Income Streams in Retirement

Episode Transcript

Speaker 1 (00:03):
Thirteen ten, w I b A with Wisconsin Capital Management
online whiz caap dot com.

Speaker 2 (00:09):
That's w I s c a p dot com.

Speaker 1 (00:12):
Great website if you had a chance to check it
out yet, definitely head over there. You can learn more
about Wisconsin Capital Management. Also, if you've got a question,
maybe something that came up during the program or just
a retirement related or savings and uh planning financial question,
great opportunity if you head on over to wizcap dot com.
It's a little chat bubble that pops up from there
you can answer, answer, ask a question to be answered
right online. Again it's whiz cap dot com. It's w

(00:33):
I s c ap dot com. And joining us this
morning from Wisconsin Capital Management Nathan and Tom Plumb. Guys,
how we doing this week? Nathan, I'll start with you first?
How you doing this morning?

Speaker 3 (00:44):
Wonderful? Really enjoying this fall weather and the color. And
that's a beautiful time to be in Wisconsin.

Speaker 1 (00:48):
It's pretty amazing. And uh and Tom, what what's some
This is a great weather. Get a chance to do
you do any golfing or anything?

Speaker 2 (00:54):
Tom?

Speaker 4 (00:55):
No, I'm not. I do bike And I'd like to
get out of my book but really, I'd love to
hike in Wisconsin because that's just fun. It's beautiful. We
do have our rolling hills, we have our rivers. It's
a lot of fun to get out there. But this
is a scary week shot.

Speaker 2 (01:16):
Oh really.

Speaker 4 (01:17):
We have Halloween, of course, as we have our president
out there negotiating in Southeast Asia, and we have big
tech companies starting to report their earnings.

Speaker 2 (01:32):
Wow.

Speaker 1 (01:33):
And that's obviously a lot to keep an eye on,
a lot to be following. And of course Tom and
Nathan both follow this stuff very very closely and keep
on top of it. And you know, as we talked
this morning just about about Wisconsin capital management and of
course and what it means to retire and plan for retire,
and Nathan, let's talk a little bit about what it

(01:53):
means to retire. I think a lot of folks get this,
get this impression that when they retire, well I'm just
going to stop working.

Speaker 2 (01:59):
It's typically doesn't work that way, does it.

Speaker 3 (02:02):
No. I think actually I've seen this happen. So people
retire at sixty five, they go to a beach somewhere, beautiful,
drink Margarita's, and by three months they're so bored, they
move back and can't wait to start working again. So, yeah,
the modern definition of retirement's a little different. Often it
kind of means kind of consulting in the role that

(02:23):
you specialized in. And you know, that's wonderful and you
should keep your mind active and we highly encourage it.
But uh, you know, if you're getting a salary and
getting retirement income at the same time, this get complicated
pretty fast. So it's it's I'm really happy when our
clients discuss doing that with us to get them organized

(02:43):
and hopefully pay less tax in the future.

Speaker 1 (02:46):
And tom we're going to talk about some some of
that stuff and really important things, really talk about kind
of organizing your finance, finances and retirement, aren't we.

Speaker 4 (02:55):
Oh yeah, And Sean, you know, as the note saying
is that seventy is the new fifty. So a lot
of people who thought they were going to be in
the workforce only for a couple more years, by the
time they're seventy, they're still looking at being in the
workforce only a few more years. But it really can

(03:15):
be complicated because there are rules about when you have
to take out money from your retirement account, when you
have to or when you can take out money from
social Security, and how all these different things get coordinated
with healthcare, which you may still be under a company

(03:37):
healthcare plan, for example, you may be looking at Medicare
and there's all different ramifications depending on how your income
is characterized as it comes to you. So we like
to really help people when we can to coordinate that
work between those different things. They may have a require
minimum distribution from a place where they used to work,

(04:01):
but they actually might not have required minimum distribution from
some place where they're currently working. Nate has been doing
a lot of work trying to figure out and coordinate
for some of our clients.

Speaker 2 (04:15):
And it's just sar.

Speaker 1 (04:16):
I had a chance to kind of go over the
show notes for this week's program, and it's pretty eye opening.
It pretty substantial when it comes to those the planning
and what a significant difference it can make having a
proper plan in place when it comes to coordinating your RMD,
SO security and other types of investment withdrawals through retirement.
Of course, talking this morning with Tom and Nathan Plum,
they come to us from Wisconsin Capital Management. Don't forget

(04:37):
you can visit them at wiz cap dot com that's
wiscap dot com. From there, if you want to click
that chat button, you can send a quick note. You
can also ask any question. Also great opportunity with that
chat button to schedule complimentary, no pressure conversation. As you've
gotten to know Nate and Tom over the past few months,
definitely know very casual. Obviously take your retirement and you're

(04:59):
saving and your financial stuff very seriously, but when it
comes to meeting with them, very very relaxed, very casual.
They just really like to help you out. And and Nathan,
let's start off this week talking about three letters which
are are pretty important, which are RMD. What is an
RMD and what do folks need to know there?

Speaker 3 (05:15):
Nathan, Yeah, it's a term that's a jargon in our
industry and it means required minimum distribution. So just to
back up, so, when you were working and you're putting
money into your furro on k, that money was never
taxed right when it was when it was put into
the furroh one k, So it's been growing tax efferd,
so it's been growing untaxed, growing, growing, growing, growing hopefully,

(05:39):
and then now that you're over seventy three years old,
the government essentially gets tired of waiting for you and
requires you to start taking money out of that old
World War one k or ira. And they have a
formula for that, so it starts out roughly about four
percent and needs you get older, you get to take

(05:59):
out a large portion of that money that was in
your own old boar one k or ira. So that's
a good thing to have money for retirement. But the
downside is that since that money has never been taxed,
it's taxes ordinary income. So it's a tax like if
you had an ordinary wage. And so that's where the

(06:20):
complications kind of arrive, especially if you're still working. So
essentially you're getting kind of quote unquote paid twice. And
so that's that, that's the issue in a nutshell.

Speaker 1 (06:29):
And Tom, let's talk as Nathan really well laid out
what rmds are and some of the some of the
things folks need to know about, there are some there's
an important exception when it comes to that that rm
D trap. What exactly is that? What do people need
to be aware of here?

Speaker 4 (06:43):
Well, Sean, first, just to compliment what Nate just said,
it's not only never been taxed, but you actually got
to withdraw excuse me, a tax deduction when you put
the money in if it's not in a roth ira
or a roth section of a four one K. And
so that's very important, and that's one of the reasons

(07:04):
why we've told people take advantage of the maximum that
you can put into the for one K and definitely
put in enough money to get a match from your
employer if they offer that. But the exceptions. Then when
you look at taking money out of our retirement plan
for one K while you're still working there, if you

(07:27):
don't own more than five percent of the company itself,
then you actually can delay that required minimum just reasure
while you're earning a salary at that company. But it's
the coordination and they're putting together the whole picture that
we've talked about in the past. Because old are for

(07:47):
one ks or iras that are from other employers still
are subject to that required minimum distribution rule. And so
that's why you need that nation and you need to
understand what the exceptions are and then you can actually
maximize your planning. And what we really like to do

(08:11):
is maximize the compounding while reducing your tax liability.

Speaker 1 (08:16):
That's current and Nate, what your dad they're just laid out,
I think kind of for a lot of folks, kind
of set something up with which is, let's say I'm
still working and then I've got to start collecting r
m ds. This could bump me up into a higher
tax bracket. Definitely something you want to be aware of,
isn't it.

Speaker 3 (08:32):
Yeah, that's that's the main drawback. So a lot of
people they don't want to jump a tax bracket, that's
for sure. So it's so if you've been at your
current employer a long time, that makes sense to delay it.
Each four one K plan, Unfortunately, there's no universal rules.
Each one is different, so some of them. Maybe we
could look at those rules for you and see if

(08:52):
there's other options for you that are a little bit
more advanced. But yeah, and you know that if you,
you know, be work at your current job just for
a short time and you can't roll into the current plan.
You know, if you're charitably inclined, this is those rm
ds are a great way to give directly to charity.
So in other words, don't don't cash the R and

(09:16):
D check right have that directly go to a charity.
Then you avoid that income text. So if you're going
to give any way to your church, synagogue or charity
like in the Dane County United Way. That's another way
that you could do tax playing as well. And that's
a common thing that you see as well, for especially
for our charitably inclined clients.

Speaker 1 (09:36):
And Tom, what about you met you know mentioned earlier
about maybe some old four h one k's and other things.
It's also a good reminder to kind of keep that
stuff all together, isn't it.

Speaker 4 (09:46):
Well, certainly it's a lot easier to keep track of
and it's a lot more effective and efficient when you're
doing your planning to look at the whole picture. And
as Nate said, different ockets of money have different rules,
and so you can look at how I should finance
my retirement, what cash should come from where, and how

(10:09):
to do it the most efficient way to reduce your
tax liability and hopefully enjoy your times to your money.

Speaker 1 (10:17):
Talking this morning with Tom and Nathan Plumb. They come
to us from Wisconsin Capital Management online with cap dot com.

Speaker 2 (10:23):
That's wiscap dot com.

Speaker 1 (10:25):
Not only can get to know Tom and Nathan and
the whole team at Wisconsin Capital Management. While you're there,
there's a cool little chat button right on the website.
You can send a quick note. You can also submit
a question or two, and of course you have great
opportunity with that to schedule complementary, no pressure conversation with
the folks at Wisconsin Capital Management.

Speaker 2 (10:42):
Again, just head on over to the website with.

Speaker 1 (10:44):
Cap dot com. That's wiscap dot com. Let's talk Social Security, Tom.
It's one of those things that is obviously a lot
of folks do rely on, and timing is important when
it comes to Social Security, isn't it.

Speaker 4 (10:58):
Well, social Security, they have what they call a normal
retirement age, and for people like me, that age was
sixty five. But to keep the solvency of the Social
Security system and to recognize the fact that people are
working later, people now have to be sixty seven basically

(11:20):
before they get full retirement benefits from Social Security. So
you could take it early, you could take it when
you turned sixty two. You could take it deferred until
you're seventy. And if you do defer, the payment or
the premium that you'll get every year goes up about

(11:41):
eight percent a year. So there's a real benefit to
delaying some of those. But at the same time, you
also can find that if you're working, you're going to
end up having your benefits reduced by a formula of
the government. YEA, if you're beyond or earlier than your

(12:03):
normal retirement age and you're still earning W two income,
they will reduce your actual Social Security payment. And if
you're over sixty five and you're receiving your Social Security
payment and you have other income, they actually will adjust
the Medicare premium that you pay based on that income.

(12:25):
So this planning is really really important.

Speaker 1 (12:28):
And it sounds and Nathan, it sounds to me like
timing is important here as well, isn't it.

Speaker 3 (12:34):
Yeah, exactly, So as my dad said that, you know,
the first option you have with Social Security is age
sixty two, and then there's another threshold at probably sixty five,
and then at seventy three. Is als also some key
timing years. But it's really good to talk to someone
like us were long before that happens, because you know,

(12:55):
we can plan for things, but it's hard to do
things when things are happened or just about to happen.
It makes your world a lot tougher. So you know
that it's a common theme this show is that you know,
time is the most valuable asset and you know you
need to talk about something like this. I know it's
kind of stressful and people put on the back burner,
but you know, you know, you kind of had to

(13:17):
adult up and get a ton Yeah.

Speaker 2 (13:19):
The importance of having that plan.

Speaker 1 (13:21):
And I think that's you know, as we've been talking
the past few months and getting to know Tom and
Nathan from Wisconsin Capital Management, one of the things you're
also gonna goin to notice is the importance of having
a plan in place and starting that conversation. They make
it really easy to do what Wisconsin Capital Management. If
you head on over the website whiz cap dot com
that's Wi s c ap dot com, you can ask
a question right there on the website. You can also

(13:43):
schedule a complimentary, no pressure conversation get some of those
questions answered. Just head on over to whizcap dot com.
That's Wi s c ap dot com. Head on over
the website. You can also listen back to this in
previous shows podcast there as well. You probably heard for
phrases like gary, ted income and other things. Well, we're
gonna get the details on what that means and what

(14:04):
you need to understand when it comes to things like
annuities and other things. We'll get the details from Tom
and Nate. We will do that next as Ask the
Experts with Wisconsin Capital Management continues right here on thirteen
ten w.

Speaker 2 (14:16):
U I b A thirteen ten Wi.

Speaker 1 (14:23):
B A and asked the Experts with Wisconsin Capital Management
talking this morning with Nathan and Tom Plumb of Wisconsin
Capital Management. Learn more online the website whizcap dot com.
That's Wi scap dot com. If you got a question,
just a random one pops up during the show, great
place to submit it to get that answered right online
at whizcap dot com. You can also schedule a complimentary,

(14:44):
no pressure conversation right at wizcap dot com. That's Wi
s cap dot com. I just for the break mentioned
things like annuities, and I hear annuities. I see commercials
with big time celebrities talking about annuities. Nathan, what a
I need to know about annuities?

Speaker 3 (15:03):
Yeah, I guess our biases that we have a kind
of a personal crusade against annuities. There are very rare
times where annuity is suitable for someone. So really, the
only two times I've seen that actually applies is that
when you know, if you have some kind of gambling
addiction or drug addiction, you can't control your spending for

(15:23):
somehow need to kind of you know, you know, put
that layer safety so you don't spend be a spend
drift on that. Or if you're like you know, probably
single in your sixties kind of you know, not very
wealthy and you really need that steady income each month
and or else you might not be able to pay
the bills like that, that's a decent scenario for annuity.

(15:45):
Almost all other cases, a annuity is a terrible idea.
It's a tax bomb just for you and your and
your you know, the people that beneficial or your beneficiaries
when you pass away. So again we can get into
the details of that. But yeah, usually if you anyone
tries to sell you a nuity, just run away. I

(16:07):
think psychologically, you know, if you get a golf course
and get a hot stock tip, you know that's high risk.
But on the other end of the spectrum, if someone
is preaching no risk, always cult in the back of
your mind that someone is off of you no or
low risk. It is almost inherently expensive. So to take
that risk off because you're essentially paying someone else to
take that risk off the tables. That comes to CDs,

(16:29):
money markets and especially nuities.

Speaker 1 (16:32):
And Tom we hear that phrase, you know, no market
risk or guaranteed income. The other one that you hear
a lot of is tax deferred, and I think for
a lot of us to go text defer good stuff.
There are there are some cautions that folks need to
proceed with the aren't there?

Speaker 4 (16:44):
Oh those are great terms. They make you feel nice
and warm inside, But the fact is that there is
different types of risk and there's an expense, and especially
for people people who sell annuities a tax deferred product
in a tax deferred retirement plan on IRA, that's where

(17:10):
you're getting a double tax exemption, but it's really only one,
and you've added a layer of fees and a loss
of control. That's very, very difficult and hard to justify.
And the only justification is that it's a great fee
producer for the person selling it to you. So you

(17:31):
have to be very very careful there those terms. You know,
when you talk about protection, remember the insurance companies in
the business of protecting itself, so they make sure that
they have through their tables enough protection for that odd
person that actually gets more money than they are put

(17:54):
in that they have so many other people that are
getting a lot less than the sureans companies earning on
that money.

Speaker 1 (18:02):
And Nathan, you know, when we think about annuities as
talking about taxes, how would they differ then from something
like a mutual funder for stocks when it comes to
your tax rate.

Speaker 3 (18:12):
Yeah, so usually capital gains are taxed at a much
lower tax rate than pretty much anything else. So the
thing is when you have an annuity, essentially you're kind
of converting your capital gains into ordinary income. And as
we all know, ordinary income is taxed a lot higher
than any capital gains. And so not only do you

(18:33):
lose control, you really have a kind of you're just
making yourself taxed more. And then you know, and then unfortunately,
when you pass away, so if you just have mutual
funds or stocks, right, you get what's called a stepped
up in basis, and so essentially the date that you
pass away, that's the new cost basis for your beneficiary.

(18:56):
And that's a wonderful thing. With annuities, you don't get
that step on basis, so you still get the same
cost basis of what your parent or grandparent whoever bought
this annuity, and you can't get an adjustment and basements,
so you don't get one, no step on basis, so
you're going to get taxed a lot more. And then
when you get tax it's taxes ordinary income, which is

(19:18):
again doubly horrible.

Speaker 1 (19:20):
Ouch and Tom, I've got to guess you've had folks
over the years come in and say, I've got this.
I purchased this thinking it was going to be this
very safe, this very conservative product.

Speaker 2 (19:30):
Help me out, Help me out.

Speaker 1 (19:31):
And a lot of these are very very expensive to
get out of. And there's contracts to kind of keep
you tied to them, aren't there?

Speaker 4 (19:39):
Oh, definitely, And that's why we ask people again, look
at your expenses, especially when they say there's no expense
on something you're going to compound on this. Then ask
the other question, what if I want to get out
of this early? What if I want instead of getting
out of it after ten or twenty or thirty years

(20:00):
or when I'm turned sixty five or seventy or any
term that's there. What if I wanted my money next year?
What would happen? Most often, you're going to find that
there is a significant surrender charge sometimes seven percent of
your total for example, and you're going to say, oh,
I'm earning at this rate, I missed the stock market

(20:23):
because I've got this guaranteed rate of four or five percent,
and if I want to get out of it, I
might end up having to pay two years of my
income just to get out of it. So you have
to be very very careful. Use an example, like what
Nate was saying, is if you bought a stock. Let's

(20:45):
say you've bought Microsoft, and in ten years it doubled
in price, that would mean about a seven percent right
to return. It's probably had a return that's over fifty
percent more than that. But using a seven percent right
to return, in ten years, I paid about ten thousand
dollars worth of the stock. It's now worth twenty thousand dollars,

(21:07):
and I pass away that stepped up cost basis means
that if my heirs sell that stock, they get to
sell it at twenty thousand dollars and a twenty thousand
dollars cost basis, so they don't pay any income tax
or capital gains tax on the sale. But as Nate
was saying, in this annuity, it's never stepped up, so

(21:29):
then you have to pay ordinary income tax rates on
the withdrawal. You don't get the benefit of capital gains rate,
and you don't get the benefit of stepped up cost
basis for your hears.

Speaker 1 (21:41):
And talking this morning with Tom and Nate Plumb. Of course,
they come to us from Wisconsin Capital Management Online wiz
cap dot com. That's wiscap dot com.

Speaker 2 (21:50):
Nate, is, is there an alternative?

Speaker 1 (21:52):
Is there anything that folks can do to maybe create
something like a steady a steady stream of income, do
that on their own, kind of independent of any other
type of product or anything like that. Is there a
way to create your own annuity?

Speaker 4 (22:07):
Yeah?

Speaker 3 (22:07):
So again with your these four to one ks and irays,
if you take your money out before age fifty nine
and a half, the IRS penalizes you ten percent, right,
just for early withdrawal. Right, so some people that want
to retire before sixty five or retire a little bit early,

(22:29):
you know, you can actually create your own essentially annuity.
And the jargon ar business is called a seventy two
T of course, that comes from the area of the
tax coverhere. That comes from So essentially you can bifurcate
or take a portion off of your I Ray put
it in this seventy two T and have a essentially

(22:50):
a guaranteed income that will come to you just in
that seventy two T portion. And then again you get
all the tax benefits that are good. So then you
have you know, you can get that stepped up basis.
You don't have to keep any you know, so you
have all the advantages of an annuity, especially these tax
deferred news because essentially you're paying for the same tax

(23:12):
benefit twice. And so if you want the low cost
way to do it, I don't see many other advisors
doing this, but we've done in the past, and you know,
if that's your niche situation, we're happy to help you
out there.

Speaker 1 (23:24):
I've never heard of seventy two T and now I
know exactly when I see you guys. Next we're going
to talk all about because it sounds very fascinating. And
before we wrap up this week, just real quick, Tom,
let's talk about, you know, the importance of coordination and
of course, as folks are working into their sixties and
seventies kind of putting this all together.

Speaker 4 (23:42):
Tom, well, again, Sean, we feel that we can really
help people with their planning process. We've felt that our
expertise again is applying the rules to your investments. That
means that one we have to have expertise in the
types of investments that can provide you long term returns.

(24:05):
You can make your own annuity. We have a thing
that we've looked at historically called sustainable withdrawals, and we
can look at your investments and all of your options available,
and we can come up with a cash flow and
a strategy and a portfolio mix that will allow you

(24:25):
to create your own annuity with a fair amount of
confidence and with a minimal withdrawal that historically has meant
that you'll never run out of money. So we can
really duplicate what an annuity does for individuals by putting
together a proper plan and planning and meeting is the key.

Speaker 1 (24:48):
You've got questions if you want to get that meeting
set up, Today's a great day to do just that.
Head on over to wizcap dot com. That's wiscap dot com.
Click on the schedule consultation button. You can schedule a message.
You can also schedule that consultation right online wizcap dot com.
That's Wi s C A p IF you'd like to
learn more, Nate and Tom would love to talk with

(25:09):
You'd love to get to know you again. Just head
on over to wizcap dot com. Tom Nate, It's always
great chatting with both of you, guys. Enjoy this beautiful day.

Speaker 3 (25:16):
All right you two.

Speaker 4 (25:17):
Sean pleasure, Sean, great to hockin to you as well
as and again, I hope that some of our customers
and some of the people listening will take us up on.

Speaker 1 (25:26):
This take a take up that offer. Head on over
now to wizcap dot com. That's wi scap dot com
News comes your way next right here on thirteen ten.

Speaker 2 (25:35):
Double UiB a