Proactive Tax Planning


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Transcript

Mike:

And you should call us. You should be calling me. It should be Holy cow. I need to know what my taxes are going to look like in retirement. I better call these guys right now. So, cause we’ll help you figure it out for free. It’s like a free service. Why would you not take advantage of that? Especially when they’re talking about increasing taxes in Washington DC.

Zach:

Welcome back to retirement today. My name is Zach Holcomb and alongside me, we have Michael Reese, he’s certified financial planner, retirement planning, expert and founder and president of Centennial advisors located right here in Austin, Texas on today’s show, we’re talking all about the importance of proactive tax planning in retirement and how that affects your investments. So Mike, on this segment, we’re going to talk a little bit about, let’s say you’re five years out from retirement. You’ve done a great job saving, you know, you’re, you’re maxing out your 401k. You know, you’re putting money in an IRA, but you realize that you’re going to have a pretty big tax liability when the time comes to retire. So five years out, what steps should I be taking now?

Mike:

Step number one is simply this, Zach, you said something there that when we talk to people, I think we’ve got a little disconnect going on because you mentioned you’re five years out and you realize you’re going to have a pretty big tax problem in retirement. I think what a lot of people, if you’re like most people, I don’t know if you realize that yet. I think maybe you are starting to wonder, and this might be you. Maybe you’re sitting there, you’re starting to wonder, gosh, are taxes going to be a significant challenge in retirement?

Zach:

I’m not sure just yet, but it’s in the back of my mind.

Mike:

Yeah. Maybe, maybe because you’ve listened to this show or some other shows you’re starting to wonder, gosh, how are taxes going to affect me? Is this really going to be a problem when I retire? And let me tell you something. If you’ve got a lot of money saved in your 401k, the answer is well over 95% probability. Yeah. It’s going to be a serious problem and you need to figure this out, right? And it’s like, anything else, if you start working on this before you get to that point where you want to retire, it’s going to be a lot less painful. It’s going to be a lot easier to deal with. Then if you deal with it after you retired,

Zach:

Right. That’s why I say our topics, not tax planning, it’s proactive tax planning in advance.

Mike:

So my wife and I had a we’re very fortunate. We got to go to Cabo for a week. Right? Right now when we go on vacation, this is how it goes down. So about a week before the flight leaves. So let’s say we’re leaving next Saturday. So the weekend before my wife, Becky, she starts packing. Like she’s got suitcases out and she really thinks this through. She’s like packing little things at a time. Like she’s got this almost like this checklist. Right? Sure. And off she goes. And how much does she ever forget? Like if we, when we got to Cabo, did she forget anything? I seriously doubt it. No way. By the way, if you get a chance to go to Cabo, it’s beautiful. Yeah, she had everything now let’s compare that to how I,

Zach:

you probably forgot your swim trunks, right?

Mike:

No, I pack I’m the guy. I’m the guy. So I travel a lot. So I’m kind of used to this and so I tend to pack. Let’s see, we’re leaving Saturday morning. I’ve got to leave the house at 5:30 AM for a 7:00 AM flight or something like that. Okay. let’s see. Oh look, it’s 11:00 PM the night before I better start. Right. That’s kind of me and I’m really, I’m good at it. Cause I’ve done this a million times. I know what I want. Boom, boom, boom. But guess what? I got to Cabo. I forgot suntan lotion. I don’t know. I forgot. Allo got to come back. Yeah. I got to come back home. So I had to thank God my wife was with me because she packed it. Right. but I think I had used I don’t know. Is there a women’s suntan lotion versus men’s version?

Zach:

There probably is.

Mike:

All I know is I smelled great. Yeah. Anyway, I love that point is the point is the same is true with your retirement planning and it’s not just the tax side. It’s how you going to recreate your paycheck, right? How are you, how do you build an income plan? So you can replace your paycheck. That actually comes into play with tax planning, right? Because what you have to think about your five years out, here’s some things you need to start thinking about. Number one, Zack, a lot of people that state you’re maxing out their 401k. Sure. But what are they doing? All of their money is going into pre-tax accounts. They’re just growing their tax problem. Do you have a Roth 401k option? Do you have an option in your 401k or your four Oh three B for that matter to do Roth contributions instead if you do, you probably should be looking at that 100%.

Zach:

I do that. I have that option. Yeah.

Mike:

And you do all Roth, right? Yeah. But for a lot of people, there may be five, six years away, three say three to 10 years from retirement, their whole lives. They really haven’t had a Roth option. So they’ve just had the regular and you know what happens a lot of times, these 401ks, these companies, they add the Roth option on, but then they don’t tell their employees. Right. They tell all the new hires, but they don’t tell the employees. So if you’ve worked for a place for awhile and you’re kind of scratching your head, you’re thinking, do I even have a Roth option in my 401k? If you’re wondering, check it out, ask your employer. I bet you do. Most employers have that now. And so one of the things you should start doing is look at, you should evaluate this, by the way I’m taught, I’m talking about taxes here.

Mike:

I’m getting red in the face. Right. Zach’s looking at me right now. He’s like, Oh, so you can explode on starting to sweat a little bit. I’m getting excited. Yep. Here’s the deal though. It’s going to be different for you than anyone else. Sure. So when I talk about this stuff, like things to look at doing, this is not advice. This is information. I can’t give you advice unless you call us and you should call us. You should be calling me. It should be Holy cow. I need to know what my taxes are going to look like in retirement. I better call these guys right now. So cause we’ll help you figure it out for free. It’s like a free service. Why would you not take advantage of that? Especially when they’re talking about increasing taxes in Washington, DC, you’ve worked your whole life to build up these accounts.

Mike:

You got to protect them. You know, here you are worried about is a market going to crash. Well, you should be worried about is what’s the value of your 401k going to be after the increased taxes in Washington, DC, because it’s the exact same thing. Right? So call us, let’s tell them, I’ll give, we’ll give you the number in a few minutes, but call us, let’s help you figure out what that looks like. And then we can give you advice. I can tell you, look, this is what you should be doing specifically. So as I talk about this, remember these are just general things. So generally number one, do you have a, the Roth option Roth? We love Roth. Zack. How much should we love Roth? We love it. Love it. Why? Because it’s, tax-free the two best words in all of financial planning is tax free.

Mike:

I don’t know. It’s not returning. Tax-Free free. That’s powerful next. So that’s number one. Do you have Roth option number two. Here’s one that a lot of people don’t think about here. They are fully funding their 401k yet they still have a mortgage, their house. And a lot of times when you’re within five years of retirement, do you know that if you were to, instead of funding the 401k or you just put enough in to get the company match, take the rest of the money, pay down your your mortgage. Here’s what happens a lot of times you can get to retirement and have a mortgage it’s almost paid for maybe fully paid for. And here’s what happens. A lot of times I hear people like, but Mike that’s cheap money. Why would I pay off a bill that it’s like, it’s a 3% mortgage.

Mike:

Why would I pay off cheap money? Sure. I’m going to give you two reasons. Number one, it’s really a piece of mind issue going into retirement, knowing that your house was paid, right? That’s a big deal for peace of mind. Alone is reason to pay off your house. You know, there’s a lot of things we do that aren’t optimal with our financial planning because it provides peace of mind. That’s one of them are a hundred percent. Here’s number two though, Zach, if your mortgage is paid off, guess what? You need less money to live on in retirement, really? Because you don’t have to pay a mortgage. Never want a guess, right? If you’re got to, if you want 10,000 a month to live on retirement and two thousands going to a mortgage and that mortgage is paid off. Now you need 8,000 in retirement to have the same standard of living and less income in retirement, oftentimes can equal less, less tasks, right?

Mike:

So that’s an issue. That’s an idea that might make, that might be applicable to you. So it’s not just see, everybody’s like, why should I pay off 3% mortgage? It’s not just that. Here’s a third idea for you, right? So we talked about Roth using the Roth option. You know, doing Roth conversions is an obvious one. If you can. The, the pain down the house, here’s another one start thinking about when you’re going to take social security, social security is an asset that if you structure things properly in retirement, you might be able to get a lot of money from social security and have it be, if not, tax-free close to tax-free. I have a lot of families who are enjoying six figure incomes in retirement. They don’t owe one diamond tax legally. Why? Because they planned accordingly. I know we’re running up against the clock here, Zach.

Mike:

So here’s the thing. You’re five years out from retirement. Give or take. Now is the time they’re talking about tax increases in DC. Now is the time now is the time to get your retirement ducks in order, right? So I want you to pick up the phone. I want you to call us, Zach’s going to give you the number just a second. I want you to call us. And when you talk to say, Hey, I want to have you guys put together a comprehensive financial plan for me. One that includes, you know, making smart choices on investing on taxes, health care, all that stuff. You need a comprehensive plan. And if you do that, the benefit is you can end up potentially enjoying that same, you know, tax-free retirement, that’s the goal. Maybe you can have a tax-free retirement, but it starts now with planning a hundred percent starts now with planning, pick up the phone, give us a call. It is free to have a conversation with us. Why would you not take advantage of that?

Zach:

Yep. Mike, give us a call 512-886-5850. Again, that number is 512-886-5850. When he reached out to our team, it’s after hours. So reach our answering service. You’ll set up a 15 minute call with us during business hours. And it will just give you a shout to say, Hey, you know, thanks for listening. What are your concerns? What can we do to help you?

Mike:

And it’s perfectly acceptable to say, by the way, I’m like Mike, I hate tax.

Zach:

I would love if you would actually say that you would love it too.

Mike:

I actually had someone send us an email from our show a week or two ago. And he said, Hey, I don’t like you anymore. Cause you said that you were okay with increasing taxes. And I never said that. I think he just misheard me a little bit. Sure, sure. A hundred percent. I’m never no less money to the IRS. Less money to uncle Sam, more money in your pocket. Again, started off. Let’s get you on the right track.512-886-5850.

Zach:

Hi. And thanks for checking out retirement today. If you like the content we share on our channel, make sure to like comment and subscribe. So you can say notified about all of our latest content and videos. Be sure to share all of our information with your friends and family as well. Thanks for joining us. We’ll see you next time.

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