement planning. Sometimes what looks safe or easy or even that dreaded word, guaranteed, isn't so trustworthy when you peel back the layers. So on today's show, we're going to talk about the things that if you trust it, you might go broke and how to avoid it.

Hey everybody and welcome to another edition of Plan with the Tax Man. I'm Walter Storholt filling in for Mark Killian on today's episode, but as always, joined by Tony Mauro, Des Moines professional alternative for the Tax Doctor Inc. in central Iowa, office right in Des Moines. You can find Tony online at yourplanningpros.com.

Tony, great to be with you on today's episode. How's life treating you?

Tony Mauro:

It's good. Fall's upon us. Everybody's talking football of course, and now it's starting to get serious about planning, so it will be busy coming up.

Walter Storholt:

You get kind of a second hit in the tax calendar this time of year. Most people think of taxes as just being something you worry about at the last minute in April, but you get a little bit of a second wind as we head toward October, right?

Tony Mauro:

We do. As we're taping this, we're coming up on a due date the IRS puts on us for corporate extensions, which is the 15th, and then in another month, October 15th, everybody that we have on extensions and everybody out there have got to get those tax returns in, especially if they owe to avoid some big penalties. So most of our clients, though, are not the procrastinators or the ones that are on extension. We got them done long ago, but we still have a few that we're always pushing to get over that hurdle.

Walter Storholt:

That's right. Yeah. And it's not like corporate returns are easier than personal returns, right? A few more layers and moving parts to worry about there?

Tony Mauro:

It is. With the corps, it's not near as straightforward of just getting documents and getting them into the software. A lot of moving parts usually, and of course business owners by and large usually don't want to talk about taxes and they tend to put it off. So half the battle is getting them to communicate and get some of that stuff done.

Walter Storholt:

Yeah, absolutely. Well, good luck wrapping those things up so that you can enjoy the changing of the fall weather and football season and all that other good stuff. Well, here's how today's episode's going to work, folks. We're going to talk about the things that you trust might make you go broke and we're going to talk about some real world things and then some financial sides of the equation as well. So we'll kind of bounce back and forth between the two.

So first of all, Tony, I like throwing this one out there. Gas station sushi. Is that something that you think you would trust?

Tony Mauro:

I would never trust that. In fact, I notice even in some airports now, kind of like sushi to go and fast food sushi.

Walter Storholt:

Oh, sure.

Tony Mauro:

I would never do that, and I do like sushi, but that kind of stuff, especially at a gas station, I wouldn't [inaudible 00:03:21].

Walter Storholt:

Yeah. I might do the airport sushi if it was a sushi restaurant in the gas station, but when it's just kind of in those grab and go sections, I don't know if I want that going wrong right before a flight, right?

Tony Mauro:

Right before a flight. I agree.

Walter Storholt:

The risk there is not worth it.

Tony Mauro:

Yeah, yeah.

Walter Storholt:

I did, I thought gas station sushi was sort of a made up thing and then one day I did actually see sushi in the gas station.

Tony Mauro:

Wow.

Walter Storholt:

It was not appetizing.

Tony Mauro:

I've seen it in some small supermarkets and whatnot, but it just looks like, how long has that been there?

Walter Storholt:

Sure.

Tony Mauro:

I don't know if I want to try that, but I'm like you, I'd rather just have them cook it for me. That's the only way I'm eating it.

Walter Storholt:

Yeah, it's the same thing with raw oysters. I got to trust the place I'm getting my raw oysters from.

Tony Mauro:

Exactly.

Walter Storholt:

Otherwise I'm not eating it. All right, so let's look at a more realistic real world thing here from the financial perspective would be people who say they've developed a system for timing the stock market. That sounds a lot like gas station sushi in my mind.

Tony Mauro:

Well, it sure does. I think a lot of what we'll talk about today is stuff people are seeing online and how they need to vet that a little bit on who's writing that. But I've even seen it just scrolling through Facebook, you see the things that look like a post that are really an ad and I see a lot of these about people being able to time the market and to beat the market, so to say. And from a financial planner's perspective, any one of us is going to tell you that's been in the business for a while that even the best of the best can't really do it on a consistent basis.

So what makes whomever out there online think that they've done it? What a lot of times they'll do is, that I've seen, is they'll point to some freak kind of abnormal result that they've achieved over the short term and they've never really tested it over the long term, but even if they can long term, it's all going to even out, so I really advise people not to fall for that kind of stuff just because of that.

Walter Storholt:

Yeah. I mean, anything that kind of sounds too good to be true, we can file this one under that probably is category.

Tony Mauro:

That's right. Yeah.

Walter Storholt:

Yeah. All right. Other things that can cause you to have some trouble in the real world is when we use WebMD to diagnose ourselves, right? Although today's version of that, it seems to be AI, right? I go into AI now and I'm like, "Hey, I got this thing going on." So either one, a little questionable there.

Tony Mauro:

And even in the financial world, robo-advisors and AI, it certainly is going to play a role in everything that we do I think going forward. However, I think just like in medicine and even in taxes is AI can't make the critical decisions, I don't think, at least at this point, in a person's portfolio, and not everybody is the same. There needs to be a human element in there because really, a lot about goals and emotions, how you feel about things, and AI can't pick that up, at least yet. And a lot of people I think use WebMD and some other things kind of basically just for a quick hitter and there's nothing wrong with that, gathering some information, but I would say confirm that with an advisor to make sure it's really true.

Walter Storholt:

I like your perspective on that, and it's kind of funny, I used AI to kind of analyze some test results recently on my ankle. I had an MRI done on a heel Achilles injury, but I didn't know what I was reading, right? All these big fancy words, and it was kind of hard to sort through it all with the way that it was laid out in the test results, and my follow-up appointment wasn't going to be for a couple of days and I kind of wanted to know what was going on a little bit more from what the techs found. And so I took all of that gibberish and threw it into AI and it was able to kind of at least give me an idea of what I was facing. So it set some expectations for then that visit to the doctor.

I wasn't trying to make it fix my ankle, but to say, "Okay, so what am I looking at? What are my options? What's the good? What's the bad here?" That was kind of helpful and kind of nice. I could see that helping a lot in the financial realm too, maybe using AI to maybe make certain parts of the process easier, but man, I'm still going to go to that doctor, I'm still going to go to that advisor and get that interpretation, that guidance. And then like you said, the decision-making, the critical choices got to still happen from the human, at least at this point.

What about advisors who say there are no fees in your portfolio? Is that a trust this, go broke kind of thing?

Tony Mauro:

Well, I would be very leery of that because in everything we're doing in the financial world, even if you don't have an advisor and you're doing it yourself, almost every investment has some fees of some kind, unless you just flat own individual stocks and/or bonds. You do pay a fee when you buy and sell, but I think what this is referring to more so is people saying that they're going to be able to advise you for absolutely no fees. There are always fees, you just have to look for them.

What we do with our clients is in everything that we're doing for them. I mean, we're fee only. So yeah, there's going to be a fee to be the financial quarterback, but we want to disclose that and make sure that the client knows what they're paying us and what they're paying us for, what the kind of value we're going to deliver for that. And then also any types of investments that we're choosing, we want to let them know what type of fees are hidden in there because fees can add up, obviously. More in fees you pay, the less return you're going to have, and that will affect your goals a little bit. But yeah, be very leery of that. If somebody's saying there's absolutely no fees, I would love to see that, because I've never seen it.

Walter Storholt:

No one's working for free, right? So someone's getting paid in some way, shape or form. It's just making sure we understand who and how and where it's coming from.

Tony Mauro:

And what the amount is. Absolutely.

Walter Storholt:

Yeah. This one's a callback to any fans of The Office. When the deposed king of Nigeria sends you a letter, you respond to it or whatever that quote was. So what about those Nigerian princes offering to share a portion of their fortune with you via email?

Tony Mauro:

Via email? Yeah.

Walter Storholt:

That's even worse than gas station sushi, right?

Tony Mauro:

It really is. I've actually had three clients over my span of being in business... It's been a long time. This isn't as prevalent now as AI calling people and faking somebody they know and sending them money, but [inaudible 00:09:35]-

Walter Storholt:

The scam has gotten more sophisticated, right?

Tony Mauro:

It has. It has. But I've had three people, this exact email came to them and they sent money and one sent like $4,000 and it was an older lady and after it's gone, it's gone, but obviously there must be some people that still fall for this because they're still doing it, but now it's more sophisticated, so now it's moving on to AI-generated language of somebody and calling you saying they're in jail, they need money and all of that. Very difficult for people to decipher. But my advice to anybody, don't send any money to anybody until you've talked to a human being. It's just not worth it.

Walter Storholt:

Yeah, absolutely. Just be on the lookout for anything that doesn't quite feel right and then maybe seek a second opinion. My folks have done that in the past, Tony, and I told them, "Please always feel comfortable with that. If you ever feel like something's not quite right, just give me a call and we'll look at it together real quick and just get that outside voice and say, 'Oh yeah, this doesn't sound right,'" because that can be really helpful when you just get that other person that can validate your suspicious feelings, if you will.

All right, we're talking about things that if you trust it, you might go broke. I'm going to put some trust in a stock market that hasn't crashed in a decade. Is that a fool's errand if I'm doing something like that?

Tony Mauro:

I believe it's a fool's errand, yes. Depends on how you define crashed, but the market moves up and down and it's very easy to show people a timeline. Even over the last 10 years, we can name 21. When we had COVID, everybody thought it's the next doomsday. And so we have minor corrections and sometimes they're major corrections, but if you go back 10 years, yeah, there's ups and downs and so that's totally false. And anybody that tells you that, if you're talking about the stock market, is basically either manipulating the numbers or they're just flat out not saying the truth in my mind.

Walter Storholt:

Yeah, it's an easy one to cover for sure. This next one really grates me. The weather forecasts that are more than three days out, just don't even look at them, right?

Tony Mauro:

That's right, that's right. Don't even look at them. In fact, it's funny on the weather. So I fly a small plane for a hobby and so we're always fascinated with the weather. We're always looking at the weather because that's a scary thing, and they preach it and preach it and preach it when you're learning to fly. And I feel like the weather forecasts we get are some of the best of the best and it's still just a forecast, and many times they'll forecast something that's completely off even for a day out. So can't control the weather. It's so funny. We have all this scientific stuff, and yet it still wins sometimes. So yeah, don't trust that. My mom used to always look at the weather way out and she would just swear by it and it's like half the time it would never be what they said.

Walter Storholt:

Yeah, we had that exact same experience just last week, Tony. We were back in Pennsylvania near family for a baby shower and it was an outdoor event and we were kind of throwing the outdoor event, and every single day for the 10 days leading up to the event, 80% rain, 90% rain, hail, thunderstorms, severe weather, boom, boom, boom, all the stuff. And I just kept telling my wife, "It's going to be fine. It's going to be okay. I promise you it's going to be just... Whatever they're saying it is now, it's not going to be on the day of." And sure enough, we had perfect weather on the day of. It worked out beautifully, not a single drop of rain. So sometimes it just happens like that.

All right, let's talk about celebrity endorsements for financial products as another thing that we have to be wary of. This seems like it's popped up a lot more in recent years. I'm thinking of Super Bowl commercials with celebrities talking about various investments. And I don't know if this gets you in compliance trouble, Tony, but crypto or something along those lines, it's very prevalent now to see celebrities endorsing financial products.

Tony Mauro:

You do, you see it a lot. And going back to what we were talking about a little earlier with no fees, these celebrities of course are getting paid to endorse. I mean, hopefully everybody understands that, although even if you do understand that, there's something about seeing that celebrity, especially if it's one you like, endorsing something that you might make an emotional decision to purchase that product just because you see them, you kind of feel like you're part of their group. And I think you need to, obviously with financial products, any of them, check with your advisor, because they're just doing a blanket statement, and I think there's much more to any product itself. If it fits in your plan, regardless of if they've endorsed it or not, it's going to be a good thing. If it doesn't, then obviously you need your advisor to say, "No, that's not suitable for you," depending on what you have in your plan.

But I see it a lot on the marketing side. There's a lot of things out there. Let's say I'm marketing my practice and I get a celebrity to endorse, "Hey, Tony Mauro is the greatest thing. He's the greatest planner, this or that." That resonates with people and these celebrities have themselves out there for hire and it's kind of crazy to have that. I've always told my brothers my celebrity endorsement would be Kiss, the rock group. I don't know what kind of crowd from my past that would attract, but I'm sure those guys for the right fee would dress up and do it. I know Gene Simmons would probably. But it's interesting on those. It's fun to see them, but there is a lot of them endorsing financial products.

Walter Storholt:

Yeah, that's pretty funny. I'm just picturing Kiss doing your endorsement.

Tony Mauro:

Wouldn't that be funny, had a few of the members in there? I was a big fan. I still-

Walter Storholt:

Maybe they could do the jingle.

Tony Mauro:

That's right. Do the jingle.

Walter Storholt:

Kiss jingle. I love it. Have you ever bought duct tape from the dollar store, Tony?

Tony Mauro:

I never have.

Walter Storholt:

I have.

Tony Mauro:

Have you?

Walter Storholt:

It doesn't work very well.

Tony Mauro:

I was going to say, did it work? Because it doesn't sound like it's going to work.

Walter Storholt:

No, it's not very sticky and it's so thin that you can only really get a few pulls off of the duct tape before it's out. That's why it's only a dollar. There's hardly any on there. It's almost as if they just bought out the used roles that just had a couple of uses left and that's what they're selling for the dollar. Yeah, I wouldn't trust it. I suggest avoiding it.

Tony Mauro:

Avoid it. I was going to ask you, is that the stuff they can't sell anywhere else or that falls off the spool or [inaudible 00:15:55].

Walter Storholt:

Right, right. It's just the last few bits clinging to the spool I think is what they're selling at the-

Tony Mauro:

Yeah, that's cool.

Walter Storholt:

... dollar store duct tape. So watch out for that one. Back to the financial side, friends' or neighbors' retirement strategies. Well, this is one that's tricky, right? Because that's advice and information coming from people we trust.

Tony Mauro:

People you trust, and they start, just like the celebrities, you trust them and you figure if it's good enough for them, it might be good enough for you, but in a lot of cases it's not because obviously everybody's different, has different goals and whatnot, and I think that's another thing to run by your advisor as to, "Hey." I mean, we hear it a lot, "Hey, such and such told me this or that." And it's good that they ask what you think, what we think and then we can kind of tell them, "Well, that does in their situation probably apply, but in yours with the way we've got you set up and what you told us you wanted to achieve, that may or may not be the best strategy." But it is a source of information and I just think you need to verify it. I'm saying that about all of these basically, but just yeah, you can't take it as blanket advice. It's almost like just blindly trusting AI to complete your financial plan, because it may not be suitable for you.

Walter Storholt:

Yeah, that's another great point. All right, we've got one more real world and one more financial element. The last real world one is autocorrect. Don't trust it.

Tony Mauro:

Don't trust it, right? It's-

Walter Storholt:

We've all seen it turn one word that we wanted into a different word, right?

Tony Mauro:

Yes. I always tell my staff, and I try to do it as well, I would advise it to everybody that's out there, whether it's a text or email, but I think is to proof what you're going to send before you send it. We've all gotten so using autocorrect as a crutch that we're spoiled and we just get fast. And I think sometimes it's actually accepted. You read a text from somebody or an email and it's kind of all garble, but you kind of know what they meant. You figure it-

Walter Storholt:

You kind of figure it out, yeah.

Tony Mauro:

Yeah. But for us from a business standpoint, it's not very professional to send out stuff that doesn't make sense. But even in the real world, yeah, it might put in the wrong... It's good, but it's not perfect, and a lot of times it doesn't correct proper grammar even close. So if you accidentally type or say something and it's not clear that autocorrect doesn't get it... In fact, just this morning, I was typing something to a tax client in their portal and in the portal it does not have autocorrect and I was kind of mad. I said, "You know what? I'm going to bring that up to the software provider and say, 'You guys need to autocorrect in here because I don't like to have to make sure that I really read this,'" because I get lazy and we start depending on it, but you really can't.

Walter Storholt:

I could swap this one in and out with voice to text, right? My dad was a big voice to text person, still is. But when he was still working and this technology was just real... He was a very late convert from the flip phones to a smartphone or tablets that they used at his work. And when he was in the field, he'd always be sending back messages to the office and logging things in there. They were in a service business, so he'd be logging things into their portals and whatnot and using voice to text for everything.

He loved voice to text. He was like, "This is the greatest thing." He'd send me texts, he'd send me long emails that were all dictated. He is like, "I'm not correcting anything. I don't care." And I'm like, "I love you for it because you just don't even worry about it." It's like it says what it says and you can figure it out or don't, just very matter of fact. But this was my favorite thing. When he retired, they had a little retirement party for him at work and the big final thing they did at his retirement party is everyone had submitted their favorite Jim stories of their voice to text and they read them all out loud and they were hilarious.

Tony Mauro:

Had a good laugh?

Walter Storholt:

Oh, it was a great laugh. They had a good time poking some fun at them and lots of smiles and there were some real doozies in there, too.

Tony Mauro:

That's cool.

Walter Storholt:

Very entertaining.

Tony Mauro:

But yeah.

Walter Storholt:

All right, last one here. Financial rules of thumb without context. That's the trust this, go broke part of that. Without context, that's really important there at the end.

Tony Mauro:

It is. And in the financial world, there's a lot of rules of thumb out there and a lot of them make sense. I think that just trusting them without verifying and maybe executing them could lead to some financial disaster. So I would highly recommend at least getting an interpretation of that rule of thumb, especially if you kind of don't understand it and where it's going, and make sure it fits in your situation before you just blindly go out and do something that is going to be detrimental, because keep in mind, all of these things outside of the funnies that we're sharing, the serious stuff, as you age and you make more and more of these potential blunders, you start to run out of time. And if you make too many of them and you're sitting there scratching your head at age 58 or 60 saying, "Boy, I'm not even close to where I thought I should be," maybe it's because you did some of these things without advice and that's the biggest thing I want to get over.

I always tell my staff as we're talking about all of these, it kind of ties in, that you're not going to know everything about the tax law and whatnot. You did when you studied and you got your certification, but you need to know where to look, and it's not got to be authoritative. I always tell them, "Do not blindly just go out and read something on Google or Facebook or whatever and think it's true in our area because number one, you know better, and two is who knows what kind of qualifications whoever wrote this had." And so I always harp on them on that.

And my last thought is, and I just shared it with them yesterday, it was right out of accounting today, and it says, "The IRS over the last two and a half years has instituted $162 million in penalties and interest from people that have filed incorrect tax returns saying they got advice online," and it went on to say, this is the IRS talking, "Do not trust Facebook posts and this and that on questionable tax credits and things that can get you in trouble and then you go blindly prepare your own return and next thing you know you got us breathing down your neck." And so if the IRS is saying that, you know it's out there in the financial world as well and in a lot of other sectors too. It could be auto repair, it could be anything.

So make sure that you are working with your advisor. Make sure you have a plan based on your situation so you can get that personal guidance. You could always look up some things and ask questions. I think it's great that we have all this information available to us, but I definitely think that most people are going to be much better off with getting advice from a planner. That's my opinion, of course, but that's my take on it.

Walter Storholt:

Yeah, trust is a good thing, bottom line, but in retirement planning, blind trust can be dangerous just like gas station sushi or blindly trusting duct tape from the dollar store or weather forecasts 10 days out. All of those things end up getting us in trouble to some extent. And that's what happens in the financial world when that blind trust enters the equation too.

So that's why it pays off to have a financial plan built on facts and that personalized guidance that Tony just mentioned. If you'd like to set up a time to visit and explore what a financial plan looks like with Tony's help and guidance, you can certainly do that. The number to call is 844-707-7381, and you can also go online to yourplanningpros.com, yourplanningpros.com. We've got all the contact information in the description of today's show so you can find it easily there. Tap into that 30-plus years of financial planning experience that Tony brings to the table, not only as a CPA, but a certified financial planner as well.

Well Tony, thanks so much for all the help today. I'll be back with you again on the next episode before Mark returns and looking forward to chatting with you again soon.

Tony Mauro:

All right, we'll see you on the next one.

Walter Storholt:

All right, take care everyone. We'll see you again right back here on Plan with the Tax Man.

Securities offered through Avantax Investment Services SM, member FINRA, SIPC. Investment advisory services offered through Avantax Advisory Services. Insurance services offered through an Avantax affiliated insurance agency. Investment strategies discussed in this episode may not be suitable for all investors. Please consult with a financial professional.

Most people don’t feel wealthy. But what if your day-to-day habits are quietly building serious financial strength? A recent article from Kiplinger outlined five surprising signs that you might be richer than you think. And none of them involve yachts or private jets… Let’s analyze the habits that signal real, lasting wealth and what to do if you are (or aren’t) on the right track.

Important Links: Website: http://www.yourplanningpros.com

Call: 844-707-7381

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Transcript: 

Marc:

Most people don't feel wealthy. But what if your day-to-day habits are quietly building serious financial strength? Well, a recent article from Kiplinger outlined five surprising signs you might be in better shape than you realize. So let's talk about that this week, here on Plan with the Tax Man.

Welcome into the podcast, folks, as we break things down with Tony Mauro from Tax Doctor Inc., and this week, five signs that you're richer than you think, or at least, I don't know, that's the term it used in this article. I'm going to call it better off, Tony, than we maybe think. I've been talking to advisors like yourself for years, and more times than not, I'd say most advisors say usually about seven out of 10 times, and I'm going to give, maybe not so super specific, but people come in looking at that initial consultation wondering, am I okay? Right? That's the big question. And more times than not, advisors say people are in better shape than they realize. Is that what you see as well in your practice?

Tony Mauro:

I'd say generally that, yes. They're not, I believe, where they want to be.

Marc:

Sure.

Tony Mauro:

Because obviously, they wouldn't be in there, but they're better off than they think. We seldom see somebody that's so far behind that it's impossible to...

Marc:

Right, right. And I think that's the catch, right? It's kind of like going to the dentist. We all kind of go... Not to equate your stuff to the dentist, but unfortunately, it's a good analogy. People go, "I need to go, but I don't want to go, because I really don't like it." And then you wait until you've got a real problem and then it's a bigger pain. And so I think a lot of times people think, "Ah, I need to go see a financial professional, but I don't want to because going to give me bad news." And more times than not, again, people are in better shape than they realize.

So, let's run through this report. We'll put a link in the show description here for folks if they want to check it out. And we'll just do a real simple of these five signs. Where are you at? How are you guys doing with this stuff? So number one, Tony, is emergency fund. Have you prepared one? And I think COVID certainly highlighted the need for this for many people, when you were losing jobs, or not being allowed to come in, and weren't getting paid, or reduced pay, maybe put a squeeze on you if you didn't have that emergency fund.

Tony Mauro:

Yeah, and this is the first question we ask clients when we're data gathering and whatnot, is to, if they have this. And most don't. Most don't. Most have heard about it, they've never done it, or they've tried it and just basically robbed it and never went back to it. But obviously, most of this types of advice, most planners are going to give you the same thing. You've got to get something like this in place before you can start investing for the future, because of things like job losses, everything that related with COVID, somebody's sick, that kind of thing. So, once you get that kind of stability, then we can kind of move on. Now, we don't have to make you wait to start doing planning until you have six months of expenses saved up.

Marc:

Right. Great point. Yeah. Yeah.

Tony Mauro:

It can take several years. But we got to get you at least working on it, even if it's $50, $100 bucks a month, to get money in there. And then the other thing is, I ask them, I said, "Do you even know what a month or two of expenses are?" Or do you just look at that checkbook and say, "Oh, well, we've got a little more money this month, we can spend it, and then we got to quit spending." And that goes to just personal finance there. But you've got to know those two things, and you got to get along that path.

Marc:

I think the article goes on to say that the average American has about $1000 saved.

Tony Mauro:

$1000 bucks.

Marc:

Yeah. That's probably not going to get it done. So you got to work your way, like you said, into some sort of a groove there. And I know there's some debate back and forth about once you're retired, do you really need emergency fund? Because you are not working, so therefore you're 401 and all your different nest egg is really the emergency fund, I suppose. But while you're building up to retirement, you certainly want to have that emergency fund there.

Tony Mauro:

Yes.

Marc:

All right, number two on the list was, you live below your means. I'll throw in, you live within your means. I think below or within, especially in today's environment. If you can do within your means, I think again, these are steps, signs that you're doing pretty good.

Tony Mauro:

And this is right out of probably the Millionaire Next Door book, or a chapter of it, is you must know, in my mind, of course, what you got coming in for your income, and then of course, a good idea of what your monthly outflows, are or your expenses. That's what we're talking about here, is living within or below your means. You still have money left at the end of every month, or at least at zero, and you're not going into the negative.

And this assumes that nothing bad or unusual is happening, but if you're in a negative every month, that means you have a spending problem, and you are not living within your means. And that's something we got to curtail, because there's no way you're going to be able to save. You come into us and say, "Hey, I've got to start saving for retirement," and we look at that and you're in a negative pretty much every month, we've got to make some changes immediately before we can start saving, because you don't even have any money to pay your bills, let alone if you get behind, which we just talked about, lose a job. How are you going to invest for retirement?

But yeah, it is definitely something that if you are living within your means, or even better, below, then you are going to be in great... I don't want to say great shape, to automatically have a great retirement. You still got to save.

Marc:

Right. It's a big help, though. It's a big help.

Tony Mauro:

Yeah, it's a big, big help.

Marc:

Because lifestyle creep is a thing. I mean, as we make more money, we kind of want a few more things, and it's totally understandable. You work hard, blah, blah, blah, but you got to be careful not to get out of control. I was just reading something the other day, Tony, I'm not sure if you're a Gen X-er like me. I think you are. But it says Gen X-ers are most in debt right now, on an average of about $157,000, with vehicle debt being a big piece of it. That wasn't even including the house. So you got to get that stuff under control, and living within your means or below it, either way, is a good milestone there, a good marker for financial health.

Tony Mauro:

I agree. I think before we leave that topic, it amazes me how many clients that they'll shop around and really feel good about trying to find whatever they're buying at the lowest price, and then they'll put it on a credit card, and they don't pay the credit card off. And I say, "But let me ask you, if you went into that same thing, just going to buy it and you're going to pay three times what they're asking for, would you do it?" And they say, "Absolutely not."

Marc:

You wouldn't do it. Absolutely not.

Tony Mauro:

"Absolutely not. I'm not doing that. I shopped for deals." I said, "But you really aren't getting any deal, because who knows how long you're going to take?"

Marc:

You're just not paying the retail place or whatever the money because you got it cheaper, but you're paying the credit card company money.

Tony Mauro:

You're paying the credit card company. So we find a lot of people with a lot of debt because of that.

Marc:

That's a great point.

Tony Mauro:

It just kind of goes along about that. You got to pay cash for things if possible, except for the few big things in life, because otherwise, generally that's a problem.

Marc:

That's a fantastic point. It's very simple to overlook. You think, well, I kind of need to get this new... My computer's acting up for work, or whatever, and I got to get this new computer, and I need to finance it, but I'm going to shop around for the best deal. And maybe that's a higher dollar amount. Maybe you do need to finance it, but if you could save for it and just pay cash, you're just better off. You're just saving money. To your point, yeah, house, car, really big stuff makes sense, you may have to finance.

Tony Mauro:

Big stuff, yeah.

Marc:

Yeah. All right, number three, you invest strategically. Whether it's your workplace plan or whatever, you got a strategy, versus just, well, I threw it in the 2040 fund because my year to retire.

Tony Mauro:

And I think people that, they have a head start when they come in and they say, look, I've got... Even if they've got three or four 401Ks from different employers, they're constantly investing in their current employers, whatever they have. Some of them are doing a Roth on their own, which is fantastic. It doesn't even, to us, matter as much of what they have it invested in, unless it's just all cash and they're really young or something like that, obviously we're going to advise them. But if they're already doing that strategically, they're well ahead of the game because putting money away, and if we can solve those first two problems, if they have them, then great. But that's just a sign that, yeah, they've got a great start on things, and once they get a good plan in place and can see the end goal, then they start feeling, you know what, this is achievable.

Marc:

Yeah, right, exactly. It's like, hmm, I like that. Yeah, good stuff indeed. All right, well we're running through, again, these signs that you are in better shape than you realize. So we've got a couple more here to go. And again, check the link if you'd like to kind of read this article from Kiplinger.

You have multiple income streams, Tony. So it's not just, we all know diversification is the name of the game. We have that conversation all the time. But having more than one income stream, or even two. Some people will go, "Well, I've got my 401K, we're going to turn that into one, and then I've got social security, that's two. So I've got multiple." Well, yeah, okay. But what about some others?

Tony Mauro:

Yeah, some others, I mean, even during the working years could be either... Could be as simple as a part-time job. It could be you've got a little side gig going on your own, a little business selling whatever you're doing, whether it's a service or actual goods. Could be rentals. We've had rentals since I was 20 years old, and it's good passive income now. All of this stuff comes with issues, meaning that it's just not free income and you don't have to do anything for it. But if you've got multiple income streams, I think it's better.

Yeah, it causes a little more, maybe stress in your life, maybe a little more to-do's. But at the end of the day, one, you're going to hopefully be making more money, and two, if something goes bad with the main gig, I call it, well, you've got at least a little income coming in from something while you figure it out. So I think it's always good to take a look at, especially today, I tell my son a lot, with AI, the way it's going and whatnot, it's just changing so fast. You got to be prepared to make some changes and try to earn money from different sources.

Marc:

For sure. For sure. Yeah. Whether it's rental property or whatever else, but definitely just having those multiple income streams can go a long way towards, again, putting you in better shape than you might realize.

And then the final one, Tony, and you kind of touched on a little bit when we were talking about investing strategically, but just in general, the article talks about focusing on the long-term. How does your mindset and your behavior reflect with that? I think folks who are definitely thinking, especially sooner than later, 50-plus, you start really thinking long-term, that's going to help you out.

Tony Mauro:

Yeah, and I like the fact that when clients come to see us and we give them a little quiz right off the bat, and if they answer it, whether they're nonstop watching TV and listening to the news and reacting to this short-term stuff, or whatever it may be, it's usually negative. And so, if they panic every time they're doing that and they're not focused on the long-term, for us, that's kind of a landmine. We have to try to talk them out of that if they're going to work with us. Versus a person comes in and says, "I've been doing all these things for years. I really don't pay attention to the news and I just keep putting money in and it's done fairly well for me." That's kind of more of the focus you want. With some, especially with an advisor, if you're meeting with them once or more a year, they're going to be able to help you and tell you what you have been doing. But you definitely want to keep a long-term perspective on things.

Marc:

Yeah, and I think helping and having that long-term plan, again, sooner than later, gives you that runway that we need to plan out the stuff that we want to do. The new passing of the tax code and everything helped. Again, we talked about it the last couple of weeks, helped advisors. At least, if nothing else, whether you agree with it or don't agree with it, now you at least know what's ahead of you from a strategic planning standpoint for taxation and so on and so forth. And so, all of that kind of lends into just having a good cohesive strategy to get you to and through your retirement goal.

So, if you need some help, reach out to Tony. Hopefully, if you're doing some of these things, that makes you feel pretty good. You realize that maybe you're already on the right path. But find out, right? Run the numbers and see where you stand and what kind of work you need to do. Everybody can use a little bit of work, but sometimes people overreact, I think, and think, oh, if I go see an advisor, it's going to be some major overhaul to my life. And maybe it is, depending on what you've done, but a lot of times it's little tweaks, right? Little tweaks goes a long way.

So, get on the calendar, folks. YourPlanningPros.com. YourPlanningPros.com to schedule some time with Tony and his team at Tax Doctor Inc. And don't forget to subscribe to us on Apple or Spotify, whatever podcasting app you enjoy using, to catch future episodes when they come out. Tony, my friend, thanks for breaking it down and hanging out with us. Always appreciate your time.

Tony Mauro:

All right, we'll talk to you on the next show.

Marc:

We will see you next time here, we'll get into, as the year's winding down, we'll be almost into the fourth quarter on the next couple episodes coming up. So if you've got some questions, need some help, again, reach out to Tony, YourPlanningPros.com. We'll see you next time here on Plan with the Tax Man.

Securities offered through Avantax Investment Services SM, member FINRA, SIPC. Investment advisory services offered through Avantax Advisory Services. Insurance services offered through an Avantax affiliated insurance agency. Investment strategies discussed in this episode may not be suitable for all investors. Please consult with a financial professional.

The kids may be heading back to class, but it’s not a bad time for adults to hit the books too, especially when it comes to retirement. So, let’s test your knowledge with a quick financial pop quiz and see how ready you really are.

Important Links: Website: http://www.yourplanningpros.com

Call: 844-707-7381

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Transcript: 

Marc:

The kids may be heading back to class, but it's not a bad time for us adults to maybe hit the books too, especially when it comes to our retirement strategies. So let's test our knowledge this week on the podcast and play a quick financial pop quiz with Tony here on Plan With The Tax Man.

Welcome into the podcast folks. Thanks for hanging out with Tony Mauro and myself. Tony, of course, is here to answer all the questions and give us some insights as he is a CPA, CFP, and an EA of 30 plus years in the industry and over there at Tax Doctor Inc, helping folks get to and through retirement. And Tony, I want to send you to school today, my friend. How you doing?

Tony Mauro:

I'm doing well. Enjoying the summer. It's fair time here.

Marc:

Good. Good, good.

Tony Mauro:

And kids here are heading back to school.

Marc:

Yeah. Are you a good test taker?

Tony Mauro:

I used to be. I've taken a lot of them, so I've had a lot of practice, but back in school, I wasn't all that great.

Marc:

Got you. Got you.

Tony Mauro:

Especially in grade school.

Marc:

Well, this will be pretty easy for you, but I thought it'd be fun for our listeners to play along as well. And feel free, Tony, once we go through this, it's multiple choice, so it's pretty easy. I'll give you the question, possible answers and then you give us the correct answer or the answer you think, and then maybe just share a client story or elaborate on the answer a little bit, wherever you want to go with that.

Tony Mauro:

Mm-hmm.

Marc:

But we'll let folks play along as well, see how they do. So, ready for it? You ready to get started?

Tony Mauro:

I'm ready.

Marc:

All right, here we go. Question number one, what age can you receive full social security benefits if you were born after 1960? Is it A; 59 and a half, B; 62, C; 65 or D; 67?

Tony Mauro:

Well, for this one, since I'm in this group, I know this one, it's D for 67.

Marc:

Okay. And the trick is the 60, isn't it? The 1960?

Tony Mauro:

It's the 1960 and a lot of people still have, in their mind the magical retirement age is 65 and that's still theoretically true, but what they started doing was moving up the age that we can receive full benefits when the trust fund started seeping out more money than it was taking in. And so that's what they did as a step back from that. But a lot of people still think 65, the 62 answer is, you could take it as early as 62, but for us after 1960, it's 67.

Marc:

Right, for that full retirement age. And it's always, what is it, like 66 and some months or something? I think my brother was one of those, he was 66 and seven months or something like that. But we'll see what happens if they change it. But a lot of times people wonder is it worthwhile to extend it to 70 and all that stuff. But this was again, just when you can do the full and of course the caveat there being Tony, if you don't do the full, if you go early, there are income limitations.

Tony Mauro:

There are a lot of income limitations, yeah, if you take early because if you take it at 62, you can go out and earn income, but they're going to reduce your social security. And this is all the way up to full retirement age, a dollar for every, I believe it's $2 that you earn. And so, the whole idea, I believe, of probably this question is you need to work with somebody and try to figure out what's the optimal age for you depending on your situation.

Marc:

Correct.

Tony Mauro:

Because everybody's going to be a little bit different there.

Marc:

Yeah. Yeah, exactly. And of course, once you get to 67, you can make all the money you want in the world and go from there. But yeah, so there you go. Good job. So good job with this first one. All right, so how'd you guys do? Did you get the question correct? And most people, I think, probably know that one, but again, you might not be aware that depending on when you were born, it could affect your social security or when you turn it on. All right, number two, what is the maximum annual contribution limit for a traditional or a Roth IRA for individuals that are age 50 and older as of 2025? Is it $6,000 a year you can put into that account, B; $7,000 a year, C; $8,000 a year, or D; $9,000 a year?

Tony Mauro:

That's another one of those questions that I think for most people, they've got the general idea, they've probably lost track unless you're like us and live it every day. But the correct answer is C; $8,000 in my mind because... And the reason I say that people get lost is they know it's around anywhere from, I get answers from about $5,000 to $8,000, but they've done a lot for people over 50 now as a catch-up provision. So they give you a little chance to put extra in if you're over 50, which is a great deal.

Marc:

Yeah, I mean, it's not the most massive amount. Sometimes people might hear, oh, $8,000. Because you get what, $7,000 normally and if you're over 50 you get that extra thousand, right?

Tony Mauro:

Extra thou, yeah.

Marc:

But I mean-

Tony Mauro:

That's not a lot.

Marc:

Yeah, but I mean, 8 grand, Tony, if you're 50 and you're not retiring until, see the prior question, 67, that's 17 years at $8,000 a year. I mean, that's not chump change either.

Tony Mauro:

And you got to think, at least I think in my opinion, and even with now what they've done with the recent retirement changes for these 401K's and whatnot, they're really trying to make it known, I don't think they'd do a good enough job, because they don't want us really relying on what we're talking about in the first question, and that's social security. Even though I believe it'll be there, but they're trying to say, "Hey look, we're going to give you every break that we can to try to stock money away so that you're not just dependent on social security." That's my theory.

Marc:

Okay. Yeah. And again, if you're over 50, you get those catch-up contributions and that's just the traditional in the Roth. Then there's the company sponsor plans, which is obviously quite a bit more so the government, every once in a while they do something that makes sense and the catch-up contributions over 50 is definitely helpful for a lot of people. So that's a good place to... Especially for folks who feel like they're behind, which many people who first start thinking about getting into retirement when they get into their 50's are like, "Ah, man, I'm not in good shape." So this is a great way to shore that up. All right, number three, which type of retirement account, Tony, requires you to take the RMD, the required minimum distribution? Is it A; a brokerage account, B; a 401K, C; an HSA or D; a Roth 401K?

Tony Mauro:

Another tough one. This one is the 401K, letter B because it is a qualified retirement account. And so what the IRS basically, unless it's a Roth 401K, that's different, but 401Ks, keep in mind, if you've been putting money in tax deferred for however many years, that's basically a deal with the IRS that basically said, "Hey, we're going to let you tax deferral on this money, but hey, by the way, when you start taking it out, we are going to require taxes to be paid."

But they got smart enough to say, "Well, you know what? Some of these people will never take it out and then we're going to escape. We're not going to get our tax money. So they came up with this required minimum distributions rule of, well, once you become a certain age, we're going to require you to take it out whether you like it or not, and you're going to pay taxes at that time, and that's what that RMD means. And they have an age, brackets now, they have raised those a little bit because people are living longer, but the other ones, your Roth, your HSA, and these other ones, you don't have to take money out of those at any time. You can die with whatever you want in those accounts, but the government is crafty that way because they can say they want their tax money.

Marc:

I don't know if I've ever ever heard anybody say the government's crafty that way, but there you go.

Tony Mauro:

Yeah, some of this stuff they think of it's just, you think they're not very smart and then you think, yeah, that's pretty crafty of them to do that. I get it.

Marc:

Sometimes you shake your head though. You do sit there and go, "What in the world are they thinking?" So good stuff. All right, number four here, Tony, what does the 4% rule refer to? Many people have heard this and most people probably know what it is, but in retirement planning, what does the 4% rule refer to? Is it A; the maximum percentage you can contribute to a 401K, is it B; a tax on high income retirees, C; a suggested annual withdrawal rate from your portfolio or D; the penalty for early withdrawal from a Roth IRA?

Tony Mauro:

Yeah, I would think most people would probably get this one, but the answer is C, it's the suggested withdrawal rate from your retirement portfolio. And we've talked about this before, several episodes back about that. That's the theory these days that if you can take 4% out of your retirement plan and you can stress test it and tell people, "Hey, if you do this, you can't outlive your money. But I don't really like as a one size fits all for everything. I like to work with clients basically anywhere from 4-6% based on what they have and what they want to do. As long as you can stress test the portfolio and show them that, hey, even if you live till you're 95 or 100, in your instance, with what you want to do, you will not run out of money. They like that. Now, it is a general theory to start and it's an easy way to just ballpark things, but I think you need to work it and get it down a little closer than that. But that's what they're talking about there.

Marc:

Yeah. And is it still viable, do you think? Do you think it's something or is it just this gets us in the ballpark?

Tony Mauro:

I think it gets us in the ballpark. I still think it's viable. I think with today's interest rates, in order to do 4% or more, you will have to be willing to accept either taking principle out or you've got to accept a little more risk and delve into either some bonds or equities or some things like that. A little higher paying dividends than just an old time CD. Right now, if you just were in CDs, you couldn't do that.

Marc:

Got you. Okay. And then the final one this week, Tony, is what is a financial risk that many retirees face? This is question number five. I'm going to give you a layup. I got to make this easy. Is it A; outliving their money, B; paying too much in taxes, C; miscalculating healthcare costs, D; being overexposed to risk in the market or E; all of the above?

Tony Mauro:

And one's not on there, is earning too much from their returns, but this is D; all of the above. I think all of these things is what we work with, especially with people, as I just said, making sure they don't outlive their money, making sure they're not paying too much in taxes. I mean, that's really what people are paying us to help them do. I mean, we will help them calculate their social security and their healthcare costs and whatnot. And then D; is trying to make sure that if we are trying to get them between 4 and 5%, that we're not overly exposed in their type of risk. So all of these lend themselves to the stuff that we do. Actually, all of the questions do really, but that number five is really what people are after us to help them with.

Marc:

Gotcha. Yeah, and I think at the end of the day, really just like school, if you think about it, the more you study your financial picture and understand the pieces, hopefully the better the outcome's going to be. But the good news is you don't have to go it alone. You can definitely turn to some help. And obviously, this is a profession that's been around a while, people helping folks get 2 and 3 retirement. You want to do your homework and your due diligence to find the right person for you, but that's why so many advisors, Tony, like yourself offer those consultations and conversations complimentary to get things rolling a little bit, usually the first couple of ones actually, to see if it's the right fit. So if you need help, get onto the calendar. Reach out to Tony and his team at yourplanningpros.com and go back to school, if you will. Now, don't worry, they don't assign a whole lot of homework, I don't think, Tony. It's pretty... He does most to the heavy lifting, but I guess you got to do a little homework on your own.

Tony Mauro:

You have to do a little bit, yeah. I mean, the biggest thing for us with clients is helping them, and we try to make it as easy as possible, figuring out really what they've got going on in their financial life. And so we needed an insight. You've got to show us and tell us some things. We've got to gather data and so you do have to help us with that.

Marc:

A little bit of homework. So not too bad though. So get on the calendar, come on in, have a conversation. Yourplanningpros.com, yourplanningpros.com or call 844-707-7381, 844-707-7381. Tony, thanks for hanging out as always, playing our game with us. We appreciate it. And folks, don't forget to subscribe to us on Apple or Spotify or whatever podcasting app you enjoy using so that you can plan with the tax man. And we'll see you next time. Thanks, Tony.

Tony Mauro:

Okay, take care.

Securities offered through Avantax Investment Services SM, member FINRA, SIPC. Investment advisory services offered through Avantax Advisory Services. Insurance services offered through an Avantax affiliated insurance agency. Investment strategies discussed in this episode may not be suitable for all investors. Please consult with a financial professional.

The new tax bill just passed, but will it actually help you? Let’s look at who stands to benefit, strategic moves to consider now while the rules are fresh, and answer a few true or false questions about the law. 

Important Links: Website: http://www.yourplanningpros.com

Call: 844-707-7381

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Transcript: 

Marc:

This week on Plan With the Tax Man, let's revisit the Big Beautiful Bill conversation. But this time let's look at who it helps and maybe who it doesn't help as we digest more of the Big Beautiful Bill.

Welcome in to Plan With the Tax Man with Tony Mauro and myself as we talk investing, finance, and retirement. What's going on, my friend? How you doing?

Tony Mauro:

I've been doing well. How about you?

Marc:

Hanging in there. We are firmly into August already. Man, the year is just like, "Shoo," just flying by. So I hope everybody's doing well. We're on the back half of the year and we wanted to just readdress a little bit more the Big Beautiful Bill conversation. We talked two weeks ago, Tony, about some of the nuance, some of the numbers, things of that nature, but let's talk about who's benefiting and maybe who isn't, just depending on where you're at. And we'll just kind of refresh some of the rules in the conversation as we're moving along. So in your mind as a planner, as someone who helps people with their business, with their personal, not only taxes, but also financial strategies, things of that nature, who do you see benefiting from this passing law?

Tony Mauro:

Well, I think there's a little bit for almost everyone in varying degrees. So I hate to say that there's no real losers, I don't think. Some people might benefit more than others, but I think that anybody could take some of this, especially with the tax rates and use it to their advantage for a while. It doesn't matter what your income is, it matters of how much that you can do to save for some things. So while I think it's a good attempt to maybe provide some tax relief all up and down the board, yeah, I mean it depends on who you listen to. High income earners are the winners because the greater tax cuts for businesses and the lower income households are losing way more than they're getting. We don't want to get into all that, but we want to at least hopefully explain a few things about this of how you can win on this.

Marc:

And we talked about that a couple of weeks ago. I mean, I think retirees and pre-retirees, certainly with the expanded standard of deduction, see benefit 65 plus, right? So that's a big piece. Some above the line items we talked about for charitable people, that's definitely beneficial. I think married couples that are, I guess middle/upper I guess maybe might be the ones losing out. I think married couples between basically $250,000 of income coming into the house and down. There's quite a few benefits for those folks, right? 250 and up, I think you're not going to see some of that.

Tony Mauro:

Not going to see some of that, especially if you're one of those people and you're both W2 and you don't have businesses or rentals or some things like that. And it depends on some of where you live, but there is some things in there that you might be able to take advantage of. Depending on what state you're living in with the whole SALT cap thing, you might be able to itemize where before you could not. But yeah, I think you're right with the things above 10 or 200, some of that stuff's going to phase out and you might feel like, "Well, I didn't get much out of this," but nevertheless, the tax rates are still relatively low. You still can convert Roth IRAs and do some things for retirement and things that will help you.

Marc:

Clients with no business or rental exposures. They're going to miss that. A little bit, like you said, some of the lower states with the SALT, but I feel like there's a lot of strategy in here for people. So if you're being proactive, which we hope that you are, what strategic moves should savers be looking at?

Tony Mauro:

Well, I think the big one would be, I'm a big Roth guy if you can do it, because way back Congress made a deal, what I call, with the devil, because they allowed these Roths, even though I think it kills them in the end because they can't get any tax on it. But they did set some limits in, but Roth conversions are big because they still allow you to convert from a tax deferred to a Roth, and you can even still do a backdoor Roth. It doesn't matter even what tax bracket you're in. And so even high income owners can start getting that money from the IOU to Uncle Sam to tax-free later on. So I think that's a huge one no matter what bracket you're in, that's the big one. Higher income earners and wealthier people, they did raise the estate and gifting strategies, but you're talking really high net worth up there, so that's not going to affect most of our clients.

Marc:

Right. At least they went to an even number, what was it, 13? It was like $13 million 999 before or whatever. Now they made it $15 million, so it's like-

Tony Mauro:

$15 million.

Marc:

Yeah, thanks for making it simple.

Tony Mauro:

And if you think about that, and if you double that, if you're for joint, you've got $30 million roughly before you have to start paying some of those taxes. I can remember in my lifetime when that exemption was like a million dollars and boy, if today it was that low, everybody would be getting snagged with that one.

Marc:

Yeah, I mean that's a good thing, right? Because I mean just the home values right now would send most people over. Even I think there was talk about before this even went through of them removing that $13 million down to back down there like six or seven or somewhere in that neighborhood even that would've been easy to hit for a lot of people with some of the housing prices.

Tony Mauro:

Especially in these total estates.

Marc:

Yeah, so I think again, charitable deduction, charitable contributions being effective there is certainly going to benefit a lot of people. And when it comes to the estate side, you definitely want to make sure you're still talking with your strategist and hopefully an attorney and you're putting those pieces together anyway, because a lot of people just don't even bother. They hear that number and they go, "Oh, well, I'm never going to touch that, so I don't need an estate plan." It's like, well, no, everybody needs an estate plan. It's just a matter of the estate tax conversation.

Tony Mauro:

Yeah, and the complexity of it. I believe everybody needs an estate plan and some of the basics. Obviously if you get up there to those numbers, then it's more complex and you really do have to do some planning to avoid those nasty taxes, but it's possible to do it.

Marc:

Yeah. Well, what else might trip people up on the new landscape, Tony?

Tony Mauro:

Some things would be implementation windows. Check with your advisor. I mean, we're sending out newsletters, so hopefully our clients are reading those about some of these weird start dates, so you don't do something and miss it and be mad that you don't get that particular deduction. There's that. And then I think too, I think you should check with your advisor to see overall, just you're just your tax advisor and/or your tax and or planning advisor, is, "What can I do? How can this help me?" So you don't go out and do something that you shouldn't, so you don't make a mistake.

And I'll give you an example. The car interest deduction, it's basically for lower to middle income people. It does phase out. It would be a mistake to go out and buy a car that doesn't qualify for that. And so that would really make you mad if you went out and bought a new car. Maybe you got yourself into a loan and with the hope of getting the interest deduction, you don't get it.

The other one is too though, with that one, you have to be careful, and maybe this would be more of a planning situation, is don't go out and buy a new car, maybe just for a deduction if you don't need it. Now, that's going against probably what Congress's intent is, but from a planning standpoint, as an advisor, we want you to stay out of debt as much as possible. But if you're in the market for a new car and need it, do it and maybe you can get a tax deduction that lowers the overall cost a little bit. But again, I think the big takeaway there is really check with your advisor before you implement some things. Let's put it this way, before spending money on things.

Marc:

Yeah, very true. All right, well let's wrap up the program here, Tony, with just a quick true or false on some of the Big Beautiful Bill myths out there. True or false? Social security is no longer taxed.

Tony Mauro:

That is false.

Marc:

Okay.

Tony Mauro:

They're still subject to the income tax depending on your total income, so that's not true. People are getting that confused with the extra deduction or-

Marc:

Yeah, the senior deduction.

Tony Mauro:

Yeah, the senior deduction. Yeah.

Marc:

Well that's my next one, so that's false. Okay. True or false? The new law means tax cuts for everybody.

Tony Mauro:

Yeah, not really because some of it, like the $6,000, I mean really is only for 65 plus and that does phase out if your income is too high. And then the SALT deduction really is going to help mostly people in the higher tax states.

Marc:

Yeah, for sure. True or false? The tax brackets are permanent now, so I don't need to worry.

Tony Mauro:

That's definitely false. You know nothing is permanent in Washington and it only means they're not set to expire. That doesn't mean the next Congress or president couldn't come in and rewrite everything, so absolutely not.

Marc:

Yeah. Okay. The $15 million estate tax exemption means estate tax or estate planning won't really matter to me because I don't make that much or I don't have that much. Right?

Tony Mauro:

And that's definitely false because every state has their own rules. Everybody always fixates on that big federal one. In Iowa, the rules are very different here. And so you are going to need a state tax plan even if you have a net worth say of a million bucks or more, especially depending on who you're going to give it to.

Marc:

There you go.

Tony Mauro:

Definitely check with your advisor.

Marc:

Great point. All right folks, well hopefully the last couple of episodes we're talking about the One Big Beautiful Bill hopefully we helped you with some clarity. I know Tony sent some other things out with newsletters and different things as well. So as always, before you take any action with something you hear from our show or any other podcast or anything you see or read online, see how it relates to your specific situation with your qualified professional because every situation is going to be different. Obviously we're all affected by taxation, we're all affected by social security, we're all affected by healthcare, things of that nature. But how it rolls into and plays in your specific life and strategy is different from person to person.

So make sure you're sitting down with someone like Tony who is a CPA, who's also a CFP and an EA of 30 plus years helping people get two and three retirements. So got all the credentials, got all the stuff there, so make sure you're reaching out to Tony and his team at Tax Doctor Inc. You can find them online at yourplanningpros.com, that's yourplanningpros.com and you can also subscribe to the podcast on Apple or Spotify or whatever app you like using so you can catch new episodes when they come out of plan with the tax man. Tony, thanks for breaking it down, my friend.

Tony Mauro:

Okay, we'll see you next time.

Marc:

I always appreciate you. I always learn something new and we'll see you a little bit later here on Plan With the Tax Man with Tony Mauro.

Securities offered through Avantax Investment Services SM, member FINRA, SIPC. Investment advisory services offered through Avantax Advisory Services. Insurance services offered through an Avantax affiliated insurance agency. Investment strategies discussed in this episode may not be suitable for all investors. Please consult with a financial professional.

A new tax bill has officially passed (you’ve probably heard it mentioned as the “Big Beautiful Bill”). And while most headlines are focused on politics, we’re focused on what it means for your retirement. The choices you make in the next year or two could have a significant impact on how much you keep and how much goes to Uncle Sam.

Important Links: Website: http://www.yourplanningpros.com

Call: 844-707-7381

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Transcript: 

Marc:

This week on Plan With the Tax Man, let's talk about the Big, Beautiful Bill and what it means for your retirement. We'll stay away from the politics as much as humanly possible and just focus on what it might mean in the choices that you may make in the next couple of years. Let's get into it.

Hey everybody, welcome into the podcast. This is Plan With the Tax Man with Tony Morrow and myself to talk investing, finance and a retirement with Tony, who is Des Moines Professional Alternative at Tax Doctor Inc. He's a CPA, CFP and an EA of 30 years plus in the industry, and a great resource for you to tap into.

And Tony, this week we're going to talk about... It's been a couple of weeks now and we're going to talk about the BBB or the OBBBB as the One Big Beautiful Bill. But you know, it's kind of funny. I think at first when we heard that, I think we thought that was just like the media name, but that's actually the bill's name. I was expecting it to be like OBB753624, some crazy number or whatever. But nope, it's One Big Beautiful Bill. So how you doing, buddy?

Tony:

I've been good. Wrapping up the summer and hot here and here, we're getting ready for the state fair. So that's a big thing around here.

Marc:

Yeah.

Tony:

Yeah. Things are going good.

Marc:

Well, good. Well, let's talk about this. Like I said, we'll try to stay off of the political stuff as much as we can. I mean, unfortunately, everything is trying to frame every piece of a conversation with some sort of a slant. And I will say, the only piece I'll say about this is that there's a lot of this helps billionaires and blah, blah, blah. And when you really look at some of the stuff we're going to cover today, it really doesn't. It's actually really kind of low and middle income families who actually get some of this extended stuff, at least a lot of the things that are going to affect most people. Right?

Tony:

That's right. Yeah.

Marc:

So we'll just dive into it. We'll kind of get started. So first of all, the tax brackets, which is the big piece, have been extended. You and I have been talking about that for a couple months now. When you're talking about planning and strategizing, we were waiting to see would the TCJA, the Tax Cuts and Jobs Act from 2017, expire or would they get extended? Well, they got extended.

Tony:

They got extended and they are supposedly... And we have to address this because you're going to hear a lot of stuff in the news and whatnot about this and that tax cut or brackets being now permanent, and hopefully, everybody knows that permanent only means that they just won't expire. But-

Marc:

Right. In Washington-

Tony:

Congress can change them.

Marc:

Yeah. In Washington, permanent is not an actual word I don't think. Yeah.

Tony:

It isn't. So I wish they wouldn't throw that around. But from this standpoint right now, they're not going to expire until Congress changes them.

Marc:

A future Congress would have to pass a bill, basically.

Tony:

Yeah. So you have to do that. But it is good news because now people from all income aspects can kind of plan. Obviously, the higher income is probably more concerned because they can do maybe a little more, but this is going to benefit people because all across the board, we're not going to have to worry about tax rates going up for right now.

Marc:

Yeah. The seven brackets, Tony, they're staying the same through at least probably 2028, right?

Tony:

At least. Yeah. At least.

Marc:

Right. So we got what? 10, 12, 22, 24, 32, 35, and 37. Those are the tax brackets.

Tony:

That is correct. Yeah. I always have to look them up now. Because there's so many, and they're constantly adjusting them a little bit for inflation. But I think that as far as how you can take advantage of that any more than you already have is we always try to get our clients to use up the bracket that they're in. It's important that they know what bracket they're in, which is their marginal bracket, because that is the bracket that the last dollar of income that's going to be taxed on. So anything we can do to fill up that bracket-

Marc:

Can you explain that a little bit? Because I think people get confused by that, right? So they think, okay, let's say I'm in the 22, and so I'm afraid I'm going to do this or this and I'm going to move to the 24. But when you get moved up a bracket, it doesn't mean every dollar that came in moves to the 24, correct?

Tony:

That's correct. Yeah. And a lot of people tend to forget when we'll pull out the brackets and the ranges that this is a progressive tax system. Certain amounts of income are starting out taxed at 10 and then the next is 12 and on and on and on. We talk about marginal bracket because if you're in the... Let's say I spout out, you're in the 22% bracket, that means any more of your income that you bring in that year over a certain amount is going to be taxed at 22%, but the first parts weren't taxed at 22%.

Marc:

Correct.

Tony:

Just the latest. And so it's really a good tactic for using Roth IRAs or Roth conversions-

Marc:

And we'll talk about that yeah, a little bit later too. Yeah. But that's a good piece of that. I mean, overall extending this, from a planner's standpoint, which obviously you're a planner, that's useful. Yeah?

Tony:

I think it's useful because now we can go with people and we can, I think with more accuracy, determine what their future taxes are going to be on some of this stuff and how we want them to take advantage of that and invest for retirement. I mean-

Marc:

Yeah, for sure.

Tony:

On a nation standpoint, well, again, we don't want to get into politics and all that as far as spending and cutting and this and that. But all we can do is take advantage of what they give us regardless of who's in there.

Marc:

Yeah, true. And so probably up until '28 we'll have this in place, and some of these pieces that they passed also do have time expirations on them as well, and we'll talk more about that here in just a second. But again, there seems to be a lot of confusion around it. So that's the first big takeaway is that, hey, we are at historically low tax rates. So that's a win for most people. We'll see how it plays out in the long run, but for right now, that's the advantage we can take from it.

The standard deduction was also "made permanent" right, Tony? And honestly, it's pretty hefty. Check this out. I was going to run this past you, see what you thought. If you kind of break this down a little bit, Tony, so it's what? The standard deduction is... Let just find my note here. Where'd it go? Okay, so the standard deduction for a married couple, it's 31,500 base for 2025. That's pretty hefty.

Tony:

That's hefty. And a lot of clients, that at least we see, may not be able to have enough itemized deductions to get over that, but at least it is. It's hefty. So you're not being penalized what I would say so much, but it is making it a little bit simpler for some Americans to just take the standard deduction. However, I think what we're going to talk about next will come into play this year where it hasn't come into play and that's the SALT cap because some people might be able to itemize now. But again, it's important to make that distinction.

Marc:

Yeah, for sure. Well, I'll tell you what. I'm going to move it around a little bit. Let's talk about the SALT cap after we talk about some of the other deductions that kind of go along with the standard. Okay? So we got the standard deduction. It's 15,750 for a single person, single filer. 31,500 for a married couple.

Now, what they did for a lot of our listening audiences is the whole conversation and the kerfluffle around no tax on Social Security. That didn't happen. They did their bartering and all that stuff and people wanted to get this, and some people wanted to get that. And what they settled on, Tony, was this additional $6,000 per person over the age of 65.

Now, here's where I think people get confused. So the existing law gives you that additional standard deduction of $2,000 per person if you're over 65. Then this new temporary, from 2025 to 2028, senior deduction they're calling it is another 6,000 for single filers or 12,000 for married couples. So if you add these together, the 31,500... Let's say you're a married couple. 31,500 base deduction, the 3,200 age-based existing law deduction for married couples, plus the $12,000 bonus that's temporary through 2028, that's $46,700 of deductions can be pretty hard to itemize.

Tony:

It's going to be pretty hard to itemize for seniors. Yes.

Marc:

That's pretty great.

Tony:

For sure. I mean, that is good.

Marc:

65 and over again, right?

Tony:

Yeah, 65 and over. Now, what you got to remember though is that it's not... And I've already started to hear it. They're not eliminating taxes on Social Security.

Marc:

Correct.

Tony:

You still are paying taxes on your Social Security. It's just that they're extending a deduction. So it's in the ballpark. I mean, your taxes will be cut by whatever tax rate you're in with this deduction. And so-

Marc:

It's kind of like a semantic word. It's almost a semantic math problem. Now, there are income limitations on this, we should say. For some people, it is like you're not going to be paying the tax on your Social Security, but not for everybody.

Tony:

Not for everybody, but yeah for a lot of people, especially the people that are more Social Security heavy as far as driven with their retirement income, you may not be paying taxes at all now or very little. They will go down.

Marc:

Yeah. So I guess we should explain the phase out. So how it works is if your MAGI, your modified adjusted gross income, is 75,000 for singles and 150, that's when it starts to phase. Does it mean you're cut off? It's not like a cliff, right?

Tony:

It's not like a cliff.

Marc:

At 150 for couples, it's not cut off, but at $250,000 of income, that's when it does cut off. So 150 to 250, you're kind of like percentages are going down, correct?

Tony:

That's correct.

Marc:

Okay.

Tony:

Yeah, that's correct. And then the people that are over 250, obviously I think probably the theory there is, well, they don't need this extra deduction. So you're not getting it basically.

Marc:

Right. Right.

Tony:

So you're not getting that tax cut.

Marc:

And so that really does benefit lower and middle income families, retirees.

Tony:

For a lot of them definitely. Definitely. I think we're going to see a lot of our senior tax clients and the financial planning clients, their tax bill is going to go down with that.

Marc:

Yeah. Now, the goofy part unfortunately was what was the IRS or whoever sent that thing out at first saying that it was no tax? And then they was like, okay, got all kind of confused and people got a little misnomer there. So we wanted to make sure we kind of explained that. They're kind of calling it the senior citizen deduction. As I said, it's 6,000 per person. Of course, $12,000 if you're married, and it's only for folks over 65 and again, within those monetary thresholds.

Now, to your point, let's back up a little bit and go to the SALT cap again, the bargaining chip I think when all these congressmen and senators and women are all chatting. It's like, well, I want this and I want that. They get this plan together. This happens with every bill for everything. We all know that's what they do. And you know that the higher income states were like, hey, California and New York and New Jersey and some other states were like, we need to raise the SALT. So explain what the SALT tax is and all that stuff.

Tony:

So the SALT tax is short for what they did with the state and local income taxes and your property taxes back with the Tax Act of 2017. They basically put a limit on that deduction that you can not deduct any more than $10,000 in that whole area of your Schedule A, which is really your state and local income tax, your property tax, your car license fees and sales tax.

And so for those high tax states and those big states like California and New York, you're talking property values... I mean, some of those people's property tax alone might've been 30 to 50,000.

Marc:

Yeah. I think Jersey's even higher than California, if I'm not mistaken. But Jersey's pretty high too. Yeah.

Tony:

So I mean, all the really high income earners have large, large homes and properties have been crying for several years because they always could itemize drastically and now that was cut way down for them. So they have expanded this to I believe it's 40,000.

Marc:

It's 40. Yep. Mm-hmm.

Tony:

And there are some limits I believe on that too, and I can't remember what they are. But that is going to be a help to people that might not have been able to itemize before that might be able to now. Again-

Marc:

Yeah. I feel like that's going to be your higher income earners though, Tony,

Tony:

It is.

Marc:

And by the way, yes, you're correct on the limits on that. The SALT deduction cap phases out between a half million and 600,000.

Tony:

Okay.

Marc:

Yeah. So it's fairly up there. So if you're itemizing, you're probably fairly well off.

Tony:

You're probably fairly well off. Yeah. It just gives a little bit to the higher income earner, especially in the higher property tax states and whatnot, and income tax states to be able to deduct all that where they were limited severely here in the past. And we have a couple of tax clients that live in these states. They're making a half million, million bucks a year as a W2'd employee. So they're phased out of everything. It's those people that were really getting hurt. So this will help some as well.

Marc:

Yeah, for sure. And before we move on to just the strategy of things and stuff, I did want to point out that there's also that new charitable deduction for standard filers. So if you can't itemize, back to my point a minute ago, we're talking like 30 plus grand of standard deductions going on, so a lot of people will not hit the itemizing level. They added this new little in 2026, Tony, where you can, for singles, it's only $1000, but still it's $1,000. And for married couples, it's $2000, but you can still do charitable donations without the itemizing.

Tony:

Without the itemizing.

Marc:

So it's not a ton of money, but it still comes off of your top income line. And if you're charitable minded, that's a great thing.

Tony:

That's a great thing. I mean, even at $2000, let's say you're in the 20% bracket, it's $400 of an actual tax reduction. And again, you want to take everything they're going to give you and you don't want to leave anything on the table. So that does help with the charitable giving as well.

And back to the point of the higher income people, the charitable giving, they're giving a lot more anyway, so they're already itemizing. So that doesn't really do anything for them, but it does give the average person, if they're doing it anyway, at least they get a little bit of deduction where before they didn't.

Marc:

Yeah, true. True. And this is an above the line deduction, correct?

Tony:

Above the line. So they don't have to itemize.

Marc:

Yeah.

Tony:

Yeah.

Marc:

Okay. All right, so then let's talk about also charitable giving and the Roth opportunities. So we kind of started that little piece of that earlier. Coming back to that now. The fact that you now have more runway, Tony as a planner, if Rothing over time was something that was maybe on someone's radar to do and they were worried, well, are they going to extend the Tax Cuts and Jobs Act or not? Or were the tax rates going to go up? That kind of changed that scenario, but now that we know that it's going to be that way for maybe the next four years, then hey, Roth opportunities are still alive.

Tony:

They're very much alive. Our clients especially using backdoor Roths for higher incomes, for us, we're basically telling clients, let's make sure we're filling up these brackets and getting everything into a Roth as we can before they change something on that loophole. But I think in this tax situation, especially in the planning area as far as evaluating what to do now versus later, I think that's where people like us come and play where we can provide a lot of value in that area. It's not talking all about just choosing investments, is how can we cut your tax bill and continue to save for retirement tax efficiently.

Marc:

Yeah. I mean, I think that's going to be the name of the game for most people is how do we maximize... Especially for four years, right?

Tony:

Four years.

Marc:

We know that politically it is what it is and in four years, depending on what happens with elections, another administration could come in and try to wipe out everything that this administration did. Who knows. So be efficient and take advantage of things right now while you can. And we'll wrap it up with any other things in there that caught your eye that you thought were interesting that you might want to share with the listeners?

Tony:

I think one was, and nobody really is talking about it yet and it doesn't help a whole lot of people, and I don't know if I really agree with it, but I think it's important to get it out there. And that is they're allowing auto loan interest to be deducted again above the line. So you do not have to itemize to get this deduction. However, there's a lot of limits in it. It's got to be purchased this year, it's got to be new. There's phase outs for the deduction on income, but everybody's buying a car [inaudible 00:17:06]-

Marc:

Yeah, it's like 10 grand too, isn't it? It's pretty-

Tony:

Yeah, it's up there.

Marc:

Yeah.

Tony:

And so if you're out buying that, you're going to have an incentive to...

Marc:

Well, that was the point. Yeah. that was the point, right? Because what is it, final assembly in the US? Which I'm curious as to what the breakdown on that is. Is it like 40% of the car has to be assembled here or what?

Tony:

Exactly. I think that's interesting.

Marc:

Yeah, for sure.

Tony:

And it'll be interesting to see how they try to police that for people that might press that a little bit.

Marc:

Great point. Yeah. Well, in that same car vein, Tony, I think it is again, part of that initiative to promote American business and growth and help our economy. Because on the same side, the EV credit is going away. So if on your radar for your retirement strategy, if you're getting close to retirement this year was to get a new car like many retirees do when they first get to retirement, keep in mind that the EV credit goes away in September. So just a little over a month or so from now.

Tony:

Yeah. I think one last one though is the no tax on tips up to $25,000.

Marc:

Might not help a lot of our listeners or your clients, but maybe their kids or grandkids.

Tony:

Yeah. I mean, it's going to help a certain segment to a point. I actually had, believe it or not, somebody already called me up, and this was a business client, they're already thinking, and hopefully they don't do this. But they were asking about, well, why don't I just convert all my employees to 1099s and they can basically claim tip income?

So the IRS has got rules on that. It's got to be W2. They got to be reported tips. So if you're a tipped employee and it's got to be in the service industry that normally receives tips, can't be somebody out on the road truck driver or something like that. Don't get too cute with some of this stuff and trying to push the limits and trying to outthink things, because you're going to get yourself in trouble. I know the IRS is having some issues now with staffing and whatnot, but I would recommend highly do not try to do any of that. And there's already stuff out on the internet talking about ways, which I think are already, they strike me as illegal. So don't fall for that. Make sure you ask your advisor.

Marc:

Yeah, yeah. Yeah. We want to still stay above board with this stuff.

Tony:

Got to stay above the board.

Marc:

Yeah. Especially with some of that stuff. But yeah, I mean, it could be beneficial for folks in those industries doing things the right way. So good stuff. I mean, look, Tony, at the end of the day, the tax bill didn't shake the system to its core, but it did provide a decent amount of change to help in a lot of areas, especially for retirees and pre-retirees to take advantage of. So again, the window's kind of short to act. A lot of this stuff kicks in either this year or the first of next year, and it expires at the end of '28, going probably into '29. Unless of course Congress does something different. But more than likely, this all stands until there's a new administration and then they rule some kind of changes or whatever. So the takeaway, be proactive, right?

Tony:

Right. Be proactive, talk with your advisor, see which deductions might apply to your situation both for taxes and retirement planning. And then just modify the plan as you go and try to take advantage of anything you can.

Marc:

Absolutely. Yeah, and that's a great point. And when working with someone like yourself, Tony, who's doing both sides of that, both sides of the aisle if you will, if you'll pardon the pun, you've got the planning side as well as the tax side. So it's really helpful to have both of those things under one roof. So reach out to Tony if you've got some questions, need some help. Get yourself onto the calendar so that you can Plan With the Tax Man at 844-707-7381. 844-707-7381. Or of course, visit him online@ at Yourplanningpros.com. That is Yourplanningpros.com. And don't forget to subscribe to us on Apple or Spotify or whatever podcasting app you enjoy using. We'll see you next time here on Plan With the Tax Man with Tony Morrow. Thanks, Tony.

Tony:

All right, take care.

Securities offered through Avantax Investment Services SM, member FINRA, SIPC. Investment advisory services offered through Avantax Advisory Services. Insurance services offered through an Avantax affiliated insurance agency. Investment strategies discussed in this episode may not be suitable for all investors. Please consult with a financial professional.

The 4% rule gets talked about like gospel in retirement planning. But let’s be honest, it’s always been more of a rough guess than a golden rule. Now, its original creator is revising it to 4.7%. So, does that mean your retirement paycheck just got a raise, or is this just another headline that oversimplifies a complex decision?

Important Links: Website: http://www.yourplanningpros.com

Call: 844-707-7381

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Transcript: 

Marc:

The 4% rule gets a makeover. Let's talk this week here on Plan With The Tax Man about the change in the 4% rule by the guy who created it. It's pretty much the gospel in retirement planning, so what does that mean for us? Let's get into it with Tony. Hey everybody, welcome to the podcast. Thanks for hanging out with Tony Mauro and myself as we talk investing, finance, retirement, and the 4% rule getting a makeover is the big topic this week, Tony. I want to dive into this conversation just a little bit, but first, how are you, my friend?

Tony Mauro:

I'm doing very good, how are you?

Marc:

I'm doing very well. Have you seen this? I'm sure you have-

Tony Mauro:

I have seen it.

Marc:

About the move to 4.7%. Doesn't have the same ring as the 4% rule, but it's being bumped up to 4.7%. And so I want to talk about this a little bit because this thing really, truly has... The guy who made this, and I'll let you give us a little back story here in a second, I wonder if he thought that this thing was going to be like the golden rule gospel of retirement planning when he made this thing 30 some odd years ago, right?

Tony Mauro:

Yeah. Well, I don't know if he did and it's been around for what, since the '90s I believe?

Marc:

Yeah, early '90s.

Tony Mauro:

Basically what he came out with, and there's been books written about it and everything else, and so it's very popular that what he came out with was retirees should basically, if you're going to live off of the income, you should take out 4% or right around there just for inflation. So for basically over your retirement lifetime, which at then was 20, 30 years, you wouldn't run out of money.

Marc:

Yeah, and it was like a 50/50 split too, right? I think it was instead of the 60/40, it was 50/50. And to make it easy, Tony, I guess we can say, look, you got $1 million, and it feels like everybody, even people who aren't in the financial industry have heard of this 4% rule. If you're getting close to retirement, you've probably heard it. And so it's like, okay, you got $1 million, take out 4%, it's $40,000 a year. Nice and easy, right?

Tony Mauro:

Right. And then it would continue to grow, you could continue to do that and you wouldn't run out of money.

Marc:

That's your safe withdrawal rate, right?

Tony Mauro:

Yeah, safe withdrawal rate. Now, in a person's overall financial plan, I like to go against the grain on this a little bit. I think when we talk about this at the distribution stage, I try to get them to buy into the fact that we want to do a hybrid type of take on this. Number one, we want to start out, because I think in today's, depending on their appetite for volatility, I think you can get closer to 5% easy. You have to cut back your bonds a little bit.

Marc:

Interesting. Well, and that's kind of what Bill's saying. And by the way, his name was Bill Bingen for folks who were-

Tony Mauro:

Yep, Bill Bingen.

Marc:

Who are listening. He's saying 4.7%, so you're saying maybe even 5%.

Tony Mauro:

I like to suggest 5% and I've been doing it with my own father for years and several others that like that. Now, if their propensity, they don't want to see any of their portfolio when they look at a statement or something and see it bouncing around, I try to get them, "Let's not worry about that, it's going to go up and down." But the income, we can get 5% easy, but I try to get them to buy into the fact, is let's say that we base it on 5%. Yeah, if we have a bad market, let's bump our distribution rate down a little bit to 4% or 4.5%. And if we have a good market, well, then let's bump it up a little bit in that year.

So we kind of get a little more activity, because I think the one thing I don't like about this rule is a lot of people think, "Well, I've got to leave all my money to whomever," and whatnot. I think the number one thing that we need to think about is, the first thing is you need to make sure that the rest of your life is stable and you have enough money. Then if there's money left, you can leave it to heirs. But I think too many of us get wrapped up in, "I don't want to take any money out." And I think it depends again, what you want to do in life, but they kind of shortchange a good retirement when they have money that they could do it with.

Marc:

Yeah. Okay, so looking at what Bill has done here, he's changed a couple of things. His 2025 update, Tony, is now 55% stock and 45% on the bond side. So he's kind of acknowledged that over the last couple of years, the bond market has not been so great, so he's kind of peeled that back a little bit, bumped it up to this 4.7%. And I think if people who see this, sometimes I kind of wonder, do they feel like that gives them a green light to, "Hey, I'm getting a raise in retirement?" Maybe, but maybe not.

Because for a long time, Tony, I've been talking with advisors for 10 years now and the 4% rule constantly gets brought up and people would say, "Well, it's really more like the 3.2% rule because we can't really pull that out," because interest rates were terrible. Zero on bonds and stuff for a long time, so it gets confusing for folks. They think, "Is it lower than 4% or is it higher than 4%?" Here, you're saying maybe up to 5%. So is it a green light to spend or is it a green light to say, "Let's rerun some numbers, re-analyze?"

Tony Mauro:

I think just like I said, it's a green light to re-analyze year after year and say it depends. It's definitely not an increase just to go spend more, but with bond yields as they've been over the last many years, the whole 50/50 split doesn't work. Even 55/45 is not going to quite get you 4.7%. It might if the stock side is doing okay, but in those years that we might have a down year, it certainly is not going to. I believe that, like I say, if we have a running range and depending on how things went, then that is what you're spending for the following year should be, and then you stick to that and then reassess. Your advisor's going to help you with this, so-

Marc:

Hopefully.

Tony Mauro:

It's not hard to... Yeah, hopefully. It's not hard to do, but definitely not a green light to just go spend more.

Marc:

Well, okay, so here's my thought on this and you tell me, because obviously you've been doing this for 30 plus years and I've just been talking with advisors for 10 years. But I think what sometimes happens, and this doesn't mean the 4% rule is wrong, by the way.

Tony Mauro:

Nope.

Marc:

I think it's like any rule of thumb, Tony. It's a conversation starting point. We'll go back to that $1 million account, 4% is $40,000 a year. If you're trying to figure out what do you need to pull from your assets to help your shortfall, because you're going to have your social security, maybe a pension, whatever. Do you have $1 million, I guess would be the first question. What kind of account is it? Because you might not have $1 million in it. It might be $1 million, but you may owe Uncle Sam $300,000, so now you got $700,000. Well, 4% on that's what, $28,000 a year? So does that fix your shortfall or does that leave you in the hole? This is where the strategy has come into play versus just a general rule of thumb.

Tony Mauro:

It is. And I think like you say, rule of thumb is a starting point. With your advisor every year, you need to be trying to figure that out because it really evolves as you age and what your, of course, needs and wants are.

Marc:

Right.

Tony Mauro:

And then of course, you may start out in retirement saying, "I'm going to go spend all this money." Health of a spouse, something else gets in the way and then all of a sudden your goals change, and so your plan needs to change, too. So keep in mind, it's a great place to start. We generally will start with that, but we like to plan from there and that's where the advisor is really going to prove their value to you being able to adjust this on the run.

Marc:

Well, Tony, what factors matter more than just the percentage you withdraw? I mean, I think that's got to be a question that people ask themselves. What other things matter, like market sequence of return risk? I mean, that's timing, taxes. I mean, these different pieces.

Tony Mauro:

Taxes, all that. I mean, how long are you going to live? What type of things you want to do. You got to factor in if you've got a spouse or significant other, what you want to do there. It also factors in, is how much if any, do you want to leave heirs? Maybe they're taken care of and that's not even an issue for you. For somebody else, that's goal number one. All of that needs to be factored in, so we have to allow for adjustments in that, all while providing you the retirement that you want. It's not all just about leaving it. One thing I notice with a lot of clients, my father included, is as we age, we've talked about this before, I think, is people don't want to spend any money. And I'm not saying run out and just blow all of your money.

Marc:

Right, but enjoy it.

Tony Mauro:

Yeah. And if we've planned and we try to hold them to it, because ask them a lot of questions. And we put it in the plan as, "Here's what you told us that you wanted to do, are you really doing that? I mean, are you really doing the part-time job you always wanted to do or starting that foreign language that you always wanted to do? And if not, why?" I mean, maybe your plans have changed, but most of these plans involve spending some money and that's where we get into it. But it's a nice topic to talk to everybody about really what they want before the end.

Marc:

Yeah. Well, okay, let's finish it with this kind of point. I think ultimately people want to know, "Well then, what is my personal safe withdrawal rate? How do I figure that out?" Because we're talking 4% rule or 4.7% or 5%, it's some rules of thumb. Or potential, people are going to come in and say, "Hey, what is my with safe withdrawal rate? How do we figure that out?" And that's really where the strategizing and the plan comes in. Because Tony, as I mentioned earlier, let's just use you and me as an example. If you come in and sit down with yourself, if you come in and you've got social security and assets, those are the two main things that you're pulling from, and I come in and I've got social security pension and assets. Well, my withdrawal rate may be different because I got the pension money.

Tony Mauro:

You got the pension money.

Marc:

Right?

Tony Mauro:

People ask us that, yeah. I say, "You know what? I have no idea what your safe withdrawal rate is. However, I will be able to find out, once we delve into some things, then I can tell you." But just blankly saying it's 4%, we could start there, but if I don't know what you have and what your goals are, there's no way for me to help you. Which is, it's basically is why you're paying a financial advisor, is to add that value and be able to help you determine what your safe withdrawal rate is. But it's no different than going to your doctor and they've got to ask you some questions before they can prescribe you medicine or figure out what to do for you.

Marc:

Right. I mean, it's 100 year old joke, but I still always giggle at it. "Doctor, it hurts when I do this." "Well then, don't do that."

Tony Mauro:

That's right, stop doing that.

Marc:

It's like with your financial advisor, he's like, "Hey, advisor, it hurts when I pull money out." "Well, don't pull money out." It's like, "Well, I have to." So you got to get the math put together, you got to get the strategy put together and take a look at it. And to your point, you can't generalize. I mean, you can if you're just having that quick conversation. You and the loved one are sitting around having dinner, "Hey, we're getting close to retirement. This should work, we've got this and we would do this," blah, blah, blah. But then take, run those numbers, right Tony, through the real value process and the calculators and the various different levers that get pulled when you turn this on and you do that and so on and so forth in that overall retirement strategy and see how it's all going to play together?

Because that's the big thing, too. I mean, you could think about the DIY movements. It's a lot easier the last number of years, to build our wealth and accumulate our wealth, especially if you're a DIYer. A lot of tools out there, a lot of resources. But I think when people get to realizing all the different nuances that make up retirement strategy and all the different things we got to deal with, they kind of like, "Yeah, I need a little help here."

So get on the calendar, come in, have a conversation. Talk about your withdrawal rate and taxation and market volatility and sequence of return risk. All these pieces, it all factors in. So reach out to Tony, get yourself some time on the calendar, folks, at Yourplanningpros.com. That is Yourplanningpros.com, or call him at (844) 707-7381 to have a conversation about today's topic or any other that's important to you. Tony, we're going to drop this right around the 4th of July, so happy 4th of July, my friend.

Tony Mauro:

Same to you and same to everyone out there. Hopefully everybody stays safe.

Marc:

Absolutely, enjoy. I'll see you next time here on Plan With The Tax Man, with the one and only Tony Mauro.

Securities offered through Avantax Investment Services SM, member FINRA, SIPC. Investment advisory services offered through Avantax Advisory Services. Insurance services offered through an Avantax affiliated insurance agency. Investment strategies discussed in this episode may not be suitable for all investors. Please consult with a financial professional.

Target-date funds just passed $4 trillion in assets. They’re now the default investment in many 401(k)s, and millions of Americans are using them without really understanding how they work. So, are they a smart choice… or just the easiest one?

Important Links: Website: http://www.yourplanningpros.com

Call: 844-707-7381

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Transcript: 

Marc:

Target-date funds just passed $4 trillion in assets. They're now the default investment in many 401Ks for millions of Americans, who are using them without really understanding how they work. So this week on Plan With The Tax Man, let's talk target-date funds.

Hey, everybody. Welcome to the podcast with Tony Mauro and myself as we talk investing, finance and retirement. Of course, Tony is the Tax Man, and if you've got questions or concerns or need some help when it comes to today's topic, or any other, make sure you're talking with a qualified professional like Tony and his team at Tax Doctor Inc. You can find them online at yourplanningpros.com. That's yourplanningpros.com. Tony's got 30 plus years of experience as a CPA, CFP, and an EA, so a great resource for you to tap into.

Tony, my friend. What's going on buddy? How are you?

Tony Mauro:

I'm well. Enjoying the summer so far, and as we're recording, that's getting closer to the July 4th holiday, so things are good.

Marc:

That's true.We'll drop this one this week about two weeks early, and then we'll drop another one, probably right around there.

So what do you think about that? 4 trillion bucks, man, in target-date funds? That's a lot of dough.

Tony Mauro:

That's a lot of money. It seems that clients are starting to ask about them more. Basically, what is it? Do you think it's a good idea?

Which is why I wanted to talk about it a little bit just to shed some light on all this.

Marc:

Because the question is, Tony, is it the smart choice or is it the easy choice?

So they were created for that purpose, to be easy, I think. I think that's part of it because... Well, we give some back history here, just a little teeny bit. Again, according to Morningstar, hit $4 trillion in assets. In fact, it says eight out of every 10 Vanguard 401k investors hold one today. So start at the beginning a little bit. What exactly is a target-date fund? Give us just a quick breakdown.

Tony Mauro:

It's as the name implies, is basically they set a date, and they have all these different funds. So for example, if you're 50 years old, and they have a fund that they put a date on it, so 15 years from now they'll call it the 2040 fund, and then the '45 and on and on and on.

Marc:

Which we're used to seeing, right?

Tony Mauro:

That's what you see. And really what they're designed to do, is based on your age, they basically take a portfolio growth-oriented as you're younger, if you've got a lot of time left, and then as you age, it becomes more and more conservative, and shifts on its own to more and more conservative funds. With the theory that is that as you get closer to retirement, you want to take less risk, and you want to make sure that a down little blip in the market two to five years is not going to kill you as far as that goes.

So, it makes it really appealing to a lot of investors with this whole thing. Talk about set it and forget it. This fund is that exactly.

Marc:

It's definitely that. So they call it the glide path, so it's designed. But I think there's some misnomers in there. So part of that, but based on what you were just saying, sometimes people say... Okay, well let's just go with an easy number here, Tony. We'll just say the 2050 fund. So it's 25 years from now, so I've got 25 years before I'm going to retire. I'm set to retire in 2050. So that'll work great, I'll just do that. Again, if you're doing nothing, I think these target-date funds can be cool, but some of the downside is that risk tolerance you were just talking about.

First of all, they don't go all the way down to zero. So I think some people feel like there's this, "Oh, well, if they're reducing my risk as I get closer to my target-date, I'll be really, really no risk by the time I get there."

And that's not usually the case. Usually, what? It's about 50/50 I think is about where they stop at.

Tony Mauro:

That's usually what it is, what I see, even in the most conservative, say the last two to five years. And I do think people, because they're marketed as the set it and forget it, they don't really look at some of that stuff.

So, while they offer the simplicity and the chance to rebalance, I don't think they're all the same. And I think this is where, rather than... It's better than doing absolutely nothing. Let's get that on the table. But if you're going to use one of those, as many people do, I think you should work with your advisor to make sure that this is something you really want. You need to look at the fee structure you need to look at...

Marc:

That's another great point.

Tony Mauro:

... The asset mix as you get a little closer to retirement, is that maybe it's too conservative? Maybe it's too aggressive.

To me, with our clients, I like to have a little bit more, I don't want to say control, but yet...

Marc:

Well, that's what it is though, right? Well, so all right, so you're thinking about... You just mentioned...

Okay, a couple of positives, let's do that. So it's very easy if finance isn't your thing, you just want to pick something, and so you can roll, and that way you're putting in your 401k at work, and you're getting the match, and blah, blah, blah, and you're earning something for retirement, great. Okay, very easy. Good to do.

The auto rebalancing, again, another benefit. So that makes it easy. You don't have to worry about that too much, because they auto due, but you just mentioned the fees. These are managed and so they come with fees, correct? Higher fees, sometimes.

Tony Mauro:

Sometimes they come with higher fees, because based on how the fund is structured, and what their fund is supposed to do, they may be moving in and out of securities more often than not.

And I think the other thing, too, is a lot of people don't really look at how long the fund's been around some of the maybe longer-term performance. Just even as the managers, because you certainly don't want to buy a real laggard=type of target-date fund if they don't have a good record as managers. But most of them are going to be okay to a little above average.

But the point is to take a look and delve into some of this stuff, because it's something you got to watch out for.

Marc:

Definitely.So you've got the fee structures conversation, does it actually fit your needs? So I think that's part of it.

So let me rephrase it this way, Tony, you've been doing this for 30 plus years as I mentioned earlier, I think if you're a younger person, if you're in your twenties, thirties, maybe even your forties, and you've taken a new role, new gig someplace, and you're setting up the account, and as I mentioned, more and more companies now are automatically... You have to check to opt out of a target-date fund. So check that whenever you're setting up with HR and all that stuff.

I think they can be useful. You're getting it going. You're busy, you've picked the target-date fund for the year that you're going to turn 65, but I think as you get closer, and you mentioned this a minute ago about your clients, I think once we get to 50 plus, maybe there's better options out there for us to be looking at doing it. Is that fair?

Tony Mauro:

I think that's fair. And I think it's especially prevalent, and we have cases like this all the time. If a person is maybe behind, in other words, we do a plan, and we figure out where they want to be and figure out that they don't have enough to get to that goal, we may need to change up some things, assuming the risk tolerance and everything else aligns with that. And the target-date fund wouldn't be a fit for that at all. We wouldn't be able to get to where we're going.

But in all of our meetings, as we're setting up the investments part, we do talk about target funds. And I don't mind using them for a small portion of the portfolio to start, just as a little bit of a buffer as the set it and forget it part. So there is a fit. So I'm not come off totally against them,

But I think in most cases, especially above 50, especially when you get to the distribution stage, we certainly don't want to leave our money in the target-date funds, because most of the time you're looking for as much yield as you can get for that income distribution. So I think they have their fit.

I think too many people are just like you say, just saying, "You know what? I don't know anything about any of this. I'm just going to throw my money in that."

That's not a bad option. I think the better option is to talk to somebody and to work with your advisor to see if that is the best fit for you and diversify even more.

Marc:

And I had just seen not long ago, and I was trying to find it so that I could cite the place that it came from, but it said over the last five years that more and more target-date funds are automatically shifting to a higher aggressive stance to begin with. Probably because the market had been doing well, plus with the bond trouble that bonds had been experiencing for a couple of years.

So again, to your point about allocation, and about risk tolerance, and all that stuff, that's where some of the misnomer comes in. People feel like, okay, this is going to be probably a fairly safe bet. It's going to be a 60/40, it's going to stay that way, 60/40 split's going to stay that way. And then as I get closer to retirement, it's going to drop down to 70/30, 70 being safer. And that's just not always the case.

So you really want to talk with an advisor and dig into it. So do you guys, when you're working with people that come in for the first time, and you're going through their list of assets, do you look into those and see what's going on there?

Tony Mauro:

We do if they have those in their 401k. And then we'll usually pull a report just to let them know what that fund is about and what its makeup is, what its asset allocation is, and based on everything else that we'll do in our planning software, is that the right fit for them in the portfolio? A lot of times it is. But if that's their only one, generally we'll suggest some other things, at least for the future.

Marc:

What typically is in some of these bigger ones, typically it's going to be a lot of large cap and stuff, isn't it, Tony?

And so I was thinking about this the other day. So if you're picking a 2040, 2050 fund, but then you're also going and getting some investments on the side. Let's say you want to do some extra stuff and you're like, "oh, I'm going to go get a mutual fund through Schwab" or whomever.

A lot of times you wind up buying the same stuff, because you're probably picking a mutual fund that you're looking at to see, hey, it's doing fairly decent and it's probably all around, well, lately, tech, and these large-cap companies, the S&P, and whatnot.

Tony Mauro:

It is. And I think so many people don't look at that. They think they've got a ton of diversification in their mutual funds, [inaudible 00:10:08]

Marc:

"I got that from Schwab, myself, and my target-date funds through Fidelity." I'm just making stuff up. But then they think, "Okay, two different companies, two different mutual funds, two different sets of stuff. Cool. I'm more diversified."

But often it's not.

Tony Mauro:

It's really not. And when you delve into it a little bit, you can point some of that stuff out, and it's a little aha moment for them just to basically say, "Look, if there's nothing wrong with this, but you really don't have as much diversification as you think, and based on how we want the plan to go, we might just to make some tweaks."

Marc:

Gotcha. Okay. All right. Any final thoughts? I don't want to belabor the point too much.

I like this thought that I have to wrap this up, Tony, and then I'll let you tell me what you think. Look, they're easy as we said, but sometimes that's the problem. And with so much money riding in a one-size-fits-all strategy, I think it's worth asking the question, are you planning for retirement or are you coasting towards it? What do you think?

Tony Mauro:

I would say that's definitely true. I would say from a planner standpoint is we try to get a little more intentional with it, and we don't really want to... Not that the default is a bad thing, but we want to make sure it's the right fit for you. So I definitely think there should be at least a little dissecting before you just coast rather than plan.

Marc:

And I think definitely age has something to do with it. So like a lot of things in finance, what you're doing in your twenties, and thirties, and forties may be fine if you're going with the one size fits all easy, low-hanging fruit. But as we get to 50, we start thinking about things a little bit differently and maybe it's a little worthwhile to start really getting somebody to look under the hood, so to speak, and really dissect that a little further.

So, you got some questions with that stuff, need some help, reach out to Tony and his team at Tax Doctor Inc. Get yourself onto the calendar by simply going to their website, yourplanningpros.com. Or you can call them at 844-707-7381. 844-707-7381.

And don't forget to subscribe to the podcast on Apple, or Spotify, or whatever podcasting platform app you enjoy using. Just type in "Plan With The Tax Man" in the search box, or just simply go to the website, yourplanningpros.com.

Tony, my friend, thanks for breaking it down. As always, I appreciate you.

Tony Mauro:

Okay, we'll see you next time.

Marc:

We'll see you next time right here on Plan With The Tax Man with Tony Mauro.

Securities offered through Avantax Investment Services SM, member FINRA, SIPC. Investment advisory services offered through Avantax Advisory Services. Insurance services offered through an Avantax affiliated insurance agency. Investment strategies discussed in this episode may not be suitable for all investors. Please consult with a financial professional.

A little hope is good for the soul, but when it comes to retirement planning, wishful thinking can lead to serious financial mistakes. Today, we’re walking through five common examples of wishful thinking that can quietly damage your retirement and how you can build a plan that protects your future instead of relying on luck.

Important Links: Website: http://www.yourplanningpros.com

Call: 844-707-7381

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Transcript: 

Marc:

A little hope is good for the soul, but when it comes to retirement planning, wishful thinking can lead to some serious financial mistakes. So we want to talk about a few ways wishful thinking could possibly damage our retirement this week on Plan with the Taxman.

What's going on, everybody? Welcome into the podcast. Thanks for hanging out with Tony Mauro and myself as we talk invest and finance in retirement. Tony is a CPA, CFP, and an EA with 30-plus years of experience, and he is the Tax Doctor at Tax Doctor Inc., serving you all around the, well, Iowa and other areas as well. He's got clients all over the place. But we appreciate your time here on the podcast. And this week, we got a few wishful ways that, wishful thinking ways, I guess, that maybe could damage us, Tony. And there's nothing wrong with being optimistic and hopeful. Well, that's all good stuff. But you want to not kind of carry that so far, I guess, that it clouds your judgment and costs you in the end, right?

Tony Mauro:

That's right.

Marc:

Yeah.

Tony Mauro:

Some of these topics are some we hear all the time.

Marc:

All the time? Well, we'll try to tackle some of the biggest ones for you.

Tony Mauro:

Yeah.

Marc:

You doing all right this week?

Tony Mauro:

I'm doing good. Yeah. I mean, we're getting ready to spend a little more time outside, although the weather here is cool.

Marc:

I think it's cool across the country, actually, a little bit.

Tony Mauro:

Yeah.

Marc:

In some places.

Tony Mauro:

A lot of rain and stuff.

Marc:

Yeah.

Tony Mauro:

Hoping for something warmer.

Marc:

Yeah. Yeah, for sure. Well, that's wishful thinking, right?

Tony Mauro:

That's wishful thinking on my part. Yep.

Marc:

Well, let's get into a couple of these and talk about it. We got to go with a standard classic, really, financial myth, I think, and that's the wishful thinking thought of, "I'll be in a lower tax bracket once I retire, so that's going to help me out from my cost savings standpoint," or whatever. And Tony, I've been talking with you for years and lots of other financial professionals, and they all tell me the same thing, that more times than not, people are in the same tax bracket when they retire, not a lower one. What's your thoughts?

Tony Mauro:

That's correct. Yeah, we find that too. It's the same or sometimes even higher depending on what they have coming in and how that is going to be taxed. And I mean, the traditional thinking is that, "Hey, my expenses are going to go way down, my income is going to go way down, and so therefore my bracket will go way down." But a lot has changed even with the brackets. There's not as big of a spread in each one, so they don't go down by that much. But a lot of times, people that have definitely planned and saved and are bringing in money, passive income from retirement sources, that a lot of times is the same or higher income than when they were working, which is a great thing, but they don't drop tax brackets, so we got to be very efficient about taking it out.

Marc:

Yeah. Okay. And that's the point. So it's the income strategy, where you're pulling it from and at what time, that's going to kind of dictate this a little bit, right?

Tony Mauro:

Yes.

Marc:

So that's when you start getting into the, which horse are you riding? The Social Security horse or your own, the 401(k)'s over here that you have or what on pulling out the income gap, kind of shoring up that income gap. Because they don't just, getting to Medicare, when you're 65, they give you Medicare. It'd be cool if they said, "Hey, you're 65. You're automatically in a lower tax bracket." But you don't get it as a retirement bonus. So if you want to be in a lower bracket, you have to strategize for it.

Tony Mauro:

You got to strategize, and you got to pull money out of the right buckets at the right time which I think is where a planner, if you're working with one, is going to really help you in that regard besides just trying to get the most return for whatever you're doing, whether you're taking some of the principal or just interest or whatever.

Marc:

What's the culprit that keeps us in that tax bracket the same? Is it typically the RMD withdrawals?

Tony Mauro:

I find it's the RMD withdrawals and then other income. People will go back and work a little bit. And then what they don't realize is that sneaky Social Security being taxed is that they bring in this income from other sources. And oh, by the way, now all of a sudden, a lot of my Social Security is taxed, and they weren't ready for that. They thought they were going down in income, which they are a little bit, but then that Social Security creeps back in for taxation purposes, and it screws up a lot. I just saw a lot of it this year. We had a lot of retirees that went out and had RMDs, and then they were also, a lot of them went back to work. You could look at their comparisons on their tax returns, and last year, hardly any of their Social Security was taxable. This year it was the full max, 85% of it, and all of a-

Marc:

Because of the income pullout.

Tony Mauro:

Yeah. Because of the income pullout.

Marc:

Yeah.

Tony Mauro:

And so you got to watch that. And you can plan some of that away a little bit, but that's the culprit that I saw this year with the Social Security.

Marc:

And that's where, again, some of that strategy comes in. And then when you do bump that income up higher, also with the Social Security, that then also affects the IRMAA conversation, right, the IRMAA penalty.

Tony Mauro:

Yeah. Yeah, it affects that. And then that obviously affects the tax bracket. And it's very sneaky because the clients, like I say, none of them realize that about the Social Security.

Marc:

Well, you kind of mentioned it, so we won't dive into it, but another one that was on my list was I'll spend less money when I retire because I'm no longer going to work and stuff. But I mean, you kind of touched on that. I think I sum it up all the time with the way my dad said it to me many, many years ago, which I've shared on this podcast before. And he was like, "Hey, retirement's great. I'm digging it. Every day's a weekend." I was like, "Awesome." He's like, "Yeah, but I spend all the money on the weekends." Right?

Tony Mauro:

Yeah. That's right. Yep.

Marc:

So you just got to be careful. Right?

Tony Mauro:

That's a good saying. Yeah, I like that.

Marc:

Yeah. And he, unfortunately, passed away, wasn't retired for very long. But it's always stuck with me because I was 15 or 16, something like that. I was like, "Okay, well, every day in retirement's a weekend, and you spend a lot of money on weekends, so be careful." So don't assume that that's, and again, wishful thinking, being well, like this next one, "Well, as long as I keep getting this good return, Tony, that I've had for the last, let's say 10 years, then my plan will work." Well, that's wishful thinking. I mean, as we saw this year, obviously, we had a new administration, we had the tariffs come in, made things pretty rocky. Now it's smoothed out there. We're almost back to all-time highs, but still, don't go into things with the assumption that every single year the market's going to give you 20% returns or 12% returns or whatever.

Tony Mauro:

Yeah. And I think most retirees shouldn't be looking at that like that anyway, because it's time to be more conservative. And if you're banking on that, and we have a prolonged, we haven't had a lot of it in the last, what, prolonged 15 years?

Marc:

17 years?

Tony Mauro:

Yeah, 15 years. Yeah. We've had little blips, yes, and some months of-

Marc:

I mean big blips, but they didn't last long, right?

Tony Mauro:

No, it didn't last long. And if you're not prepared for that or worse, you're not diversified, and you've got a lot of stuff, meaning your retirement income or not income, but your nest egg in something a little more aggressive, and that particular sector has a bad three to five years, that's going to blow that whole thing right up. You won't be just fine.

Marc:

Yeah. And so the wishful thinking, again, being, "As long as this and this and this happen, I'm good." Right?

Tony Mauro:

You're right.

Marc:

Well, you can't control this and this and this, so get a good strategy to hopefully retire in any economy. And maybe what you were talking about there a little bit, right, is sequence of risk return, right? Or sequence of return risk. Because if you literally retired in the down market, and it lasted for a couple years, obviously those accounts are going smaller, and you're pulling money out. That's what you're talking about, right?

Tony Mauro:

That's what I'm talking about. As I always preach to people, I can't control what the market does. Nobody can. All we can do is make sure we're invested in the right things that, over time and depending on what your plan is, that's going to get you to where you need to go. But I definitely would not, say somebody comes in and says that to me, it's like, "Whoa, we got to change your thinking real fast here because that's going to get you into some trouble."

Marc:

Yeah. Yeah, for sure. All right, so let's see. What else have we got on this list? Well, okay, let's piggyback off of that one. "Well, if things go south, I'll just keep working." The wishful thinking of, "Well, if it all goes to crap in a hand basket, I'll just go back to work." Maybe you can, but maybe you can't. Your body may not let you, your company may not want you, or you may not be able to make the kind of living that you thought you were going to make.

Tony Mauro:

I agree with all of those, and what I see is the biggest ones are my health or abilities won't allow me to do that. When I was working, things were different. I don't have that skill set that a lot of people were looking for, but I do see a lot of it, even though nobody admits it, is age discrimination. Nobody wants to hire.

Marc:

Right? Isn't it funny?

Tony Mauro:

Yeah. A 70-year-old.

Marc:

But it's easy to go, "Well, we just don't have anything." Or whatever. Even if you're sharp as a tack. Yeah, it definitely exists out there.

Tony Mauro:

There's a car dealer here that the drivers that drive me back for when I have my car.

Marc:

Oh, like the shuttle service thing?

Tony Mauro:

Yeah. They were telling me that they are driving for this company because the last company said they have a mandatory retirement age of 70. We don't want you if you're 70 or above and you have to get out.

Marc:

I wonder if that's an insurance thing because we don't want to have to cover the insurance that it's going to cost in case you have a driving, an accident.

Tony Mauro:

In case you wreck. Yeah.

Marc:

Because your response isn't fast enough. It's not as fast as it used to be, your motor skills or whatever. So yeah, it's a fine line. So they think they can cry safety for the public, but it's also bordering on age discrimination. So we're in a weird world.

Tony Mauro:

It really is. It's very weird.

Marc:

We're in a strange world.

Tony Mauro:

I do see that though.

Marc:

No, for sure.

Tony Mauro:

If a 70-year-old-

Marc:

Airline pilots. I've got a client that does a podcast, Tony, he's an airline pilot, and they have mandatory retirement. I think it's 65. They can't be in the skies anymore, right?

Tony Mauro:

Yeah. For controllers it's 56.

Marc:

Oh, there you go.

Tony Mauro:

The only reason I know that is because I do fly, private pilot, that is, and it's funny because you're kind of in tune with all that and the whole air traffic control issues that they've got, and I don't think they pay those people enough.

And then of course they have a limited shelf life because they make them get out so early.

Marc:

I guarantee it's insurance-based. What do you want to bet that some lawyers and some insurance people somewhere said, "Let's just reduce our risk mitigation here?"

Tony Mauro:

Risk, yeah, very well could be.

Marc:

Yeah. Interesting. So yeah, I mean, again, back to the topic, wishful thinking. I'll just go back to work is not a great strategy either. So could you? Maybe, but don't plan on it. And right along with that, Tony, is maybe we want to make this the last one is, "My kids will cover it. My kids will help me if it's bad." And a lot of us get in that situation. I mean, I help my mom. She's not living the retirement she wanted, but it was not a conversation we ever had. And she's in this position not by, well, sort of by choice, but at the same time, don't just assume that your kids are going to go, "Yeah, no problem. I'm going to help you out." Because they're probably raising their family at that point, and they may want to, but they may not be able to actually do much more than maybe drive you around or something like that.

Tony Mauro:

Yes, I agree. I'm trying to think when you were talking about it, if I've had any clients that actually have ever said that my kids are going to help me. A lot of them think they're going to help them, but nobody's ever come out and said, "Yeah, my kid, he's just doing everything for me." I do think that's very wishful thinking, and I think that's a lot of burden to throw on a child.

Marc:

I'm glad you said that. That's a funny, because when we do those surveys to potential retirees, what's the top five things? Almost always one of the top five, Tony, and I'm sure you'll agree with this, is, "I don't want to be a burden on my family."

Tony Mauro:

Exactly. That's right up there.

Marc:

Yet these wishful thinking things, folks, that we're talking about this week also come from retirees. These are actual literal sentences from retirees that we surveyed. So to say, on the one hand, I don't want to be a burden on my kids, but then on the other hand, well, if all else fails, the kids will help me. It's a weird dichotomy. So just get a strategy so that you don't have to put them in that spot.

Tony Mauro:

Absolutely. And a plan will certainly help you with that. And so will certain types of insurance and understanding some of that toward the end of life, so you have options so that you're not in that situation. And then if you wishful think that and the kids aren't able to help you, well now you're in a real pickle because you've got all kinds of not probably too desirable ways to live and take it around and it's bad.

Marc:

The options are not super, super fantastic. So look, wishful thinking, again, good stuff can be there, but if you don't put it into practice or if you don't put a backup plan or a strategy in practice and then the wishful thinking is the backup plan, then you're maybe setting yourself up. And a lot of these, again, are kind of normal. There's a lot of other ones. We won't spend a lot of time on it because they're very similar, but it's, "I'll be in the lower tax bracket." Or, "I'll spend less money when I retire." Or, "The kids will help me." Or, "I'll just keep working." Or, "I'll sell the house and downsize." Right? That's another one that happens sometimes. Why go with the worst case scenario if this happens wishful thinking instead of getting a good strategy into plan together and saying, "Okay, let's run some stress test scenarios if this happens, and then let's run some if that happens." And that's what you guys are doing when you're starting to build these plans.

Tony Mauro:

That is, and it's much better to be in that situation rather than, "Well, if this, this, and this happens, I'll be okay." I mean, I don't like to have three or four things that have to happen and everything line up for you to be okay. We want to make sure you're okay if nothing happens. And then if some of those things do happen, that's great.

Marc:

Well, and you run those scenarios. So let's say you run the scenario and, "Mr. and Mrs. Smith, it looks like, based on this, here's what you're going to need to make this goal happen." Maybe that's working a little longer. Maybe that's saving a little more. So you have all those options laid out. Or plan B is, "You do have enough, right? It is going to make it, but here's what happens if one spouse passes early." So you get all these different kinds of outlooks to structure your life around versus just hoping.

Tony Mauro:

I agree. I agree 100% because again, relating it back to the real world, I've got some family that haven't done this, they haven't planned, and they're getting ready to retire, and they have a lot of these wishful thinkings going through their mind. I'm trying to set them straight saying, "You're planning on too much. You got too many things that have to go right." And we sat down, I told them the, well, it wasn't the truth that they wanted to hear, but it's the facts. And they're now, we're working to get some things in alignment according to a plan that they can handle and at least they know.

Marc:

Yeah, that's good. And it happens, right? I mean, you're in the industry and you have family that doesn't listen or whatever or didn't listen for a while. So we all have that in walks of life, mechanics. It's like, "Oh, my wife's car's falling apart." And it's like, "Well, you're a mechanic." "Well, I don't have time to fix it, and she never listens to me." That kind of thing. So it happens in all walks of life.

But what do you need to do? You got to do the best things for yourself. And a lot of times that starts with sitting down, getting an analysis done, and looking at what it's going to cost you. Often it's not nearly as expensive as people think it is, and the reward and the risk reward ratio is much, much better. So if you need some help, get yourself some time with a qualified professional like Tony Mauro and his team at Tax Doctor Inc. Find them online at yourplanningpros.com. That is yourplanningpros.com.

But don't forget to subscribe to the podcast and share it with others who might benefit and enjoy the message as well. And that's Plan with the Taxman on Apple or Spotify or whatever podcasting app you like using. Again, Plan with the Taxman, with Tony Mauro. Tony, my friend, thanks for hanging out. Have yourself a great week. I'll talk to you a little bit later on this month.

Tony Mauro:

All right. You do the same, and we'll talk to you next time.

Marc:

We'll see you next time here on Plan with the Taxman.

Securities offered through Avantax Investment Services SM, member FINRA, SIPC. Investment advisory services offered through Avantax Advisory Services. Insurance services offered through an Avantax affiliated insurance agency. Investment strategies discussed in this episode may not be suitable for all investors. Please consult with a financial professional.

Are you saving so much for retirement that it’s squeezing your life today? In this episode, we’re answering a smart viewer question about finding the right balance between preparing for the future and living fully in the present.

Important Links: Website: http://www.yourplanningpros.com

Call: 844-707-7381

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Transcript: 

Marc:

Are you saving so much for retirement that it's squeezing the life today out of you? And in this episode, we're going to answer an interesting question from a listener about the right balance between future savings and living in the moment. Am I saving too much for retirement? Let's find out this week here on Plan With The Tax Man.

Hey, everybody. Welcome into the podcast. Thanks for hanging out with Tony and myself as we talk, investing, finance and retirement. Of course, Tony is a CPA, CFP, and an EA of 30 plus years and the big kahuna over there at Tax Doctor Inc. And if you guys got questions and need some help, reach out to him at yourplanningpros.com before you take any action from something, from our podcast or any others, you always want to check with a qualified professional with the experience to help you get to and through retirement. And that is Tony. So yourplanningpros.com or 844-707-7381. Tony, my friend, is there such a thing as saving too much for retirement? And let's talk about it. How you doing?

Tony Mauro:

I'm doing good. It's post tax season and I figured this would be a good topic because we don't hear this that much, but it is possible to be doing too much of this.

Marc:

Okay.

Tony Mauro:

And normally we're always talking about saving more, saving more.

Marc:

Right. Yeah, yeah. That's why I thought it was kind of an interesting question. So here's the question from the listener. He says, "My wife and I bring in about $200,000 a year." Very nice. I'm assuming obviously that's combined, wife and I.

Tony Mauro:

Yeah.

Marc:

And he says, "We max out our two 401Ks and HSA, a 457B and still put some into brokerage accounts." Very cool. Right? He's doing a very good job.

Tony Mauro:

That's good.

Marc:

Yeah.

Tony Mauro:

Yeah.

Marc:

He said, "Yet I still feel like, honestly, sometimes we live paycheck to paycheck." Very interesting. "We also are not living in our dream home, just FYI, because I've prioritized retirement savings versus a bigger chunk down for a down payment or a mortgage or whatever. So my question is are we saving too much for retirement? I feel like it would be nice to live a little bit more in the moment." So that's the question, Tony. So, I mean, the first thing that jumps out to me is does this gentleman have a plan because... or is because we've been kind of beat up in the head to say save, save, save, like you just said a minute ago... Has he been doing all that without really truly knowing what his numbers look like?

Tony Mauro:

Exactly. And that's what comes to my mind, is if you're asking this question, obviously you must not have a plan other than-

Marc:

Save.

Tony Mauro:

... the only plan is I'm just saving, saving, saving.

Marc:

Right, right.

Tony Mauro:

And I think if we zoom out a little bit, the thing is, well, there's not a whole lot of risk for over-saving, but there can be some because you're feeling like you're feeling.

Marc:

Yeah.

Tony Mauro:

In other words, you feel like you're not living enough, you're making maybe too many sacrifices. And so it's not maybe a financial risk, but it's an emotional one for sure.

Marc:

Right. Okay. Yeah, yeah. That makes sense. Well, we've got this... and let me know what you think about this. So I guess the question for the listener would be how can you tell, right? Without coming in, sitting down with a qualified professional, obviously running the numbers. That's certainly going to be the easiest way to do it.

Tony Mauro:

Right.

Marc:

But how can you tell if you're ahead of schedule financially? What do you think about those online benchmarks and online things that you can use? Like we've got one from T. Rowe Price here. We'll throw a link into the show notes description this week if people want to go check that out for themselves. Just click on the link. But it gives you that... How much do you have from your salary going here and there and that kind of stuff. Do those things, are they helpful?

Tony Mauro:

I think they're helpful. I mean, if somebody's just asking me off the cuff, I point them to those types of things just as a benchmark.

Marc:

Okay.

Tony Mauro:

I always tell them, keep in mind benchmark means benchmark and if you really want to narrow it down for you specifically, that's when I think you need a full-fledged plan because I think that's what's really going to help you the most, but at least it can get you started.

Marc:

Yeah, I mean, it's like the back of the napkin math when you're doing how much withdrawal rate and that kind of thing. It gets you kind of a launching pad. And, Tony, you and I are about the same age. We heard growing up we needed to put 10% away in order to be ready for retirement. Generations now. I mean, my daughter, she's 28, so she's being told 15% and even any kids that are like 20 now are being told maybe 20%. Right?

Tony Mauro:

Right. Yeah.

Marc:

So how do you kind of balance that paycheck to paycheck feeling in life? I mean, it's tough.

Tony Mauro:

It is tough. And that's why having a moving and active, live, plan is going to help you the most because everybody's going to be different. I think that depending on what you want, long term, is going to determine that percentage.

Marc:

Right.

Tony Mauro:

And I think just throw a blanket out there, it's probably a little too presumptuous there. But I think with the younger people, 20% seems awfully strong to me.

Marc:

Well, it seems tough to do, right?

Tony Mauro:

Yeah. And very tough to do for the young people if we told them that, they'd really have to... I mean they would definitely be feeling like this if they were trying to save 25%, something like that.

Marc:

Right. Yeah. And live. Right? Of course.

Tony Mauro:

And live, yeah.

Marc:

Yeah. Well, all right, so for the listener here... So he's got a lot coming in, he's putting a bunch into different accounts. Right? If you're saving too aggressively, right? I mean, given into the fact that we take a plan... Let's say this person came in, you ran the numbers for them, okay? And we'll try to put some context to this. And you could certainly see that they were on target to be just fine based on the numbers he's already put away. How would you then counsel things. All right, let's kind of back this down? Or do we want to start looking at tax efficiency because we've saved so much or where would we go?

Tony Mauro:

Well, where we would start would be what their end game is and what the number looks like for them. And then start working backwards and use the planning software to basically show them, okay, well you're already going to hit what you just told me and then some.

Marc:

Right.

Tony Mauro:

So if that's still going to be your mark, let's start talking about some of your other goals that you feel like you've missed and let's prioritize those and let's start backing off the savings a little bit and put some towards those.

Marc:

When you say number, Tony, do you mean income? Do you mean what their assets would generate monthly for an income?

Tony Mauro:

That's what I mean there, yeah.

Marc:

Okay. Yeah.

Tony Mauro:

I mean, we'll start with what do you want monthly when you retire and then based on what you have in your nest egg now and forecast out what it's going to grow to...

Marc:

It could generate that, right, okay.

Tony Mauro:

It could generate that easy.

Marc:

Right.

Tony Mauro:

And then start going from there. And I would actually at least suggest to them if these other goals are important to you, you already know you're going to be okay when you hit the distribution stage in retirement. Let's start knocking some of these things out a little bit.

Marc:

Yeah.

Tony Mauro:

Because the thing I always point to... And I'm going through it right now with my sister-in-law who just retired at 65. And she's got a lot of health problems and she just had a recent bout in the hospital on dialysis, on a breathing machine.

Marc:

Oh no.

Tony Mauro:

Almost to a point where you don't know how long, of course, you're going to live is where I'm going with that.

Marc:

Right.

Tony Mauro:

And if you save it all to the end and something does happen like that, or worse, you pass away, what was it really all for? So I'm one of those guys that I like to balance, hey, you got to live a little now and take care of the future as well. But I think some people go the other way and this guy sounds like he's gone maybe too far the other way because he's asking a lot of questions

Marc:

Yeah and he's obviously interested in and maybe living a little bit more. And so that's kind of where I wonder. It's like, okay, well how do we go about breaking that down? Now, granted, obviously coming in and running the numbers, but for the sake of the podcast, sharing that with other folks, how do we go about accomplishing that? So do some analysis. Right? So I guess what you say. What's your current income level and then what's your current spending level? And is that where you want to be in retirement as well? Let's say it's $10,000 a month, just for an easy number.

Tony Mauro:

Yeah.

Marc:

Well, does what you've generated create $10,000 worth a month in income, which you were just talking about. And then of course people... We hear that, well, you're only going to need about 80% or 85% in retirement, but if you don't want to go backwards in lifestyle and you feel like you've not been living enough anyway, then I would say you want to keep it higher, correct?

Tony Mauro:

High. Yeah. I'd keep it at 100%.

Marc:

Okay. Yeah.

Tony Mauro:

And just keep it high and we can always adjust it downward, but I find that most of the time... And we've talked about it before, that your expenses and living don't go down quite as much as you thought when you were young and dreaming about it. When you get there, you don't want to back that off too much.

Marc:

No, for sure. So determine if you're saving too aggressively, right? Look at your rates, look at some of the things that you're bringing in. Again, that monthly income. What's it generating. Then start looking at... I don't know, maybe that's where you can use some of the automation, right? If this person is still working, then maybe you can back down contributions-

Tony Mauro:

Back down.

Marc:

... or does that make sense because you want a dollar cost average still too? Right? So it's an interesting math question.

Tony Mauro:

It's an interesting math question. And there's also got to throw in taxes there because obviously if you back down some of this pre-tax stuff, if he's got it. His taxes are going to go up a little bit. So it's a delicate balancing act, but I think it can be done in a tax efficient manner with some help and planning.

Marc:

So if you were going through and trying to help this person, they came into the office, the first thing you would do is start running the numbers, put all these things in play into your software that he's got because he's got a lot, which is very cool.

Tony Mauro:

Yeah.

Marc:

And then see where they're at and then what? Tax efficiency would be next, and then what's after tax efficiency? Maybe the legacy side or what?

Tony Mauro:

I would say after the tax efficiency, I would ask them about the legacy side, what their plans are there and if we're still in good shape with what they want to do there. And then I would make them list their goals of some of the things they want to do between now and the time they do retire and let's start tax efficiently trying to make that happen.

Marc:

Well, he mentions the dream home. He mentions the dream home. So that could be interesting too, right? So it's like is that still high on the list?

Tony Mauro:

Right.

Marc:

Let's say this person is in great shape, they have saved maybe over amount to what their goal, their target, was. Not that, I guess, there's such thing as being over. But they've hit their target, but they kind of want to take the dream home into account. So, again, you got to factor that in, right? Because we know that pricing is still high for homes. Interest rates are higher, what are you going to get for the old one? What's it going to cost you for the new one? And, again, this is where that whole, complete, financial analysis is really going to come into play.

Tony Mauro:

It really will. I don't know anything about this couple, but I would ask them strongly, depending on what their age is, about that dream home unit. Is that really high on the list? Because that that's a large, large expenditure and maybe the home you're in is fine, especially if you own it. And maybe you want to take that money and do something else with that. But who knows. They might be dead set on something like that and then it's up to us try to help them make it work.

Marc:

Right, yeah. So plugging in a lot of numbers, doing the X's and O's trying to get it all there. So I guess to kind of circle back to the whole initial thing, can you save too much for retirement? I mean, it's probably not... I feel like fundamentally you got to say no, right? Because if you save too much, all you're going to be able to do is either enjoy yourself more in retirement or leave a nicer legacy to your kids, right?

Tony Mauro:

Yes. Yeah. And the true answer is no. I don't think you can ever save too much. I do think though that what we've just talked about and with him, he's feeling it... is don't neglect enjoying life a little bit along the way.

Marc:

Yeah, yeah.

Tony Mauro:

And that's where a plan is going to come in for sure because he's just -

Marc:

It was a while back, Tony, we did a... God, it's been a while. We did a personality type podcast and we talked a little bit about, I can't remember all of them, but one of them was the miser, right?

Tony Mauro:

Yeah, yeah.

Marc:

Not saying that this person's a straight-up scrooge or a miser, but the person that just got into such a groove and a rhythm of saving and being so aggressive that they forgot to enjoy life. Right? And I don't know that this person's that far, but he kind of framed his question that way. How do you work with people like that? How do you help them kind of see that it's okay to spend some of that money?

Tony Mauro:

I think the biggest thing for us is showing them, in real numbers, that they are going to be okay so they can wrap their head around it. Because, for many of them, depending on how they grew up and were raised, it's tough for them to change that. And it takes a little work and it takes some real discipline going the other way to spend some money. And most of my clients, it seems like, especially on the distribution stage, when they get older, they tend to automatically start wanting to not spend as much. And so if you're already there and then you go into retirement, boy, I would hope you wouldn't do that because you're even going to be worse off than you are now.

Marc:

Yeah.

Tony Mauro:

And, in other words, you're going to have all this money and you don't want to even go enjoy a penny of it.

Marc:

Yeah.

Tony Mauro:

Defeats the whole purpose of planning.

Marc:

Well, I mean, this is really where the black and white helps. The old rubber meets the road kind of thing, right?

Tony Mauro:

Yeah.

Marc:

Because no matter what your emotional mindset is, if we see the data, then our brain sometimes goes, okay, all right, now, all right, I see this now all laid out. Tony, you could run a stress test for this individual and go, okay, based on what you've saved, based on the goals we've talked about, the things you want to accomplish, this is when you would roughly expect to run out of money, age 100 or whatever.

Tony Mauro:

Yeah. Yeah.

Marc:

And then that gives, I think, that peace of mind to people to go all right. All right, maybe I can loosen up the purse strings now a little bit and go enjoy myself.

Tony Mauro:

Yeah. At least let them know that. And if they choose-

Marc:

Not to. Right. Yeah.

Tony Mauro:

... not to, then that's their decision at the end of the day.

Marc:

The good thing too is the spouse... He mentioned his spouse, obviously, you got the other person who also gets to see it and go, wait a minute now. Stop being so tight.

Tony Mauro:

Yeah. Right.

Marc:

I want to go have some fun too, or whatever.

Tony Mauro:

Yeah. Yeah. It's fun with when you have the spouses in there because, yeah, you might have a different personality there or somebody that says, I've worked all my life and now I want to go enjoy some things before something happens.

Marc:

Yeah. Yeah, don't be such a penny pincher or whatever. And again, not that any of that is wrong. Everybody's going to be different. Just based on this person's question, he seems like he's realizing, Hey, we've done a really good job saving, but I'd like to kind of enjoy life a little bit more. The thing that worried me a little bit most was I feel like I'm living paycheck to paycheck and it's like you're making a good salary. So, yeah, I mean, run the numbers. Look at what you're spending each month. Look at what you're saving because, I mean, there could be some expenditures that are out of control too, right? And it's not hard to do in today's world, right? It seems like Amazon shows up at everybody's house every other day.

Tony Mauro:

Yeah. Right. I just ordered some stuff before this podcast.

Marc:

Well, there you go. Proved my point.

Tony Mauro:

Yeah. Yep. Yep.

Marc:

So run the numbers. Come in, sit down, have a conversation with a qualified professional. Make sure you're talking with somebody like Tony. Again, he's a CPA and a CFP and an EA with 30 plus years of experience. So he's looking at the tax side of things, he's looking at the investment side of things, he's looking at the whole puzzle piece. And if you need some help, reach out to him. Yourplanningpros.com. That's yourplanningpros.com for that complimentary consultation and review. And don't forget to subscribe to us on whatever podcasting app you enjoy using. Apple, Spotify, and the like. Tony, thanks for hanging out, my friend. Always appreciate you.

Tony Mauro:

All right. We'll see you next time.

Marc:

We'll see you on the next episode of Plan With The Tax Man with Tony Mauro from Tax Doctor Inc.

Securities offered through Avantax Investment Services SM, member FINRA, SIPC. Investment advisory services offered through Avantax Advisory Services. Insurance services offered through an Avantax affiliated insurance agency. Investment strategies discussed in this episode may not be suitable for all investors. Please consult with a financial professional.

April Fool’s Day is all about jokes and pranks, but when it comes to retirement planning, getting fooled can cost you real money. Today, we’re uncovering the beliefs that fool retirees and pre-retirees into making bad financial moves.

Important Links: Website: http://www.yourplanningpros.com

Call: 844-707-7381

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Transcript: 

Speaker 1:

It's time once again for another edition of Plan With The Tax Man. And April Fool's Day is around us, all about the jokes and the pranks, but when it comes to retirement strategies, we want to make sure we don't get fooled in a way that can cost us any real money. So let's talk about that this week here on the show.

What's going on everybody? Welcome into the podcast. This is Plan With The Tax Man, with Tony Mauro from Tax Doctor Inc. Serving folks all around the Iowa area. If you've got some questions, some concerns, need some help, please check him out and go talk with a qualified professional like Tony online. You can get some time on this [email protected]. That's yourplanningpros.com, or you can call him at 844-707-7381. We'll have information of the podcast if you'd like to click on those as well. Tony's got 30 years of experience helping people get to and through retirement, and a great resource for you to tap into. So, Tony, it is April Fool's Day-ish at the time we're dropping this. I think we're dropping this like maybe a few days beforehand, but are you a big prankster?

Tony Mauro:

I'm a huge prankster.

Speaker 1:

Are you?

Tony Mauro:

It's my second favorite holiday, yeah.

Speaker 1:

Oh, okay. All right. So does your wife get tired of it?

Tony Mauro:

My wife gets tired of it, my son, my dad, everybody.

Speaker 1:

Okay.

Tony Mauro:

But they play them on me too, so yeah, we have a lot of fun with April Fools.

Speaker 1:

Good. That's good. Yeah, my dad was pretty bad about it when he was with us. He was always pulling something on his family members, so it was like, all right, now you had to be on guard whenever it rolled around.

Tony Mauro:

Absolutely.

Speaker 1:

You knew he was up to something. But let's talk about a few categories here from a financial standpoint where we don't want to get fooled, Tony. We want to make sure, and look, it's super easy right now. Right. I mean, between the news headlines, social media, the polarization of people, whether you're left or right, you like the administration, you don't like the administration. Everybody's got an opinion every six seconds of the day. Right. And so it's very, very easy to see a bunch of stuff that maybe kind of gets you all worked up. Right.

So we want to make sure that we're not just stepping in something just because we're having a visceral reaction to some sort of media bombardment or whatever. So let's start with the high returns since obviously right now, Tony, we had a choppy March, right? So the markets were choppy. I think it's easy when we find it, we all love it when it's high, right? So we all love the market when it's doing well, and we've had a pretty good market for, let's be honest, we haven't really had a prolonged downturn, right? Since 08, 09. If you think about it, we're closing in on 20 years since we've had a sustained prolonged downturn.

Now we've had blips, we've had the COVID downturn, and we had different things. 22 was rough for a little bit as well, but it's not been sustained more than a couple of months, right? So I think people that are kind of get lulled into the, Hey, the market's beating you up, let's get you into this product that's got guaranteed high returns. Be careful of that, right? Make sure you're really doing your diligence and reading the fine print.

Tony Mauro:

Yeah, you do have to have that, because it is, and I always know when maybe the markets are possibly too high, when everybody, especially people that are just tax clients, aren't wealth management clients are saying, "What do you think about this stock? What do you think about that stock?"

Speaker 1:

Right.

Tony Mauro:

And,-

Speaker 1:

Or should I get into an annuity or whatever?

Tony Mauro:

Yeah.

Speaker 1:

Yeah.

Tony Mauro:

All that kind of stuff, because they think that because where we've been for the last 20 or so years, returns are easy and there's some foolishness to that, I would say.

Speaker 1:

Some fool, yeah, fool's goal, I think that's a good way. Yeah.

Tony Mauro:

Because you got to look at it this way. High returns do come with volatility and some risk. And so whether it's in a stock or you're locking yourself up in an annuity, which is a whole different type of product, then you certainly got to understand what those risks are and have that explained to you. And if that's not your appetite for obtaining that return, which we always work off, we're trying to get you the best return based on how you want to get to point B, so to speak, with the least amount of volatility and the least amount of potential tax consequences. Now that may not be, and even come close to say S&P 500 returns, but for you that might be good, but for somebody else,-

Speaker 1:

Good point.

Tony Mauro:

It might not be.

Speaker 1:

Yeah.

Tony Mauro:

But don't just say, well, I want the highest return out there because there's always something new. Nobody, in my opinion, can accurately predict what the market is going to do tomorrow in the short term. Now, a lot of them, obviously, it's pretty easy to say, well, over the long term, that the market's the place to be.

Speaker 1:

Oh, the market always comes back, right? I just saw this earlier today. We were just chatting about it, you and I, before we jumped on the podcast, and it was like, people are freaking out. "Oh, I'm losing my retirement because of this 10% correction we've had in March." And it's like, okay, first of all, and the immediate comment from someone is, "Well, don't worry. The market comes back." And they freak out and they go, "Well, I don't have time to wait for it to come back." Well, if you didn't have a strategy in place and you were planning on retiring and a 10% correction crippled you, then you weren't in good shape to begin with anyway.

Tony Mauro:

No.

Speaker 1:

Right.

Tony Mauro:

And you shouldn't have been in the market if you're ready to retire or you should,-

Speaker 1:

Not at 10%. Yeah. Yeah.

Tony Mauro:

Not there. So it is,-

Speaker 1:

Exactly.

Tony Mauro:

We constantly battle that with tempering and making people understand and get their whole plan in front of them, just so they're not so focused on what's going on today,-

Speaker 1:

Right. Right. Yep.

Tony Mauro:

In the news.

Speaker 1:

Yep. Which is the point of this podcast this week is, the April Fools, not that it's April Fools that they're pulling a prank, so to speak, but it's just kind of being fooled into things because of the constant bombardment of the media. You and I talked on the last podcast that in the course of the same day that we were chatting, the news cycle ran from the sky is falling earlier in the morning with the market to, oh, the outlook is looking pretty good because the inflation numbers came in and were down a half a point or a point.

Tony Mauro:

Yeah.

Speaker 1:

So they just run with whatever's going to get them eyeballs. So just make sure we're, I think we all know that, but whenever we start to panic a little bit, that's when that little devil on our shoulder kind of creeps up and taps us and says, Hey, be worried. So let's talk about the next one, which is the tax time bomb. Getting fooled into underestimating taxes on your account. And here's the angle I wanted to take on this, Tony. So again, regardless of what your political slant is, if you find yourself, and here's, let me set this up. It's going to take a second, folks, but I think it'll, hopefully it'll make sense.

I'm one of those people, Tony, that my personal health and the family history says I'm going to probably pass away young, right, in my 70s. Now I could totally plan to liquidate and blow through all my money and have big fun and spend it all by 72 when I think I'm going to croak. But if I'm wrong, right, I'm going to be screwed. I'm going to be screwed, right, because I'm not going to have anything. Well, if you're right now, if you're all excited about the no tax on social security, no tax on tips or the conversation about abolishing the IRS or getting away with, great. Look, if that happens and they get rid, I think I'm sure we'll all be dancing in the street if they get rid of the IRS.

However, if they don't, don't you think you should have a strategy for dealing with the tax time bomb that you're probably sitting on, right? And that's my point, right? If you've got a million dollars sitting in a 401K, don't just kind of like go fool's gold and think, Hey, Trump's going to eliminate all the taxes and Bob's your uncle and you're going to get to keep all that money. Be smart in the event that you still have to pay your RMDs or whatever.

Tony Mauro:

And I mean, you look back through all of history. Now, keep in mind what I tell people when they start talking like this is, tell me where you think that this, the biggest arm, the only arm almost for collecting the accounts receivable for the US government is, which is the IRS. They're going to go away. How do you think the government will function? Now, maybe they'll, like you said, maybe they'll come up with something over time.

Speaker 1:

Sure.

Tony Mauro:

And,-

Speaker 1:

Maybe the tariffs will be the end of the solution, whatever, right?

Tony Mauro:

Maybe it will.

Speaker 1:

Right.

Tony Mauro:

But history points to, it's probably not. And many, many of us, I can't remember how many trillions is probably in the 401Ks right now, but we have,-

Speaker 1:

That's a lot. Yeah.

Tony Mauro:

We all have an IOU.

Speaker 1:

Oh, yeah. It's almost 40 trillion, Tony. I'm glad you mentioned that.

Tony Mauro:

It's 40 trillion?

Speaker 1:

Yeah. Because the debt's 36 trillion, and they're always talking about the target that is, the retirement accounts is about 40 trillion out there.

Tony Mauro:

We got 40 trillion. It's all in traditional 401Ks and of course,-

Speaker 1:

A lot of tax money.

Tony Mauro:

A lot of tax money. The IRS wants it. We all have an IOU to Uncle Sam with that money. And they know that and they want pieces of it. Hence, they're changing rules as we speak, that nobody seems to pay attention to when somebody dies and you inherit some of this stuff because they want their money.

Speaker 1:

Yeah. Oh, yeah. And look, regardless of your stance, if DOGE does a good job and gets rid of some of the debt and some of the spending and our national debt's able to come down, maybe we don't have to tax ourselves into oblivion. Maybe that's the upside, right? Instead of going, we're in historically low tax rates, right, with the TCJA.

Tony Mauro:

Just going to say that. Yeah.

Speaker 1:

And at the time we're here taping this, Tony, we still don't know if that's going to get extended or not, right? Maybe it does, that's the prevailing wind, but maybe it does, maybe it doesn't. But at least if nothing else, if it does, then we don't have to necessarily go up in taxes. But you're still going to have to have a strategy for being tax efficient, because that's a big chunk of your retirement money.

Tony Mauro:

And that's what we focus on, is trying to be as tax efficient as possible, especially from the tax angle side, from being tax people that we want to make sure that they're not getting any more than they have to.

Speaker 1:

Right.

Tony Mauro:

And so you have to, especially on the distribution stage, really be strategic about it and make sure you're following the rules and that you're not overpaying just because you don't know any better. And I think that's really the gist of it. And I would also encourage anybody go out and google the history of the tax rates. And you're right, we're at historically low tax rates compared to where we were just even in the 80s.

Speaker 1:

Oh, yeah.

Tony Mauro:

And so,-

Speaker 1:

Well, even during the prior administration. If the TCJA expires, right, we're going back to what it was under Obama administration tax code. So even that goes up a little bit, so.

Tony Mauro:

But that goes up. Now one could say, well the way to fix all this is just raise taxes. Well,-

Speaker 1:

And nobody wants, I mean, look how we whine about,-

Tony Mauro:

Nobody's going to do it.

Speaker 1:

Yeah. I mean, we get all bent out of shape about the stock market dropping 10%. You want to pay 10% more in taxes? Of course not.

Tony Mauro:

Yeah. No. Nobody wants that. Nobody politically seems to want that. And of course, if you can't, it's like in business, if you can't control your spending, it doesn't matter how much you bring in.

Speaker 1:

Yep. That's what,-

Tony Mauro:

Right. I mean,-

Speaker 1:

Right.

Tony Mauro:

You got to do something.

Speaker 1:

Isn't it wild where we're at as a society? We all know we got to control spending, yet when you get somebody in there that starts doing it, they start screaming foul and going, why are you cutting spending? It's like, because we have to. We're $36 trillion in debt. That's crazy.

Tony Mauro:

That whole thing is,-

Speaker 1:

We're in the goofiest time period.

Tony Mauro:

Hours.

Speaker 1:

Yeah.

Tony Mauro:

Yeah. It's just crazy. But we have to, as advisors and as the public, we got to work with what we have.

Speaker 1:

Right. You got to play by the rules. Yep.

Tony Mauro:

We got to make it try to work for us and I think that's importance of planning.

Speaker 1:

Yeah. I've said forever and a day, that it's their chessboard. We have to play by the functioning rules of the chess piece, right? If we're that chess piece is able to move one step at a time, then that's all we can do, right? So,-

Tony Mauro:

We're done.

Speaker 1:

We have to do those different pieces. So again, no matter what your political slant is, the point of this is you don't want to kind of fall for any one thing, one side or the other. You want to have a good strategy in the event that it does come through, or the event that it doesn't come through. Because you want to make sure that you can hopefully retire as efficiently as possible in any administration or any economy or whatever the case might be. So final one, we'll wrap it up this week just on a couple of things to be careful with, because we knew these were going to be some big ticket items Tony, is Medicare misunderstanding.

We'll switch gears and go to this one. Especially for the folks that are getting close to retirement, their first time stepping into it. My brother just got to 65. He's trying to get his bearings with understanding Medicare and the different things that it does. My mom's 80, in her mid 80s and she's quite used to it, so she's trying to school him on some things, but there's a lot of miscommunication out there on what it covers and what it doesn't.

Tony Mauro:

There's tons of it and it's very complex. And then you add on to the top of it the federal government bureaucracy, and it makes it kind of a nightmare for a lot of retirees. But I can tell you this, it certainly doesn't, do not be fooled, it does not cover everything in retirement.

Speaker 1:

Correct. Right.

Tony Mauro:

You've got to make sure that you have some of these gaps and things covered.

Speaker 1:

Yeah.

Tony Mauro:

And that's where what I do is I have a Medicare specialist that I consult with for clients because I can't keep up on all those rules and he helps me with clients. And now of course, if he ends up selling them some insurance they need, well, obviously that's how he gets paid. But nevertheless, he really has the ins and outs of what it does and doesn't cover. And then also, okay, if something's not covered, are you willing to spend X to get it covered? And,-

Speaker 1:

Good point.

Tony Mauro:

Like everything else, you got to make a decision. Do you want to keep that as a gap and take that risk, or is that risk too big? But boy, Medicare, I mean, it serves a good base, but it does not cover everything and you really need to be on that.

Speaker 1:

Yeah. Even within the same category too. And don't forget that they changed the way it's set up and providers can shift too. Like my mom recently, I think in the last couple of years she's gone through three different dentists because something happens with the program and the dentist she was going to says, "Well, we no longer accept it." Right. So, which is, I didn't think you could do that, but apparently you can. So different places can accept different things at different levels. So you have to kind of see who's in network, right, and who's out, all that kind of stuff.

Tony Mauro:

My dad's like that. And like I say, he's 83 and he is over insured in this area because he like buys everything just because he doesn't want any gaps. And I think he, we tried to get him not to do that and because he's actually kind of wasting a little money.

Speaker 1:

Sure. Sure.

Tony Mauro:

But sometimes it does work in his favor.

Speaker 1:

Makes him happy, right? So,-

Tony Mauro:

Makes him happy.

Speaker 1:

He walks in and he's covered, I guess, so.

Tony Mauro:

He's covered. Yeah, I mean, he's got coverage, but to your point, sometimes it changes and then he sees a lot of different doctors and whatnot, not because he wants to, because like the plan change covered and they say, "Nope, you got to go over here now."

Speaker 1:

Yeah, exactly. She sees the same thing. So a lot of misunderstandings when it comes to Medicare as well. So just make sure that you're working with some professionals who can help you. Most advisors, offices, if they don't have a Medicare person on staff, they usually have someone they refer people out to so they can kind of, especially someone who does this in and out every day, they kind of know the nitty-gritty a little bit better. So if you need some help with that, as always, make sure you're reaching or any of the stuff that we talk about, make sure that you're talking with a qualified pro like Tony and his team at Tax Doctor Inc. You can find them online at yourplanningpros.com. That is yourplanningpros.com.

Don't forget to subscribe to us on Apple or Spotify here at Plan With The Tax Man. Simply type the name of the podcast into the search box. You can find it that way. Or just go to the website, make it easy on yourself, yourplanningpros.com. We'll have links in the descriptions below. And as always, we appreciate your time. Tony, thanks for hanging out my friend. And don't be too hard on folks when you pull some pranks on them in April.

Tony Mauro:

Oh, no. No, I'll just get my family and we'll see what happens. I'll let you know on the next podcast.

Speaker 1:

All right. Let me know how it goes. Yeah, my dad was crazy. He would pull something that got a little mean-spirited sometimes. It's like, all right, now you need to back it off a little bit there, bud. So have yourself a good one, folks. We'll see you next time here on Plan With The Tax Man.

Securities offered through Avantax Investment Services SM, member FINRA, SIPC. Investment advisory services offered through Avantax Advisory Services. Insurance services offered through an Avantax affiliated insurance agency. Investment strategies discussed in this episode may not be suitable for all investors. Please consult with a financial professional.