Cutting Taxes & Retiring Sooner w/ Cody Garrett #1037

Episode Transcript
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Speaker 1 (00:00):
Welcome to How to Money. I'm Joel, and today we're
talking about cutting taxes and retiring sooner with Cody Garrett. Okay,

(00:26):
so Benjamin Franklin knew how to deliver alignment, one of
the best ones ever. He said, in this world, nothing
is certain except death and taxes. But the other certain
thing about taxes is that we all have the ability
to change our tax rates by the actions we take.
So my guest today, Cody Garrett, he has thoroughly internalized
that reality. He is an advice only CFP at Measure

(00:47):
twice financial who specializes in helping folks make a comprehensive
financial plan and that includes the role taxes play in
your ability to meet your goals. So his new book
helps folks plan intentionally around a giant expense we all face.
The name of that book is tax Planning to and
Through Early Retirement. So Cody, thank you so much for

(01:07):
joining me on the show today.

Speaker 2 (01:08):
Thank you so much, Sjoel. That's always an honor.

Speaker 1 (01:10):
Yeah, glad to have you here. First question, I got
to ask you, what do you like to sporge on?
I like craft beer. Matt my sometimes co host most
of the time co host Matt loves craft beer too.
We spend wildly sometimes on craft beer. What is that
sporte for you?

Speaker 2 (01:23):
Oh gosh, if someone gave me, you know, if somebody
gave me money that I had to spend. I'm not
allowed to save and invest or give it away, I
would say it would be. I'm really focused right now
in like physical and mental health. I know it's a
it's definitely a trend right now, but something I'm really
considering is having a mentor in every part of my life.
So that's my physical health, mental health, spiritual practice, and

(01:43):
also you know, relationships. So you know, right now, I
go to a therapist every week. I'm really big into
like breaking down the stigma around mental health. So I believe,
like you know, everybody can benefit from therapy counseling. So yeah,
Really thinking about my next splurge would be hiring an
accountability partner for exercise. Okay, for the physical health, I've
got the mental health part, you know, quote unquote covered,

(02:04):
but I'm thinking about really splurging on. I already have
the garage gym. I did the thing where I bought
all the stuff on Amazon and so forth, so I've
got the garage gym. But it's hard. It's hard to
keep myself accountable. So I want somebody who kind of
gives me a program but also like helps me follow
through along the way. So that will be my future splurge,
along with my previous slurge with actually buying all the
all the heavy metal stuff in my garage.

Speaker 1 (02:24):
Well, I love that you're I think sometimes in the
world of personal finance, especially the further along you get
into it, the more you nerd out it, can you
can go down the rabbit hole too far and maybe
not be willing to part with money to increase your
joy in success in other areas of life. So I
love that you're willing to splurge on that stuff. Maybe
what's been the most impactful dollars that you've spent so

(02:46):
far in that endeavor?

Speaker 2 (02:47):
In that endeavor, I guess we'll find out, because I
haven't quite lifted as many weights. I will say this
is kind of ironic that the best money we ever
spent as a married couple. I've been married for almost
ten years this year with my wife Maria, the best
money that we quote unquote spent was her being a homemaker,
being a stay at home wife and a lot of
people kind of think like, oh, well, you know, it

(03:08):
doesn't make sense to you know, stay at home until
you have kids. But I would say that in our family. Again,
my wife, from the very beginning, she said, hey, like my, my, like,
my my dream in life is to you know, be
a stay at home spouse, like to take care of
our home, to take care of you, take care of
future kids if we have them or adopt them. We're
actually in the adoption process right now. So ironically, the
best money we spent was actually her not making money

(03:31):
outside of the home because again, we have home cooked
meals all the time. We have again, I can eat,
I can eat you know, pretty much every meal with
my wife if I wanted to. So we eat dinner
every every day together. We have a very simple life
that we you know, our annual spending is about sixty
thousand dollars a year. Again, we you know, we save
and invest a lot on the path to five by forty.
But with that said, yeah, we we decide not to

(03:53):
make more money so that we can spend more time together.

Speaker 1 (03:55):
I think it's beautiful and I think that's the situation.
I think more people are finding themselves in as they realize, well,
there's a limit to the joy that more money can
bring me. There's other things I want to prioritize in
my life, whether that is being at home, whether you
have kids or not more often, or not working on Fridays,
working part time, and in order to live Like I

(04:16):
was talking to a friend who is a nurse practitioner
and he works two days a week and he still
gets benefits and he gets to be at home more.
And so it requires more intentionality, more frugal living. But
I'm seeing more people make those intentional life choices, and
I think that's a beautiful thing. Let's talk about your book.

(04:36):
Your book, it's really aimed at early retirees. I'm curious,
are you pitching to the fire crowd, the financial independence
retire early? Are you talking to people who are in
their mid to late fifties and they see retirement on
the cusp? Like, who are you really trying to help
with this book?

Speaker 2 (04:50):
Yeah, it's really funny when we first started talking about
the book, so Sham Mulaney, CPA, I'm Cody Garrett, you'll CFP.
So we kind of combine our financial planning and tax
planning expertise. But What's funny is both of us actually
serve as financial advisors. You know, I'm not, by the way,
like this is not an advertisement for my firm not
accepting new clients, et cetera. But we kind of came
into this saying, hey, like there's the fire community, right,

(05:11):
like the you know, financial independence community. You know, we're
real committed to like you know, choose FI some of
those common platforms around FI. We first were thinking, okay,
like the fire community really finally needs a book that
doesn't just talk about what we think we should do
or like hey, here's some like possible tactics. We really
wanted to put in a book with talking about both

(05:33):
accumulation so on the path to retirement and through early retirement.
And what's funny, we first started thinking early retirement is
kind of focused on like the fire financial independence, retire
early community. But what we realized in our bibliography is
like many mini pages long as in terms of the
research we did. But we found out there's a study,
you know, well respected study that says seventy percent of

(05:54):
Americans report retiring before age sixty five.

Speaker 1 (05:57):
That does sound shocking to me, Like we hear about
the retirement crisis, you're seeing like three quarters of people
essentially retire before that full seventy retirement age.

Speaker 2 (06:08):
That's right. And I would say too that even if
you don't plan to retire early, you should probably plan
for it because, as you know, there's a lot of
voluntary involuntary retirements happening. There's a lot of you know now,
and certainly industries have their ups and downs of like
layoffs and agism and things like you know, somebody's in
their mid fifties and they lose that job they've had
for thirty years, Like what do they do now? So

(06:29):
you know, we encourage you know again, you know, you
definitely want to live for today and tomorrow. But I
would say that early retirement, just like the kind of
the work from home type of thing, it's becoming more
of a really thoughtful, intentional practice of Hey, by the way,
I call it fire financial independence, recreational employment. I don't
actually plan to like, you know, you know, retire, go

(06:50):
Lana Hammock for five hours a day, Like I plan
to become financially independent, work optional, so that I can
work because I want to, not because I have toeah
and also if I'm able to work without needing money.
That actually gives me permission to really lean into my
value of generosity. So how can I give more to
others without expecting something in return when I'm financially independent,

(07:11):
hopefully you know, by forty or so. Again, not that
I have to get there, but if we're five by forty,
that means to the rest of my life, the rest
of our life, we get to lean into our core
values and we don't really you know, there's there's just less,
you know, fewer boundaries between us and really doing what
we think is best with our time, energy, and financial resources.

Speaker 1 (07:28):
I'm curious to know how big the stakes are when
we're talking about saving money on taxes, because I think
I think most people don't really understand Cody how much
they pay in taxes right, largely because it's taken out
of their paycheck and they're not really paying attention to
self employed people have more of a visceral pulse on
because those you know, quarterly estimated tax payments, they have

(07:49):
a better idea of what they're paying in taxes. But
I do think a lot of people they think, oh,
my tax is probably not that high, and I get
that sweet, you know, tax refund in April every year,
so the stakes, I mean they can't be that large, right.

Speaker 2 (08:02):
Well, it's really interesting. I think you know, before, before
you embrace the financial independence community and your financial education
out there, you might just not know that your taxes
are pai paid out. There's this kind of folk joke
about I think it might've been like a Seinfeld episode,
like who's this spik a person taking all my money?
That you know when you're working as an employee. It's
a fascinating that you brought that up. That when you're

(08:23):
working as a W two employee, like most of your
listeners most likely, whenever you know those taxes are automatically
withheld by their employer, you know, whether you get a bonus,
like there might be supplemental income like a bonus where
they're you know, they're they're automatically withholding twenty two percent
on that, which may or may or may not be
the accurate withholding for what you need. But it's fascinating
how when it's automatically taken out and Joel, I'll ask you,

(08:44):
when's the last time you actually received like a pay stub,
so like you got to check and then there's this
stub attached to it that you ripped off.

Speaker 1 (08:50):
Oh, I guess it's been four and a half years.

Speaker 2 (08:53):
Now, probably, right, So it's fascinating.

Speaker 1 (08:55):
It might even longer than that. It was probably just
digital at that point. You're right, it probably wasn't even
a physical thing, that's right.

Speaker 2 (08:59):
So at this point, the only way you'll know that
you're paying taxes and how much is by logging into
your portal and intentionally saying, how much am I paying taxes?

Speaker 1 (09:06):
You know what?

Speaker 2 (09:07):
How is that labeled on the pay statement on O
federal state FIKA? What's FIKA is Social Security Medicare. There's
a Social Security wage base. And you're like, I have
no idea how this works. And then hopefully the goal
is for a lot of taxpayers, is I hope that I,
you know, I file my tax return and hopefully I
get a few thousand dollars back and hopefully I can
use that money to Again, probably for the average the

(09:29):
average American is saying like, oh, like that'll help me
pay off some consumer debt, right, yeah, things like that.
So I think the first level of intentionality is like
first understanding that you are paying taxes. But then it's funny,
there's this binary shift of like no awareness whatsoever about taxes,
and then once you become aware. I think the financial
media there's so much fear based marketing around taxes. Again,

(09:51):
if you think about it too, you kind of thinking like, well,
you know, what's the end in mind, like, what is
the actual goal of this this media, right, And usually
fear is used to sell products and services. So I
would say you either don't know anything about taxes, and
once you start learning about taxes, you're typically learning from
somebody who's trying to convince you that you're going to
get crushed in taxes. The government's going to take everything.
There's no way you can retire with the way tax

(10:11):
rates are going to be now in the future. So
we're kind of this middle ground and saying, hey, like,
we definitely want to make you aware and educated about
the federal income tax system, but we want to back
it up with real math. For example, the book includes
over one hundred and twenty step by step calculation examples
of exactly how income is taxed on the way in
on the way out, including all those forms of income

(10:33):
from you know, the w two, the self employed, the
real estate, social security, the pensions, and really understanding. Hey,
when we put all that together, there's actually a pretty
simple step by step formula of how you know understanding
how income is or is not taxed. And one thing
you mentioned, you mentioned Benjamin Franklin earlier, I would say,
you know, to the financial media out there, that's just

(10:53):
all about fear and you know you're gonna get crushed
in taxes. Nobody can retire anymore. I would tell them,
like Benjamin Franklin, to go fly kite.

Speaker 1 (11:01):
So you mentioned that a lot of people are actually
retired by sixty five, a majority of Americans now. But
ess interesting when you look at the average retirement account
balance of people in their fifties and sixties, it's not
terribly heartening. I'm guessing some of these people are retiring
with less than they'd ideally like. One percentage of folks
fall into that camp. And is that Yeah? Do you

(11:23):
see that as a meaningful problem for a lot of
Americans just not having enough money saved up by the
time they are quitting, whether it's through their own volition
or from their employee letting them go.

Speaker 2 (11:33):
Yeah. I think there's a few elements here. One is
you see what we call defined benefit pension plans. A
lot of people, you know, decades before most people listening
to your parents most likely had a pension, private or
public pension. Pensions slowly got They're still around, right, there's
still pensions teachers, things like that, but you'll notice that,
you know, pensions of slowly going away while they are

(11:53):
introduced what are called defined contribution plans. Those are the
four to one k's. A lot of you might have
access to a four or three B four fifty seven B,
and so it's really on the taxpayer now right to
really be in control of their own retirement success. Which
again what's hard is they implement these changes, but the
education like lags behind, sometimes decades behind. So now we're

(12:16):
finally getting to a point where there's more education around
how four on one k's work. But I also say one
great thing in the four to one K qualified plan
space is a lot of four one k's are actually
doing auto enrollment. So as soon as you start your job,
you're automatically enrolled. And let's say maybe you know, like
a four to five percent depends on your employer, but
maybe four to five percent that you're an elective contribution

(12:37):
as an employee. But secondly, the auto enrollment investment option
is now becoming target date retirement funds, Whereas in the past,
again your employer did not want to give investment advice
to the employees, right, so they would have you start
contributing and it was up to you to choose how
to invest. I would say, at least for like the
last like five to ten years, this has been shifting
where instead of your automatically automatic enrollment investment being cash

(13:01):
that stable value fund, it's now people are investing in
these balanced you know, maybe a twenty or thirty year
old maybe investing in like a ninety percent stock portfolio.

Speaker 1 (13:09):
Right.

Speaker 2 (13:09):
It's going to get you know, more conservative over time
if you stick to that target date. But I would
say that the you know, the the worker is retiring
right now at sixty five, they're kind of like that
mixed bag of maybe having a small pension but maybe
being under saved and invested themselves. So I really think
that that also comes into play with the social security
Many people who are retiring before sixty five, if they're

(13:29):
in between sixty two sixty five, they're probably claiming social
security early, you know, which is hurting them from a
you know, future potential increase on Social Security benefits, but
you know, if that's your only form of income, you're
definitely going to claim early.

Speaker 1 (13:41):
I think there was an article in I want to say,
the New York Times recently about how the biggest asset
most Americans have is actually Social Security. I think it's
the overall amount that they're going to receive in Social Security.
And I would love to see more people have more
assets in other places and social secured not to be

(14:03):
their biggest one. That's a big part of the goal
of this show. I'm curious to a lot of people
think about taxes as the enemy. It's like it is
this visceral fight to keep as much money of their
own as possible. I didn't get that vibe from reading
your book. And you say actually in the book at
one point that when it comes to retirement planning, the
tax code is more likely to be your friend than foe.

(14:25):
Can you elaborate on that, and how do you think
what sort of relationship should people have to the taxes
are paying?

Speaker 2 (14:31):
Yeah, so I would say a lot of people think that,
you know, liking or disliking taxes is a political thing
that like, oh, you you know, if you don't like taxes,
you must be on this side of that political spectrum,
et cetera. But it's funny work as a financial planner.
Every conservative, you know, every Republican client I work with
assumes I'm a Republican assumes I'm a Republican, And every
Democrat client assumes I'm a Democrat because we lean into

(14:53):
tax planning as a way to be just be smart
with intentional about our planning. So with that said about
the political spectrum being made, it's kind of funny that effectively,
over the last ten years, both parties have made taxes
way more favorable, specifically for retireees. Yeah, but I think
I know Sean Mlaney has the actual data on this.
But you know, over fifty five percent of voters in

(15:14):
the last election were over fifty years old, Right, so
the voting block, like the ones who are really you know,
the politicians running right, are actually incentivized to if they
are going to raise taxes, retirees are probably the last
people they're gonna you know, the last cohort that they're
going to raise them on.

Speaker 1 (15:30):
And that rang true right in this last major bill
that was passed because who got one of the best
tax breaks in there. It was it was older Americans.

Speaker 2 (15:37):
Yeah, So I mean, great example. I mean we have
you know, we could talk about that, you know, all
the changes of the the one big beautiful bill or
the one big ugly bill, depending on how you feel
about it. But I will say, I mean, yeah, the
permanent extensions of those lower tax brackets and the higher
standard deductions, they actually increase the standard deduction by seven
hundred and fifty dollars per taxpayer. Well you mentioned the
senior deduction specifically for people sixty five and zs. Yeah,

(16:00):
Like that's up to twelve thousand dollars of ordinary income
that's tax free. That means, by the way, this is
kind of fun for a married couple sixty five and
older this year, you know, with income, let's say their
income falls, you know, within one hundred and fifty thousand
or less of modified adjuster gross income that you know,
they could be getting with their standard deduction of thirty
one five hundred plus their additional standard deduction per taxpayer

(16:23):
over sixty five of sixteen hundred each, plus the senior
deduction of twelve thousand, which is six thousand for each taxpayer.
Like you're looking at like almost fifty thousand dollars of
ordinary income and retirement being completely tax free federally.

Speaker 1 (16:35):
Wow.

Speaker 2 (16:36):
So it's very rare for me to see a retiree,
especially in early retiree, who's effective also called the average
tax rate your tax liability divided into your total income.
It's very rare for me to see that go over
ten percent federally.

Speaker 1 (16:49):
Which okay, And I want to dial in on those
specifics in a little bit because that matters, especially when
we're thinking about what we take advantage of the accounts
we contribute to. Now, for most of our listeners in
their higher earning years right there, they're in these most
of our listeners in their thirties, forties or early forties,
and they're like, yeah, it feels like the right thing.

(17:12):
Maybe like to put more in the roth horn, k.
But maybe it's not. So I want to get on
that in a little bit. But just from a general perspective,
the tax code incentivizes certain behaviors and it disincentivizes others.
How should those incentives drive our behavior? For instance, like
ordinary income versus investment gains, those are taxed differently, and

(17:33):
so how should we think then as investors when realizing
those incentives exist.

Speaker 2 (17:39):
Yeah, that's such a great question, jol. So think about
the incentives in and out. So first of all, you know,
the government, the IRS, incentivizes us to take advantage of
tax deferral. So instead of you know, being taxed on
that income today, let's contribute to those traditional four oh
one k's, four O three b's four fifty seven B
your alphabet soup of accounts. Also HSA health savings accounts fsays,

(18:00):
if you're on that side of the table with the
flexible spending accounts, but they're incentivizing you to not pay
tax while you're working, which is most likely when you're
going to pay the most tax. So they're incentivizing deferral
of that. And specifically you kind of think, well, you know,
why would they incentivize us to pay less taxes because
guess what you know you're for example, when you retire
your traditional IRA, which might have been a rollover from

(18:23):
that traditional four oh one K, we view it as
as an asset on the balance sheet, but the IRS
views that account simply as income that hasn't been taxed yet. Yeah,
so you are incentivized to defer that income. But also
incentivized to take that money out when you're actually you know,
the plan with the initial plan of when you're going
to spend that. So they incentivize you to defer money

(18:44):
into retirement accounts so that you'll actually live off that
money in retirement.

Speaker 1 (18:47):
I'm curious. So you're speaking also to people who want
to retire early, people who want to reach tin intil independence.
And so when you're talking about the person in their
fifties and sixties with the average retirement account balance of
one hundred and five thousand dollars or whatever it is,
you are actually speaking so much of the time to
people who might have and will likely have at least
seven figures in some of those accounts that will grow

(19:09):
even more in the coming decades. So does that change
things because at some point that becomes a potential tax
taking time bomb that massive. It's a beautiful thing to have,
but it could create a tax nightmare down the road.

Speaker 2 (19:21):
Yeah, it's funny. So for the for the person who's behind,
like catching up to five, you know, in their incentive
actually by deferring, they're actually being able to save more money. Right,
So when you defer that novel only reduces your taxes,
But what do you do with that tax savings is
really important?

Speaker 1 (19:36):
Right?

Speaker 2 (19:36):
So if I reduce you know, if I contribute ten
thousand dollars to an account and save twenty two percent,
or like, what am I doing with the money I
just saved? Am I investing it into maybe increasing my
four oh one K contributions? Am I putting that money
into tax with brokerage account or roth IRA. So for
the the lower earner, again, those incentives are actually helping them,
and then the higher earning, the higher earners, and like

(19:57):
you said, the ones who are building up these significant
can't you know, seven figure you know, traditional retirement accounts. Thankfully, again,
the tax laws, including these new changes, are actually giving
you incredible years of opportunity. Just quickly, I'll step back
that people think traditional four oh one k versus WROTH
four o one k? Right, should I pay taxes an
hour later? But what's what's hard is even in that thought,

(20:20):
a lot of people think that it's WROTH now or never.
They think, if I don't contribute to ROTH, I'll never
get the advantages of WROTH, which is tax free growth.
Everybody likes the idea of tax free growth. So when
they contribute to a traditional four to one k. They're like,
I said no to wroth, Like, like, I must be
so silly because all these people are telling me to
go wroth and I didn't go roth.

Speaker 1 (20:40):
Like It's like that one time that a hot person
asked you out when you were in school and you
said no, and you're like, I'll never have that chance again.
But it's not true. You can go back and ask
them if you if you made the wrong, if you
made a mistake, you can go back and ask them
as absolutely.

Speaker 2 (20:51):
So. Yeah, by the way, that same example happened with
me where I met my wife earlier when I was
not mature enough to date her and was like, oh man,
I didn't date her, and then we actually ended up
get marry ten years later, so I.

Speaker 1 (21:01):
Get see maybe a fun example.

Speaker 2 (21:02):
Yeah, but also you know, it's really not wroth now
or never, it's wroth now, later or never. And for
most people, I serve, there's an incredible opportunity in early retirement.
There's phase one, which is really retiring early all the
way to sixty five when you're really caring about the
cost of health insurance, maybe through the marketplace, but sixty
five through sixty nine. We call these the golden years,

(21:25):
and these are the years where you don't have to
worry about income affecting your cost of health insurance. Right
in terms of there's no marketplace insurance. You're probably on Medicare,
but there's there's actually like multiple years and even sometimes
a whole decade of opportunity to take that traditional money
you deferred maybe at twenty two, twenty four, thirty two,
thirty five, thirty seven percent, and then convert it to

(21:46):
ROTH at those lower effective tax rates at you know, five, ten,
fifteen percent.

Speaker 1 (21:50):
So you're basically saying, take the bird in the hand,
which is the significant tax savings now if you're in
your higher income income years, and then down the road
you can make that decision to turn that money into
ROTH at a much lower income tax rate exactly.

Speaker 2 (22:02):
So that's exactly what's incentivized by these tax laws. And second,
you mentioned there's also an incentive to invest, you know,
ordinary income versus long term capital gains income. Right, So
the difference between having income from a job, maybe you know,
net real estate income, net self employment versus in a
taxbi brokerage account when you invest in stocks, right, when
you invest in securities when you if you own them

(22:25):
for longer than one year and sell, the gain is
tax at a lower tax rate than the ordinary income. Right,
So there's like kind of the two ways to think
about tax calculation. And that's another incentive. So the government
wants to incentivize us as savers and investors to invest
in companies. You know, they probably definitely want us to
invest in US companies, but overall just inequity that you know,

(22:45):
we want. They want not just employ employees when they
earn their income, also to invest in the growth of GDP,
not just by working, but like investing in other companies.
So they've incentivized us to grow again to like, you know,
we're all in this party together. We're get enough tax
break specifically so that we can set ourselves up for
a future retirement that the government doesn't have to subsidize

(23:05):
as much. But also they're incentivizing us to invest in
companies so that we all grow, you know all you know,
all boats rise with the tide.

Speaker 1 (23:13):
Yeah, Okay, we got more to get to Cody. A
lot of details that we got to hammer out here
when we're talking about tax planning for early retirees. I'm
assuming there's a lot of listeners out there who are
curious to get into some of that, and also just
maybe it'll peak their interest. Even saying I didn't even
think about retiring earlier, how planning properly with taxes could

(23:34):
facilitate that for me. We'll get into some of that
stuff with Cody right after this r we're back still
talking with Cody Garrett talking about cutting taxes so that
you can retire sooner and Cody this we talked about
just how people have a lot of people have very

(23:55):
little knowledge of what they're paying in Texas. They just
have very little relationship. Whereas if we had to proactively
make it tax payment, we would probably feel a different
way about taxation in general and what we're paying taxes
in particularly, we might pay more attention to it. But
a lot of people too are thinking about taxes on
a year by year basis, right, And how does that
approach limit our ability to minimize our overall tax burden? Because, Yeah,

(24:18):
if the goal is literally just to pay as little
in taxes in twenty twenty five as possible, we're going
to potentially make a different decision than if we're thinking
about the big picture.

Speaker 2 (24:26):
Yeah, it's such a great point. So there's a difference
between tax preparation and tax planning. So tax preparation is
all focused on kind of what happened last year and
this year. Tax planning is ultimately about reducing your lifetime
tax liability. And by the way you think lifetime, it
might not just be your lifetime, but also maybe extending
into your errors. Right, So if you might be aware

(24:47):
of retirement accounts, if I passed away and my kids
in the future were to inherit my retirement accounts, they'd
probably have ten years to unwind those, right, ten years
to take that money out. Again, the IRS doesn't want
these deferred forever and ever.

Speaker 1 (25:00):
At some point they want their cut.

Speaker 2 (25:01):
Yeah, exactly. And again some people use the fear of like,
you know, the IRS has their hand in your pocket,
et cetera. But I would just say that tax planning
is there's kind of two parts to this. One is
you know, pay tax. When you pay less tax, that's
a that's an annual decision of saying, hey, will I
pay less tax on this money today or in the future.
That can kind of get you kind of rounded in

(25:22):
the tax preparation part. But the tax planning is saying
how can I reduce my lifetime tax liability by using
various strategies and tactics, you know, again in accumulation on
the path two retirement and also in distribution draw down
on the path to retirement.

Speaker 1 (25:37):
So we kind of talked about this just a little bit.
But tax rate arbitrage is that what we're is that
essentially kind of the term that you're using when we're
talking about paying the most tax when it makes sense
and avoiding avoiding paying tax in those in those later
years where you have more tax planning ability.

Speaker 2 (25:55):
Yes, that's absolutely it. So tax rate arbitrage effectively means
that I'm going to defer income when it would have
been taxed at a higher tax rate, then want toll
distribute or convert that money later on. So one example,
as let's say a high earner, they're fifty four right now,
they're going to retire at fifty five, go them very
early retirement, that's great. Let's say that they're in the

(26:15):
thirty two percent tax bracket when they contribute to their
traditional four oh one K, those contributions are excluded or
deducted from income at the thirty two percent federal marginal.

Speaker 1 (26:25):
Tax bracket, substantial savings.

Speaker 2 (26:27):
Yeah, absolutely, like a third of that money. Again, they
have all this money. Now on top of that the
extra tax, the tax savings for making that contribution, that
doesn't just disappear. Their their net pay increases right when
they choose traditional versus rot there, but the arbitrage really
comes in that they retire at fifty four, after that
big income year at fifty five, what are their income sources.

(26:49):
Let's say their only source of income is taking money.
They're saying, hey, I'm going to take money out of
tax will accounts. First, I'm gonna take I'm going to
live off of my checking savings and tax with brokerage accounts.
You know, by maybe I have to sell some stock
that's appreciated, but again it's tax at those lower tax
rates they might have. Let's say they actually distribute. They
need two hundred thousand dollars to live in retirement at
fifty five, right, they might get one hundred thousand of

(27:11):
that right from just their checking and savings account with
no taxes. Then they'll get the other one hundred thousand
by you know, one hundred thousand dollars of income by
maybe having realized capital gain of you know, twenty five
thousand dollars, so they've only had income of twenty five thousand.
Right now, it's actually tax at zero because there's a
long term capital gains taxert of zero percent on income

(27:32):
that low. But now the arbitrage comes in. Wait a minute,
I put that four to one K contribution in at
thirty two percent, I save thirty two percent. Maybe I
can convert move some of that traditional four to one
K money over to a roth ira, you know, very carefully,
step by step, but by converting it and paying taxes
on it, I'm going to intentionally choose to, let's say,

(27:53):
convert you know, one hundred thousand, two hundred thousand dollars
of that money over and again, I'm filling up the
standard toduction, the ten percent, the twelve percent bracket. Like
I might not even pay even twenty two percent on
that conversion.

Speaker 1 (28:06):
Any of those dollars, Yeah, on any.

Speaker 2 (28:07):
Of those dollars, Yeah, where I'd excluded it from income
at thirty two. So in the book we call this,
you know, you beat the irs, But yeah, tax rate
arbitrage is a big part of that decision on you know,
paying tax when you pay less tax.

Speaker 1 (28:19):
It's it's important to talk about the intentionality and the
specifics of that, right because I think some people think, Okay, wait,
I hit sixty five, I'm in the zero. I'm not.
I'm not actually making money anymore. Let me make this
lump sum roth conversion with all of my traditional IRA
dollars or traditional four to one K dollars. But depending
on how big that sum is, that could be a big,
a big tax bomb. You're giving yourself too if you

(28:40):
do it all at once, whereas making a plan to
do it over many consecutive years would be Like how
do you think about those roth conversions? When to make
them and how much to make?

Speaker 2 (28:51):
Yeah? I think I think roth conversions are a very helpful,
helpful tactic and retirement especially. But a lot of people
hear about roth conversions and they get really excited about them,
and they kind of, you know, they get a little
too excited, and they go, hey, I'm just gonna do
all of it all at once. Yeah, And like you said,
let's say somebody has a million dollar traditional IRA age
sixty five, they just retire, they have no other forms

(29:12):
of income to make this simple, that's a lot of money.
A million dollars. It's a lot of typing on my calculator.
So that million dollars, let's say this is a retired couple,
you know, married couple sixty five. They have the standard
deduction this year and twenty twenty five of thirty one
five hundred, they each get a standard deduction additionally of
sixteen hundred each. Right, so their taxable income is nine

(29:33):
to sixty five three hundred. And it's always dangerous to
do calculations on a podcast. I think this will work out.
So so they're actually gonna be into the marginal thirty
seven percent tax rate. And I kind of like the
last dollars of that conversion. But let's see how much
taxes they owe on that, right, So you know, I'm
gonna do my quick calculation here. So on that roth

(29:53):
conversion of a million dollars, federally, they're going to pay
two hundred and eighty one thousand dollars in taxes.

Speaker 1 (29:59):
Wow.

Speaker 2 (30:00):
So talk about ripping the band aid off and paying
They had a twenty eight percent effective tax rate, by
the way, by doing it all at once.

Speaker 1 (30:06):
Which is not good.

Speaker 2 (30:07):
Yeah, so they can do better. So let's say, for example,
instead of doing a million, they're going to do two
hundred and fifty thousand, so they're going to do a
fourth of it, but over the next four years, so
two hundred and fifty thousand per year. So we talked earlier,
by the way, that if they did it all at once,
it's a twenty eight percent effective tax rate on a
million dollars. Let's say we did two hundred fifty thousand instead,
but for four years, so two hundred and fifty thousand

(30:27):
minus their significant standard deduction minus their additional standard deduction. Right,
So right here I have their taxbile income is now
at two hundred and fifteen thousand, three hundred. So now
that actually puts them, by the way, in the twenty
four percent marginal tax rate, so the highest dollars tax
at the twenty four percent. But now I'm going to

(30:48):
do my little handed handy tax calculation, and they're paying
federal income tax of thirty seven thousand dollars on that
that roth conversion of two hundred and.

Speaker 1 (30:58):
Fifty thousand, Okay, so multiple that way is four right.

Speaker 2 (31:01):
Right, and their effective rate annually for four years is
fourteen point nine percent.

Speaker 1 (31:07):
So basically cut in half.

Speaker 2 (31:08):
So yeah, they basically cut their tax liability in half
just by having some patience and intentionality and spreading that
out from sixty sixty five, sixty seven, sixty six, sixty seven,
sixty eight.

Speaker 1 (31:18):
Right.

Speaker 2 (31:18):
Yeah, And what's what's really powerful about that is they
also by doing those conversions, it didn't change how much
they're paying for health care. Right again, we can talk
about you know, IRMA and the Medicare surcharges and how
much those might cost them. By the way, it's only
going to be up to three percent nuisance tax versus
their income, so it's not really going to be changing
their lived experience. But you can see right there just

(31:39):
one example, not advice for you, but one example of hey,
just being patient and thoughtful and intentional with roth conversions
over time. By the way, their rm ds, the required
minimum distributions, aren't going to start until their mid seventies,
so they might not even do all of it between
sixty five sixty you know, sixty nine.

Speaker 1 (31:57):
Because that that can has been kicked down the road
prepare actually over in recent legislation. So yeah, that's starting
later and later, whereas that was hanging over people's heads
at an earlier, earlier retirement age that's been pushed back.
What would you say to someone, Because we're talking largely about,
you know, tax planning for early retirees, and I think
for people we're listening right now, they're like, Okay, yeah,

(32:18):
maybe those traditional accounts make more sense to the time being.
I can always wroth later. I don't have to wroth
so hard right now because it might be costing me
more intacts than I need to pay. But what about
someone who's like starting late and they are let's say
they're forty five, and that feels you know, but I
think the average American starts saving for retirement what like
the age of forty Basically that's like when the light

(32:39):
clicks on for most people. So it's it's late, but
it's not that late. We've got a lot of go
getters who who listen to the show, but they hear
this sort of retire early talk and they're like, oh,
it must be nice. But I don't know if that's
for me. I don't know if I could possibly possibly,
you know, hit that retire by fifty five now when
I've just gotten started. What tips What would you suggest
to people who feel like they're starting late.

Speaker 2 (32:59):
So if you're starting late. Well, we talked about earlier.
We call these the compelling three. By the way, so
Sean and I in the book, the compelling three are
making traditional retirement account contributions at work, making roth IRA
contributions at home, maybe even it's called the backdoor roth IRA,
and then taxi brokege accounts if you have enough income
left after all that.

Speaker 1 (33:17):
Why, by the way, quick question, why do you go
roth IRA instead of traditional IRA given kind of your
penchant to save on tech? Because I feel the same way.
I like the roth But then I'm like, oh, I'm
curious to hear Cody's take on why why he's pro
wroth IRA.

Speaker 2 (33:31):
Yeah, it's a great question. So when you're at higher
tax rates, higher income levels. Again, by the way, there
are no income thresholds for making traditional four oh one
K contributions through work. So when you're contributing it a
through a qualify plan, whether you're in the even if
you're in the thirty seven percent tax bracket, you can
deduct exclude that contribution through work. But roth IRA contributions

(33:51):
directly actually have income thresholds. So most of the people
who are maxing out their four oh one K, their
income is probably too high to make a direct roth
IRA com contribution, but also even a lower threshold to
deduct a traditional IRA contribution when you're covered by a
workplace plan. At work, it's a very low income threshold.
So even if you wanted to deduct a traditional IRA contribution, many,

(34:13):
many people, especially late in their careers, cannot do that.

Speaker 1 (34:16):
Okay, let's talk about taxo changes. We just experienced a
really big taxic change, the one big beautiful bill or
whatever it's called. There's like fluid stuff happening right like these.
It feels like, how do you plan when the ground
is always subtly shifting under your feet?

Speaker 2 (34:33):
Well, I'm going to go to kind of cognitive behavioral
therapy of you know, don't believe everything you think. I
would say that I call anxiety the fear of future uncertainty.
We actually in the book, by the way, look at
my table of contents here, we actually have a chapter
called Planning for Uncertainty, Chapter twenty. So our take is
really make decisions this year based on what's currently known

(34:55):
and within our control. So what do we know right now?
Our income sources? Right we can control, We can have
some control over our income sources. Control of how much
we save and best spend to give. But the uncertain parts,
the parts that are out of our control. If you
think about these columns, like what's what's within my control?
Tax planning wise, what's outside of my control? I think

(35:16):
a lot of the fears that uncertainty on the right
side of the column, which is.

Speaker 1 (35:20):
There's even uncertainty baked in by the way, right where
some things are literally just gonna sunset in a few years, like, yeah,
we're gonna try this thing for a few years and
then we'll see what the politicians cook up, right, you know,
a couple of years from now. And so I think
that's another kind of like mind modeling thing for a
lot of people. Is it's not just that it's changing
in that different political parties have different goals, but it's
that even in the literal legislation, it's like, yeah, we'll

(35:42):
do this through twenty twenty nine and then we'll figure
something else out, right.

Speaker 2 (35:45):
And what's funny about the last ten years is we
realize that nothing's more permanent than a temporary tax cut
for retirement apparently. Yeah, yeah, so, and we talk about
that word permanently, right, Permanent means until somebody changes that
which we've seen, like somebody can and will change the right.
But I would say with all that said, you know
that that chapter on planning for uncertainty, it's yes, realizing

(36:07):
what's in and out of our control, but also saying
what has happened historically. You know again both you know,
either political party maybe even future political parties we don't
know about yet. By the way, there are also a
lot of other ways to increase tax without focusing on retirees.
I would actually guess that there's gonna be more taxes
on workers than there will be retirees, because, by the way,

(36:29):
who needs more money? Right, kind of like you know,
who's more scared about money? A lot of By way,
even the retiree with six million dollars, you know, and
in their portfolio is scared to death that they're going
to run out of money. Sure, is that really the
Is that really the cohort of people that we want
to increase taxes on the ones who are already fearful
and and you know they're scared about you know, they're
scared of social security going away. They're very conservative and

(36:51):
their assumptions of like, you know, the Social Security isn't
just the gravy on the mashed potatoes. They think it's
the main entree and it's somebody's taking away my meal
that I've paid for along these years.

Speaker 1 (37:00):
Yeah, the political viability of going after the people, yeah,
it just doesn't It doesn't make my sense. It's not
a winner given who votes and the impact that I'll
have and the people being super upset in the streets
about taking away social security benefits. You mentioned social Security,
so I feel like I have to ask you about this,
especially given kind of the news about the soci Security

(37:21):
Trust Fund running out. And I know when you look
at the polls, people in their thirties and forties tend
to think, yeah, I'll be surprised if I see much
of that, right, And that's another I think politically unpopular
thing is to shore up or touch Social Security, but
also getting rid of it is politically unpopular. So how
do you think about the role how people who are

(37:43):
hoping to retire early, planning to retire early should think
about how social security plays into that.

Speaker 2 (37:50):
I love this question so much so most people I
talk to who are in their thirties forties, you know,
at least ten plus years out from social Security. So again,
fifty two or younger, they're thinking, I'm not going to
include social security in any of my analysis because it'll
probably won't be there by the time I get there.
And even avoiding the political part, again, what can we control, right,
we can control some like some actual math. We can

(38:13):
actually control the assumptions we put into our calculations. So
I actually have a you know, a video on this
that I could share with you if you want to
share things in the show notes. But I actually have
a calculation showing hey, when you look at your social
Security statement, if you look at page one, it'll show
you what you're anticipated retirement benefits will be at sixty
two sixty seven full retirement agents age seventy. But those

(38:35):
estimates assume you earn what you did last year all
the way until the year you claim those benefits.

Speaker 1 (38:40):
So if you're assuming that, then you might be assuming
something it's too rosy.

Speaker 2 (38:43):
Exactly, you're assuming something too rosy. On the flip side,
I also wouldn't say I'm gonna assume no social Security because,
like you said, if social Security goes completely away, like
you won't really be worried about your stock market investments.
We're gonna be chasing dogs on the on the street
with sticks at that point. Yeah, So I would say
it's really important to use some Social Security calculators, including
SSA has their own helpful calculators where you can say,

(39:05):
I'm going to type in my historical earnings record, but
I'm going to assume that this point forward, I'm not
going to earn any more money. So you're making the
assumption that if I retired today and never worked another
day in my life, what would my anticipated Social Security
A retirement benefit be at age sixty two to sixty seven?

Speaker 1 (39:25):
Coming up with a more realistic or pessimistic at least
sort of Yeah, what's.

Speaker 2 (39:29):
Fun about that? I actually think it's more on the
pessimistic side, but it's still much better. Like if I,
you know, me it in my mid thirties, if I
put that calculation in right now, it's it's telling me
I'm going to receive most likely about three thousand dollars
a month in today's dollars, so inflation adjusted. So you know,
some people, if I my Social Security statement will tell
me that I'm going to get fifty thousand a year,

(39:50):
and you know, some people say I'm not getting it,
so zero dollars per year. I like this kind of
like Goldilocks, just right of saying, yeah, I'm going to
assume no more earnings and see what it says, and
it says about thirty six thousand a year, which is
I should not be excluding that from my really important
you know, long term projections.

Speaker 1 (40:05):
Probably helpful way to plan. How do you think about
when you claim social Security? So for the early retiree,
is this one of those things where you're like, man,
punt it till seventy so you get the max drawn
and I know so much of it depends on health,
marriage status, and you know when your spouse claims all
that kind of stuff, and then what you're gonna do

(40:27):
with the money? Right? So like, yeah, how do you
think about and how do you advise people when they're
thinking about tapping Social Security?

Speaker 2 (40:33):
So there's a few concepts in terms of social security claiming.
One is do you need the money? Right? You talked
about the you know, the late starter, maybe the never starter.
Maybe they retire at sixty seven and they said, hey,
should I claim it now or should I wait till
seventy and get that eight percent you know annual increase
to my benefits. If you need the money to maintain
your desired lifestyle, like you know, I would go ahead
and claim it right. Other than that, there's a few

(40:55):
benefits to delaying. You know. I mentioned the eight percent
annual simple interest increase, but also you think about tax planning, right.
The later you claim social Security, the more years in
early retirement you have with less taxes because social Security
benefits up to eighty five percent of those will be
included in your gross income based on your household income. Again,

(41:16):
there's a fun calculation that of courses in the book.
But I'll say that the later you claim, the more
benefits you'll receive, most likely, especially if you're already sufficient
in retirement your retirement portfolio and other income sources. But
you'll also actually pay less tax in the years before
you claim those golden years when you're doing those awesome
Wroth conversions we talked about, like spreading out that wrath

(41:36):
conversion over four years. If you had claimed social Security
at that age, guess what that gives you less room
to do those conversions and those lower you would have
filled up the standard deduction probably with just social Security taxingg.

Speaker 1 (41:49):
You might need to either take more years through those
wroth conversions because you've got additional income or pushing back
on taking social Security so that you have so that
you can do it in that truncated timetable.

Speaker 2 (41:58):
That's right. So yeah, okay, we have probably like five
or six reasons to claim later. And again we don't
benefit individually by you claiming earlier in later, but we
see a lot of people. Again, the fear of taxes
and the fear of not having social Security makes people
make again it feels rational, but it really is an
irrational planning decision to just, you know, say, just jump
the gun. I'm getting what I've paid in what if.

Speaker 1 (42:19):
You don't need the money? But you're like, I think
I can do better than that eight percent guaranteed return,
Like and I want I would rather put the onus
on me to invest this. Well, what do you think
about that?

Speaker 2 (42:30):
Sure or sure? So that's definitely a personal, intentional decision
that you may or may not make. Thankfully, there are
some calculators that show break even analysis of like if
you claim at this, if you claim at this age
and you invest that money at this you know, this
annual rate, then this is how long you'd have to
live to like outlive that strategy, so thankfully, again, there
are some tools that will kind of tell you, you know, quantitatively,

(42:51):
if that's actually a good decision, assuming let's say you're
going to outperform the eight percent with maybe starting a business, right,
you know, starting a or again, I guess the best
way to outlive retirement is to start a new business
in retirement and be successful with it.

Speaker 1 (43:03):
That's a good point. Yeah, Okay, I got a few
more questions for you, Cody, including what about running out
of money and the four percent rule. It feels like
it's not really a rule anymore, so I'm curious to
hear your thoughts on, Yeah, how much you can take
out of your retirement accounts each and every year as
an early retiree. We'll talk about that right after this.

(43:26):
We're back still talking with Cody Garrett and talking about
retiring early and a big part of what makes that
easier to do is keeping more of your money, paying
less in taxes, and just being thoughtful really about how
you go about tax planning. And so, Cody, I'm curious
to hear your thoughts that either is that you mentioned
the six the retire with six million dollars and how

(43:47):
they're still worried about running out of money even if
that worry even like even if that retiree lives on
so much less than they need, that worry still exists.
That remains for a lot of people. Early retirees have
many more years to fund oftentimes. So what do you
say to people who are worried about running out of

(44:08):
money early in retirement? Like did I save enough? Do
I need to keep working in order to mass a
bigger a bigger amount? And then how do you make
me give help people have some peace of mind when
it comes to knowing that they can pull the trigger
on work.

Speaker 2 (44:19):
Yeah, so I think going to that column of what
we what can we control? I think it's really important
for everybody to create. Of course, you know a network statement,
that balance sheet of what do I ow? You know,
what do I what do I own? Minus what do
I owe my assets liabilities? But also I think that
sometimes we skip this idea of saying, when I retire,
what will my forms of income be? Again? You know

(44:42):
you're no longer working for an income? You say, you
know which sources will I receive? Will it be maybe
social Security? Right?

Speaker 1 (44:49):
Maybe?

Speaker 2 (44:49):
By the way, maybe an inheritance. You probably don't want
to rely on inheritance, but that is a big part
of It's funny talking with people who say, I finally
have enough to retire, I retire, and then like a
week later they inherit three million dollars from their parents, right,
and they're like, oh, well, I guess I could have
retired early had I known this inheritance.

Speaker 1 (45:07):
I probably should have like thought about that ahead of time.
Maybe don't count your chickens where they hatch, but at
least think through what might be hatching.

Speaker 2 (45:13):
Yeah, So I think there's this, you know, the four
percent rule. This has been really big lately, especially Bill
BEng And just released a new book that talks about it.
You're gonna hire withdrawal rate possibly a safe withdrawal rate.
I really think that the four percent rule, by the way,
that's saying, you know, really multiply, you know, if you
want to, again very generally here, multiply your annual spending

(45:34):
by twenty five, right, that kind of becomes like what
you need quote unquote in your portfolio. I think that's
a directional rule of thumb of saying, hey, if I'm
getting close to that point, I should probably be doing
some deeper analysis. I don't think it means, oh, I'm
gonna wait till you know my my portfolio can provide
four percent, you know, inflation adjusted, you know, following the
white paper. That was never intended to actually be a

(45:56):
retirement distribution strategy. So just keep in eye it's it's
an academic study, not a real way to draw down. Secondly,
you know, once you've done that analysis, you'll also realize,
wait a minute. If I retire let's say early at
fifty five, and I start pulling four percent from my
portfolio and then I claim social security at seventy, right,
fifteen years later, do I adjust that withdrawal from my

(46:20):
portfolio now that over half of my income, potentially over
half of my spending is coming from social security? Right?
So how do I how do I look at variable
sources of income and expenses over time? And that's where
using more I wouldn't say complex, but you know, just
more thoughtful tools are out there. Like I don't have
any affiliation, but like Bolden, for example, I used to

(46:42):
be called new Retirement. There's there's a few others out there,
and you know Prolana for people who are more spreadsheet
oriented you can you can at least make some more
directional like thoughtful you know, variable projections, including things like
social security, pensions, future income sources. But once you retire,
let's say, so, so, Joel, what part of the country.

Speaker 1 (47:02):
Do you live in. I'm in the southeast. I'm in Atlanta.

Speaker 2 (47:04):
So let's say that you take a flight from Atlanta
to Montana. Right, my, my Norwegian brother, We're going to
Montana from Atlanta.

Speaker 1 (47:10):
A big uh.

Speaker 2 (47:11):
That sounds that sounds like a book, right there a
show going Montana from Atlanta. So let's say we're flying
from Atlanta to Montana and we just took off, and
then we look at our sensors and it says, hey,
if you just took off from Atlanta and you said
there's a five percent chance you're going to hit a mountain,
how much adjustment do you need to make right now
to that that you know your your flight plant?

Speaker 1 (47:31):
I mean, you're in the air, right, I guess I'd
have to go talk to the pilot. I'm not the
one flying this thing, Cody, So do I I don't
know what do I do? Well?

Speaker 2 (47:39):
I guess I guess that means you hire an advisor
at the time of it. Right, so you know you
have your co pilot. But so I say, what's funny is,
let's say if you made actually even like a one
percent change in your trajectory, you might you might actually
like fly to a completely different state. Right. You can
see here that small changes over multiple decades make a
big difference, not just in accumulation when you're looking at

(47:59):
comp on interest in the excitement of money compounding, especially
after saving for ten plus years, but if you have
a thirty forty fifty year retirement, even just a slight
adjustment can get you back up to whatever that probability
of success is. And I would say you might hear
this from other people that if you if you're using
those advanced softwares, and it says you have a ninety

(48:20):
nine percent chance, you know what they call a probability
of success. That means a ninety nine percent chance running
through these calculations mechanically of not running out of money
by the time you die, which you're probably assuming, like
age ninety five, you have very conservative assumptions. But here's
the issue. If I have a ninety nine percent probability
of success, quote unquote, let's invert that sentence. That also

(48:41):
means I have a ninety nine percent chance of underspending
and undergiving while I'm alive.

Speaker 1 (48:46):
Which is another risk that very rarely gets talked about.

Speaker 2 (48:48):
Absolutely, so, you know, again, it's one of those things
where imagine that once you landed that plane, you have
to throw all the gas. Yeah right, you don't get
what's left in the gas tank. You don't get to
use that for flying in the future because guess what,
You're dead as a yeah guy. Appropriately, So again you
want to say, hey, how do we utilize this, you know,
my gas my portfolio in a way that I don't
know exactly what I'm going to land or exactly where

(49:10):
I'm going to land, but I don't want to run out.
I don't want to actually have more gas than I
started with when I when I get there. So again
with the you know, kind of ignoring that analogy extended
here that you know, moving into retirement, just remember that
you have a lot of strengths. You have the strength
to adjust and be flexible that if you see the

(49:32):
market crashed by thirty percent, most likely you can say, hey,
well I'm still going to go out to eat, but
I'm not gonna get dessert with the you know, dessert
with the meal. Or I'm still going to go on
that trip, but I'm gonna fly you know, business class
instead of first class, or I'm going to take the
air I'm gonna go to the airbnb, but I'm gonna
be a few blocks away from the beach rather than
being right on the beach. So there are just slight
adjustments you can make that won't again just use the

(49:55):
four percent quote unquote rule of thumb directionally, but like
as soon as you understand the direction, get out of
that rule and start living life with more flexibility and
understanding that you can adjust as time moves along.

Speaker 1 (50:06):
All right, Cody, this has been man such an enlightening discussion,
and it makes me want to pay even more attention
to those specifics as I'm, you know, in my early
forties trying to think about what I'm going to pay
win what and win I'm going to pay my taxes?
But yeah, where can our listeners find more about you
and about your new book?

Speaker 2 (50:26):
Sure, so if you want to, if you're interested in
reading the book, it's thirty eight chapters pretty much everything
Shamalany CPA and I know about tax planning is in
that book, three hundred and fifty pages of pure magic.
We think for our audience. So if you want to
go to measure twice money dot com forward slash book
if you want to learn more about kind of how
I do financial planning. Again, I'm not accepting clients. But

(50:47):
something that I've done that I think is pretty cool
is if you go to the Measure twice money YouTube channel,
you can actually watch real client meetings. So you can
watch me serving real financial planning clients, including those examples
we talked about with Hey, I'm about to retire with
six million and I'm scared about running out of money.
If you want to hear and see those conversations, real people,
real numbers, real conversations, that's all on YouTube for you

(51:09):
to watch for free.

Speaker 1 (51:10):
Very cool. All right, well links to it in the
show notes. Cody, thanks for joining me today.

Speaker 2 (51:13):
Absolutely, thanks so much, my Norwegian brother.

Speaker 1 (51:16):
All Right, you got to appreciate somebody who can make
taxes exciting, interesting and fun. I feel like Cody did that,
and boy, that's so necessary in today's day and age,
because I think about the like Ben Stein, Benstein's character
in Ferris Bueller's Day off and just how most of
the time for the average individual when someone is talking

(51:37):
about taxes, it kind of sounds like that Superdroney voice
or the Charlie Brown mom character, right, and so we
just kind of tune out and stop paying attention. But
the stakes are massive when it comes to when we
pay taxes, how we decide to pay taxes, and they're
all are there are all sorts of levers at our disposal,
which Cody made incredibly evident in this conversation and even

(51:59):
more in the book that they are just about to
release of how powerful it can be when we take
a little more ownership, when we're a little more thoughtful,
when we're a little more proactive about our tax planning
and the specific accounts we choose, when we choose to
do Roth conversions, all that kind of stuff. So I
think one of the big takeaways I had was when
he was basically saying, Hey, there's a difference between tax

(52:21):
planning and tax preparation, and you might find someone who
is willing to file your taxes. Is that what you
need or do you need somebody who is of this
Cody Garrett stream of thought and says, no, no, no,
it's not just about saving you as much money in
this particular year. I want to think more about your

(52:43):
taxes from a holistic perspective, and you knowing the information
and the questions to ask is going to be half
the battle. So I think hopefully this conversation gave you
enough information enough AMMO, to talk to your tax person
right about some of these ways of thinking about and
potentially even being willing to switch what kind of accounts

(53:04):
you're contributing to. Maybe you're like I was doing the
wrath FORRAL and K, but I don't know. Cody makes
a really really compelling case for the traditional foural O K,
and then I can always turn that into roth dollars
down the road. There's all sorts of things I think
to reconsider when after listening to this episode. I love
to how Cody talks about talked about the flexibility that

(53:25):
you can have in retirement, and just how it feels
like when we're talking making these projections about withdraw rates
and stuff like that, often it feels like it's the
static thing. Well, I guess I'm going to draw down
four percent of my portfolio no matter what. And he
was like, I don't know, Like if the stock market's
having a tough time, You could reduce your withdrawals for

(53:47):
a year. You can change your lifestyle a little bit
in order to and then guess what when the getting's good,
stock market is at record highs has been crushing, and
your balance has exceeded what you know what what you'd
assumed it would be. You can draw down more and
take that sweet extra vacation that you hadn't planned on.
So flexibility, I think is going to be a key

(54:10):
tool in the arsenal of anybody who desires to retire
early and also be smart when it comes to their taxes.
So again, the name of Cody's book is tax planning
too and through early retirement, So he wants to help
you think about what you're doing now as you're leading
up to that. If early retirement is on your mind,

(54:32):
and what you need to do in those years of
being retired, and it's wonky in a good way, I
will say, And there is a lot of supporting evidence
and a lot of examples, So it is. It's a
fascinating read, even even though I'm talking about a book
on taxes.

Speaker 2 (54:49):
It is.

Speaker 1 (54:49):
It's really well done. But that's going to do it
for this episode. You can find links to Cody's YouTube
channel and to that book up on our website at
howtomoney dot com. But until next time, best friend out,
M

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.css-14f5ked{margin:0;word-break:break-word;display:-webkit-box;-webkit-box-orient:vertical;box-orient:vertical;-webkit-line-clamp:2;overflow:hidden;}Cutting Taxes & Retiring Sooner w/ Cody Garrett #1037