February 14, 2026 • 40 mins
The Kowal team help plan your retirement
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Speaker 1 (00:00):
Welcome to News Talking eleven thirty wy seven, The Retirement
Clinic on the air with Creative Plannings. Aaron Kowal hosting
the show. I'm Paul Crownforce. Good morning to you, and
Happy Valentine's Day, my friend.
Speaker 2 (00:12):
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 No.
Speaker 2 (00:20):
We known each other so long, Paul, it would be
weird not to.
Speaker 1 (00:24):
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 maybe that fits you, or maybe it's just something
that your family needs to know about. So we're gonna
(01:05):
hear from Jeff later. You've got stuff on rm DS,
longevity planning, You've got a lot of good stuff.
Speaker 2 (01:13):
Yeah, we're gonna start talking along gevity 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
(01:36):
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 of 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 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
(03:25):
partnership with them. So and we have just 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 So that's that's good stuff. You guys
(04:01):
are experienced. Your forte has always been retirement planning. We
go deep into the weeds and think like r m
ds 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 right.
Speaker 2 (04:17):
And those those you know sort of rewards 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 that 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
(04:39):
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, how would we
want our family members to be treated by a financial advisor?
And we may keep that in mind and try to
live up to that.
Speaker 1 (04:53):
Well Barons, you know, So I just those aren't like
you said, those aren't Those are big names Barons Forbes,
also the Milwaukee Biz Time Times 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
(05:15):
two two forty 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 going to 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
going to live in ninety And so we want there
(05:48):
is that risk. 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 medically
since then, so maybe that is something that you need
to concern yourself with. So longevity risk is now one
(06:08):
of the 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 think is
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
(06:30):
a bell curve, 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 waving
a ribbon or something, there's a lot you know, you
(06:51):
are moving up and 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,
(07:15):
withdrawal mistakes magnify. 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
(07:36):
across households. Higher income 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.
(07:57):
Small overspending 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 going to 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.
(08:21):
Safety alone fails. 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, which is very risky in itself,
(08:45):
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 time. Early years are active
and expensive, middle years often dip in late years rise
again with healthcare plans should reflect this curve. Healthcare and
(09:07):
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 long So you know
you what I'm saying is that you could have a
(09:32):
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 much how expensive this is fifteen Yeah, yeah, absolutely,
(09:55):
I mean you don't spend you know, you don't spend
your life, you know, 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, and so because of that, you know, it
is very very expensive. You know, Social Security, you know,
(10:19):
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. You know. Social Security is longevity insurance. Delaying
benefits increases lifetime payout. It's one of the best inflation
(10:39):
of just annuities available for long life planners. Delay is
oft 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 often enough withdrawal flexibility is critical for
long retirements. Fixed raises every year are tricky. Guardrail systems
(11:04):
work better. Adjustments. Adjustments preserve long angevity. So you know,
guardrail where you you know, maybe have a set amount
of goal amount 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
(11:26):
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 not doing 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 copen at Meyer or Costco. Yeah.
Ron White famously did a bit on Coopen's and that's fine, Hey, listen,
(12:00):
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. Pick it up. But
you know what, Aaron, you shouldn't feel guilty about doing that.
Speaker 2 (12:18):
I don't.
Speaker 1 (12:18):
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 in an efficient way. And you know we want
you we want you happy too. And if you're just
(13:16):
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 all the 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 (13:44):
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 and shovel.
Speaker 2 (14:00):
Or or you know, 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
(14:21):
is whether you want to see your errors and here,
you know, enjoy 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. I've
(14:42):
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 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.
You super engaged, and it's underused. You know, some people
(15:03):
want to work. Some people you know want to do
something part time, whether it's volunteering or whether it's you know,
part time or consulting. Because they've worked somewhere for thirty years,
they know the industry to 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 this 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 I God, 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, you know.
Speaker 2 (16:13):
And because retirement is 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 wasn't a thing until one
(16:35):
hundred years ago. It's not a natural human you know, stay,
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 faster because they're not doing
(16:56):
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. Recommend that productivity. Yeah,
(17:18):
there's something that there's pride in that. And if you
just sit in a rocking chair, the old story, a
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.
Speaker 1 (17:35):
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. Uh, you know, so
(18:02):
I came back a little bit and nuts and 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,
(18:23):
you know, all stocks when 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 for 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,
PEO will laugh. Clients perspective, clients, future clients would would
last say, 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
(20:11):
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 you plan for a long runway,
not an average one. Keep growth in the portfolio, build
income flors, use flexible spending rules. Longevity as a gift,
but it must be funded. Good stuff.
Speaker 1 (20:31):
Longevity planning is real. You could screw up and live
a long time. What if you live to be ninety nine?
Do you 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 R and D topic? Now?
Speaker 2 (20:54):
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 We 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
(21:20):
that and 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 Coohal and Paul crownforst We'll be right.
Speaker 3 (21:35):
Back, Hi, I'm Jeff Cohaugh.
Speaker 4 (21:38):
Blind spots Nobody likes them in cars, and nobody likes
them when the spouse passes away. I wanted to address
this topic with the help of a Wall Street Journal
article titled five financial blind spots that burden grieving spouses.
It says losing his spouse is a profound emotional blow,
(21:58):
and it often triggers a second crisis, a financial fog
of legal hurdles and hidden tax traps, from being locked
out 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.
Speaker 3 (22:16):
Let's start with surprise debt.
Speaker 4 (22:19):
Survivors are often surprised to discover that the late spouse
had individual credit card debt creditors. You can notify the
creditor of the death and a company. In this particular
case that the Wall Street Journal highlights they just decided
to discharge a five thousand dollars balance on the store
(22:42):
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, 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
(23:06):
they can be transferred to a surviving spouse.
Speaker 3 (23:10):
In some king counties, this can.
Speaker 4 (23:12):
Take more than a year, leaving the spouse locked out
of necessary funds well.
Speaker 3 (23:18):
Avi Kestenbaum is an estate planning lawyer in New York.
Speaker 4 (23:23):
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. Assets in revocable trusts do not
go through probate.
Speaker 3 (23:43):
They avoid probate. Very important. Next thing is joint ownership.
Speaker 4 (23:48):
Property or counsel that are held jointly transfer automatically to
the survivor. Next tod pod transfer on death or payable
on death. That's the bank brokerage accounts just allow for
a transfer to immediate beneficiary. Immediate transfer avoids probate, again
(24:09):
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 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
(24:35):
track individual borrowing rather than household wealth. 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 is
(24:59):
new Melissa Strada. This is a 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 maintaining the stand
of living she enjoyed with her husband required a drastic change,
(25:21):
returning to work significantly cutting expenses 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 they recommend recommends couples meet monthly to review their finances.
Speaker 3 (25:39):
This next one is very important.
Speaker 4 (25:41):
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 social Security benefit goes
(26:03):
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 can usually file
(26:24):
as married filing jointly. Very important, married filing joyingly for
the actual year that's apout 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 3 (26:40):
This is the last year you can do this.
Speaker 4 (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.
Speaker 3 (26:51):
So it's difficult. I know it's again.
Speaker 4 (26:53):
We faced a lot in our office. It's a difficult
time when someone passes away, often a very emotional time.
Planning for financial needs can relieve anxiety and surprises. You
won't be blind siding. 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
(27:14):
release some of the surprises when the spouse passes away.
So as the article says, you won't have those financial blind.
Speaker 3 (27:22):
Spots that burden grieving spouses.
Speaker 4 (27:26):
Again, give our office a call see if we can help,
and give us a call if you have any questions
about this article or any other retirement planning issue.
Speaker 3 (27:34):
Now back to you guys.
Speaker 1 (27:36):
The Retirement Clinic 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 of Saturdays, and we have not
stopped since. Also Monday through Friday during the Dan o'donald Show,
(27:59):
and used to be Belling 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 tour. You mentioned the term tax torpedo.
I sort of chuckled.
Speaker 2 (28:15):
It is a really well I gotta talk about it now, right.
Speaker 1 (28:17):
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,
the retirement retirement distribution planning a boy of tax torpedo.
So the requirement distributions are rm 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, no, just leave it in there.
I don't want to pay taxes, right, Sorry, you gotta
have to, uh, For most retirees now, rm ds begin
and each seventy three moving to seventy five for younger cohorts.
(29:02):
The IRS sets the percentage using life expectancy tables, and
each year the percentage rises. That means the tax pressure
compounds over time. Many people think that rm ds 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 tirehies 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. R and 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 up.
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.
It's not a woman I r m A.
Speaker 2 (30:14):
No, it's not right. No. Yes, people named ERMA 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.
You know, the best planning windows off between when we
(30:36):
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 igher rate of WROTH that control
tax rates. You fill lowered brackets on purpose, and that
shrinks future r m ds. It trades known tax now
(31:00):
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.
It's more efficient and predictable, so you can do a
ROTH conversion and then you know, target a certain amount
(31:24):
so that you don't go up so you're not paying
more in UH bracket, you know, in contax in the bracket,
and then also more in medicare surcharges, so it's it's
a lot more predictable predictable, So tax bracket filling is
a core tactic. Each year, you calculate how much room
remains in your target bracket, then convert or withdraw up
(31:45):
to UH up to that line. This uses your brackets fully.
Most retirees underuse UH under use this.
Speaker 5 (31:54):
UH.
Speaker 2 (31:54):
Solid security timing interacts with R and D planning and
delaying solid security can create low income years. This creates
more room for conversions and also increases guaranteed income later,
so coordination really matters on this UH. You know. And
then qualified charitable distributions are 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
(32:17):
towards your rm D but is excluded from taxable income,
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
(32:37):
of the most efficient giving tools available. So if your
tax if you are charitably inclined, you know, that 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 IRA. However much you wanted to give, how much
everyone to spend on you give to charity, you know,
(32:58):
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 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
(33:20):
future rm ds. Sometimes shifting assets cross count types helps.
It's not just allocation, it's its location. So uh. Those
but those are plan 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
(33:41):
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.
Speaker 1 (33:47):
You, 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 been waiting for.
Speaker 2 (34:02):
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 economic
benefits of stock ownership without actually granting shares of the company.
(34:26):
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 typically written
as a plan or agreement that tracks the value of
(34:47):
the company or a percentage of that value. Employees may
receive payouts based on growth, profits or 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 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 ownerships 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 so that 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,
(36:15):
the phantom 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
(36:38):
UH 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've 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 sale, it's great for them. Bandom equity can
align management and centives with maximizing exit value, and then
(37:46):
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
plan 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 on a wysn Aeron Kowal.
Good stuff today, and you may need help with your plan.
(39:05):
Maybe you can't do all of this on your own.
How do I reach out to you at Creative Planning?
Speaker 2 (39:10):
Right? And that's what we're here for. It's all we do,
So give us a 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 cron Force. We
thank you so much for joining us every Saturday on
WYSN Milwaukee.
Speaker 5 (39:52):
The preceding program is furnished by Creative Planning and 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 could 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
Welcome to News Talking eleven thirty wy seven, The Retirement
Clinic on the air with Creative Plannings. Aaron Kowal hosting
the show. I'm Paul Crownforce. Good morning to you, and
Happy Valentine's Day, my friend.
Speaker 2 (00:12):
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 No.
Speaker 2 (00:20):
We known each other so long, Paul, it would be
weird not to.
Speaker 1 (00:24):
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 maybe that fits you, or maybe it's just something
that your family needs to know about. So we're gonna
(01:05):
hear from Jeff later. You've got stuff on rm DS,
longevity planning, You've got a lot of good stuff.
Speaker 2 (01:13):
Yeah, we're gonna start talking along gevity 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
(01:36):
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 of 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 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
(03:25):
partnership with them. So and we have just 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 So that's that's good stuff. You guys
(04:01):
are experienced. Your forte has always been retirement planning. We
go deep into the weeds and think like r m
ds 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 right.
Speaker 2 (04:17):
And those those you know sort of rewards 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 that 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
(04:39):
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, how would we
want our family members to be treated by a financial advisor?
And we may keep that in mind and try to
live up to that.
Speaker 1 (04:53):
Well Barons, you know, So I just those aren't like
you said, those aren't Those are big names Barons Forbes,
also the Milwaukee Biz Time Times 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
(05:15):
two two forty 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 going to 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
going to live in ninety And so we want there
(05:48):
is that risk. 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 medically
since then, so maybe that is something that you need
to concern yourself with. So longevity risk is now one
(06:08):
of the 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 think is
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
(06:30):
a bell curve, 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 waving
a ribbon or something, there's a lot you know, you
(06:51):
are moving up and 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,
(07:15):
withdrawal mistakes magnify. 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
(07:36):
across households. Higher income 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.
(07:57):
Small overspending 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 going to 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.
(08:21):
Safety alone fails. 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, which is very risky in itself,
(08:45):
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 time. Early years are active
and expensive, middle years often dip in late years rise
again with healthcare plans should reflect this curve. Healthcare and
(09:07):
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 long So you know
you what I'm saying is that you could have a
(09:32):
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 much how expensive this is fifteen Yeah, yeah, absolutely,
(09:55):
I mean you don't spend you know, you don't spend
your life, you know, 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, and so because of that, you know, it
is very very expensive. You know, Social Security, you know,
(10:19):
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. You know. Social Security is longevity insurance. Delaying
benefits increases lifetime payout. It's one of the best inflation
(10:39):
of just annuities available for long life planners. Delay is
oft 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 often enough withdrawal flexibility is critical for
long retirements. Fixed raises every year are tricky. Guardrail systems
(11:04):
work better. Adjustments. Adjustments preserve long angevity. So you know,
guardrail where you you know, maybe have a set amount
of goal amount 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
(11:26):
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 not doing 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 copen at Meyer or Costco. Yeah.
Ron White famously did a bit on Coopen's and that's fine, Hey, listen,
(12:00):
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. Pick it up. But
you know what, Aaron, you shouldn't feel guilty about doing that.
Speaker 2 (12:18):
I don't.
Speaker 1 (12:18):
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 in an efficient way. And you know we want
you we want you happy too. And if you're just
(13:16):
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 all the 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 (13:44):
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 and shovel.
Speaker 2 (14:00):
Or or you know, 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
(14:21):
is whether you want to see your errors and here,
you know, enjoy 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. I've
(14:42):
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 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.
You super engaged, and it's underused. You know, some people
(15:03):
want to work. Some people you know want to do
something part time, whether it's volunteering or whether it's you know,
part time or consulting. Because they've worked somewhere for thirty years,
they know the industry to 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 this 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 I God, 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, you know.
Speaker 2 (16:13):
And because retirement is 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 wasn't a thing until one
(16:35):
hundred years ago. It's not a natural human you know, stay,
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 faster because they're not doing
(16:56):
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. Recommend that productivity. Yeah,
(17:18):
there's something that there's pride in that. And if you
just sit in a rocking chair, the old story, a
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.
Speaker 1 (17:35):
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. Uh, you know, so
(18:02):
I came back a little bit and nuts and 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,
(18:23):
you know, all stocks when 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 for 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,
PEO will laugh. Clients perspective, clients, future clients would would
last say, 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
(20:11):
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 you plan for a long runway,
not an average one. Keep growth in the portfolio, build
income flors, use flexible spending rules. Longevity as a gift,
but it must be funded. Good stuff.
Speaker 1 (20:31):
Longevity planning is real. You could screw up and live
a long time. What if you live to be ninety nine?
Do you 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 R and D topic? Now?
Speaker 2 (20:54):
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 We 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
(21:20):
that and 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 Coohal and Paul crownforst We'll be right.
Speaker 3 (21:35):
Back, Hi, I'm Jeff Cohaugh.
Speaker 4 (21:38):
Blind spots Nobody likes them in cars, and nobody likes
them when the spouse passes away. I wanted to address
this topic with the help of a Wall Street Journal
article titled five financial blind spots that burden grieving spouses.
It says losing his spouse is a profound emotional blow,
(21:58):
and it often triggers a second crisis, a financial fog
of legal hurdles and hidden tax traps, from being locked
out 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.
Speaker 3 (22:16):
Let's start with surprise debt.
Speaker 4 (22:19):
Survivors are often surprised to discover that the late spouse
had individual credit card debt creditors. You can notify the
creditor of the death and a company. In this particular
case that the Wall Street Journal highlights they just decided
to discharge a five thousand dollars balance on the store
(22:42):
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, 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
(23:06):
they can be transferred to a surviving spouse.
Speaker 3 (23:10):
In some king counties, this can.
Speaker 4 (23:12):
Take more than a year, leaving the spouse locked out
of necessary funds well.
Speaker 3 (23:18):
Avi Kestenbaum is an estate planning lawyer in New York.
Speaker 4 (23:23):
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. Assets in revocable trusts do not
go through probate.
Speaker 3 (23:43):
They avoid probate. Very important. Next thing is joint ownership.
Speaker 4 (23:48):
Property or counsel that are held jointly transfer automatically to
the survivor. Next tod pod transfer on death or payable
on death. That's the bank brokerage accounts just allow for
a transfer to immediate beneficiary. Immediate transfer avoids probate, again
(24:09):
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 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
(24:35):
track individual borrowing rather than household wealth. 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 is
(24:59):
new Melissa Strada. This is a 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 maintaining the stand
of living she enjoyed with her husband required a drastic change,
(25:21):
returning to work significantly cutting expenses 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 they recommend recommends couples meet monthly to review their finances.
Speaker 3 (25:39):
This next one is very important.
Speaker 4 (25:41):
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 social Security benefit goes
(26:03):
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 can usually file
(26:24):
as married filing jointly. Very important, married filing joyingly for
the actual year that's apout 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 3 (26:40):
This is the last year you can do this.
Speaker 4 (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.
Speaker 3 (26:51):
So it's difficult. I know it's again.
Speaker 4 (26:53):
We faced a lot in our office. It's a difficult
time when someone passes away, often a very emotional time.
Planning for financial needs can relieve anxiety and surprises. You
won't be blind siding. 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
(27:14):
release some of the surprises when the spouse passes away.
So as the article says, you won't have those financial blind.
Speaker 3 (27:22):
Spots that burden grieving spouses.
Speaker 4 (27:26):
Again, give our office a call see if we can help,
and give us a call if you have any questions
about this article or any other retirement planning issue.
Speaker 3 (27:34):
Now back to you guys.
Speaker 1 (27:36):
The Retirement Clinic 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 of Saturdays, and we have not
stopped since. Also Monday through Friday during the Dan o'donald Show,
(27:59):
and used to be Belling 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 tour. You mentioned the term tax torpedo.
I sort of chuckled.
Speaker 2 (28:15):
It is a really well I gotta talk about it now, right.
Speaker 1 (28:17):
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,
the retirement retirement distribution planning a boy of tax torpedo.
So the requirement distributions are rm 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, no, just leave it in there.
I don't want to pay taxes, right, Sorry, you gotta
have to, uh, For most retirees now, rm ds begin
and each seventy three moving to seventy five for younger cohorts.
(29:02):
The IRS sets the percentage using life expectancy tables, and
each year the percentage rises. That means the tax pressure
compounds over time. Many people think that rm ds 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 tirehies 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. R and 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 up.
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.
It's not a woman I r m A.
Speaker 2 (30:14):
No, it's not right. No. Yes, people named ERMA 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.
You know, the best planning windows off between when we
(30:36):
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 igher rate of WROTH that control
tax rates. You fill lowered brackets on purpose, and that
shrinks future r m ds. It trades known tax now
(31:00):
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.
It's more efficient and predictable, so you can do a
ROTH conversion and then you know, target a certain amount
(31:24):
so that you don't go up so you're not paying
more in UH bracket, you know, in contax in the bracket,
and then also more in medicare surcharges, so it's it's
a lot more predictable predictable, So tax bracket filling is
a core tactic. Each year, you calculate how much room
remains in your target bracket, then convert or withdraw up
(31:45):
to UH up to that line. This uses your brackets fully.
Most retirees underuse UH under use this.
Speaker 5 (31:54):
UH.
Speaker 2 (31:54):
Solid security timing interacts with R and D planning and
delaying solid security can create low income years. This creates
more room for conversions and also increases guaranteed income later,
so coordination really matters on this UH. You know. And
then qualified charitable distributions are 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
(32:17):
towards your rm D but is excluded from taxable income,
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
(32:37):
of the most efficient giving tools available. So if your
tax if you are charitably inclined, you know, that 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 IRA. However much you wanted to give, how much
everyone to spend on you give to charity, you know,
(32:58):
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 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
(33:20):
future rm ds. Sometimes shifting assets cross count types helps.
It's not just allocation, it's its location. So uh. Those
but those are plan 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
(33:41):
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.
Speaker 1 (33:47):
You, 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 been waiting for.
Speaker 2 (34:02):
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 economic
benefits of stock ownership without actually granting shares of the company.
(34:26):
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 typically written
as a plan or agreement that tracks the value of
(34:47):
the company or a percentage of that value. Employees may
receive payouts based on growth, profits or 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 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 ownerships 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 so that 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,
(36:15):
the phantom 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
(36:38):
UH 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've 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 sale, it's great for them. Bandom equity can
align management and centives with maximizing exit value, and then
(37:46):
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
plan 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 on a wysn Aeron Kowal.
Good stuff today, and you may need help with your plan.
(39:05):
Maybe you can't do all of this on your own.
How do I reach out to you at Creative Planning?
Speaker 2 (39:10):
Right? And that's what we're here for. It's all we do,
So give us a 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 cron Force. We
thank you so much for joining us every Saturday on
WYSN Milwaukee.
Speaker 5 (39:52):
The preceding program is furnished by Creative Planning and 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 could 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
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