The Kowal Retirement Clinic 2-14-26

The Kowal team help plan your retirement

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Episode Transcript

Speaker 1 (00:00):
Welcome to News Talking eleven thirty wy the Retirement Clinic
on the air with Creative Plannings. Aaron Coowaal hosting the show.
I'm Paul Crownforce. Good morning to you, and Happy Valentine's Day,
my friend.

Speaker 2 (00:11):
Good morning, Happy Valentine's Day to you as well.

Speaker 1 (00:15):
Is that wrong? Is it wrong for one man to
say happy?

Speaker 2 (00:19):
No, we known each other so long, Paul, it would
be weird not to.

Speaker 1 (00:23):
I didn't say be my Valentine. It's just said happy
Valentine's that you've got a wife, I've got a wife
that we've each got our own Valentine and hopefully everybody
has a great Valentine's Day weekend. It is dead smack
in the middle of winter and February the fourteenth, So
we are going to first off, you've got a slew

(00:44):
of good topics today. We're also going to hear from
Jeff Cole later in the show, in about twenty minutes
or so after the first break, and he's got a
topic about five financial blind spots that burden grieving spouses. So, Matt,
maybe that fits you, or maybe it's just something that
your family needs to know about. So we're gonna hear

(01:05):
from Jeff later. You've got stuff on R and D S,
longevity planning, You've got a lot of good stuff.

Speaker 2 (01:13):
Yeah, we're gonna start talking a longevity planning and then
what happens is you know, as my dad is well,
we've always liked to say what happens if you screw
up and live a long time. Then we've got Also
in this first segment, we've got the required minimum distribution planning,
how to avoid the tax torpedo. And then we'll be
talking about phantom equity, how it's a tool for succession

(01:35):
planning and retention for business owners. So that's those are
the main topics that I've got for you today.

Speaker 1 (01:43):
Paul, I will say, I've never heard the term tax
torpedo uttered on this program or any program. And now
you've got my interests.

Speaker 2 (01:51):
My copyright it, then tax torpedo.

Speaker 1 (01:54):
I can't wait to hear that topic. We'll get to that.
You mentioned rm ds and in just by way background,
we do this every show. Creative Planning dot com the
Retirement Clinic dot com is another great resource. Of course,
formerly the co Wal Investment Group. You joined forces over
a year ago with Creative Planning Erin and it's given
you a lot more tools with regard to all of

(02:18):
your certified financial planners and what you guys do. You're
on the Dan o'donald Show twice a day each weekday,
Monday through Friday with those market updates, and you've got
locations in Brookfield Port, Washington, Racine, Delafield, Cape Coral, Florida, Phoenix, Arizona,
license in all fifty states. The Retirement Clinic dot com
has archived podcasts of the show. You guys really do

(02:40):
it all?

Speaker 2 (02:42):
Yeah, we do it all, especially partnering with Creative Planning. Now,
there's so many more resources that we have at our disposal,
from private investments to state planning and tax planning. We
could do all that in house, so it's all perfectly
coordinated and aligned with your financial plan, which is still

(03:04):
the hub of your of your financial situation. We have
the plan that dictates all of everything that we do,
and so it's really just we've been blessed to work
with them. I think our clients are absolutely thrilled to
be with Creative Planning, and we're seeing a lot of
positivity and a lot of positive results as a result
of the partnership with them. So and we have just

(03:28):
a depth of a deep bench of talent too that
we can we can go to if there's if anything arises.
So we're still very excited to be with Creative.

Speaker 1 (03:39):
And you may not toot your own horn, Aaron, but
you yourself. Barons has named you as top financial advisor
for many many years in a row, including twenty twenty
five part of that list. That and Jeff as well
going back to best in State Wealth Advisors by the
Forbes list of that's that's good stuff. You guys are experienced.

(04:02):
Your forte has always been retirement planning. We go deep
into the weeds and think like r M d s
are huge things that people know to make their retirement
clin or plan a solid one. That's why we call
it the retirement clan.

Speaker 2 (04:16):
Right. And those those you know sort of awards aren't
ones that you just you know, pay for. It's you know,
it's it's recognized in the industry is as the talent
and the skilled quality that of services we provide for
for our clients. So do we take that, you know,
we take that seriously and we uh, you know, we
try to treat our clients like family. And how would

(04:38):
we maybe better than a family depending on some families,
you know, but how you know, how would we want
you know, our parents to be treated howld we want
our family members to be treated by financial advisory and
we keep that in mind and try to live up
to that well.

Speaker 1 (04:53):
Barons, you know, I just those aren't like you said,
those aren't those are big names Barons Forbes also the
Milwaukee Biz Time Future fifty. I will give out the
phone number. Let's do that right now for any questions
throughout the program. We send you right to create a
planning's office one phone number two six two five two
two forty forty two six two five two two forty

(05:16):
forty or the Retirement Clinic dot com. Aaron, let's dive in.
You got good stuff to start the show with.

Speaker 2 (05:24):
Yeah, so we're gonna talk about longevity planning. What if
you live to ninety five? I think the stats are
pretty outstanding that that if if both partners, both spouses
uh in a couple last until sixty five, there's a
very very high chance that one of them is gonna
live in ninety And so we want there is that risk.

(05:48):
If people don't think about that, they're like, ah, I'm
gonna you know, no one in my family's lived live
that long. What do I need to worry about that.
It's like, well, we're a lot more advanced technologically since then,
so maybe that is something that you need to concern
yourself with. So longevity risk is now one of the

(06:08):
biggest retirement risks. Many healthy couples have a strong chance
that one spouse reaches their mid nineties. Planning to average
life expectancy is not enough, which things like early eighties lates,
you know, for women in late seventies for men, plans
should target the tail, not the means, So the right
tail what happens if you live a long time and
not you know, if you look at a bell curve,

(06:30):
not the middle of the bell, and so otherwise success
is just luck at thirty plus years. Retirement changes, portfolio math,
short term volatility matters more because you know, if you
think about it, if you're waiving a ribbon or something,
there's a lot you know, you are moving up and

(06:52):
down quickly, but closer to where you're holding it is
moving up and down more, but further out it's moving
up and down less. So think of it, you know
that way in terms of you know, visualizing it that
short term uh, you know, is is more important. Short
term volatility does matter more. Inflation compounds harder, withdrawal mistakes magnify.

(07:16):
Time becomes the main risk factor. Longevity is uneven across households,
unlike you know, taxation, which everybody is somewhat evenly taxed
in different tax brackets. You know, but it means that
with you know, different individuals, there's some variation there, but
you know, but longevity is uneven across households. Higher income

(07:38):
and healthier individuals tend to live longer. That describes a
lot of a lot of you uh. That means generic
averages understate their risk. Custom assumptions are better. The danger
is low is slow depletion, not sudden loss. Portfolios very
rarely go to zero overnight. They erode gradually. Small overspending

(07:58):
early causes large late damage, and monitoring matters. Inflation over
thirty years is brutal. Even three percent inflation doubles costs
in about twenty four years. That which you know, hopefully
you're gonna be retired for longer than that. That means
that a one hundred thousand dollars lifestyle becomes two hundred
thousand dollars and so growth assets are required. Safety alone fails.

(08:22):
You know Peter Maluke's CEO of Creative Playing, talks about
that all the time. Is that you have to have
money in stocks. That stocks will always outperform bonds over
the long term. So you have to have growth assets.
You have to have stocks, and in order to be
successful in retirement, you could be so safe that you fail,

(08:43):
which is very risky in itself, being too safe. Equity
exposure remains necessary even in retirement. Too little growth creates
failure risk, too much volatility creates sequence risk. Balance is
the art and glide path design helps. Spending is not
flat across. I mean, early years are active and expensive.
Middle years often dip in late years rise again with

(09:04):
healthcare plans should reflect this curve. Healthcare long term care
are late life wild cards. Costs can spike fast, Medicare
does not cover everything, and self funding versus insurance must
be evaluated. You ignore this. Ignoring this rather is dangerous.
Social security is lung. So you know you what I'm

(09:27):
saying is that you could have a need for long
term care or not. And so you but as we
all know, long term care, you know nursing home assisted
living is very, very very expensive, and so what you've
saved your life, saved up your whole life for can
be gone in just a year or two with how

(09:48):
much how expensive this is fifteen Yeah, yeah, absolutely, I
mean you don't spend you know, you don't spend your life.
You planning to give it to a facility. So that's
you know, and it's just so expensive. It's one of
the if not the highest regulated industry in the country,

(10:10):
and so because of that, you know, it is very
very expensive. You know, social Security, you know, the ideal
goal is to keep yourself healthy and then you know,
when you hit ninety ninety five, one hundred, all the
wheels fall off and you don't have these large expenses.
But that doesn't you know, that doesn't always happen unfortunately.

(10:33):
You know. Social Security is longevity insurance. Delaying benefits increases
lifetime payout. It's one of the best inflation adjusted annuities
available for long life planners. Delay is off and optimal.
It hedges living too long. Pension and nuity income can
create a floor and flooring covers essentials that reduces portfolio
withdrawal pressure and improves sleep and math. Partial flooring is

(10:54):
often enough. Withdrawal flexibility is critical for long retirements. Fixed
fixed raises every year are tricky. Guardrail systems work better. Adjustments.
Adjustments preserve long angevity. So you know, guardrail where you
you know, maybe have a set amount of goal amount

(11:14):
to take out and so then but then keeping it
plus or minus within twenty percent of that as you
go through can provide helps. You're not spending too much, right,
you know, if you have there is some room, you know,
some wiggle room there. But then if you're spending too little,
you're also you know, having lifestyle eroding. Right, You're true,

(11:34):
you're not the lifestyle that you wanted to live.

Speaker 1 (11:37):
So noted Aaron, Wisconsin is sort of known to be
a frugal going back to our heritage, perhaps a frugal community.
You know, you hear about you know, everybody's You can
have millions of dollars that you're still clipping coupons, you
know for the deal at cops at Meyer or Costo. Yeah.
Ron White famously did a bit on Coopen's and that's fine,

(12:00):
Hey listen, maybe that's how they got to be wealthy
being frugal. However, I do know people that feel a
little bit guilty spending their own money on things like
a new car, or building a new barn of minium
or traveling or whatever. I don't care what it is.

Speaker 2 (12:14):
Pick it up.

Speaker 1 (12:15):
But you know what, Aaron, you shouldn't feel guilty about
doing that. I don't, that's my opinion.

Speaker 2 (12:20):
You've earned it, No, you should, as long as it
it's in a planned Yeah, you've you know, you absolutely
earned it. You know, don't go crazy, don't.

Speaker 1 (12:30):
Don't be careless. Yeah, don't be careless.

Speaker 2 (12:33):
Yeah. And I've had I've had clients where I've had
to tell them, like, you need you need this. You're stress.
You know, you hate being here in the winter. You
spent your lifetime saving you know you you should go on.
You since I've known you talked about taking your kids
to Disney World, you know, do it. What's to stop

(12:55):
you from doing it? So almost having to call the
travel agent and make them talk to so you know,
our goal isn't to keep all your money invested. Our
goal is to help you deploy that deploy your funds, uh,
you know, in an efficient way. And you know we
want you we want you happy too. And if you're

(13:15):
just sitting there trying to scrimp and save. That's not
you know, that's not fully realized life. I think, you know,
I have I have a client who's you know, whose
father wanted to give the other kids, you know, a
million dollars when he died. So he was like ninety
and still shoveling. Wow. Wow, and all the kids are successful.

(13:39):
You know, I didn't need it. They didn't need a
million money, but he was.

Speaker 1 (13:42):
But that was his wish.

Speaker 2 (13:43):
You know.

Speaker 1 (13:43):
Maybe that's if that's what he wanted to do to
enrich his kids, even though like you said, they may
not have needed the million. That's that's that's really generous.
God bless him.

Speaker 2 (13:53):
But it's like, let's go on a vacation or something.
It's that I don't put the shovel down.

Speaker 1 (13:59):
If you're ninety, don't shovel or or you know.

Speaker 2 (14:02):
Or as a suggestion, give give them some while they're
alive so you can see them enjoy it. That's a
good point, you know, And there's a state planning, there's
means to be able to do that as well, so
that you know, that is you know, really something that
you need to you know, to consider is whether you
want to see your errors and here you know, enjoy

(14:24):
some of this, you know, while you're alive. So you
know there's a lot that needs to be you know, considered.
You know, housing decisions affect longevity success, so aging in
place can be costly. Downsizing can release capital. Reverse mortgages
sometimes useful tools. You look into that that I've you know,
we haven't done a whole lot. We haven't done any
I haven't, but you know it could be right for

(14:47):
some people. Uh, you know, housing is a financial level
to consider. You know, part time work or consulting extends
planned durability. Even modest income helps reduces early withdrawals to
keep people engaged in underused. You know, some people want
to work. Some people you know want to do something
part time, whether it's volunteering or whether it's you know,

(15:10):
part time or consulting. Because they've worked somewhere for thirty years,
they know the industry consult a part time basis.

Speaker 1 (15:18):
Aaron, I've done that, and I can publicly talk about
it because Mark Belling he gave me a sendoff on
New Year's Eve on his podcast. I will not be
coming back to produce his podcast, so it's public now.
But I've pulled back to part time, and I am
now just a talk show host at WISN. I do
all the weekend program, so I'm busy, but I'm not
here every day. Erin, I'm in here about three days

(15:40):
a week. I have pulled back by design, by intent,
and I asked management and they signed me to a contract,
and God bless them first off, And I'm so glad
because I've got more free time. I've got time with
my family. But I'm still I've got a goal. I've
got something to get up for and go to work,
and I get to hang out with my friends here
at WISN. And I think that's important. Maybe it's just volunteering,

(16:02):
maybe family sharing. And you were maybe maybe you're a
greeter Walmart Whale's joke about that. Whatever it takes, you
got to have something to keep you occupied.

Speaker 2 (16:13):
You know. And because retirement is uh is it entirely
fabricated or new within the last hundred years, UH state.
It really came came around with Social security. People had
wasn't what their jobs, you know, what's your vocation? What
do you who are you? What do you do? Retirement

(16:33):
wasn't a thing until one hundred years ago. It's not
a natural human you know, state you work, contribute some way,
and you know, just when you couldn't anymore is when
you didn't. And so it you know there I've seen
people that when they retire and they age a lot

(16:54):
faster because they're not doing you know, anything, you know,
and so the human brain is conditioned to over you know,
thousands of years, to be social, uh, and to provide
and to to work and to help others and so productive.

(17:15):
Recommend that productivity.

Speaker 1 (17:17):
Yeah, there's something that there's pride in that. And if
you just sit in a rocking chair, the old story
at rocking chair in the front porch, doing nothing except
looking forward to lunch and then dinner and then going
to bed and get up rints and repeat, do the
same thing every day, that's I don't think that's very healthy.
Maybe it's for some, it's certainly not for me. Aaron,
You've talked about that staying busy, staying socially.

Speaker 2 (17:40):
Active, socially socially active. We are social creatures and so uh,
that is critical, I mean should be critical as they
put a retirement plan too. And something we try to
talk about with our clients is, you know, is that
because it's you know, it's about it's a whole, you know,
truly holistic approach that we take. You know, so I

(18:02):
came back a little bit and nuts in bolts of
it that you know, Asset allocations should be revisited regularly.
Static retirement allocation for thirty years is unrealistic. Unrealistic. Risk
capacity changes, health and goals change. Plans need to adapt,
you know. They you know, so if you say I want,

(18:22):
you know, all stocks when when you are retiring and
you're at sixty five or seventy or sixty or whatever,
that mindset may shift a little when you're when you're
eighty eighty five. Although I do have some clients that
it did not. They wanted to get more aggressive because
they've figured out that no matter how much risk they took,

(18:43):
they're not going to outlive their money, and so they
want to try to maximize for their errors. But that's
each individual person. Some it doesn't happen that way, you know. Unfortunately,
cognitive decline risk must be planned for. Simple portfolios help
with that. You know, Trusted contacts and co trustees matter.

(19:05):
Automation reduces air. So complexity is a late life enemy.
Legacy goals must be explicit if leaving money as a priority,
spending rules change if not. Glide path can be more aggressive.
Clarity improves decisions, and vague goals cause conflict and vague
wishes caused conflict. Also, tax planning still matters late in life.

(19:29):
Large late rm ds can hit in flexibilities lowest earlier.
Smoothing helps longevity, increases tax exposure, tax exposure years, plan ahead,
stress testing to age ninety five or hundred should be
standard many which we do. That's how we do our plans.
Many plans still stop at eighty five or ninety We

(19:50):
never did. We always went to ninety nine, and you
know we will laugh. Clients perspective, client's future, clients would
would last and I could live that long. It's like maybe,
and some of them have. So many plans still stop
at eighty five or ninety that's outdated. You need to
extend the projections. Look at failure zones. See where you
know what goes wrong. We're not trying to make everything

(20:10):
look roses. We're trying to see what happens and then fix,
fix your plan and plan for the bad parts. You know.
So action takeaway is a plan for a long runway,
not an average one. Keep growth in the portfolio, build
income floors, use flexible spending rules. Longevity as a gift,
but it must be funded.

Speaker 1 (20:30):
Good stuff. Longevity planning is real. You could screw up
and live a long time. What if you live to
be ninety nine? Do you have have enough savings to
take you to that? To that point? Aaron Kowal is
your host of Today's Retirement Clinic, Creative Planning dot com
and the Retirement Clinic dot com for more information. Do
we have time? We've only got a minute or two
before the break. Did you want to get into the

(20:50):
R and D topic? Now?

Speaker 2 (20:53):
No, that's a Now, let's talk about that later. This
that's gonna is a bigger topic to get into.

Speaker 1 (20:59):
Good don't you can't take a minute and discuss something
as important as rm DS. I would agree, right, I
would agree. So what we'll do is take a quick break.
Then we'll hear from Jeff Kowal coming up. You'll chime
in as well as your father discusses five financial blind
spots that burden grieving spouses. Stay tuned for that and

(21:20):
more coming up. Any questions about a retirement plan or
lack thereof reach out to create a planning at two
six two five two two forty forty, their retirement clinic
Saturdays each week at ten am with your host Aaron
Kohal and Paul crownforst We'll be right back.

Speaker 3 (21:36):
Hi, I'm Jiff Cough.

Speaker 2 (21:38):
Blind spots.

Speaker 3 (21:39):
Nobody likes them in cars, and nobody likes them when
the spouse passes away.

Speaker 2 (21:44):
I wanted to address.

Speaker 3 (21:45):
This topic with the help of a Wall Street Journal
article titled five financial blind spots that burden grieving spouses.
It says losing a spouse is a profound emotional blowing.
It often triggers a second crisis, a financial fog of
legal hurdles and hidden tax traps, from being locked out

(22:06):
of assets to facing a widow's penalty that can raise
tax rates. The transition from a partnership to solo financial
management has potential costs. Let's start with surprise debt. Survivors
are often surprised to discover that the late spouse had
individual credit card debt creditors. You can notify the creditor

(22:30):
of the death and the company. In this particular case
that the Wall Street Journal highlights, they just decided to
discharge a five thousand dollars balance on the store credit
card than their husband's name. Creditors often find it more
cost effective to write off smaller debts than to pursue
them through the formal probate process. So that's the first thing,

(22:55):
surprise debt. The next thing is locked out of accounts.
Assets owned solely by the deceased must go through probate,
the core process of validating a will before they can
be transferred to a surviving spouse. In some king counties,
this can take more than a year, leaving the spouse

(23:15):
locked out of necessary funds well. Avi Kestenbaum is an
estate planning lawyer in New York. He says surviving spouses
are forced to borrow money at times from children for
daily expenses despite having a larger stage. He says that
to avoid these delays, he recommends, first of all, revocable trusts.

(23:39):
Assets in revocable trusts do not go through probate. They
avoid probate.

Speaker 2 (23:44):
Very important. Next thing is joint ownership.

Speaker 3 (23:47):
Property or accountsel that are held jointly transfer automatically to
the survivor.

Speaker 2 (23:54):
Next tod pod.

Speaker 3 (23:56):
Transfer on death or payable on death. That's to bank accounts.
Just allow for a transfer to immediate beneficiary. Immediate transfer
avoids probate, again very powerful. Next is individual liquidity. Each
spouse should maintain enough money in his or own separate
accounts to cover several months of expenses. So that's the

(24:19):
second thing locked out of accounts. Third thing is invisible
credit records. Widows are sometimes surprised to find out they
have little or no personal credit history, and that's because
credit cards systems track individual borrowing rather than household wealth.

(24:39):
As lack of history can make it difficult to refinance
a mortgage or qualify for a credit card if you
have no credit history. To avoid this, they suggest both
partners should maintain active credit in their names. Again, this
is a Wall Street Journal article. The author is Veronica Dagger.
Next one, there's new budget Melissa Strada. This is a

(25:02):
financial planner in California recently worked with a widow who
was shocked by her monthly expenses. Her late husband had
managed all the finances. She realized the cost of their
living was expensive. But after doing the match, she realized
that maintainous stand of living she enjoyed with her husband
required a drastic change, returning to work significantly cutting expenses

(25:24):
for herself and her children, and she's forced to handle
financial crisis. What happened is that she was blindsided by this.
So the planner suggests that theyend recommends couples meet monthly.

Speaker 2 (25:37):
To review their finances.

Speaker 3 (25:39):
This next one is very important because a lot of people,
again talking about being blindsided. This higher tax brackets is
one that a lot of people are blindsided by another change.
Many do anticipate going from filing taxes jointly as a
married couple to filing as an individual. Even if one

(26:02):
social Security benefit goes away after death, people with survivorship
pensions and requirement of distributions on the other accounts confine
themselves in a rather higher tax bracket. Again, you're going
from married filing jointly to an individual one individual tax bracket.
It's known as the widow's penalty. Actually, so a survivor

(26:23):
can usually file as married filing jointingly. Very important, married
filing jointingly for the actual year that'spoused that the spouse died.
Let me repeat that a survivor can usually file as
married filing jointly for the actual year that the spouse died.

Speaker 2 (26:40):
This is the last year you can do this.

Speaker 3 (26:44):
It's a great year to do a Wroth conversion because
that's the last year you'll have the higher tax brackets.
So it's difficult. I know it's again we faced a
lot in our office. It's a difficult time when someone
passes away, often a very emotional time. Planning for financial
leeds can relieve anxiety and surprises. You won't be blind sided.

(27:06):
We do this all the time with our team at
Creative Planning. It allows us surviving spouse to grieve, then
go through that process and helps release some of the
surprises when the spouse passes away. So as the article says,
you won't have those financial blind spots that burden grieving
spouses again, give our office a call see if we

(27:28):
can help, and give us a call if you have
any questions about this article or any other retirement planning issue.

Speaker 2 (27:34):
Now back to you guys.

Speaker 1 (27:36):
The retirement clinical Returns. I'm wisn. Thank you for joining
us with Creative Plannings airing kowal and for many many
years the co Wal Investment Group. But nothing's changed. This
show has been on since two thousand and one. Right
before nine to eleven we started. The show had to
take off a couple Saturdays, and we have not stopped since.

(27:56):
Also Monday through Friday during the Dan o'donald Show, and
used to be Bellings afternoon show those daily market updates
during the three and five pm news blocks. Today's show
at Aaron Kotwall. First off, we have to talk about
a tax. You mentioned the term tax torpedo. I sort
of chuckled. It is a really well you gotta talk
about it now, right now, you gotta talk about it?

Speaker 2 (28:18):
Yes, yeah, yeah. We went a little long in the
last the last topic, which is great because I thought
it was a lot of great information. But now, you know,
can't leave everybody hanging, so we'll we'll get into it. So,
retirement retirement distribution planning a boy a tax torpedo. So
the requirement distributions are r m DSH for as a

(28:39):
lot of people know, force money out of your pre
tax retirement accounts. You know, I RaSE whether you need
the income or not, which really annoys my father in law.
For most retirees, yes, I'll just leave it in there.
I don't want to pay taxes right, Sorry, you gotta
have to uh. For most retirees. Now, r m ds
begin and age three, Moving to seventy five for younger cohorts.

(29:02):
The IRS sets the percentage using life expectancy tables, and
each year of the percentage rises, that means the tax
pressure compounds over time. Many people think that rmds are
just a nuisance. They're often a tax bomb or a
tax torpedo. Large iras can create six figure forced income
that can push your tirees into higher brackets unexpectedly, and

(29:25):
also stacks on top of social security and investment income.
The result is tax surprise, surprise tax bills. The tax
torpedo happens when additional IRA withdrawals cause more of your
social security to become taxble. It creates a hidden marginal
rate spike. You can face effective marginal rates far above
your bracket. Many retirees never see it coming. Planning ahead

(29:47):
avoids it. Rm D income can also raise Medicare premiums
through IRMA surcharges. These are income based adjustments one dollar.
One extra dollar of income can trigger large premium jump.
It works in bracket cliffs, not smooth phases, so it
makes precision planning valuable.

Speaker 1 (30:08):
You know you mentioned it's another acronym in your industry.

Speaker 2 (30:12):
It's not a woman I r m a A. No,
it's not right. No. Yes, people named irma get text more.
Don't ask me what it means, but it Yeah, it's
an income adjustment for you know, for that so uh,
you know the biggest mistake is waiting until our r
m D age to plant. By then your options are limited. Uh,

(30:33):
you know, the best planning windows often between when we
retire and when r and ds start, those your lowest
income years. That's you can when you can act cheaply.
So roth conversions are a primary anti torpedo tool. You
deliberately move money from igh rate of WROTH at control
tax rates. You fill lowered brackets on purpose, and that

(30:56):
shrinks future r m ds. It trades known tax now
for unknown tax later. It's usually a good deal. Partial
WROTH conversions beat all at once conversions. Large conversions can
spike taxes and premiums. A multi year conversion plan smooths
the impact you target. You target bracket ceilings each year.

(31:16):
It's more efficient and predictable, so you can do a
ROTH conversion and then you know, target a certain amount
so that you don't go up so you're not paying
more in uh bracket you know, in contact in the
bracket and then also more in medicare surcharges, so it's
it's a lot more predictable predictable, so tax bracket filling

(31:37):
is a core tactic. Each year, you calculate how much
room remains in your target bracket, then convert or withdraw
up to UH up to that line. This uses your
brackets fully. Most retirees underuse UH under use this. UH
solid security timing interacts with R and D planning and
delink solid security can create low income years. This creates

(31:59):
more room for conversions and also increases guaranteed income later,
so coordination really matters on this UH. You know, and
then qualified charitable distributions or q c ds are powerful
after rm D H. They let you give directly to
you from your IRA to a charity. The amount counts
towards your rm D but is excluded from taxable income,

(32:20):
and that helps manage tax manage brackets in URMA as well.
UH and qtds are often better than writing checks to charity.
You avoid recognizing the income first. That keeps adjusted gross
income lower lower AGI improves multiple tax calculations. It's one
of the most efficient giving tools available. So if you
are tax if you are charitably inclined. You know, that

(32:44):
is something that you really should look at, because why
take money from your IRA, pay taxes on it and
then donate to charity? Take it right out of out
of your I RA. However much you want to give,
how much ever you want to spend on, you know,
give to charity. You don't pay any taxes on that,
you know at all? So uh, Like, like I said,
qcds are often better than writing checks to charities. And

(33:07):
so that's those are some you know, some some tips.
I've got some more here. But you know, asset location
affects R and D impact, so tax inefficient assets inside
I rates grow the balance faster. That increases future rm ds.
Sometimes shifting assets across count types helps. It's not just allocation,
it's it's location. So uh. Those but those are plan

(33:28):
that's planning that we do for our clients every single day,
and ones that we can help you help you. If
you don't have a plan, give us a call two
six two five two two forty forty. We'll take a
look and see you know how how to minimize taxes
if we don't want you to be overly patriotic and
pay too much in taxes. Nope, let us take edit
for you.

Speaker 1 (33:48):
Aaron Cole. That's good stuff. The tax torpedo explained, Very
well done, Aaron. The retirement clinic on w I S
and I'm Paul kron Force. Now you've got this other
topic that you've.

Speaker 2 (33:59):
Been Yeah, you know, it's a kind of a modified
boss segment here. But about phantom equity. So business owners,
savings and security. Phantom equity is succession and retention tool.
So what is it? People don't know, but excuse me.
Phantom equity is a contractual agreement that gives employees the

(34:20):
economic benefits of stock ownership without actually granting shares of
the company. It's essentially a deferred cash bonus tied to
the value of the company or its growth. Unlike true equity,
it does not dilute ownership, voting rates, or control of
the company. Business owners keep decision making power, but align
key employees with the company's success. How it's structured so

(34:44):
typically written as a plan or agreement that tracks the
value of the company or a percentage of that value.
Employees may receive payouts based on growth profits upon a
triggering event like a sale, plans off invest over time,
encouraging long term retention. So you can say I'll give
you this fantom equity, but you've got to be here
for six years or five years or whatever. And so
you can tie people to your company for a longer time.

(35:09):
Investing can be title time and performance metrics, making it
flexible for owners. So why why do business owners use it?
It retains and motivates keep people by making them feel
like stakeholders, provides financial upside without actually sharing equity, and
prevents issues around minority owners ownership such as valuation disputes
or voting power struggles, which really happens a lot. Especially

(35:33):
powerful for family businesses that don't want outside shareholders but
need top tier management. So you know a lot of
really great managers CEOs would want to work for a company,
but they'd want to have ownership in the company so
that you know, they can supplement their income and their wealth.
So if we have double your company, I want to
see the results of this too, I'm just otherwise, I'm

(35:54):
just making you richer. And so this is a way
to tie them to your company. They get some of
that economic benefit without you actually having to seed control
of the company or give them real shares. Which could
be a you know, because of the whole other rights
that can cause problems long term. You know, the phantom

(36:15):
equity payouts or tax at orderary income when paid no
tax liability until the payout is realized, unlike true equity,
which can create taxable events Earlier employees don't enjoy capital
gains treatment, but the deferred nature is still attractive. Employers
can deduct payouts as compensation expense. It's very tax favorable
for employers as well. UH. The business tax treatment UH

(36:38):
is you know, businesses can deduct payouts when they're made,
aligning expense recognition with cash flow no deduction until payment,
which can be beneficial for deferred deferral. Planning and careful
structuring is required to avoid unintended ARISA UH or deferred
compensation issues, and a good attorney or tax advisors should

(36:59):
always draft interview the plan. This is not something that
you go try to do on your own. The liquidity
considerations are real. Since payouts are cash obligations, companies must
plan for funding. You got to keep some money aside
for this because otherwise you could cause a cash crunch.
Some businesses set aside reserves or buy insurance to cover
potential payouts. Liquidity crunches can occur too many obligations vest

(37:23):
at once, or if the company underperforms and owners need
to forecast payout timing against cash flow. It works best
when companies with consistent growth but owners who want to
retain control. Family owned firms reluctant to dilute equity businesses
preparing for a sale, it's great for them. Bandam equity
can align management and centives with maximizing exit value, and

(37:45):
then firms where talent retention is critical and market salaries
alone won't keep key employees. They're different from stock options
because stock options grant the right to purchase real shares,
potentially creating ownership headaches, and phantom equity avoids shareholder rights entirely.
It's much cleaner for the owners, so it's really a
great use, especially also with succession planning. When selling fantom equity,

(38:10):
participants share in the proceeds. Aligning them with ownership goals
helps bridge the gap between founders and professional management teams
and smooth generational transitions and family businesses, ensuring non family
executives feel rewarded. Buyers off of you fandom equity favorably
since it incentivizes managers to maximize value.

Speaker 1 (38:28):
Good stuff.

Speaker 2 (38:29):
So yeah, I think it's really it's underutilized. It's something
that we can absolutely help with, especially now with Creative Planning.
We do this in house. We can take care of
this for you in house, So give us a call
and we'll be more happy to help you.

Speaker 1 (38:42):
You mentioned that earlier, this is something you may not
be able to do on your own, and that kind
of sums up what we talk about each week. So
when we come back, stay tuned information on how to
do that and reach out to Creative Planning and Aaron
Kolewaal the Retirement Clinic will be right back. This is
wisen back with the Retirement Clinics Aeron Kowal. Good stuff today,

(39:02):
and you may need help with your plan. Maybe you
can't do all of this on your own. How do
I reach out to you at Creative Planning right?

Speaker 2 (39:10):
And that's what we're here for. It's all we do,
So give us call experts on this. I think we've
done a really really great job for people two six
two five two two forty forty or Creative Planning dot
com or the Retirement Clinic dot com.

Speaker 1 (39:23):
And the Retirement Clinic is back next Saturday at ten
o'clock during The Daniel Donald Show Monday through Friday with
those daily market updates in some of these markets. Some
of these days are fun to watch right when the
markets go way way up. Those are at three and
five pm newsblocks during The Daniel Donald Show, The Retirement
Clinic dot Com or two six two five two two

(39:44):
forty forty with Aaron Kowal. I'm Paul Crown Force. We
thank you so much for joining us every Saturday on
WYSN Milwaukee.

Speaker 4 (39:52):
The preceding program is furnished by Creative Planning, a SEC
registered investment advisory firm. Creative Planning, along with its affiliate
United Capital Financial Advisors, currently manages or advises on a
combined three hundred and twenty five billion dollars in assets
as of June thirtieth, twenty twenty four. The host works
for Creative Planning, and all opinions expressed by the host
and or their guests are solely their own and do

(40:14):
not necessarily represent the opinion of Creative Planning. The show
is designed to be informational in nature and does not
constitute investment, tax or legal advice. Different types of investments
involve varying degrees of risk, and there can be no
assurance that the future performance of any specific investment or
investment strategy, including those discussed on the show, will be
profitable or equal any historical performance levels. The information contained

(40:36):
herein has been obtained from sources deemed reliable, but is
not guaranteed. If you would like our help, request to
speak to an advisor by going to creative Planning dot com.
Creative Planning, tax and legal are separate entities that must
be engaged independently.