Retirement Roadmap

We Get Mail: Q&A Episode

• Mark Fricks • Season 4 • Episode 3

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0:00 | 25:01

Holistic retirement planning isn’t a buzzword — it’s a framework for how real life actually works in retirement. Your investments matter, but they’re only one piece of a plan that has to coordinate income, taxes, healthcare, and legacy decisions (and the ripple effects between them).

In this Q&A episode of Retirement Roadmap with Master Plan Retirement Consultants — “We Get Mail” — Evan and retirement planner Mark Fricks answer some of the most common questions they hear from clients and prospects, from Roth conversion timing to early-retirement income access, and how to think about long-term care planning when traditional insurance feels out of reach.

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Advisory services offered through MasterPlan Retirement Consultants, Inc., a Registered Investment Advisor in the state of Georgia. Insurance, tax and commodities services offered through Fricks and Associates, Inc. dba MasterPlan Retirement Consultants. The aforementioned are affiliated companies.

SPEAKER_00:

All my questions are 25 and 25 seconds, and the 216 ever, 13% of our money to work on reliable source, and no representations can be made as to its doctors. All my needs of information should be discussed in detail for all five representatives prior to implementation. A five to a service consultant by Master Plan Retirement Consultant, a registered investment advisor in the state of Georgia. Mark Fricks and Master Plan Retirement Consultants are not affiliated with or endorsed by the Social Security Administration or any other government agency.

SPEAKER_02:

Hey folks, welcome back and thank you for joining us. Welcome to Retirement Roadmap with Master Plan Retirement Consultants. My name is Evan, and with me, as always, retirement planner Mark Fricks. We have a special episode for you today. Today is another QA episode. We're going to go through some questions that we hear quite often, some that are a little bit more niche, but uh some questions that we find ourselves answering with clients and prospects alike quite a bit. So we're gonna jump into those today. Um Mark? I thought we agreed to call this We Get Mail. We get mail, I'm sorry. Mark is begging to call this We Get Mail.

SPEAKER_01:

So I'm old school.

SPEAKER_02:

We'll we'll call this one We Get Mail. We get junk mail mostly, actually. So these these do come other formats. Absolutely. Plenty of this is not the junk junk mail variety. I don't get my way too often, but at least I get this one. We'll give him this one. Um Ross, our producer, take note, We Get Mail will be the title of this one. That's right. Thank you. Um hey Ross, by the way. That was his laugh in the background. Um so this is great. And if you have any questions too, moving forward, um, we we would love to use your questions in future episodes. Feel free to reach out to us. Umfo at masterplanretire.com, or as we'll be mentioning later as well, our website is masterplanretire.com, or you can schedule your complimentary consultation with us, or find our seminar schedule, our education schedule, plenty of retirement handouts, things like that, links to our episodes, all the good stuff, masterplanretire.com. So without any further ado, here is our first question from WeGet Mail. Mark, why a rush for Roth conversions? Won't I be in a lower tax bracket in retirement?

SPEAKER_01:

Uh yeah, that's what we were taught back in the 80s. Um as I was growing up in the industry, that was always the thing. Hey, you'll make less money, you'll be in a lower tax bracket, put all your money in pre-tax, uh, your tax rate will be lower, Social Security is not 100% taxable, uh, so smooth sailing. But what we've seen over the years are really two phenomena. One is the fact that funny, people today want to have the same income coming in in retirement as when they worked. Uh they want to be able to travel. You know, we're retiring younger, we're retiring younger from a standpoint of our health. You know, when my grandfather was 65, he was ancient. Uh I'm 65. Don't tell me if I'm ancient. I don't think I'm ancient. Uh send me a letter if you think I am. Um, but it it's so so we are living much longer and we are more vibrant in our early retirement years, so we do spend more money. Secondly, I think we spend more money because of health care, long-term care, assisted living, nursing homes, things like that. As we get older, so we have that with us. But mostly the biggest reason is when we teach our tax classes, we talk about the fact that taxes are on sale. They are as low as they've been since the Reagan years. Um, maybe slightly lower. I've not really done all the math yet. We've got a really big, nice exemption. And so we have this time period that we thought was ending three weeks ago. Okay, at the end of 2025, four weeks ago. And so now we've had that extended. Whether you uh like the administration or not, that's not important. Do you like the tax bill? I love it. Uh we have extended our tax cuts permanently, which means until the next person changes them, of course. Uh so we do have this window of opportunity. We think it's around four years, could be a little bit longer, but we can't avoid higher taxes in the future. With our debt being over$38 trillion, I did not check this morning. Uh, with our Medicare being in trouble, Social Security being in trouble, uh, we cannot avoid higher taxes. I was reading an article a few weeks ago that was talking about how you could tax every billionaire at like 90 percent, it would cut into the deficit slightly. So it's the middle class, this huge block of people. That's where the taxes will rise, which I think are the people that have saved the best and yet are ill-prepared for what's coming because all of their money has been saved in pre-tax. So without getting any further in the weeds, taxes are on sale. We felt like taxes will be more in the future just from a bracket standpoint. Okay? And then think about you know, taxes will go up and then you lose it lose a spouse, which is more likely in your 60s, 70s, and 80s. Now your taxes go up because you are filing single. Right. That's an even higher tax bracket. So let's take the control out of the hands of the IRS. Let's put them in your hands by getting some or all or portion of that money out of the pre-tax into the after-tax, tax-free distribution, Roth, or something similar.

SPEAKER_02:

That's exactly right. I mean, the majority of you listening who are retiring or approaching retirement age, who've been putting away for years and years while being employed, the vast majority of your retirement assets are in these tax-deferred accounts, 401ks, 403Bs, IRAs, all of these accounts that are intended for use in retirement. Well, when you are withdrawing that money, you are taxed at your 100% of your bracket on those withdrawals. So you are literally at the mercy of the IRS, just depending on what your tax rate is at that time. And we don't really know. And it also compounds as well because the more you withdraw from those accounts counts towards your income, meaning it also increases your tax bracket. So moving more money into Roth and tax-free or efficient vehicles, what that does is take more control out of the hands of the IRS. Um, and I think that's more powerful now than it has ever been because just as you said, right now things look good tax-wise. Um however, we know what the future has, or at least the writing on the wall is saying. And also retirement spending, you know, you mentioned at the top, um people don't want to take a pay cut in retirement anymore. They want the same quality of living. Well, our spending in retirement is is kind of a reverse bell curve, if you will. You start off spending a lot when you first retire because you want to do your bucket list, you want to see your family, you want to travel, you want to do these things that you were putting off for retirement. You want to live this life. Young enough, healthy enough. Exactly. While you while you can hike the mountain or what you know, as it were. But then you start to get a little bit slower in retirement. Maybe you're staying home more, settling into your routine locally a lot more, and that's kind of the lower drop of the bell curve. But then your expenses rise again later in life, and that's medical health, things like that. Combine that need with withdrawing, probably extra than your typical.

SPEAKER_01:

Well, yeah, required minimum distributions get higher and higher the older you are. RDs, absolutely. Trevor Burrus, Jr.: You may be taking out 10, 15, 20 percent forced out of your IRAs, whether you need it or not. So that's that much more to your tax bracket.

SPEAKER_02:

Oh, that's taxable. So a huge advantage is looking at your tax strategy in retirement. Um we do that all the time. It's part of the holistic plan. Uh, without wasting any more time on this topic, let's jump ahead to the next one. Um I like this one a lot. Um Mark, if I retire before age 59 and a half, how can I draw income from my retirement accounts without penalty? Is it a mistake to retire before 59 and a half?

SPEAKER_01:

Yeah, so we get this a lot for uh mostly because we work with a lot of federal workers and they are able to have a full retirement as early as age 57, full pension, uh, all of that kind of good stuff. And so they have what's called a thrift savings plan, which is a 401k for the government worker, right? And so uh the rules are on 401ks and and uh thrift savings plans and similar type of accounts, as long as you're retired, you can actually touch that money penalty-free at age 55. If it's in an IRA, it's 59 and a half, whether you're retired or not. So we leave some money in that 401k or TSP so that between the ages of 55 and 59 and a half, they still have access to some of their qualified money. We don't leave it all there because it's it's not very well managed. It's typically an expensive place to keep it. There's a lot of reasons not to leave a lot of it there, but we leave a portion, you know, maybe it depends on how much money they have and how much they need, and we we kind of plan ahead. Um, but that's to give them that penalty-free access. And you know, it's so many, it's so funny how few advisors really understand that. We've come across people so many times, age 56, 57, 58, fully retired, and all of their money is an IRAs. And they had they can't access any of it without a penalty. Yeah. And so what do you do for those two, three, and four years? You're you're in trouble. You know, you've got to do something else, or maybe go get a part-time job or something. So be careful who you're working with, make sure they understand the rules, whether it be federal, whether it be ERISA laws, which governs 401ks and such. Um, but that is why we do leave some money in there. That's great.

SPEAKER_02:

And it's known as the Rule of 55, the IRS Rule of 55, meaning um your last employer, if you leave them and don't get another job, you retire. If you're between the age 55 and 59, you can access your funds within that 401k or 403B or employer-sponsored plan penalty-free. And that they made that especially just so that you can retire. So let's say that you have been working, you've built up your IRA, uh or your 401k rather, and then you retire at 55. You've got to make sure that you can stretch whatever you leave in that 401 for that 4.5 years till 59 and a half, then you can start accessing your IRAs or other uh accounts. Now, a caveat. Not every 401k or employer-sponsored plan necessarily observes the rule of 55. So you need to check with your HR or whoever's in charge of your plan at your office and if you're thinking of retiring early, um, do you guys observe the rule of 55? If they don't, that still doesn't mean that you can't retire early before 59 and a half. That just means you have to be a little bit more careful in how you do it. Everyone's situation is different, but there's also uh the rule of 72T, um, and basically that's uh where you can choose to take uninterrupted withdrawals from an IRA um before 59 and a half. Before 59 and a half. Um it's it's the greater of in five years or until you reach 59 and a half. Right. Um particular percentage based on IRS code. Right. It's basic it's similar to RMD percentages, uh, but you've got to make sure that you've got enough money coming through that way as well. Um so it's a balancing act, and like everyone, like everything we discuss, it's different uh depending on who it is. But it is possible. Um just a little tip, too.

SPEAKER_01:

Um instead of going to your HR department, I would call the custodian of your 401. So if Fidelity is the custodian on your statement of your 401k, call Fidelity. They have the paperwork, they have your forums in front of them. We've gotten one bad answer.

SPEAKER_02:

I would call both. I would talk to both. I would talk to both.

SPEAKER_01:

Maybe, but HR is so there's there's they tend to be less educated about the nuances of the 401k. I think one time we actually called uh a third party that was like uh the the legal firm that oversaw the 401k. I don't know if you would call that or not, but we were getting conflicting information from Fidelity or whoever it might have been. And so we said, I still know that's not right. So we found out who the there's a there's a word for the the uh again, it's the company that kind of legally oversees your 401k.

SPEAKER_02:

The your your HR will be able to point you towards the direction of your plan sponsor, essentially. No, but yeah. But that's a good point. Make sure you're thorough looking through this, make sure you know for a fact what the the uh qualifications of your of your plan are.

SPEAKER_01:

If you're not sure, contact us and we'll we'll get on the phone with you and hey, we'll find out with you.

SPEAKER_02:

Uh question, next question, uh, another Roth one. Am I too young to convert to a Roth without penalty?

SPEAKER_01:

Um you're not ever too young to convert to a Roth without a penalty. There is a a caveat. If you um you want to be able to pay the taxes out of pocket if you're under 59 and a half, because if they withhold taxes on the conversion from the conversion, that 10 uh 10% taxes or whatever you withhold is going to be taxed um with a penalty because you're under 59 and a half. Okay. So again, that's one of those little nuances that uh many times a mistake is made about that. So just to clarify, when you convert from an IRA to a Roth, it's a very simple process. It's filling out a form, but you have choices on taxes. You can say, okay, this is gonna cost me 12% in taxes to convert this. I can withhold it from the conversion so I don't feel the pain, but now you have a smaller Roth. I can pay it out of pocket. But if you're under 59 and a half, you really do need to pay it out of pocket, or there's gonna be a 10% penalty on the withholding because it came out of the account before you were 59 and a half. Hope that makes sense. If you have questions, again, that's that's a subject that it's hard to answer totally thoroughly on the show, on the episode. Uh so make sure before you pull any kind of trigger, let us know.

SPEAKER_02:

We can help you with it. But it's a great consider uh consideration, no matter what your age, especially if you're young and you have a smaller IRA, haven't been putting into it very long, and you realize, hey, I have an opportunity um to not pay too much tax on a conversion to a Roth and to start building that as early as possible. Uh that's a great, it's a great idea. So next question. How do I plan for long-term care when insurance is so expensive?

SPEAKER_01:

Yeah, so insurance, we uh Evan, I think I can honestly say we've not written a long-term care policy probably before since before you joined the firm 12, 13, 14 years ago. Um, and that was a very special request. It has gotten very expensive. It has cover it's covering less, uh, and it is going up every few years. I have clients come in that bought a policy before they came to us, and they're like, I got another letter. It's been two years, got a letter, they're going up 10, 15 percent. This is the fourth time they've done that. I can cut my coverage, I can pay more money, but it's getting to the point I'm 75, I can't afford it. They've paid money all these years, and they may end up having to cancel it. So there are more tools uh that we can use. Uh, we won't get too deep into the weeds with them, but there are certain annuities that have guaranteed payments. Those payments can double, sometimes triple if you have a long-term care need. That's pretty cool, okay? You don't have to get, you don't have to be approved or anything. I think there's a two-year waiting period to be able to turn that on. Uh, there are also life policies where you can actually use the death benefit for long-term care. That's a writer that does not cost anything unless you utilize it. So you're not paying for long-term care coverage unless you use it, and then it's like 5% of the money that's paid out. So if you've got a$500,000 death benefit, it costs you$50,000 over the course of five years, but you got$450,000 tax-free to pay for long-term care. Yeah. Okay, so uh again, there are other tools available, always something new coming around over the horizon, so to speak. Uh so again, work up somebody that's holistic. It covers all areas uh that 30 understands the tools available.

SPEAKER_02:

Yeah, it's things are going to continue to develop because we've got the largest generation retiring and the boomers. Um everyone sees the writing on the wall. We have a long-term care crisis ahead of us, um, even from an infrastructure point of view, um enough bodies to even to work them, to, you know, to be employed to help out as caregivers. So it's a huge issue, and we know um that the financial industry is competitive. They want to be able to produce uh to r create good products that are competitive that people are going to want to fill some of these needs where we have currently uh a whole. Um yes, there are certain riders you can get on annuities or life insurance products. Typically, just one rider on one product is not a replacement for long-term care insurance. It really is like everything else, it has to be your specific need and your specific plan. What areas do we need to make sure that we're covering? Um, because it'll likely, if you have a long-term care need and it lasts two to four years, um, then you'll probably have to have more than one location for that coming from. And and a couple of writers are fantastic. I mean, we there's some really good ones now that will double your income, some for up to five years, um, which is incredible. Um but then at the same time, we also have our managed money. Uh we don't want to lock up all of our money now when we're young because we haven't might have a need in 25 years. We want to make sure we're still growing part of our assets so that we do have a bigger bucket to draw from in the future. And just like all of our uh plans that we have with our clients, none of them are set to forget. They are changing yearly, every five years, every 10 years, maybe it's time to create a new bucket from from half of this bucket that's grown and that has this new strategy involved. Um, so it's ever evolving, it's ever growing as it has to.

SPEAKER_01:

Yeah, absolutely. Uh and and you know, what we've been doing lately is our uh precious metal holdings have like tripled over the last few years. So now instead of having, you know, eight to ten percent of our assets in precious metals, we're up to 15 to 20 percent. So we're rebalancing, we're taking some of those profits, moving it back into a different segment of the market or a different kind of tool. And so it's a constant, you know, as far as the the buckets, we call them buckets, the the different accounts, also a constant with the income summaries as well, your income plan. I do have a quick question for you. Yeah. What is our website? Masterplanretire.com. Uh, do visit it because one of the ways we find out um where your problem areas are, like will long-term care hurt you, will higher taxes hurt you, or some complimentary reports will run for you. Um and that just simply requires you to push that button that says schedule a meeting on our website. Our calendar pops up, you grab us a spot, we'll send you a Zoom link or a directions to our office or whatever the case may be, and we will spend time with you in two separate meetings complimentary to find out what not only your dreams, goals, fears are, but also are they justified? Should you have a fear of running out of money, and how could you run out of money? Masterplanretire.com 770-9809262.

SPEAKER_02:

Why worry about a retirement plan at all when I have a 401k that's been growing for 25 years combined with my social security? Doesn't that cover my retirement expenses?

SPEAKER_01:

Yeah, a retirement plan. So that would be like me um getting somebody to blindfold me, uh pointing me west and hoping I'll get to California. I have no plan, I have no vision, I have no true goal. Hey, I want to get to California. Where in California and what am I going to be doing when I get there? That's that's just I I wouldn't do that for a vacation, much less for the last third of my life. So, yeah, you need a retirement plan for all the reasons we've talked about. How's my money being most efficient as opposed to just one big bucket of money in a 401k that uh really has in retirement six, eight, or ten purposes? Short-term income, long-term income, uh, short-term growth, long-term growth, tax-free growth, tax-free income, long-term care coverage. I could go on for a little while, uh, having a plan so that everything is more efficient. Yeah, there are people that retire every day, they just uh turn on Social Security, maybe have a small pension, and go through the rest of their lives, but they are not maximizing the retirement, they're not maximizing their legacy. And there's always this worry that they have of am I going to make it? So what happens is what? Is they tend to really hold on to their money in the early years, and then when they're 70 and 80, wish they could travel and they're not healthy enough now. It's just it's just a bad way to go through retirement. Yeah, yeah.

SPEAKER_02:

And also the past 25 years of the market have been the most volatile. Um it's not a market that you can confidently take withdrawals from regularly for income. You know, if you have Social Security and a healthy 401k, that's great, but let's make sure we're not taking income from our 401. And income is different than just withdrawals. Guaranteed income monthly to keep the lights on, you know, replacing that that paycheck, because grocery bills, light bills, electricity, all that's got to get paid, um, you don't want to take that from a volatile market. If you had retired in 2008, 2007, odds are you'd be going back to work for a few years after that because you don't want to take withdrawals and lock in your losses on a fallen account in the stock market. So there are tools, and that's just the income side alone. Um you have to have an income plan, and an income plan means you have to have some portion of guaranteed income as well, because um, other than income, the the other giant concern about retirement planning 101 is longevity risk, not outliving your money. It sounds good to outlive something until you're talking about outliving your money.

SPEAKER_01:

Right. And I I lived through 2008 as an advisor. I had clients. And when we saw 2008 hit, and for a year and a half, every morning I'd wake up on a business day and see what the market was doing, and virtually every morning it was down more. It was like a nightmare. I mean, living through that as an advisor. Imagine as a client with a portfolio where every day it was down for a year and a half, 56% drop in the S P over an 18 month period, half of your money. Gone. Now imagine you'd retired the year before and you're taking a thousand dollars a month out or whatever, you'd be down 70%, 75%, you'd be done. And I met people for several years after that. Two things. Number one is they were they they didn't go back into the market for 10 years because they were so devastated. But I met people in their 80s at Walmart working, and I would just strike up a conversation. Guess why? They went through 2008 without a plan. And so, you know, it's easy to see, hey, things have been good the last few years. We've had a nice bull run, and our mentality, our our our psychological makeup is what it is today is the way it's always going to be. And that's if it's a bad market, uh, it's always gonna be bad. You get that emotional feeling, or it's always gonna be good. And so, like, I'm gonna buy gold because it's up 300% or whatever it may be up. It is up 300%. Is it going up another 300%? You know, should we still be buying? I I I I don't know. I don't have a crystal ball. I'm not sure. I see the market indicators. We have had a pullback, but it's just living through that time. And I know there are people listening to us uh in this episode that live through that. And I think it it triggers certain emotions that we probably will never forget.

SPEAKER_02:

Yeah, absolutely. And something really interesting to hearken back to the 401k if I just want to take withdrawals from the market for retirement. Something that can be helpful to look up for yourself is uh called the risk of sequence of returns. Um that basically shows depending on returns, a retirement account can last forever, or depending on the market returns, it could be depleted in five, ten years. Um that's really helpful to illustrate that. We have that on some um previous episodes. We are just about out of time and we have plenty of questions left. So um, as is typical for us, we'll probably do a QA part two to finish off some of these. Yeah. And folks, again, uh feel free to email us info at masterplanretire.com with your own questions. We'd love to feature them in an upcoming episode. Um, or go to our website, masterplanretire.com, where you can schedule your complimentary consultation with an advisor, have a series of reports ran for you, basically have a conversation on you and your specific life and your specific retirement. Mark, any parting words for us?

SPEAKER_01:

I know that there are folks listening because I hear it every every time somebody comes in. I've had your phone number on my front seat for two years, meaning to call you. Don't wait any longer. Every minute you wait, your money can be is going to be less efficient. We lose time. Okay, so call us, masterplanretire.com, visit us. Uh, love to meet with you. So uh until we do see you, and hopefully it's soon, remember plan well and prosper. Take care.