Supplemental Retirement Income – Episode 058

This transcript was auto-generated and may contain errors.

[00:01] Welcome to the Prosperity Podcast, fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your host, bestselling author, Kim D.H. Butler and No BS Money Guy, Todd Strobel. Hey everybody, welcome to another edition of the Prosperity Podcast. This is No BS Money Guy, Todd Strobel, along with bestselling financial author, Kim Butler. Welcome, Kim. Thank you, Todd. Happy to be here today. Today we’re going to be talking to our, well, I guess the people who are thinking about retiring or maybe getting close to that. And for those of you who don’t know, Social Security has a thing where the longer you wait to take Social Security, the higher amount of Social Security that they will

[00:52] pay you on a monthly basis. So today’s strategy is going to discuss using those other assets, whether it be pensions or 401Ks or IRAs, in order to supplement your income so that you can delay receiving that Social Security as long as possible so that you get the maximum amount. What’s your opinion on that, Kim? Well, I first want to say, as many people that listen to us know, that you’ll want to delay retirement for a whole host of other reasons in addition to what we’re going to be talking about today, but just be aware that retirement, as it is typically defined in the United States, we don’t believe is a feasible strategy. We don’t think it’s healthy. We don’t think it’s good for you mentally, physically, socially, emotionally, psychologically,

[01:48] and financially. And yet, we do have to realize that dollars that we have are often used around this word called retirement. So we’ll talk about that today in a way that you can maximize your dollars. But I just want to go on record, if you will, as being the person that says, hey, This societal approach to hitting age 65 or 55, even worse, or even 70 is not good. And we believe that people should work as long as they possibly can. The only way to beat inflation, and a lot of people are starting to become concerned about inflation again, the only way to beat inflation is to keep working. The only way really to deal with rising taxes, and again, a lot of people are thinking that taxes are going to rise, is to continue to earn money.

[02:42] And so we don’t like the idea of retirement. And yet, some people do have to make, quote, retirement decisions around something like a pension or a 401k account. So our strategy, which would be different than most, is to go ahead and take the income from that pension or 401k account now for a couple reasons. Todd, you mentioned one, which is to then delay the social security that you’re going to take, because if you’re going to live for a long, long time, and most healthy people will, well into our 90s and even over 100, we want that higher social security number to pay out for as long as possible. And so by taking our qualified plan money, our 401k money, and our pension money up front and spending that and delaying the social security, then we

[03:34] get the social security payouts for the longer period of time. There’s another good reason to go ahead and take the qualified plan, 401k money, 403b money as well, any type of pension money. And that’s that if we do believe that tax rates are going to rise, and we know, of course, that qualified plan money is taxable, then we’re better off going ahead and taking it now. The typical strategy is to defer the qualified plan money, which is what you’ve been doing all along, and continue to just wait and wait and wait, and yet if you do that, then you’re subject to having that income be at a higher tax bracket and you’re subject to it causing potential tax on your social security. So it’s OK to pay some tax.

[04:21] Sometimes we get so caught up in not paying any tax, but let’s split this out and take 401k money, 403b money, and take maybe 10 years with it and really purposely spend it all. Now, this is going to depend on your balance, of course, but if you have only 100 or 200 thousand, let’s get that spent in the early years, in the 65 to 72 or three, and then switch over to social security. So I’ve got a question for you, Todd. Is there there is an age at which we at which we have to take social security, isn’t there? I think it’s 70. And that’s what I’m thinking. I’m guessing here, but I believe it’s if you can hold out to your 68, there’s no limit on your additional income, which is also important.

[05:15] So our recommendation is to delay as long as you can. And somehow I thought it was maybe 72. So I apologize. We’ll have to check on that. But with the delay, then you’ve got the highest possible social security income that you can have, and that will then go forward as we’ve indicated for the rest of your life. So why is it? Do you think that most advisors recommend people delay their qualified money, the opposite of what we’re recommending? Why do you think that is? Well, I mean, unfortunately it’s because they get paid for assets under management and to deplete those retirement accounts is to limit their personal income. So, I mean, you know, I have sat through several seminars where if you absolutely do it right, people you won’t even know 200 years from now

[06:11] will actually spend your retirement account. Yeah, the stretch IRA. Well, not only do we realize that financial advisors recommend for you to keep that IRA intact so that they get paid well, but many CPAs recommend for you to keep that IRA or qualified plan intact. And that’s because the CPA is focused on this year’s tax return. And he doesn’t or she doesn’t want to get caught in you having to realize that you’re paying full income taxes. You don’t even get capital gains treatment on that 403b or 401k or IRA money. So, and I think quality of life is the real issue, not taxes. Yes, absolutely. Well, you know, it’s funny too. We rely so much on these things called financial plans to try to help us figure out what we’re going to do in the later years with our

[07:08] money, but in actuality, we’re going to do what we want to do. And we’re going to make the money play along. In other words, you know, within reason, we’re going to change jobs or switch gears or move houses or whatever it is that we’re going to do. And we’re going to make the money do what we want it to do. There is a fallacy, I think, in believing that you can actually plan that out. People don’t get to plan at what age maybe they are no longer needed at a particular job or at what age they might have some physical issue that causes a change in their lifestyle. Absolutely. And ours are, you know, our school of thought would be create value, focus on cashflow, save appropriately, and, you know, don’t die with a

[07:59] lot of money in the bank, spend it and make memories. Yeah. Memories are so valuable and it is interesting for those families that do have the upper side of incomes and net worth where you absolutely will have money in the bank and have a lot left over. We’ll just touch on estate taxes real quick, because again, the CPAs and the attorneys are trying to minimize the estate so that you pay as little taxes as possible. We think you’re better off maximizing the estate, growing it as big as possible, and then having plenty of money to pay whatever inheritance taxes are left over. So almost in all cases, you could look at the typical financial advice that’s out there and say, okay, what is the exact opposite of that?

[08:50] And then go do that. Because when I look at everything that’s out there in the typical media and the typical advice from advisors and the typical financial advice from CPAs, I absolutely think that 180 degrees off is the better recommendation. Just think about all the things that we talk about. People want to max out their 401ks. We say don’t. People want to pay off mortgages. We say don’t. People want to defer taking income from those 401ks. We say don’t. And then people want to have a little bit of money from each of their accounts, like a little bit of social security, a little bit of qualified plan money, and we say don’t. It’s so much better to pick one asset and go after it and spend that

[09:40] asset down, use it up over a period of two years to 20 years. It’s really going to depend on your balances. And then go after the next asset and spend that down and use it up. And you’ll be in so much more efficient of a financial environment by doing that. And if this sounds interesting to you, I would invite you to go to partners, the number four, prosperity.com. Anything you’d like to add, Kim? Yeah. On partners for prosperity.com, there’s an ebook that’s available. And if you go to partners for prosperity.com slash ebook, you can actually get it as an audio version and it’s called the financial planning has failed. And it talks about every single one of these things that are put forth by the quote financial planning community and how misdirected

[10:28] and incorrect many of them are. And again, a lot of times if you’ll just do the exact opposite, you’ll be in a better situation. You’ll be more in control. You’ll pay less taxes. You’ll have more dollars available for your lifestyle and the important things like the memories that we talked about that you want to do. And so you can just automatically look at the opposite recommendation and try that on for size mentally and your own financial situation. And then if you need help, reach out to us and we’ll give you a second opinion so that you can see how possibly doing the opposite might actually put more money in your pocket, less in the government’s and give you more control over your dollars.

[11:09] Super. Well, this is No BS Money Guy Todd Strobel for the Prosperity Podcast. Once again, special thanks to our bestselling financial author, Kim Butler, who’s once again running against the grain, but we love her and her advice is right. So I encourage you to listen to it. Take care of everybody. Thank you for listening to the Prosperity Podcast. To take control of your money and have it work for you, visit us at partnersforprosperity.com. If you liked this episode, make sure you subscribe and leave a review.