February 17, 2025 • 17 mins
The episode sheds light on the importance of personalized retirement planning, especially for those with guaranteed income sources like pensions. Listeners learn how risk tolerance, investment allocations, and tax strategies should align with their unique financial situations for optimal retirement success.
• Emphasizing the role of guaranteed income sources in investment strategies
• The importance of personalized financial planning over cookie-cutter strategies
• Understanding how risk tolerance changes during retirement
• Demonstrating asset allocation strategies based on income needs
• The value of proactive tax planning and Roth conversions
• Addressing the need for cohesive financial guidance among different advisors
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Ari Taublieb, CFP ®, MBA is the Chief Growth Officer of Root Financial Partners and a Fiduciary Financial Planner specializing in helping clients retire early with confidence.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Welcome back to the Early Retirement Podcast.
This is going to be the podcastfor you if you have a pension
or any other income that isgoing to be coming in throughout
retirement.
So if you have rental income,if you have inheritance, if you
anticipate doing part-timeincome, this is gonna help
change the way you think aboutplanning and I'm gonna tell you
exactly why I'm doing this.
(00:20):
So if you look at my screen, Iknow a lot of you are listening
on the podcast apps.
I'm doing this.
So if you look at my screen, Iknow a lot of you are listening
on the podcast apps I'm going toread it out.
I will have a lot of peoplethat will submit questions
through my website,earlyretirementpodcastcom, which
you can do, and I'll havepeople book a call to work with
us.
This is someone who recentlybooked a call.
I'm speaking to them in twomonths from now and there's
(00:40):
going to be a nice surprise forthem because I'm actually going
to use them as a case study, butthey don't know it today.
So when I speak to them, I'llsay, hey, I actually ran a kind
of case study for your case, notto say the word twice, but it
might give them a little bit ofinsight.
Before you know, they actuallystart working with us.
So, anyways, to get to thepoint here, I say please share
anything that will help preparefor our meeting.
(01:02):
And they said the following Iplan to retire early 2026.
I'll have a pension with 100%survivor benefits $220,000 a
year.
Wife is five years younger,highly compensated, a million
plus a year, and won't retireuntil 2030, 2035.
So who wants to be their bestfriend?
Just kidding?
Okay so, guys, they'reobviously in a good spot.
(01:22):
They know that.
Why are they reaching out?
Okay so, guys, they'reobviously in a good spot.
They know that.
Why are they reaching out?
I imagine it's because they'reseeking guidance on tax strategy
and maybe they don't want to bean advisor in retirement and
have to handle the finances.
I don't know, but that is whywe exist and I get to explore
that on a call with them, justlike I could do with any of you
guys.
Now, today, I'm going to startwith my favorite quick story.
(01:45):
I'm going to go through areview, an interesting one for
you, and, as always, thesevideos are going to stay on
YouTube so you can watch this Ifyou're listening on the podcast
app.
Awesome, that is how I listento podcasts.
I rely on all of your feedbackto help me grow the show, so if
you find anything we discussedsomewhat valuable, please do
(02:05):
leave a review.
I appreciate it more than youknow.
Now here's my fun quick story.
So this couple reached outmonths ago and they said this is
going to sound really weird,ari, but I'm 83 and I have 100%
equity, so you're going to likefreak out.
I said maybe, maybe not.
Like I don't freak out thateasily.
They're like okay, big shot.
(02:25):
So I said look, tell me why youhave 100% equities.
And they said I have a pensionthat covers all of my needs, so,
theoretically, if my $3 millionportfolio went to zero, I'd
still be okay.
I said I love the thinking andif any advisor tells you to do
anything other than what you'redoing, I will not trust them.
(02:46):
And they're like huh, like.
I thought like you're just anadvisor and you're gonna tell me
as I get older, I should bemore conservative and I'm 83 and
100% equity is kind of crazy.
I said if you had no pension,it's a horrible recommendation
and you should not do that,because if markets don't do well
and your 3 million goes to 2.3million, you might not be able
(03:08):
to spend and do what you want todo in retirement.
So the point of the story hereis you should not have a cookie
cutter strategy.
I have this jar that I talkabout a lot because it's one of
my favorite gifts that I wasgiven to me, and it says
anti-cookie cutter jar.
Love the pod Because I don'tbelieve in cookie cutter
planning.
I had a couple that one said,hey, I want to work with you
(03:30):
guys and I love the approach,but you forgot to ask me my risk
tolerance.
So it's kind of a big deal.
I said, okay, let me ask youright now what's your risk
tolerance?
And they're like I'm an eight.
And I said what about you,spouse?
And she's like I'm a two.
And I said okay, do you guysthink if I asked you that
question when markets were down40, you would tell me the same
thing?
They're like no, we think we'dactually be more risk averse at
(03:50):
that time.
I go.
That's why I don't love thatquestion, because risk tolerance
changes.
There's something called risktolerance, which is how do we
emotionally feel if our milliondollars went to 40, 400, 000?
Would we be like that's cool,there's an opportunity, let's
put more money in?
Or would we be like that's cool, this is an opportunity, let's
put more money in.
Or would we be like I am notloving this?
Well, most people, it dependson their stage of life.
If you're 30, adding money to a401k, when it goes down, you
(04:13):
don't like it, but it doesn'treally bother you.
It's the opposite.
When you retire, you don't wantmarkets to go down 40%.
That's when you people startfreaking out.
So the point here if you have aguaranteed income source like a
pension or rental income which Iknow is not guaranteed social
security whatever you don't needas much in safe money because
(04:35):
you already have the safe moneybeing taken care of.
If you want to spend $100,000 ayear and you have $60,000
coming from a pension, you don'tneed $100,000 from your
portfolio.
You need $40,000 to make up thedifference.
Now maybe you need $60,000because you need to go pay taxes
to end up with $40,000 so that,after taxes adjusted for
(04:58):
inflation, you have your assets.
But that's the point of thestory here.
So let's look at this example.
I do not know all of the assetsof the person I'm gonna talk to
in a few months, in a month,but I put some assumptions here.
I use the same case study fromlast week, and so this is
someone that inherited about amillion dollars in a brokerage
(05:18):
account and they inheritedproperty.
So they have.
I call this, by the way, thelucky sperm and egg club.
I know it's a little graphic,but you guys get the point.
So 2.8 million property and, bythe way, I stole that from a
mentor of mine who has the bestjokes in the world, so I made it
sound like it's my phrase, notmy phrase.
So 2.8 million property, 3million in liquid assets.
(05:42):
They've got 401ks and Roth andbrokerage and HSA and 529s and
all this stuff.
So this couple let's assume theytold me that they wanted to
spend 100,000 a month inretirement.
Sorry, 100,000 a year inretirement, not month, that'd be
wild, but I have seen someonewho wants to spend 40,000 a
month.
That's the most I've ever seen.
So, 100,000 a year.
(06:04):
Well, they have $3 million.
Now, all these differentaccounts have different tax
implications, but let's justkeep it simple.
What's 4% of $3 million?
Well, that's $120,000.
So I think it's a safe estimateto say that if we were to
essentially create 100,000 ofincome, that we would need to
(06:27):
sell $120,000 worth so theycould end up with $100,000 of
income that we would need tosell $120,000 worth so they
could end up with $100,000,which is what they'd love to
spend in retirement.
Now the first thing I would sayhere is they're not going to
spend $100,000.
They're going to spend morewhen they have their energy and
their health, then a little less, then it's going to shoot up
again.
It's a dynamic, moving thingbecause that's real life.
But the point here is thiscouple's in a good spot, so
(06:51):
let's assume they want to retiretoday, which they don't.
This couple's in 49 and 51.
They're not retiring for 10years.
But the idea here is thiscouple's wondering how much
should I have in equities orfixed income?
Well, I like having at alltimes, five years of safe assets
.
So, no matter what happens,you're going to be okay.
And the reason I do this isbecause I show this fun chart
(07:14):
here and this was put togetherby another advisor and you can
see it says bear markets.
A bear market and I'm going toread this for all you podcast
listeners a bear market is whenstock markets drop by at least
20%.
Here's a look at how long bearmarkets have lasted before the
recovery.
So the shortest ever bearmarket was 33 days during COVID.
The longest ever was 929 days,meaning the longest ever bear
(07:38):
market.
Until it fully recovered.
You didn't make money but itrecovered was about three years
and the average is a little overa year.
So I'm extra conservative and Idouble the longest ever bear
market because that's who I am.
So now you have five yearsworth of safe assets.
Well, this person wants to spend$100,000 a year.
Five years times $ 16%, whichmeans on paper this person's
(08:00):
asset allocation should be 84%equities and 16% fixed income.
Make sense Five years of safeassets.
That's assuming they're retiredtoday.
(08:21):
They're not retired today.
This couple's not retiring in10 years.
So because of that, they shouldhave way more arguably 100% in
equities, assuming they'recomfortable with that level of
fluctuation.
And that's the next graph that Iwould share, if you know, once
again I'm working with a client.
This is a really cool graphtalking about the best, worst
(08:41):
and average investment returnsby allocation.
So if we look at 100% stockallocation at the bottom here
and I'm going to explain thisonce again the worst 100% in a
single year has ever done if youhad all equities was 43.1%.
The best it's ever done was54.2%.
On average it does 10.3%.
(09:02):
So I would, with a couple, say,hey, let's talk about it.
Is there any amount that if itwent down you'd be like I just
can't sleep at night?
Okay, let's factor that in.
So we're gonna go one stepdeeper.
Stick with me here.
This does not include anypension.
So let's assume this person hada pension and the pension was
(09:22):
let's keep it easy let's say,$80,000 a year.
They wanna spend 100,000.
Well, how much safe money dothey need?
Well, they want to spend$100,000 a year, every single
year.
Hypothetically, $80,000 a yearis coming in through a pension,
no matter what.
Well, if $80,000 is coming in,no matter what, that means, we
need $20,000 from theirportfolio so they can spend
(09:43):
$100,000.
What's 20 times 5?
That's $100,000.
So all we have to do is take100,000, don't really need the
calculator for this but that's3.3%, which means hypothetically
they could have a 96.7% equityallocation and a 3.3% fixed
income allocation, so that Icould sleep a night as their
(10:04):
advisor with enough rootreserves.
But the couple that we aretalking about today, they have
way more coming in through theirpension.
They make a super healthyincome.
So if that's the case, welargely are gonna want 100%.
Equity is growing for usbecause you have a pension
that's allowing you to have thatlevel of flexibility.
So if you have those assets,like this person here, they
(10:28):
should be thinking about taxstrategy.
And the reason they should bethinking about tax strategy in a
big way is because, if theyhave a pension, what that means
is their 401k is going to begrowing like crazy because we
don't have to withdraw from itand it's just going to keep
growing.
So they're going to have a hugetax opportunity.
The reason that opportunitywill exist is we're not
(10:48):
withdrawing from their pension,excuse me, we're not withdrawing
from their portfolio becausethey have the pension, which
means their portfolio will keepgrowing like crazy.
So what you can see here thisonce again on my screen, but of
course, if you're listening onthe podcast app, that's
perfectly okay as well there'ssomething called Roth
conversions.
Now, roth conversions make alot of sense for people who are
(11:13):
going to be, in a way, highertax bracket in the future.
So for this couple, you can seeif I try to fill up the 22%
bracket, it's not going to makea difference.
Now some of you are like why?
Well, the reason is, if youhave a pension, you're already
in that tax bracket.
So you might need to do Rothconversions at a higher rate,
which will not always be themost fun because you're paying
(11:35):
taxes at a fairly high rate, butit's to avoid paying taxes at
an even higher rate in thefuture.
So you can see here for thiscouple, they're 51.
If they retire at 59, it's hardto see here, I know, so I
apologize, we'll beat up thesoftware company together, but
they have this little greensliver here.
(11:56):
The green sliver is from 59until 67, social Security for
them, even though I would arguethey should delay further.
Regardless, this is themgetting about 1.3 million more
tax-free dollars at the end oftheir life by doing good Roth
conversions.
But watch what happens if Iincrease this further.
What if we say, hey, let's gopay taxes at the 32% bracket?
(12:18):
Well, now there's 15 millionmore dollars in value and you
can see the green very clearly.
The reason these conversions areso helpful is because if we go
and look at what's called theretirement cash flow section and
I'll, of course, always beexplaining this, because I
listen to podcasts on the appsas well what happens is, if we
(12:39):
look at ending balance peraccount I mean theoretically
this couple, if they have$220,000 coming in every single
year, that is probably going tomeet all of their goals, and
then some.
So their brokerage account,it's going to be worth $4
million by age 70.
Their 401k could be worth $10million.
Their Roth 401k could be worth$700,000.
(13:00):
So they might have in totallike $15 million, it literally
growing by a million dollars ayear at this point because of
compound interest.
Now they might go well, ratherthan have us have 15 million at
70,.
What if we bought a second home?
What if we went out and didmore charitable giving?
What if we helped out our kids?
Well, I'm not including any ofthat in here.
So obviously, the goal in lifeis not to minimize tax liability
(13:23):
but to live your best life and,in light of that, be smart with
tax strategy.
So, with that being said,obviously, asset allocation,
thinking about planning when youhave a pension it's very
different, and if you have aspouse or a big age gap, all of
those things need to beconsidered, but tax strategy is
the big one.
So many of you guys have heardthis little dopey story, but
(13:45):
I'll give it to you to end thisepisode.
So someone reached out and theysaid Ari, my CPA sucks.
I said that's kind of a weirdword, like, why do they suck?
They're like well, they didn'ttell me that tax brackets are
changing soon and that shouldimpact my plan.
I said fair point, what elsethey're like?
Well, they didn't tell me if Iinherit an IRA, there's a
schedule I can withdraw from tooptimize my tax liability.
(14:07):
I said good point, keep coming.
They kept going, on and on andon.
I said I see the problem.
They said, oh, this is great,you agree they suck.
I said nope, they do not suckand you're beating up a waiter.
They said beating up a waiter,what do you mean?
I said you're mad because yourCPA is filing your return but
not doing all the other planning.
And they're like yeah, that'smy point, that's why I'm angry.
(14:28):
I said they are a waiter thatbrings food to your table.
They're trying to file yourreturn and 500 other returns.
They're not gonna give youguidance on Roth conversions and
tax gain, harvesting andcharitable giving and estate
taxes and healthcare and realestate and inheritance and
equity compensation and businessplanning and withdrawal
sequence.
That's what we do as taxplanners.
(14:50):
It's a forward-looking plan.
So for most of you that reachout to me, you have, I'd say 60
to 80%.
You have an advisor, but you'refrustrated because when you ask
them a tax question, they tellyou to talk to your CPA.
Your CPA says go talk to youradvisor.
And now you're playingmiddleman of coordinator.
And my fun joke here is I had acouple that reached out.
(15:12):
They're like I'm retired.
I said I don't believe you.
They're like well, you're nutsbecause you don't sleep next to
me.
So how the heck would you know?
I heck would you know?
I was like yeah, I just don'tthink so.
They're like well, you're crazy.
I said I bet if you ask youradvisor a tax question, they're
going to tell you to talk toyour CPA.
Your CPA is going to tell you,for health insurance, talk to
your agent, and your insuranceagent is going to tell you to
(15:32):
talk to your state attorney andyou're going to have like five
people to coordinate yourretirement.
They're like yeah, isn't thathow this works?
I said no, no, that's what afinancial advisor is supposed to
do.
And the tough thing is we'reall called advisors and we all
do different things.
So tax planning transparentlythat's the main reason people
reach out.
So if you're looking for thistype of guidance, we'd love to
give it to you.
That's, of course, if you'relooking for a partner.
(15:53):
If you're like, no, I'm notlooking for a partner, I just
want to play around with thistool, go, put all and stress,
test all the scenarios.
Well, like, be my guest, and welove getting to.
I love getting to hear frompeople who find value in the
software and I encourageeveryone.
That's where you should start.
Like, if you're just unsure,start with the software.
You get to see what's it like,kind of playing around with the
(16:15):
tool that we recommend, and then, of course, if you go through
that, as many of you do go, yeah, I still want next level help.
Well, that's why we exist, soyou can go hear from people that
have used the software, peoplethat became clients.
I love getting to do this.
Please, guys, if this washelpful at all, leave a comment
on YouTube like this, share this, subscribe, leave a review on
iTunes.
(16:35):
That's the best way to helpmore people find the show.
I'm grateful for you guys.
Love you.
See you next time.
Thank you all, as always, forlistening to the Early
Retirement Podcast.
I love getting to host theseshows and make different content
for you guys every single week.
I've not missed a single weekin years, and that is because I
love getting to do this.
Now, please be smart about this,before you actually execute any
(16:56):
strategy that you see me talkabout or hear me talk about.
Should I say Please talk metalk about or hear me talk about
?
Should I say, please talk toyour financial advisor, your tax
preparer, your estate attorney?
Please be smart about this.
None of this should beconstrued as financial advice.
This is for fun, educational,informational purposes only.
Once again, just quickdisclaimer here.
Guys, please be smart aboutthis.
(17:17):
Appreciate you listening, asalways, and you can, of course,
submit a question on my website,earlyretirementpodcastcom.
If you, of course, want me toaddress a specific case study or
topic.
I will not promise I can get toit, but I respond to every
single person and if I find itwill be helpful for a lot of
people, I will absolutely makean episode on it, at the very
(17:38):
least give you some insight.
That's it.
Thanks, guys.
Welcome back to the Early Retirement Podcast.
This is going to be the podcastfor you if you have a pension
or any other income that isgoing to be coming in throughout
retirement.
So if you have rental income,if you have inheritance, if you
anticipate doing part-timeincome, this is gonna help
change the way you think aboutplanning and I'm gonna tell you
exactly why I'm doing this.
(00:20):
So if you look at my screen, Iknow a lot of you are listening
on the podcast apps.
I'm doing this.
So if you look at my screen, Iknow a lot of you are listening
on the podcast apps I'm going toread it out.
I will have a lot of peoplethat will submit questions
through my website,earlyretirementpodcastcom, which
you can do, and I'll havepeople book a call to work with
us.
This is someone who recentlybooked a call.
I'm speaking to them in twomonths from now and there's
(00:40):
going to be a nice surprise forthem because I'm actually going
to use them as a case study, butthey don't know it today.
So when I speak to them, I'llsay, hey, I actually ran a kind
of case study for your case, notto say the word twice, but it
might give them a little bit ofinsight.
Before you know, they actuallystart working with us.
So, anyways, to get to thepoint here, I say please share
anything that will help preparefor our meeting.
(01:02):
And they said the following Iplan to retire early 2026.
I'll have a pension with 100%survivor benefits $220,000 a
year.
Wife is five years younger,highly compensated, a million
plus a year, and won't retireuntil 2030, 2035.
So who wants to be their bestfriend?
Just kidding?
Okay so, guys, they'reobviously in a good spot.
(01:22):
They know that.
Why are they reaching out?
Okay so, guys, they'reobviously in a good spot.
They know that.
Why are they reaching out?
I imagine it's because they'reseeking guidance on tax strategy
and maybe they don't want to bean advisor in retirement and
have to handle the finances.
I don't know, but that is whywe exist and I get to explore
that on a call with them, justlike I could do with any of you
guys.
Now, today, I'm going to startwith my favorite quick story.
(01:45):
I'm going to go through areview, an interesting one for
you, and, as always, thesevideos are going to stay on
YouTube so you can watch this Ifyou're listening on the podcast
app.
Awesome, that is how I listento podcasts.
I rely on all of your feedbackto help me grow the show, so if
you find anything we discussedsomewhat valuable, please do
(02:05):
leave a review.
I appreciate it more than youknow.
Now here's my fun quick story.
So this couple reached outmonths ago and they said this is
going to sound really weird,ari, but I'm 83 and I have 100%
equity, so you're going to likefreak out.
I said maybe, maybe not.
Like I don't freak out thateasily.
They're like okay, big shot.
(02:25):
So I said look, tell me why youhave 100% equities.
And they said I have a pensionthat covers all of my needs, so,
theoretically, if my $3 millionportfolio went to zero, I'd
still be okay.
I said I love the thinking andif any advisor tells you to do
anything other than what you'redoing, I will not trust them.
(02:46):
And they're like huh, like.
I thought like you're just anadvisor and you're gonna tell me
as I get older, I should bemore conservative and I'm 83 and
100% equity is kind of crazy.
I said if you had no pension,it's a horrible recommendation
and you should not do that,because if markets don't do well
and your 3 million goes to 2.3million, you might not be able
(03:08):
to spend and do what you want todo in retirement.
So the point of the story hereis you should not have a cookie
cutter strategy.
I have this jar that I talkabout a lot because it's one of
my favorite gifts that I wasgiven to me, and it says
anti-cookie cutter jar.
Love the pod Because I don'tbelieve in cookie cutter
planning.
I had a couple that one said,hey, I want to work with you
(03:30):
guys and I love the approach,but you forgot to ask me my risk
tolerance.
So it's kind of a big deal.
I said, okay, let me ask youright now what's your risk
tolerance?
And they're like I'm an eight.
And I said what about you,spouse?
And she's like I'm a two.
And I said okay, do you guysthink if I asked you that
question when markets were down40, you would tell me the same
thing?
They're like no, we think we'dactually be more risk averse at
(03:50):
that time.
I go.
That's why I don't love thatquestion, because risk tolerance
changes.
There's something called risktolerance, which is how do we
emotionally feel if our milliondollars went to 40, 400, 000?
Would we be like that's cool,there's an opportunity, let's
put more money in?
Or would we be like that's cool, this is an opportunity, let's
put more money in.
Or would we be like I am notloving this?
Well, most people, it dependson their stage of life.
If you're 30, adding money to a401k, when it goes down, you
(04:13):
don't like it, but it doesn'treally bother you.
It's the opposite.
When you retire, you don't wantmarkets to go down 40%.
That's when you people startfreaking out.
So the point here if you have aguaranteed income source like a
pension or rental income which Iknow is not guaranteed social
security whatever you don't needas much in safe money because
(04:35):
you already have the safe moneybeing taken care of.
If you want to spend $100,000 ayear and you have $60,000
coming from a pension, you don'tneed $100,000 from your
portfolio.
You need $40,000 to make up thedifference.
Now maybe you need $60,000because you need to go pay taxes
to end up with $40,000 so that,after taxes adjusted for
(04:58):
inflation, you have your assets.
But that's the point of thestory here.
So let's look at this example.
I do not know all of the assetsof the person I'm gonna talk to
in a few months, in a month,but I put some assumptions here.
I use the same case study fromlast week, and so this is
someone that inherited about amillion dollars in a brokerage
(05:18):
account and they inheritedproperty.
So they have.
I call this, by the way, thelucky sperm and egg club.
I know it's a little graphic,but you guys get the point.
So 2.8 million property and, bythe way, I stole that from a
mentor of mine who has the bestjokes in the world, so I made it
sound like it's my phrase, notmy phrase.
So 2.8 million property, 3million in liquid assets.
(05:42):
They've got 401ks and Roth andbrokerage and HSA and 529s and
all this stuff.
So this couple let's assume theytold me that they wanted to
spend 100,000 a month inretirement.
Sorry, 100,000 a year inretirement, not month, that'd be
wild, but I have seen someonewho wants to spend 40,000 a
month.
That's the most I've ever seen.
So, 100,000 a year.
(06:04):
Well, they have $3 million.
Now, all these differentaccounts have different tax
implications, but let's justkeep it simple.
What's 4% of $3 million?
Well, that's $120,000.
So I think it's a safe estimateto say that if we were to
essentially create 100,000 ofincome, that we would need to
(06:27):
sell $120,000 worth so theycould end up with $100,000 of
income that we would need tosell $120,000 worth so they
could end up with $100,000,which is what they'd love to
spend in retirement.
Now the first thing I would sayhere is they're not going to
spend $100,000.
They're going to spend morewhen they have their energy and
their health, then a little less, then it's going to shoot up
again.
It's a dynamic, moving thingbecause that's real life.
But the point here is thiscouple's in a good spot, so
(06:51):
let's assume they want to retiretoday, which they don't.
This couple's in 49 and 51.
They're not retiring for 10years.
But the idea here is thiscouple's wondering how much
should I have in equities orfixed income?
Well, I like having at alltimes, five years of safe assets
.
So, no matter what happens,you're going to be okay.
And the reason I do this isbecause I show this fun chart
(07:14):
here and this was put togetherby another advisor and you can
see it says bear markets.
A bear market and I'm going toread this for all you podcast
listeners a bear market is whenstock markets drop by at least
20%.
Here's a look at how long bearmarkets have lasted before the
recovery.
So the shortest ever bearmarket was 33 days during COVID.
The longest ever was 929 days,meaning the longest ever bear
(07:38):
market.
Until it fully recovered.
You didn't make money but itrecovered was about three years
and the average is a little overa year.
So I'm extra conservative and Idouble the longest ever bear
market because that's who I am.
So now you have five yearsworth of safe assets.
Well, this person wants to spend$100,000 a year.
Five years times $ 16%, whichmeans on paper this person's
(08:00):
asset allocation should be 84%equities and 16% fixed income.
Make sense Five years of safeassets.
That's assuming they're retiredtoday.
(08:21):
They're not retired today.
This couple's not retiring in10 years.
So because of that, they shouldhave way more arguably 100% in
equities, assuming they'recomfortable with that level of
fluctuation.
And that's the next graph that Iwould share, if you know, once
again I'm working with a client.
This is a really cool graphtalking about the best, worst
(08:41):
and average investment returnsby allocation.
So if we look at 100% stockallocation at the bottom here
and I'm going to explain thisonce again the worst 100% in a
single year has ever done if youhad all equities was 43.1%.
The best it's ever done was54.2%.
On average it does 10.3%.
(09:02):
So I would, with a couple, say,hey, let's talk about it.
Is there any amount that if itwent down you'd be like I just
can't sleep at night?
Okay, let's factor that in.
So we're gonna go one stepdeeper.
Stick with me here.
This does not include anypension.
So let's assume this person hada pension and the pension was
(09:22):
let's keep it easy let's say,$80,000 a year.
They wanna spend 100,000.
Well, how much safe money dothey need?
Well, they want to spend$100,000 a year, every single
year.
Hypothetically, $80,000 a yearis coming in through a pension,
no matter what.
Well, if $80,000 is coming in,no matter what, that means, we
need $20,000 from theirportfolio so they can spend
(09:43):
$100,000.
What's 20 times 5?
That's $100,000.
So all we have to do is take100,000, don't really need the
calculator for this but that's3.3%, which means hypothetically
they could have a 96.7% equityallocation and a 3.3% fixed
income allocation, so that Icould sleep a night as their
(10:04):
advisor with enough rootreserves.
But the couple that we aretalking about today, they have
way more coming in through theirpension.
They make a super healthyincome.
So if that's the case, welargely are gonna want 100%.
Equity is growing for usbecause you have a pension
that's allowing you to have thatlevel of flexibility.
So if you have those assets,like this person here, they
(10:28):
should be thinking about taxstrategy.
And the reason they should bethinking about tax strategy in a
big way is because, if theyhave a pension, what that means
is their 401k is going to begrowing like crazy because we
don't have to withdraw from itand it's just going to keep
growing.
So they're going to have a hugetax opportunity.
The reason that opportunitywill exist is we're not
(10:48):
withdrawing from their pension,excuse me, we're not withdrawing
from their portfolio becausethey have the pension, which
means their portfolio will keepgrowing like crazy.
So what you can see here thisonce again on my screen, but of
course, if you're listening onthe podcast app, that's
perfectly okay as well there'ssomething called Roth
conversions.
Now, roth conversions make alot of sense for people who are
(11:13):
going to be, in a way, highertax bracket in the future.
So for this couple, you can seeif I try to fill up the 22%
bracket, it's not going to makea difference.
Now some of you are like why?
Well, the reason is, if youhave a pension, you're already
in that tax bracket.
So you might need to do Rothconversions at a higher rate,
which will not always be themost fun because you're paying
(11:35):
taxes at a fairly high rate, butit's to avoid paying taxes at
an even higher rate in thefuture.
So you can see here for thiscouple, they're 51.
If they retire at 59, it's hardto see here, I know, so I
apologize, we'll beat up thesoftware company together, but
they have this little greensliver here.
(11:56):
The green sliver is from 59until 67, social Security for
them, even though I would arguethey should delay further.
Regardless, this is themgetting about 1.3 million more
tax-free dollars at the end oftheir life by doing good Roth
conversions.
But watch what happens if Iincrease this further.
What if we say, hey, let's gopay taxes at the 32% bracket?
(12:18):
Well, now there's 15 millionmore dollars in value and you
can see the green very clearly.
The reason these conversions areso helpful is because if we go
and look at what's called theretirement cash flow section and
I'll, of course, always beexplaining this, because I
listen to podcasts on the appsas well what happens is, if we
(12:39):
look at ending balance peraccount I mean theoretically
this couple, if they have$220,000 coming in every single
year, that is probably going tomeet all of their goals, and
then some.
So their brokerage account,it's going to be worth $4
million by age 70.
Their 401k could be worth $10million.
Their Roth 401k could be worth$700,000.
(13:00):
So they might have in totallike $15 million, it literally
growing by a million dollars ayear at this point because of
compound interest.
Now they might go well, ratherthan have us have 15 million at
70,.
What if we bought a second home?
What if we went out and didmore charitable giving?
What if we helped out our kids?
Well, I'm not including any ofthat in here.
So obviously, the goal in lifeis not to minimize tax liability
(13:23):
but to live your best life and,in light of that, be smart with
tax strategy.
So, with that being said,obviously, asset allocation,
thinking about planning when youhave a pension it's very
different, and if you have aspouse or a big age gap, all of
those things need to beconsidered, but tax strategy is
the big one.
So many of you guys have heardthis little dopey story, but
(13:45):
I'll give it to you to end thisepisode.
So someone reached out and theysaid Ari, my CPA sucks.
I said that's kind of a weirdword, like, why do they suck?
They're like well, they didn'ttell me that tax brackets are
changing soon and that shouldimpact my plan.
I said fair point, what elsethey're like?
Well, they didn't tell me if Iinherit an IRA, there's a
schedule I can withdraw from tooptimize my tax liability.
(14:07):
I said good point, keep coming.
They kept going, on and on andon.
I said I see the problem.
They said, oh, this is great,you agree they suck.
I said nope, they do not suckand you're beating up a waiter.
They said beating up a waiter,what do you mean?
I said you're mad because yourCPA is filing your return but
not doing all the other planning.
And they're like yeah, that'smy point, that's why I'm angry.
(14:28):
I said they are a waiter thatbrings food to your table.
They're trying to file yourreturn and 500 other returns.
They're not gonna give youguidance on Roth conversions and
tax gain, harvesting andcharitable giving and estate
taxes and healthcare and realestate and inheritance and
equity compensation and businessplanning and withdrawal
sequence.
That's what we do as taxplanners.
(14:50):
It's a forward-looking plan.
So for most of you that reachout to me, you have, I'd say 60
to 80%.
You have an advisor, but you'refrustrated because when you ask
them a tax question, they tellyou to talk to your CPA.
Your CPA says go talk to youradvisor.
And now you're playingmiddleman of coordinator.
And my fun joke here is I had acouple that reached out.
(15:12):
They're like I'm retired.
I said I don't believe you.
They're like well, you're nutsbecause you don't sleep next to
me.
So how the heck would you know?
I heck would you know?
I was like yeah, I just don'tthink so.
They're like well, you're crazy.
I said I bet if you ask youradvisor a tax question, they're
going to tell you to talk toyour CPA.
Your CPA is going to tell you,for health insurance, talk to
your agent, and your insuranceagent is going to tell you to
(15:32):
talk to your state attorney andyou're going to have like five
people to coordinate yourretirement.
They're like yeah, isn't thathow this works?
I said no, no, that's what afinancial advisor is supposed to
do.
And the tough thing is we'reall called advisors and we all
do different things.
So tax planning transparentlythat's the main reason people
reach out.
So if you're looking for thistype of guidance, we'd love to
give it to you.
That's, of course, if you'relooking for a partner.
(15:53):
If you're like, no, I'm notlooking for a partner, I just
want to play around with thistool, go, put all and stress,
test all the scenarios.
Well, like, be my guest, and welove getting to.
I love getting to hear frompeople who find value in the
software and I encourageeveryone.
That's where you should start.
Like, if you're just unsure,start with the software.
You get to see what's it like,kind of playing around with the
(16:15):
tool that we recommend, and then, of course, if you go through
that, as many of you do go, yeah, I still want next level help.
Well, that's why we exist, soyou can go hear from people that
have used the software, peoplethat became clients.
I love getting to do this.
Please, guys, if this washelpful at all, leave a comment
on YouTube like this, share this, subscribe, leave a review on
iTunes.
(16:35):
That's the best way to helpmore people find the show.
I'm grateful for you guys.
Love you.
See you next time.
Thank you all, as always, forlistening to the Early
Retirement Podcast.
I love getting to host theseshows and make different content
for you guys every single week.
I've not missed a single weekin years, and that is because I
love getting to do this.
Now, please be smart about this,before you actually execute any
(16:56):
strategy that you see me talkabout or hear me talk about.
Should I say Please talk metalk about or hear me talk about
?
Should I say, please talk toyour financial advisor, your tax
preparer, your estate attorney?
Please be smart about this.
None of this should beconstrued as financial advice.
This is for fun, educational,informational purposes only.
Once again, just quickdisclaimer here.
Guys, please be smart aboutthis.
(17:17):
Appreciate you listening, asalways, and you can, of course,
submit a question on my website,earlyretirementpodcastcom.
If you, of course, want me toaddress a specific case study or
topic.
I will not promise I can get toit, but I respond to every
single person and if I find itwill be helpful for a lot of
people, I will absolutely makean episode on it, at the very
(17:38):
least give you some insight.
That's it.
Thanks, guys.
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