Episode Transcript
Speaker 1 00:00:05 This is annuity straight talk since 2008. Your host Brian Anderson has helped clients nationwide navigate the complex market for annuities with Brian's assistance. Hundreds of clients have achieved a profitable and secure retirement. I would know because Brian has answered many of my questions concerning annuities and retirement planning so that you can benefit as well. Let's get started. Here's Brian
Speaker 2 00:00:49 Hello and welcome everyone to the annuity straight talk podcast, episode number 25. My name is Brian Anderson, founder and creator of nudity straight talk. And I have the pleasure of welcoming a special guests for the second week in a row. You guys had them last week to talk about taxes and retirement. And this week, Chris Crombie in Texas has a good case study for us to talk about how you can minimize taxes in retirement. But why don't you say a load? Everybody. Great.
Speaker 3 00:01:13 All right. Good morning. Good morning everybody. Thank you, Brian, for having me on again, we had a great time last week, and I know we're going to have a great time this morning and share some really good stuff
Speaker 2 00:01:23 Last week. Think it was kind of a duel. You sent me bullet points asked you questions, which was great. This one's all Chris, everybody. I'm going to tell you right now. I recognize this as a valuable approach to retirement planning is talking about minimizing taxes. If at all possible again, neither one of us are CPAs, so we're not talking about filing taxes and all that stuff. We're just talking about drawing from assets. We touched on it a little bit last week. Did we not Chris? Yes, sir. The theme was like, depending on where your assets are and how you draw from those assets make a big difference in retirement income. So you've been doing this as part of your social security seminars, is that correct?
Speaker 3 00:02:00 Yeah, that's correct. Obviously we're talking about social security strategies and there's a lot less strategies available now than there used to be. But one of the things that it's important to consider is how social security fits in with your other income sources, because ultimately what matters is what's going to end up in your checking account.
Speaker 2 00:02:19 Yeah. The bottom line, right?
Speaker 3 00:02:20 Yeah. Yeah. Taxes eat up a lot of our income during our working years. What can we do to help reduce that tax burden during our retirement years?
Speaker 2 00:02:30 Okay. So you want to, uh, I'm interested in that. And again, it helps to have you're spot on with it, but you mentioned it as the difference between having a strategy and not having a strategy, right?
Speaker 3 00:02:42 Yeah. Because most people, they don't realize that there are some different strategies that can do. They just go with the flow. You know, people tell them, oh, you need to take social security as soon as possible. And in fill in with your, your IRA income or your investments, those types of things. And of course, once you hit 72, now Sam comes knocking and you need to start drawing from your IRAs. And so most people just go without a strategy. And unfortunately, if it's costing them a lot of different ways, it's depleting their investments quicker. It's depleting their IRAs maybe quicker and it's increasing their tax burden. And we don't really need to give uncle Sam any more than he's entitled.
Speaker 2 00:03:23 I think just about everybody would agree with that, right? There's the person who says, you know what? I wish I paid more in taxes. I think some of those billionaires, I think they're kind of blowing smoke. I'm happy to pay more tax.
Speaker 3 00:03:40 We all have an obligation to pay so much. We shouldn't volunteer any more than we have.
Speaker 2 00:03:45 I agree with that. So it's an interesting little take, I guess, without further ado, I'll open up the sheet for everybody and you can walk us through it. Okay, Chris, here we go. So this is again, and it's funny because Chris sent this to me this morning. I said, Hey, you gotta send me the case study. He sent it to me and it's this big, I don't know. Do you use it in a PowerPoint? Is that part of how you do it when you present
Speaker 3 00:04:06 One of my social security strategies workshops that I do, and this is part of the workshop.
Speaker 2 00:04:11 Yeah. But he sent me the full thing and I said a hundred, 103 pages. I'm chasing my last dog. I got 15 minutes til I'm on the podcast. And you want me to review 103
Speaker 3 00:04:21 Pages.
Speaker 2 00:04:24 But as you can see by the page counter up here, there were only because it's part of a social security seminar. It's just the last part of it all. Joking aside. I'll stop picking on you, Chris. But yeah. So nine pages of much easier to deal with. So, uh, why don't you walk everybody through this and just tell me when you want me to move pages. Okay.
Speaker 3 00:04:40 Yeah. Obviously everybody's numbers are going to be different. This is just a case from some clients that came to social security, educational workshop. And so I'm using their hypothetical numbers. So you can plug your numbers in, as you look at the different strategies and everything. But this one is again, it's just no strategy involved, just going with the flow done with everybody recommends that you do, which is start your social security, start taking money out of your IRAs. And these numbers could be reversed and we'll get into some of the different strategies.
Speaker 2 00:05:13 So that's kinda like if someone just says, oh no, I'm good. I don't need to do any.
Speaker 3 00:05:17 Yeah. And a lot of people that come to my social security, educational workshops, they feel the same way. They're just like, no, I'm good. My advisor says is, need to start taking my social security right now and then draw from my investments and then wait until 72, because you obviously want to defer your taxes as long as possible, but that may not necessarily the, be the best strategy.
Speaker 2 00:05:40 Yeah. And we talked about that last week, if you're compounding it, it creates an even bigger problem down the road. So
Speaker 3 00:05:46 Yeah. It's that ticking time bomb that we've talked about last week, which is your, your IRA. Cause you're deferring all this taxes and eventually you're going to have to start taking money out of it. And those taxes are going to come due. And I don't think taxes are going to go down the way that we're spending money. Like crazy. I think taxes are going to go up.
Speaker 2 00:06:04 I've even heard in the last year. Have you even heard anyone talk about taxes going down? No, it's all about how much they go up and who they affect. Yeah. Well it's always kind of a Trojan horse. That's why they got the, the wealthiest people out there kind of say, oh, well, yeah, we'll pay some more, but then they're just going to pass the law and then they're going to expand it to include more.
Speaker 3 00:06:24 And again, traditional thinking is, is that when we get into retirement, we're automatically going to be in lower tax bracket. But I don't know about you, Brian, but I'm not looking forward to pinching panties. When I'm in retirement, I want to continue to live my lifestyle. I want to spend time with the grandkids. I want to travel. I want to do all those kinds of things. So my expenses are probably not going to go down significantly. And so why would, I think my taxes are going to lower tax bracket? I just think that's false. That's false.
Speaker 2 00:06:55 I agree. I think that's one of the keys to doing it the right way and maximizing what you can is to make sure you can maintain your lifestyle. You know, in some instances that spending rates go down, gross income needs go down, but you're not saving money. So you can put peel out off of what your gross income is. But, but still, yeah, I agree with you. Why would you shoot for being in a lower bracket?
Speaker 3 00:07:17 Yeah.
Speaker 2 00:07:17 You want to be making as much money. All right. Ready to move on
Speaker 3 00:07:20 Again. Continuing with the texture, no tax reduction strategy. This is what the net result is going to be. So with your gross annual income, again, $60,000 taken 20,000 from your social security and 40,000 from your IRA, 50% of your social security is going to be taxable. All of your IRA income will be taxable for a net taxable income of $51,000. That's what no strategy. Most of your income is going to be fully taxable. Okay.
Speaker 2 00:07:50 Okay. All right. So how has that different strategy one?
Speaker 3 00:07:55 Yeah, let's take a look as strategy one. So same annual income, but flipping the numbers taken more out of social security and less out of your IRA, because again, and I know, you know, we didn't talk about this on the first slide, but talking about provisional income and provisional income is what they use to calculate what your social security benefits are going to be taxed at. So if we take 40,000 in social security, half of that is going to be considered provisional income. When you use to calculate what the taxes you're going to be on your social security, all of your IRA dollars, $20,000. So your provisional income is $40,000. So let's go to the next slide. There you go. So just making this one simple change, you can see your taxable social security income is now like 4,000. So you've gone from 55% of your social security being taxable to only 10%. And it's because you reduced your other income source down to $20,000. So now your taxable income is only 20,000. That's little over half of what your taxable income would be with no strategy, well keeping the same gross level of income. So you're putting more back into your pocket and giving less to uncle Sam just by making horrible change.
Speaker 2 00:09:12 Those middle tax brackets do rise, then it's going to be even more advantageous as absolutely.
Speaker 3 00:09:17 Yep. Cause I, again, I don't think taxes are going to go down, so
Speaker 2 00:09:22 No, no, they're not going to, I agree with you. I think that looks great. I mean, that's just a simple change in how you look at it and creates a big effect in, uh, you know, what kind of money do you actually have in your pocket? Right.
Speaker 3 00:09:33 Take a look at the next slide.
Speaker 2 00:09:36 Can it be even better,
Speaker 3 00:09:37 Even better? It gets better and better. And there's a lot more strategies. We're just going to show two simple strategies today, but there's a lot more that can include systematic Roth conversions laying your social security income if they just get better and better. But
Speaker 2 00:09:52 These numbers though, I think this is a pretty good average scenario where it's just pretty simple and easy. It doesn't take millions of dollars to make this happen. This is just kind of a good average average case study.
Speaker 3 00:10:03 Yeah. These are just for the average couple, these days, we're not talking about, you have to be a millionaire to take advantage of tax strategies and reduce your taxes. I mean, this is something that everybody going into retirement could do just a couple simple changes and how it's going to increase their net income and by doing so you'll put less of a draw on your investments and on your IRA down the road. So if you're talking about leaving a legacy, taking care of your family, do you need additional dollars for long-term care down the road? You'll have those dollars available just by making a couple simple changes in your tax strategies.
Speaker 2 00:10:43 It's impressive. I mean, it's a simple, easy way to do it. And like I said, just a, that's the difference between having a strategy and not. So, I mean, don't just go into it thinking, oh, I'll be okay. It doesn't really matter. It could matter. So that's why you want somebody like Chris to help you out. And that's a good time to plug everything is to say, Chris is the annuity straight talk affiliate in Dallas, Texas. So central Texas, and a little bit outside of there. If you ever want to get ahold of them, just reach out to annuity straight talk, and we'll set you up an appointment. Somebody wants to meet with the guy in person. Chris knows his stuff, knows the products we share philosophy in all different areas. I appreciate you bringing this to us. So let's keep going,
Speaker 3 00:11:18 Digging a little deeper into this strategy. So you can see now again, half of your social security is going to be taxable all of your IRA dollars, but now you're all at drawing 10,000 out instead of 20,000. So you're continuing to let those IRA dollars defer, but down the road, you may have less of a, an R and D that you're going to have to take. So that's going to help benefit you down the road as well. I wonder if your higher rate dollars are going to be taxable. So now your provisional, income's only $30,000. So let's go to the next page and let's see what the net effect is. So now your taxable income is only $10,000 and when you apply your standard deduction, or if you itemize, you could essentially be in a net, zero tax effective bracket. Wouldn't that be nice to be? Tax-free going into retirement.
Speaker 2 00:12:09 If you only got 10,000 in taxable income, you ha you're considered a below the poverty level, right? You don't even pitch Yay. No taxes. Well, it's possible, like you said, I mean, it's just a simple matter of just kind of reconfiguring things really
Speaker 3 00:12:28 Well. Yeah. I mean, even using the first strategy, your net taxable income is only $24,000. So if you've got a couple of the 65 and older with standard deductions, you're not going to pay any.
Speaker 2 00:12:41 Nope. And that's one thing where, well, the taxes go up faster and the brackets expand more quickly than standard deductions. So this is my time for a history lesson. I think I've mentioned it before in a podcast. When was it the 16th amendment for taxation or the 13th? Whatever. So it was 1913 when they passed the constitutional amendment to allow for income taxes. And at the time it didn't apply to anyone that made less than $4,000 per year. So in 1913, 4,000 might as well have been two or 3 million bucks. It really was. I think it was like the top one or 2% of taxpayers or of, of individuals even made that much money. So consider what the top one or 2% of people. So most people didn't pay attention to it. They thought, oh, you know, there was not a whole lot opposition to it.
Speaker 2 00:13:32 They thinking that they, well, it's not gonna affect me. No big deal. Yeah. Those rich guys should pay, but so consider 4,000 your standard deduction back then, what does that risen to over the years? And that has not climbed nearly as fast as income has climbed, but they didn't implement the income tax until into the, almost the forties. I think so 1945. So a whole generation had passed since the amendment was added to the constitution. Most people didn't think it applied and then they didn't even use it for 30 years. It was a Trojan horse is what it was. So I think they should have just indexed that deduction to inflation. And then most of us probably wouldn't pay taxes, still
Speaker 3 00:14:12 Talking about history. I heard the story of Ronald Reagan was making movies during the forties when we were in the highest tax bracket that we'd been historically, anything over a hundred thousand dollars was a hundred percent taxable. So he only made one movie a year because anything more than that, he wasn't going to get paid on it. Just a neat little historical thing kind of leads to my next statement. We're really in the lowest tax brackets that we've been in history. I mean, this is really a good time to take advantage of tax strategies and Roth conversions and all that kind of stuff, because I guarantee you, they're just going to go up from here.
Speaker 2 00:14:49 Should we look up the history of the us tax rate? Yeah. Okay. This is my broken hand typing.
Speaker 2 00:14:57 Sorry. I'm not that bad normally. Okay. Top us marginal tax rate. That's a good one right there. You can't see it there. Right? So this is the top rate that people would have paid. So this is like your last dollar earn. So you bump up into the highest tax bracket and at the end of world war two mid forties. Yeah. It was over 90% and then Reagan took office and dumped them down. And then we had inflation and all that stuff, but yeah, they've maintained a pretty low level consistently, but well, they didn't have taxes here. Yeah, sure. Climb. They, they, they get addicted to it. They like it. Right.
Speaker 3 00:15:35 Okay.
Speaker 2 00:15:35 Side note. I don't know if a lot of people remember that in the forties 90% and I don't know what the different brackets were, but that was the highest bracket that was,
Speaker 3 00:15:44 Uh, bracket. Yeah. So most people complain. I taxes, pay taxes, pay taxes, and we're actually in a pretty good position because comparatively we're in the lowest tax bracket ever. So let's, let's take advantage of those, do some Roth conversions and then do a couple tax strategies. And don't give uncle Sam any more than they than you need to. And you could be in a tax-free environment.
Speaker 2 00:16:07 A lot of people have room within a tax bracket or room with their IRA versus social security like you're talking about. And there's no reason why you shouldn't even in small part, start taking advantage of that because it builds up over time. I like to tell the story of the couple that I worked with for eight years now. And they bought an annuity with me and the husband put in 20,000, his wife put 26,000 and they started doing Roth conversions every year up to, to the next tax bracket. And it only ended up being about five or $6,000 a piece, but they're eight years into it. And those two annuities can the growth. So they started with the total of 46,000 and just by converting five or 6,000 per contract each year, going into those Roths at the insurance company, they've got over $180,000 now. So, and for them, it was the Roth was set up because that was the inheritance tool. They've got a family cabin. They want that, that money goes into a trust when they pass away and it funds the property taxes and maintenance on the cabin. So their kids and grandkids can enjoy it perpetuity, but in their late seventies now, and they continue to do that strategy. They'll continue to grow for the next five, 10 years. And they're probably going to have more than 300,000 plus in that account in another five or six years,
Speaker 3 00:17:25 Uh, thinking about a client of mine came to me probably about two years ago, single female, pretty significant assets that she had accumulated during her working years, which included her pension and those kinds of things. And just by applying a couple of these strategies and a little bit more, she wanted to make sure that she could leave as much as she could tax-free for her daughters and her grandchild for taking what's essentially $800,000 in taxable potential taxable income over her lifetime and leaving 400,000 at the end of her lifetime. And it's all going to be tax free just because we're doing a couple of tax strategies. Wouldn't it be nice to do to live tax-free during retirement live the lifestyle that you want and leave tax-free assets for your kids or your grandkids.
Speaker 2 00:18:20 Holy cow, that'd be incredible. Well, especially with what they did to inherited IRAs in the, with the care act. I think in 2019, is that right where all of a sudden people have less options with an inherited IRA. So you're required to liquidate it within 10 years instead of having the stretch options where EHRs can take it over to over a period of time. So that's forcing errs into a higher tax bracket because it really got to unload those things in a shorter period of time. And the idea is that just not having the choice of what to do, being mandated, that it's got to come out in 10 years. So someone who inherits an IRA at 55 before retirement is going to have to start offloading that probably in some of their highest income years as well. So anyway, that's another side note, but what's really important too. If you have a goal, like explore the strategies to reach that goal and give it as many benefits and advantages as you can.
Speaker 3 00:19:12 I mean, inheritance is nothing to scoff at, even if it's fully taxable, but like you said, having that dumped on your lap when you're mid fifties, when you're potentially in your highest earning years just could contribute to more of a tax burden for your kids or your grandkids than you really intend for. So I know we want to try to do as much as we can for our kids and grandkids and try to leave a legacy and everything, but let's make a couple changes and reduce that potential tax burden down the road for them.
Speaker 2 00:19:41 Right. I agree. A hundred percent. So what else we got here on this one? Okay. So this is just summary pages.
Speaker 3 00:19:46 Yeah. These are summary pages. So flip a couple more pages forward to you get to the side-by-side. So this is just a side-by-side comparison. The first one, obviously not doing anything different than the normal strategy, which is take as much as you can out of social security, fill in the gap with IRA income. Your taxable income is 51,000. So that's most of your income is going to be taxable in one strategy where you are taking less from your IRA income, which reduces the taxes on your social security income. So now your total taxable income is only 24,000. And of course, with standard deductions, that's going to put you in a 0% tax bracket, which is kind of nice. And then the last strategy is combining Roth income with your IRA income. Now your social security income is tax-free, you're only being taxed on your IRA income because bras of course are tax-free. So now your taxable incomes, 10,000. So that gives you a lot more room for doing Roth conversions and those kinds of things they're going to help even more down the road.
Speaker 2 00:21:02 Absolutely. So I don't know, side by side, which would you rather have? Right?
Speaker 3 00:21:06 I'll go with number two. I don't know about you.
Speaker 2 00:21:08 Yeah. I'm going with number two as well. So I'm calling Chris Crombie and he's going to help me out figure it out. So this is a good idea. We talked about it last week. I think we're good here. Right? It's there it's obvious, like you said, that's what happens when you have a strategy. That's what we're here to do. But what I get from you, Chris, is I think that's really important to you to re what do you call this? I mean, it's just, it's simply service and helping people figure things out, right?
Speaker 3 00:21:31 Yeah. And that's one of the reasons why I love doing my educational workshops, because even if people don't become clients, they get a lot of valuable information that they can apply to their situation, to either improve their income that comes in, reduce their taxes, leave more for their family, become less of a burden laid on in their life. Whatever those things are that are important to them. And I can just provide some free advice is going to make a difference in people's lives. And that's what I relate. What keeps me going. And what wakes me up in the morning is knowing that I'm going to be able to help some people today, even if I don't make a buck, because I know that if I take care of people, I want to be taken care of too.
Speaker 2 00:22:11 Absolutely true. And I, like, I tell everybody a lot of what we do is charity work. I mean, I've had several meetings this week and you know, only one had really good potential where I would sell something. And that doesn't bother me because I want to make sure people know that I'm here to help and answer questions about stuff like this. So that's the same reason you do the seminars. You probably help 95 people for every five people that you do business with. Right?
Speaker 3 00:22:32 Yeah. That's, that's part of why I do. I don't do the educational workshops because I'm planning on selling to everybody in the group. Cause I don't do that. It's just education. And if they get what they need from the workshop, they're happy they go on with their life and everything. If they need more advice and want to meet with me, I'll be glad that
Speaker 2 00:22:49 That's what we're doing in the annuity straight talk. And I'm happy to have you on board dressed and it's nice to have a different perspective and a couple ideas about strategies. Again, I get too focused on annuities. What's good. What's bad. But this is something that we all do. And I appreciate you illustrating like that for us.
Speaker 3 00:23:04 Yeah. Well thank you again for having me on I'm looking forward to our next one and our next one and our next one
Speaker 2 00:23:09 At good topics. So when you got the next one, I'd be happy to have you back on. So he's got his lighting figured out. He sounds great. He's Chris Crombie and Houston, Texas. Go ahead and get a hold of them. Annuity straight talk green, schedule a call button again, new website coming out very soon. Green schedule a call button, make an appointment. Any time you can give us a call 804 3 8 5 1 2 1 scribe to the podcast. If you, uh, on YouTube or any podcast platform that you prefer, uh, get notified when they come out. Chris. Great having you again, I'm going to go take my dog for a walk and look forward to having you back soon. Thanks again. Alright. Thank you everybody. And have a great day.
Speaker 1 00:23:57 You've been listening to annuity straight talk. The proceeding for patient is for informational and educational purposes only and does not represent tax legal investment. The views expressed by guests on this program are their own and do not necessarily reflect the views of the Nudie straight talk or its partners. No information presented today should be acted upon without meeting with the qualified licensed professionals. It is important that you read all insurance contract disclosures, carefully purchase decision guarantees are based on the financial strength and claims paying ability of the insurance company.
