Make It Last – Ep 148 – Two By Four
Play • 59 min

This week on Make It Last, Victor and Mark will be discussing two major topics: What are the 4 things that all successful retirees have in common, and what are the 4 major costs of estate planning?

Once you have these two questions answered, you’ll be able to successfully strength test your retirement and estate plans.

House Dem’s presented a new tax bill…how will this affect you? Find out all of this and more on this week’s episode of Make It Last.

To access additional information, please visit Are You Paying Too Much In Taxes In Retirement?

Also available on SpotifyApple Podcasts, & Google Podcasts

Make It Last with Victor Medina is hosted by Victor J. Medina, an estate planning and Certified Elder Law Attorney (CELA) and Certified Financial Planner professional (CFP). Through his law firm and independent registered investment advisory company, Victor provides 360º Wealth Protection Strategies for individuals in or nearing retirement.

Full Transcription Below

Mark Elliot:  Welcome to “Make It Last” with Victor Medina. I’m Mark Elliot. Victor has two companies. We talk about both of them every week on the program, Medina Law Group and Palante Wealth.

Victor focuses on traditional estate planning, asset protection, retirement distribution, proactive income tax planning. He’s been featured on national television, the Wall Street Journal, the Huffington Post, U.S. News & World Report.

If you have any questions about anything you hear today on the show or if you just have some questions or concerns about estate planning, about retirement planning, you can certainly call the team. There is no cost for that whatsoever. It’s 856‑506‑8300. Again, there is no cost. There’s no obligation. The team’s here to help, they just don’t know if they can until they hear your situation.

We’ll give you that number throughout the program, 856‑506‑8300. Glad you’re with us today, Victor. How are you? Things are busy, I’m sure, this time of the year.

Victor Medina:  I’m doing well, Mark. Incredibly busy. We’re getting towards the fall. The fall always means reviewing required minimum distributions for our clients. Making sure everybody’s in tip‑top shape, so we don’t have any issues coming towards the end of the year.

We certainly don’t want to be doing that work between Thanksgiving and Christmas. The team is up and running, and by the way, hosting any number of seminars throughout. For anybody that’s listening, if you are interested in attending an upcoming seminar, we do things for just women, empowering women in retirement.

We do things for couples. If you’re interested in any of that, you can go ahead and contact the firm at the number 856‑506‑8300. We’d be happy to provide you with a list of upcoming seminars, and see which one you might be best suited for.

Mark:  Yeah, there’s no cost to attend. Great opportunity for you to learn more. Now, let’s go to the House in Ways and Means Committee. I guess it was about mid‑September, so just a few weeks back, they submitted an 18‑page proposal on how to modify the tax law structure.

The tax law we’re under right now is basically called the Trump tax law, January 1, 2018 running through December 31st, 2025, unless the next administration changes, which is certainly what they’re talking about.

What’s your overall view on this? When you send in an 18‑page proposal, that means it’s not necessarily law at this point. There’s a lot of negotiating that has to go on, I guess. [laughs]

Victor:  Yeah. What is this, Mark? This is nothing more than them indicating their direction, tilting their hand about what they’re interested in doing. When these things become law, there are 300 pages. They are written in a way that locks themselves into a certain existing IRS code and things like that.

You’re seeing modifications of existing laws, and they make reference to that. What this is, is an 18‑page treatment, almost like a Hollywood movie. It’s like, “This is what we’d like to Ben Affleck version of our movie to be.” This is the high level look at the direction that they’re going.

If you read or download the 18‑page summary that’s in there, subtitle one of this is entitled, “Responsibly Funding Our Priorities.” This is not only looking at how to generate revenue to essentially cover all of the stimulus that has gone out in terms of the COVID response, but also the infrastructure bill and any of the other large plans that have already been announced.

This is their plan for funding. I don’t anticipate that this is going to be the final version at all, but is a very good overview to see the direction that they’re going in the way that they are making these changes like who are they going after, what do they think is important, where are their priorities and how they’re going to generate this revenue.

Mark:  I’m still impressed with the 18‑page proposal because when Congress enacted the first federal income tax law back in 1913, it was 400 pages. Now, the federal income tax law is well over 70,000 pages.

The new proposal, 18, I think that’s good effort. I guess when we’re talking about retirees, which is what we’ll talk about, and you surely help people with the estate planning or financial planning as well that don’t have to be retirees, but that’s a focus of our radio show.

How is this 18‑page proposal broken apart into what areas? What sections maybe are relevant, Victor, for our listeners here on “Make It Last”?

Victor:  Sure. It is broken down into four different sections. The first section has to do with corporate international tax changes. That’s not really going to affect a lot of retirees.

The second section, though, is entitled “Tax Increases for High‑Income Individuals.” They are going to be tax increases on the rich. However you’re going to put that under underscore or underline in there. There are going to be changes to that. We’ll talk a little bit more about what that means.

Part 3, though, actually lands right on top of our heads for this show which is modifications of rules relating to retirement plans. It’s all about retirement plans.

Then the part 4 is having to do with funding the IRS and improving the tax fair compliance, which is a fancy way of saying we’re going to put some cops on the street to make sure that this is actually seen through and nobody gets away with not doing the rules that we want to do.

The parts that are really important for listeners today are parts 2 and 3. When we talk about part 2, Mark, in just affecting rich people or high‑net income individuals, I think there can be a mistake in looking at this and saying, “It doesn’t apply to me because you’re talking about individuals who make over $400,000 a year.”

When we do deal with our fair share of people that are well to do, that have got money, that may be making that much, the majority of people in retirement aren’t at that level. If you’re listening to that number, automatically you stop listening because you think it’s not going to apply to you.

I want to caution you on that. I’ll actually want to invite you to stay focused because what this really seems like to me, is a way to get a foot in the door. Because if we make this sound like it’s just applying to the rich, and most people don’t consider themselves to be rich and once this is in the door, then they can start to team some of the numbers.

I’m going to use this as an example. First, when social security was enacted, it was proposed and enacted as a benefit that would be tax‑free. In other words, you’ve contributed to social security from your taxable dollars. That was a tax that you had to pay to put it in.

What they told you is that you were never going to get taxed on this money, but we know that not to be the case. Over time, they started in closing limitations, so that if you were somebody that made too much money, their definition of rich at that time, but now you’re going to have to pay some tax on the social security.

They slowly eroded that. Almost everybody pays some tax on their social security. Whether it’s 50 percent of that is taxable income or 85 percent counted as taxable income, there’s some number that they’re contributing, and they’re giving back some portion of their social security.

I would almost think about this as if I could imagine how this might arrive on my doorstep once they start moving some of these numbers down, how is it going to do that? This is where the direction is in the high‑income individuals.

Of course, the retirement plan section itself is right on retirement planning, and so we should, definitely be paying attention to both of those.

Mark:  It’s one of the challenges I think. Certainly, if you have any questions about any of this, you can always call the team at Medina Law Group & Palante Wealth. It’s 856‑506‑8300. The taxes are a big part of retirement planning today, especially with 401(k)s and IRAs, all that tax‑deferred money sitting there.

856‑506‑8300, it’d be a great opportunity for you to find out more before. Try to be proactive in these things. Don’t wait until something happens and go, “Wow, I got to adjust to it.” Try to put a little, maybe some positive things moving in the right direction before if something like this would happen.

We’re getting down to that timeframe, where maybe we don’t have a lot of time to maybe move into the Roth world with some of our money if they make some of these changes.

It is interesting, Victor, when you say it’s 400,000 and up, and I’m like, “Well, OK, I’ve never made 100,000 in my life.” I guess I’m not really concerned about that, but it’s like the corporate tax. Corporate tax, Trump took it from 35 to 21.

This House Ways and Means Committee is proposing to move it to 26.5 percent. Then they said that’s the third‑highest corporate tax law for companies, or would be the number three in corporate taxes.

There was one country that had 31 percent, one had 30, and if we went to 26.5, we’d be number three in highest corporate tax. There’s always a trickle‑down effect. I’m thinking even in the 400,000, there’s always trickle‑down.

Corporate taxes start paying more, they start saying, “OK, our products cost more. We’re not going to be able to hire as many people. We’re not going to be able to pay them as much.” There’s a trickle‑down effect and all of these laws.

Victor:  They are, Mark. In addition to that, even some of the changes that are proposed for the high‑income individuals and the way that it works is actually them tilting their hand about the direction that they want to go.

Let me give you an example. One of the changes here is that they are going to increase the marginal top rate too. They have a number in there. It’s 39.6 percent. What’s important is that’s the number it’s already set to go back to 2026. What lesson do we take from this?

They’re looking to accelerate that sunset of these tax laws that we’re talking about at the top of the show. They may not wait until 2026 to have it happen. They may want to have a portion of that happen sooner than that.

The lesson that we take from it, kind of where you were going with your last statement, was that there was a benefit to taking care of this, and looking at your taxes and doing something about it while you still have the time to do that.

By the way, if you’re focused on taxes, you should be in retirement. We’ve created a white paper that you can download that will help you navigate taxes in retirement is something that we give away absolutely for free.

If you go to 920taxes.com where you can use it, you can download something that I’ve written. It talks about how to avoid paying too much taxes in retirement.

It’s never more important than it is looking at these ways and means report because this is starting to tilt towards the fact that we should be planning for higher taxes in the future, which we should probably take advantage of doing a little bit of our planning now, while we have a lower tax environment.

Now, listen. That’s just one of these areas we’re talking about increasing the rates faster, but there are also changes in this first section on “high‑income individuals” that may affect people that don’t feel they’re in that category.

For example, they are rolling back the high increase to the estate tax exemption. Now you can give away $23 million if you’re a married couple and not pay a dime in federal estate tax, but they’re rolling that back. They’re rolling it back to $5 million per person. That might start to affect a broader number of folks.

By the way, there’s been proposals that would take 5 million down to 3.5 million. That’s one area that we’re going to be keeping an eye on because it might all of a sudden start to wrap its arms around a greater number of people that might have to pay federal state taxes in the future.

The other portion still in this high‑income individuals before we go to the next section on retirement planning is they’ve made changes to the designation of certain kinds of trust. Now, we would lose the majority of our audience, Mark, if we started to go chapter for what kinds of trust these are. They call them guarantor trust and different things that are in here.

Here’s a point that you should probably be taking away if you’re a listener, which is that if you’ve created some form of tax planning trust in the past, if you know that you did that, whether it’s an insurance trust or something for real property, something to help protect assets against Medicaid, whatever it was, if you created a form of a trust for tax planning, it’s time to have that trust evaluated.

What they’re signaling here is that they’re going to deliver a different result than the one that you expected when you first drafted it. They’re changing the language. They’re saying, “If you drafted one of those kinds of trust that was meant to protect assets, we may deem that to be included in your estate and, therefore, taxable.”

This is the time to get in front of somebody like my office that can both handle the legal and financial to review this trust. Listen, the trust might have been completely fine when it was drafted. There aren’t nothing wrong with that at that time, but this law change that’s coming in here is going to drive a different result and probably one that you didn’t expect when you first put the thing in place.

Mark:  Yeah. Great point. 856‑506‑8300 if you like to chat with the team about this because there’s certainly a lot of moving parts. You need to be on top of this. 856‑506‑8300.

Let’s move to the retirement plan. We’ve got a few minutes left. I know one thing that was not in the 18‑page proposal from the House Ways and Means Committee about this new tax law is there’s no step up on basis. That’s been thrown out. That’s a positive, but they talked about going after the rough world, haven’t they?

Victor:  Yep. They’ve got two things they attacking. The rough world is one. Then they’ve got the world of people that have saved too much in their IRAs. Hasn’t she handled that second one first because it’s first in the order? By the way, this thing was drafted that’s why my brain is working. I’m remembering back through these 18 pages.

The first thing that they did is say, “Listen, if you acquired so much in your IRA and your rough IRA combined, if you have more than $10 million in that, what we’re going to ask you to do is to take half of the amount over $10 million and take a distribution right now.”

What does that mean for regular people that may not have $10 million? What they’re basically saying is that there’s a number that we think you shouldn’t have more than.

If you have more than that number, we’re going to make you take out faster than you were gong to do at 72. 72s might only take four percent off. This is actually saying that if you have too much, we want you to take half of that amount.

In fact, they give you another number above that. If you have more than $20 million, you have to take everything above $20 million, not half of what’s above there, everything above $20 million in one year and pay that in taxes. What does this looks like for me trying to read the tea leaves?

What it says to me is that the federal government is starting to think about this in a way that says, “We want you to save for retirement, but we don’t want you to have savings too much. We want you to have taken advantage of our tax deferral but not too much, because if you’re over a certain limit, what we want to do is we want to accelerate our revenue. We want to get that money in faster.”

What that means for other people is to do what I have been preaching for years before this ever came out. Just to think about your tax planning proactively rather than reactively. Don’t wait to 72, and just take out whatever they have to take out and pay the taxes on it.

Look at your taxes on an annual basis and start to plot out what would be the best tax planning for you. In other words, right now, if we’re still under the same rules of what we’ve had in the past, what that would mean is that we have about three or four more years under a lower tax rate environment.

Where we can bring money out of your IRA, lock in those taxes at a lower amount so that in the future, when the higher taxes are in place, you don’t have to pay those higher rates or you’d have to pay them on a smaller amount.

We’re doing that proactively. We’ve been doing that for years. We’ve been doing that ever since we started doing this planning because we’re so tax‑focused. If you have ignored us today, which might be OK, but if you haven’t been listening to us, if you haven’t been working with us, now is the time to start listening.

What we’re seeing for the first time is not just Medina going crazy and preaching like a wild man on top of the hill about something that’s coming. We’ve actually seen a written government document that says exactly what I’ve been preaching about, which is, there’s going to be a time where they’re going to come after balances because they think that they’re too high for what they need.

That’s definitely one of those areas that is getting looked at. The second area, by the way, which is what you mentioned, is the changes to the Roth IRA. Some of those changes eliminate what they call a backdoor conversion.

That was your ability to go ahead and contribute after tax dollars into your IRA, not pre‑tax dollars, not substitute wrote off your taxes, but just after tax dollars and then convert it to a Roth IRA, treat it as a Roth IRA going forward. They don’t want you to take advantage of that. That’s going away, OK?

By the way, that’s some of the rules around that apply the high income earners over that 400, 000. Then they have this other section that says all of the backdoor conversions, no matter what your income was, is going away as of December 31st of 2021 if this comes into law.

That is really important because that means if they get some momentum on this, Mark, it’s going to mean that anyone, anyone that was trying to take advantage of a backdoor Roth conversion is going to be prevented from doing so.

By the way, it could be anything just 100, 150 thousand dollars in their working years right now. They’re over the limit to contribute directly. This is one way to get some money into a Roth. They’re basically doing away with that. It’s going away wholesale if they get their way.

Mark:  A lot of moving parts. Again, as Victor said, you can always go to 920taxes.com to get that report, 920taxes.com. If you like to sit down and chat with Victor, time is running out really. We’re kind of a window of opportunity to maybe even moving some money into the Roth world. There’s changes coming, it sounds like.

856‑506‑8300. 856‑506‑8300. We’re just getting started with Victor Medina and “Make It Last.” We’re back right after this.

Mark:  Welcome back to “Make It Last” with Victor Medina of Medina Law Group and Palante Wealth. You want to find out about estate planning. Victor is also a certified elder law attorney. You can always go to the website, medinalawgroup.com, M‑E‑D‑I‑N‑A, medinalawgroup.com.

Victor started that company in 2006 because of those clients of Medina Law Group, they said, “Well, Victor, why can’t you help me with the rest of my financial planning, my retirement planning, and the like?” He said, “Well, I don’t know why I can’t. I guess I can do that.”

In 2014, he started Palante Wealth. Now Victor is a certified financial planner professional. He’s a registered investment advisor, palantewealth.com, P‑A‑L‑A‑N‑T‑E.

You’ve got medinalawgroup.com, palantewealth.com. Depending on whether you want to talk estate planning. Estate planning is certainly in retirement planning. There’s no question about it.

But you think about what Palante Wealth will do for you. Income strategies, investment strategies, tax‑efficient planning, and then certainly estate planning is the way that Victor and the team looks at retirement. Palantewealth.com, medinalawgroup.com. I’m Mark Elliot.

Glad you’re with us today. I was reading a study, and this was from Victor, the Employee Benefit Research Institute. They did a study and I think it was about 1,100 retirees. They we’re trying to figure out, “OK, what are some of the things that these successful retirees do? Are there any common denominators, for example?”

What they found is that most of these retirees that say they are comfortable with their retirement, and confident in their retirement, they do these same four things. We’re going to talk about a couple in this segment. We’ll talk about a couple more in the next segment.

I know plenty well, when you sit down with people, you’ve got to find out about them. What are their hopes and dreams and the like, what are their financial situation? How much income do they need? All that kind of stuff.

We’ll touch on all of these things, but the first key to that comfortable retirement, according to The Employee Benefit Research Institute study, go into retirement with little or no debt.

How do you look at that? Surely you have people do come in with no debt, but I would think higher majority, more people have some debt than those that come in with no debt, I would guess.

Victor:  Yeah, that’s pretty interesting. I always love these things, because it gives me an opportunity to try to figure out is this where all the cattle are going, and we go different direction where we actually think about this? Or is it actually something that’s valuable? I like this one.

I think this one is actually valuable to reduce the amount of debt. Let’s think about this from a real simplistic standpoint. If you go into retirement with debt, it means that what you have is an expense item that you have to carry throughout your retirement.

You’ve got a line item in your budget of money that you’re paying to somebody else. You’re essentially going to need to budget that into how much of your own paycheck that you have to develop from your retirement savings. That’s sort of the trick we’re doing here is creating a paycheck for you because you don’t have one of your own.

I think it’s very, very rational to be planning to have little to no debt, so that what you do is you limit the number of line items on your expense, the more reasonable your budget in retirement, the more likely it will be for you to be able to create an income that matches what your expected spend is. It makes a lot of sense. I would agree with that one.

Mark:  You think about it. I would certainly be on board with no credit card debt, because typically your talking 10 if you’re lucky but more than likely around 20 percent of interest on those.

I get that. Dave Ramsey always says, “Hey, start. You can do the avalanche effect to where you attack the highest interest rate, or you could use the snowball effect where you start with the smallest balance and you just try to attack them that way.”

I understand that. One thing that I was saying is interesting because you’re retirement planner. It’s always interesting because people would could go, “Well, what about my house?” With mortgage interest rates so low right now.

When you think of good debt or bad debt, a house is more into the good debt category than the bad debt category like a credit card.

How do you answer that question as, “Hey, Victor. We owe 75,000 on our house right now. We’ve got 500,000 in our IRA. We can just pull that 75,000 out, pay the house off and now we don’t have to deal with that anymore”? That’s a common question, I would think. How do you answer that?

Victor:  Yeah, it’s a good way. By the way, it’s a nice little asterisks or a caveats to the general rule about eliminating all of the debt going into retirement or the line item going in there. It’s totally consistent with the principles that we’ve talked about before. It would all work out in the same way.

We’ve got two things that we’ve got to think about when we have to consider home debt, specifically mortgages. The first thing is there any portion of the interest that we’re paying in there is going to help us on the taxes.

We’ve got to think about that is there’s any tax savings, of course since the Trump tax cuts there’s been a limit effect on us especially in the North East where we are right here where property taxes might be higher than normal. We’ve got some of that that we need to consider.

The other component of that the money that is being borrowed on low‑interest mortgage might actually be doing better invested on a long‑term basis so that arbitrage ‑‑ a big fancy word there ‑‑ between the difference and what we could be making and what we are spending on that money might be to our benefit.

Then we had that last element in there that you snuck in which is if that money is coming from an IRA to pay for the mortgage then what it means is that I’m going to have to pay taxes on that money.

What that means is that it’s not $75,000 that I’m taking out to pay a $75,000 debt. It’s that money plus the money that I have to pay in income taxes in order to fill that up. Should I be paying that all at once? Maybe, maybe not.

That’s where we have to do the math and try to help figure out what’s the best plan going forward. It might make sense, for example, to keep a line eye among your expense aside of your budget that says mortgage to pay that off over 10 years to extend how much money we’re bringing out of the IRA over the course of 10 years. Because when we do that, it might be that the money that we leave in the IRA grows bigger, and the overall taxes that we pay are lower.

Is that going to be for absolutely everybody? No, it’s going to depend on your specific circumstances, which is why you should come in and talk to us about your circumstances, if you have questions, so we can give you an answer that’s just for you. The answer that is best for you.

By the way, you can do that by reaching out to us at 856‑506‑8300. If you are interested in learning a little bit more about how to create a retirement budget, or what would be the best action for you, just call us at 856‑506‑8300. I want you to walk away from this at least with a debt question or debt subject on this realizing that you need a specific answer.

It’d be great for you to have the little debt, but it’s not going to be one of these things we’re just going to swing a hammer around and just say, “Kill all of the debt before you get into retirement,” because you actually might hamstring yourself a little bit if you end up paying too much in taxes or miss the opportunity for that money to grow.

Mark:  Yeah, because that’s always the interesting part to me. Somebody says, “Well, I’ve got 75,000 I owe on my house, I’d love to pay it off.” If you can’t sleep at night and it’s causing you health issues, you’d pay it off and you’d deal with the tax consequences.

There’s so many moving parts here. That’s why I think your team at Palante Wealth is so important when trying to figure these things out. Then due we come up with maybe a 5‑year plan or the 10‑year plan you talked about on trying to do it, but do it in a wise way so it doesn’t really screw up all of our taxes moving forward.

There’s a lot of challenges when it comes to retirement, and the team at Palante Wealth, they are retirement‑holistic planners. They will look at all the different areas, income, investment, taxes, estate planning, certainly. 856‑506‑8300. As Victor said, there’s no cost for this. The team is here to help, they just don’t know if they can until they hear your situation. 856‑506‑8300.

That’s the first way to be comfortable in retirement, according to the study by the Employee Benefit Research Institute, little or no debt when you go into retirement. The next one to me, not being a financial person, even though I’m almost 62 now, I am not very good in this area. I don’t really understand how I would do it.

That is, the second key to a comfortable retirement is having a clear spend‑down strategy. Can you explain that?

Victor:  Yeah, it is a little bit of a word salad, isn’t it? What are we thinking about when we talk about having a clear spend‑down strategy? It makes sense. How are you going to spend down what you have? To understand that, we first have to understand how people arrived in having the nest egg that they did. They had an accumulation strategy.

That accumulation strategy could have varied widely from person‑to‑person. Maybe you’re a passive investor, you just dollar cost average, you just put money into your 401(k) and you kept buying the same funds over and over again. No matter how much you put in, you just bought whatever how much that bought for you and you put it in your account.

Maybe you’re somebody that’s more tactical. You thought that you had the best idea on what was going to be the next hit, and you bought that and maybe it worked out for you. However you arrived to where you are entering retirement, that was all part of an accumulation strategy. That got you to where you are.

What we have to remember is that what brought us here may not necessarily be the thing that brings us the rest of the way. One of the reasons why retirement planners such as myself, get brought into people’s lives when they’re making a retirement decision is because the nature of the problem got a little bit more complicated.

The accumulation strategy is pretty easy. In fact, you can probably make a lot of mistakes in that and still turn out OK because you’re not relying on the money that you are saving to live, not at that time. That’s what the rest of the money that you’re not saving is doing, it’s paying for it.

Now that you’re at the retirement stage, you now have to create your own paycheck in retirement. What we were talking about when we were comparing income and expenses. In this budget, we’re talking about debt. We actually have to get through a strategy about how to create that check. Most people will go through that just withdrawing funds from the account.

Taking the bucket, dropping it down the well, and then just taking money back up and spending that money. That straight withdrawal strategy between research experience. Basically, anyone that does this for a living will tell you that that’s not the best strategy. In fact, what that is the best strategy to have the highest risk for it not working out. That’s what the best strategy is for, it’s for it not to work.

We don’t want to be doing that, just withdraw the amount that we need, we actually need to marry that spend‑down strategy with a changed‑investment strategy. We need to think about it from different perspectives. One of the things we might have to do, for example, is fill the bucket in some form of a guaranteed way every month.

We’ll talk a little bit about that I think probably one of the other points. I’d be surprised if one of the other things is not having fixed income, but we would be looking at trying to creating some other bucket.

The other thing we need to be thinking about is time horizons. Money that you need today needs to be a different dollar amount than the kind of money that you’re going to need in the future. Because, for example, one of the things that you have to plan for is inflation and the idea that things are going to get more expensive in the future.

Having a clear spend‑down strategy for me would look like three things. The first thing is to know how much you need in terms of your income as part of your budgeting and where you’re going to be getting it from.

The second thing is, how do you have to adjust your investments to make that strategy work? The third thing is, do you have the flexibility, or have you built in the flexibility for that to change as your needs and desires change over the future?

This isn’t a spend‑on strategy that you just put in concrete or granite and you never look at again. You actually have to plan around life changing. You might have long‑term care expenses. You might want to travel more. You might have to support somebody in your family. Something might happen where something happens with the cost of inflation and things become more expensive or less expensive.

Again, it’s dynamic. You got those three elements in place. Now you’ve gotten a clear spend‑down strategy, and now you have a good chance of getting through retirement.

Mark:  What we’re talking about today is right in the wheelhouse of Palante Wealth. P‑A‑L‑A‑N‑T‑E. palantewealth.com to find out more about Victor and the company.

That’s what they do. Retirement planning. Holistic retirement planning. Come up with an income plan. Come up with an investment strategy, a tax efficient strategy, moving forward, an estate plan. There’s a lot of moving parts in retirement, and Palante Wealth is here to help.

This is the kind of stuff that they talk about with their clients all the time to make sure because, as Victor said, things happen. Things change. What if we get sick? What if this happens? What if that happens? You’ve got to have some of those scenarios in play so that you’re not just blindsided. You hope for the best, but you plan for the worst to a degree.

We’re talking about a study from the Employee Benefit Research Institute that said, “All right. We found in this study we did with over 1,100 retirees that basically there are four keys that all of these people that are comfortable with retirement have done.”

“Number one, go into retirement with little or no debt. Number two, have a clear spend‑down strategy.” There’s two more to get to, but if you’d like to talk with a team of Palante Wealth, give them a call. They’re here to help. 856‑506‑8300. 856‑506‑8300.

What are those two other elements to be in that comfortable retirement world? Victor will tell us right after this. Stay with us. This is “Make It Last” with Victor Medina.

Mark:  Glad you’re with us for “Make It Last” with Victor Medina of Medina Law Group and Palante Wealth. I’m Mark Elliott. Victor is the author of five books on retirement planning under his acclaimed “Make it Last” series. Of course, the team does seminars for women, for couples, for retirees, for financial planning, for elder law stuff, estate planning, all of that.

There are different seminars that they put on from time to time. You can always give the team a call. If you’d like to find out and say, “Hey, what’s coming up next? I think I’d like to learn more. I’ve heard Victor on the radio, I’d like to maybe see him in person. See how he really operates.” 856‑506‑8300. Seating is limited at these, so it’s first come first served. 856‑506‑8300.

We’re talking about a study done by the Employee Benefit Research Institute. They talked with about 1,100 retirees, and they came up that the retirees had felt really comfortable and confident in their retirement did these same four things.

Number one, go into retirement with little or no debt. We touched on the housing part of that. There’s a lot of different answers depending on your situation. That makes sense. I think all of us would agree, “I’d love to go into retirement with no debt. How do we do that?”

Number two, create a clear spend‑down strategy. Remember, in your working years you’ve been accumulating. Now you get into retirement and you’re de‑accumulating. How do we do that? We have to have a clear spend‑down strategy.

The third key to that comfortable retirement according to the study, Victor, is having some sort of employer‑provided assistance. I would love to have a pension, but I don’t. I have a 401(k). The employer’s part is traditional, my part is Roth, 401(k). I think that’s good. How do you take this, the employer‑provided assistance?

Victor:  I probably agree. I might imagine that if somebody came out with a huge pension that equals 75 percent of what they were making, probably barely really good key to a comfortable retirement. I think about my parents.

My parents were school teachers. I suppose some part of them are always going to be school teachers, but for a career they worked in public schools. They earned a pension which means that when they retired, they are making six figures because in combination, they’re 70 percent for their best three years before they retired, equal to that amount.

They’re very comfortable in retirement because they’re getting employer‑provided assistance.

As you mentioned, that’s the minority of folks these days. Unless you work in the public sector, or for one of the very, very few private companies that still offer a pension, you’re likely funding your own retirement.

The way that I would interpret an employer‑provided assistance in this key is that if you’re not working for somebody who’s going to give you a pension, hopefully you’re working for somebody that gives you the opportunity to contribute to a 401(k).

First of all, if you’re in a 401(k) as compared with an IRA, you can contribute more money for retirement, so if your thresholds are higher of what you can save and further, hopefully, you’re working for a company that’s going to provide you some form of a matching program.

That is to say, when you give money, they give money. They may not go dollar for dollar for everything that you put in. If you put in five percent, they might put in three percent. That’s good free money that we want to take advantage of.

If you’re in a situation where not only have you been afforded the opportunity to save more money because of a 401(k), or Roth 401(k), then you work if you were just saving in IRA on your own.

If you got some free money from your employer that helped grow that balance and helped contribute to the growth over time on a compounding basis, you’re probably set up to have very comfortable retirement. Why? Because you probably have a good sizable nest egg on which you can rely as you go into retirement.

One of the things that we do when we create a Make It Last plan is we review income investments tax and estate planning. In that investment section, we’ll often look at and comment on how people did getting to this point in terms of savings.

We’ll often remark because we get to work with a lot of great clients. We’ll remark that they did a great job saving for retirement. That their nest egg is one that if properly invested, if properly allocated, will have a very comfortable retirement. Essentially, one of these things that the Employer Research Benefit Institute.

I definitely confused a couple of those in there, Mark. Definitely, what they found to be in the survey I would say that’d be the case for folks that have a good nest egg going in.

Mark:  Because you brought up the fact that there are catch‑up contributions. Once you get over the age of 50, you’re allowed to put a little bit more in an IRA. You’re allowed to put more into a 401(k). I think the IRA after the catch‑up contributions goes from 6,000 to 7,000 over 50, from 18.5 and your 401(k) to 26.5. I’m ballparking those numbers. That’s a pretty big discrepancy between 7 grand in an IRA and 26‑plus in a 401(k).

Why do you think the numbers are so different for those?

Victor:  Well, there’s a couple of things that have happened. First of all, when they enacted these rules, the 401(k) Safe Harbor, essentially, what they did is they created those rules to be more generous, so that employers could provide programs for people to help with their savings.

In other words, they were trying to induce companies, to offer these programs, and they offer them more generous, more flexible terms than what you would normally do in an IRA. What they’re doing is trying to tilt behavior by saying you could save more, if it was under one of these structures, by the way, similar in terms of saving 403(b)s and 457s. These are all provisions of the IRS code that allows tax deductibility for that.

What we were doing there is to say, “Listen, you could go ahead and pay your people but if you also offered to them this 401(k), we’re going to help you with your tax obligations and what you have to pay as a company.” What they’re doing is trying to, again, drive behavior a particular way, which is why they tilted it so much in favor of the employer‑sponsored plans rather than the individual savings plans.

We would probably spend a fair amount of time casting the government in a negative light and same thing with employers to a certain extent. We’re really focused on our clients, individuals, getting them through retirement. But if I have to look at this subjectively, if we’re having a beer over this, and we’re just chatting on it, just a couple of guys that are speaking the truth off of it, I think that they’re probably right in setting it up.

Individuals don’t tend to do things that are in their best interests, like save the total amount that they can in an IRA. If we can induce their behavior by getting their tax benefits in place, if we can have the company assist with that, if we can have a little conspiracy to try to get them to save money in a retirement account, we’re going to work out better.

Those people are going to have more money saved. That has a better benefit on the governments too, because there are going to be fewer people on government assistance. I think it all works out in the end. There’s probably much more that has to go into the tax planning.

I’m not sure that it’s an absolute win, I’m not sure that it’s an absolute pure thing that happened, but I think more likely than not, more often than not, this kind of structure got more people saving for retirement.

We see their fruit of that, by the way, Mark, in the people that come and visit us because where are their savings going into retirement, where they’re almost predominantly in an IRA or tax deferred account, 401(k) in some fashion.

Mark:  I like that, that was a great explanation. I’d buy that. I’m on board with you there.

Victor:  Thank you.

Mark:  But before we move on to the final of the comfortable keys to retirement, which is maybe the most important of all of them, one quick question about the 401(k)s.

One thing is that you do help clients that have the ability at their job. I think, typically, it’s 59.5 where, let’s say, you’re going to retire at 65. You still have five and a half years to keep contributing to your 401(k), but you’ve taken a portion of your 401(k) out and directed it more for your retirement, into your own IRA.

Can you talk just a little bit, quickly, about an in‑service distribution of a 401(k)?

Victor:  Yeah, sure. When you’re saving money for your 401(k), the menu of investment options where things that your employer created, they may or may not be doing that with your best interest in mind. It’s not something that a lot of people thought of ahead of time, but you might have in there for example things that have a lot of fees that you might have, things that have a lot of limited options.

One of the things that you can do is that once you reach that magical age of 59.5, you can do what you just said, Mark, an in‑service distribution. You can roll over a portion of your 401(k) into your IRA, so that you can get a bigger choice of investments off.

You can get more flexibility off of it, and by the way you could probably reduce fees, get it for your investment which means you’re going to keep more of your money.

I’m not sure that everybody has to go and do this, but one of the things that we do when we evaluate this for clients that come in is we will look at your 401(k). We will examine whether or not it makes sense to do that one of these in‑service rollovers.

If it does, we want to take advantage of that as early as possible so that we can get the benefit of having moved that money which means that we can be longer inside of an account that might be doing better for you and your retirement.

Not just the terms of the returns, but just lower fees, better flexibility and choices, better set up for your retirement. These all might be elements of reasons why a shift, a good portion of that money even before you retire. Just because you hit that magical age.

Mark:  If you’ve never heard of that, the in‑service distribution of 401(k), hey, maybe you’re going to work till 65, maybe you’re going to work till 70, but at 59.5 that gives you 5‑10 years to let that grow and be in a better position and put it in a more targeted area for what you need for your retirement.

Call the team. They’re here to help at 856‑506‑8300. 856‑506‑8300. Glad you’re with us today for “Make It Last&…

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