NEW EPISODES! This past Saturday we premiered one of our new episodes of the Money Puzzle TV Show. This week Brian Ramsey and Chris Vaughn are talking about the biggest expense you’re going to have to in your lifetime. And I’ll bet you spend hardly any time during the year talking, discussing, or planning for it. People think that during retirement, the big expense is going to be medical expenses. But taxes far, far outweigh that. We found that the average person pays $480,000 in taxes over their lifetime. That is a significant amount of money that people just don’t plan for it at all.
Speaker 1 [00:00:20] Hi. Welcome to the Money Puzzle. I am Brian Ramsey and this is Chris Vaughan. Today we’re going to be talking about the biggest expense you’re going to have to in your lifetime. And I’ll bet you spend hardly any time during the year talking about discussing, planning for it. And I’ll bet you spend virtually no time discussing or planning for it in the future. And that’s what we’re going to talk about today. But first, Chris, which tell the folks who we are and where we’re located.
Speaker 2 [00:00:45] Well, we’re family wealth planning partners were located at the intersection of Shelbyville Road and born Lane, right behind the P.F. Chang’s. We are easy to find. We’re a full service financial planning firm. So basically that’s where the whole money puzzle comes from, is we figure out how to put all the pieces of your money puzzle together in the way they fit the best.
Speaker 1 [00:01:04] Exactly. All right. So, Chris, I posed the question in the beginning of the show. Yeah. Oh, no question. More of a statement, right? What are we talking about? What is the most the biggest expense folks are going to have to out their lifetime? What are we during.
Speaker 2 [00:01:17] Their retirement years? By far, the most expensive thing that they’ve got is taxes really.
Speaker 1 [00:01:22] Throughout their lifetime.
Speaker 2 [00:01:23] Throughout their lifetime. That’s true, too. People think that during retirement, the big expense is going to be medical expenses. That’s right. You know, the insurance and all the long term care type things, all that stuff. But taxes far, far outweigh that. In fact, we were looking this up and we said that the we found that the average person pays $480,000 in taxes over their lifetime. So a half a million bucks, that is that’s a pretty significant amount of money. And people just they don’t plan for it at all.
Speaker 1 [00:01:52] All right. So here’s a question. Yeah, we have lots folks who come in either have heard our podcast or it coming from the TV show. And we ask that question. Right. We talk about taxes rates, one of our main pieces of our puzzle. Yup. And we asked a question, how much time do you spend talking, planning, discussing taxes for year? How much? What do we think? I mean, we we get lots of answers, but what what do we think? How much time do people spend per year.
Speaker 2 [00:02:16] Including the amount of time where their stuff and receipts into a shoebox to take to their accountant? Maybe 30 minutes a year, maybe it’s just not that much. And, you know, those of us who actually understand the whole tax planning thing, we put a whole lot more effort into it. And you do it throughout the year. But most people just don’t put that much into it. They want to put this one off. They don’t want to think about it. It’s painful. So you know what? When when February or March gets here, I’ll put some stuff together real quick and I’ll take it over to my tax guy, and that’s all I do.
Speaker 1 [00:02:44] Yeah, exactly. All right. So here’s another question. We said they spend virtually little time talking about current taxes. Right. And almost no time moving forward. So wouldn’t you say that’s about what we experience is, you know, folks that come in and we talk about what are you doing from a tax, but what are you planning? How much time do you spend planning in the future? And we get one answer.
Speaker 2 [00:03:05] You usually get this look like, what do you mean plan? I put my stuff together and I take it to my accountant in that tax planning. And that’s what I’m supposed to do. And that’s what we usually get from people.
Speaker 1 [00:03:18] It is. It is. It’s unbelievable. All right. So here’s another Elmer poses to you. So you and Cathy a couple of years ago, kind of pre-COVID, right? You and Kathy had a significant anniversary day. We’ll tell which one. But yeah, listen, if you can ever see your day, right? Yes, we did. You’re planning a very nice trip. How much time do you think you spent putting that trip together?
Speaker 2 [00:03:37] Oh, my gosh. 50, 60 hours. I mean, we worked on that for a year and a half, right? We went with some other people. So we had multiple events where we all got together and kind of said, okay, how are we going to do this part and what are we want to see when we go here? Then of course, you know, there’s all the different places that you want to go. It’s okay. So what kind of money do we want to spend at that spot and how much time do we want to spend at this one? So, yeah, we put in a lot of time.
Speaker 1 [00:04:08] Yeah. And I’ll get, I’ll, I’ll give this example. So several years ago I bought a house, right? I moved, I moved out to Oldham County. We want to send our kids to Oakland County. So I moved out there when I did. I spent I don’t know, I’d say 10 to 15 hours. I was trying to figure out exactly how much it was. About 10 to 15 hours. Just doing preliminary search on lot. Yeah. Right. Then I actually met with a realtor and we spent another, I don’t know, 10 hours or so going around looking at a couple of houses. Actually, I just looked at a few. So most people spend a lot more time than I did. But still, all I know is about 20 hours, let’s say 20, 25 hours. And it’s a significant asset, right, to $300,000 asset that I was purchasing. And I spend a lot of time talking about it in discussing it and reviewing and do my due diligence. And yet here we are talking about the biggest expense folks are going to have throughout their lifetime. And they spend no time talking about it. Right. So you can’t you can’t have your puzzle put together. You can’t have a good financial plan. If you’re not talking about the biggest expense, you’re going to have to out your lifetime. Right. And so you’ve got to make sure that you plan for that.
Speaker 2 [00:05:14] Well, I think one of the things that one reason that people spend so little time on it, like I was saying a minute ago, first of all, nobody wants to do their taxes. Everybody hates taxes. Right. So you kind of procrastinate. You don’t want to spend a little time. There are too much time on it. You want to get it over with. But the other part of the problem is that they’re they’re typically only focused on the taxes this year. They’re only focused on, you know, how do I get the biggest refund or pay the least amount of money this year instead of looking at it over a lifetime? How do you get that $480,000 number lower? Because that’s that’s really the big picture that you have to look at there.
Speaker 1 [00:05:50] Yeah. So here’s an interesting story. So Diane came from us from she was a caller from a TV show. She came in and it was really interesting. She had a great story. So she had in all she had about $800,000 in about $700,000 of that was in her IRA. Right. So we know what that means, right? When you take a distribution, you pay tax on that. So she had she had just retired or she was retired in the process of retiring, and she wanted to do some cash flow planning for her. So we did. And we showed her we showed her the reports that said, here’s the distribution you’re going to have every month or every year. And she needed, I think it was $5,000 a month like that. Yeah. And she wasn’t she was delaying her Social Security benefits. So she needed the distributions out of her IRA to cover her full distribution. Right. And so what happened was we showed her what the total distribution was. Right. And I’m going to it was about 60 $500 total distribution in order to get the $5,000. And she was like, Wait a minute, I don’t want to take that much out. Like, sorry, because she did her plan for the difference that you have to take out to account for taxes. She just didn’t do that. And so she was very shocked. And so we wound up putting it in place, putting a good plan for her in place. And we worked on, you know, where her Social Security was going to plan and when she was going to turn that on. And, you know, she had some other income sources, but she was just blown away at how much extra she had to take out in order to get the net that she that she needed. Right. Right. And so that’s that’s one of the biggest issues we found is that, you know, when you’re when you’re going through life and you’re putting money into an account and you’re saving for democracy, whatever, you don’t think about the tax consequences down the road. And that’s really where we step in to say, all right, that’s fine, you’re doing that. But let’s also take a look at the tax consequences down the road, because that plays a huge role. And we just said that it’s the biggest expense you’re going to have to your lifetime and you need to be planning for it. So let’s do this, Chris. Let’s take a quick break. All right. Okay. And let’s come back because I want to share a story about what you’ve got a story at this. Right? So you get a story producing a great story about a couple. So why don’t you do this? Why don’t you take us to break? And when we come back, we’re going to talk about Chris is kind of on the other side.
Speaker 2 [00:08:04] Absolutely. So if you’re concerned that you don’t have what we call tax diversification, people mostly understand diversification of of investments. But there’s a tax diversification, too, if you’re concerned that you don’t have that type of diversification, if all of these things are in one place you’ve been saving. Well, but it’s it’s just not broken up correctly. Give us a call at 8449005210. Talk to you a little bit. Have you come in and talk to us and we’ll work through exactly how you need to go about dealing with that and getting the IRS as uninvolved. In your future as is possible.
Speaker 3 [00:08:44] How confident are you in your current financial plan? Do you know with certainty how the recent market volatility will affect your future hopes and dreams? How much are you paying in taxes and how much are you losing to unnecessary high fees? You didn’t work to save this money so that you could spend your time worried in retirement. Now is the time to take charge of your finances so you can feel confident about your future. Call in during the next 30 minutes of today’s show, only to set up an absolutely complimentary, no obligation, full blown financial review that will result in your own customized written plan. This is a $999 value that we’re giving away, complimentary to the first ten people who respond. We’ll start with a full blown analysis of what you already have by running a report to untangle how much you are currently paying in fees, how you’re allocated for risk, and what it’s costing to work with your current advisor. Next will identify your goals. Where do you see yourself in the next five years? Where do you want to go? And who do you hope to go there with? Is your current financial plan set up to get you there without mishap? Let’s design a roadmap to create a financial plan you can follow with confidence. Get the peace that so many people are missing from their retirement. Find out how having a written plan can make a difference to your retirement dreams. Call now to schedule your complimentary, no obligation, full blown Financial Review today.
Speaker 1 [00:10:19] All right. Welcome back to the Money Puzzle. I am Brian Ramsay. That is Chris Paul. And we are firm, the planning partners located right here in Louisville, Kentucky. And our phone number is 8449005210. And we’ll set a little memory lapse there. And I’m not old enough to have that big of an issue anymore, so hopefully. All right, Chris, we’re talking about taxes right now, Matt, how folks don’t plan enough for taxes. That’s one of those things that we see all too often, this part of the part of the puzzle that they ignore or don’t spend enough time on. That’s critically important, right? Because it can absolutely. A train wreck, a retirement. Right. And so that’s what we want to make sure we that we plan on. Before the break, we were talking about your clients. So go ahead and tell that story because it’s a really interesting story.
Speaker 2 [00:11:02] So this couple, Scott and Sheila, came to me several years ago, and what had happened was both of them had pensions. She worked for a government agency. He worked privately, but they both had nice pensions. And between the pensions themselves, they had a decent income. But what they had done for years and years and years is they had saved you know, they plugged away money in their 401 KS every single month, no matter what. And, you know, the money built up to some fairly significant amounts. And the first thing that I looked at when I saw this was and it was it was about 1.7 million at the time, by the way, they’re not going to need most of this money. And I said, Guys, you’ll have a tax bomb. They said, What do you mean we got a tax bomb? Well, everything that they’ve got is subject to full taxation, right? So their pensions, their Social Security, all of that is going to be taxed as income. Right. But then also they’ve got all this money saved up. When that money when they turn 72, they have to start taking money out. That’s the infamous RMD that we talk about all the time. When they start taking that money out, it’s going to be huge, huge chunks. Okay. We’re talking six figures worth of taxes that they’re going to have to pay out of these accounts year in and year out. And I said we have to do something to diversify these taxes. So what we did in this particular case, you know, a lot of people say, well, I want to take Social Security early. We intentionally pushed off Social Security in this case not to maximize it. It does it does that, does that. But in this case, it was to not have that income. And then we intentionally are spending down all the money that’s in those 401k is a little bit more rapidly than what we normally would. So they’re still paying taxes on it, but they’re paying it out over a much longer, larger period of time. And we know what the current tax law is. What we have now is going to sunset beginning of 2026. So we know we’re in a lower tax bracket now than what we’re going to be in the future. So let’s go ahead and pull that money out, spend it, use it, enjoy it. And it you still have a major tax problem, but we can at least spread it out where it’s not quite as painful, right?
Speaker 1 [00:13:13] Yeah. And so we had I’ll give you another example. We had Missy and Michelle and David, we call it Missy. Michelle and David. I’ll use I’ll be proper. So Michelle David came in they they watch had been watching our podcasts we had mentioned our podcast. We’re now doing a TV show. They’re going to start to watch the show. And after several weeks they called and said, Hey, we’d like to come in and meet with you. Their biggest issue was taxes, right? They want to know, Hey, I don’t even know what Disney tax planning. You guys keep talking about taxes. It’s part of this puzzle. And I want to know what the puzzle, all that stuff looks like. So. So we met with them and the itching thing was when we first met with them, they had some tax complications, right? I mean, they were a little you know, he had a business on the side and there were some complications there. So one of the very first things we did during the planning process was we invited their CPA over and the CPA was like, Well, wait a minute, this is very unusual. I typically don’t go to meetings with advisors. Well, that’s what we’re different because we specifically have a meeting at the end of every year where we do tax planning, and that is a meeting specifically where we will have other tax advisors come in to meet with them. So we did. We had that tax, their CPA come in and we sat down and we had a great meeting. We talked about different strategies they could put in place to save them taxes not only this year, but down the road. And in fact, there was a couple of, I would say, lighter conversations with the CPA because their main goal, right, is to save taxes for last year. That’s really what that’s what they’re what’s our job.
Speaker 2 [00:14:46] Right.
Speaker 1 [00:14:47] But at the same time, our job is to also not only look at last year, but our job is to look two, three, five, 20 years down the road. Right. And so we had some fruitful conversation and we came up with a great strategy for them. And now they’re in a great place from a tax standpoint. Right. Right. But that is that’s a good example. And so is so is your clients to show. Well, they’re all clients but the what your lead on. Right. But it’s a great example to say that doing proper tax planning can go a long way, right? Yes. And it makes clients. No. Yes. I might pay some taxes here, but understand what is happening down the road. I understand what that long term results are going to be. Yes, I might pay a little bit more taxes now, but I also understand the benefit to me down the road.
Speaker 2 [00:15:32] So I had another client that we’ve been working with, Bob and Martha, you know, talk about it was that type of meeting we did this last year where we had the accountant was there and they were also working on the estate plan as well. So I was having a meeting with with the CPA and with the with their estate attorney. And we were kind of brainstorming the best way to take care of this client. And in the meetings that they had had with the estate attorney, they came up, they wanted to leave behind a couple hundred thousand dollars at the end of their life. They wanted that to go to some charities and the CPA. And I immediately said, why would we set that money aside? And what we did was we used a neat little tool called a donor advised fund. So we took $100,000 of their money. And these this is a couple that’s got a couple million dollars. We just took $100,000. We pulled it out of their IRA, reported it as income last year, but immediately put it in that fund, which is completely tax deductible. So it basically washed that out and they’re never going to have to pay money on that. Now it’s invested and it’s growing, but at the end of their lives, any amount of money that’s left in there will automatically be given to charity that they designated. And if they have something that comes up during their lifetime that they say, you know, that’s a fantastic cause, I’d like to give money away to that as long as it’s a genuine charity, a55, a1c3, they can actually have the institution that holds the funds, actually give that in the form of a grant. And they’ve already gotten the tax deduction on that up front. So there are some great ways by working with the teams, working with the accountant, that you can really save people a lot of money in those taxes.
Speaker 1 [00:17:16] Yeah, that would tell you that, you know, when you have conversations about taxes, right, someone walks in our door and we walk them through our three step meetings throughout the year and we specifically pull up that. One of our meetings is dedicated to talking about taxes, number one, and they’re almost kind of blown away because they never worked with anyone that has those conversations. And yet we have a specific meeting dedicated to it. And so, again, that’s how important we see it. Right? So here’s here’s one thing that that when we’re talking about taxes and you have that dedicated meeting, that’s one of those things that, you know, we’re offering to everybody that’s watching is having that conversation around taxes, making sure that you’re meeting with your tax preparer and your advisor. So if you’re working with a current advisor and they’re not having a dedicated meeting around taxes, you need to call us. This is your opportunity right now to call and say, hey, I’m ready to move forward and have that conversation around taxes and everything else. Right. It’s cash flow planning, estate planning. But taxes are huge, you know, a huge expense you have to at your lifetime. Let’s make sure we’re managing it properly by sitting down together, putting together a plan along with your tax advisor, if necessary, to make sure that you’re paying the least amount of taxes not only last year, but also five, ten, 15 years, you know, in the future. So if that’s you and you have not had that conversation around tax planning or you don’t have a meeting dedicated talk about taxes ever year call us phone number 8449005210. A right after the break, we’re going to talk about a couple more clients, so make sure you tune in. We’ll be right back. As a good saver, you’ve been putting away money during your working years. Studies find.
Speaker 2 [00:19:00] That the biggest fear of.
Speaker 1 [00:19:01] Retirees is running out of money. Market volatility isn’t just the downward movement of stock prices. It’s the size and frequency of change. The more dramatic the ups and downs, the higher the volatility. This can put savers who are newly retired or a few years away from being retired at greater risk. Today’s generation of retirees is not receiving traditional pensions, as our parents or grandparents did. Instead, we have retirement accounts such as 401 K’s or four or three B’s. These accounts typically expose your money to market risk. The last thing you want right before retirement is to lose a portion of the money you need for income. But how do you turn these accounts into a retirement income? Is it safe to keep all your retirement money sitting in the stock market? The last thing you want is to lose a portion of the money you need for income due to market loss by working with a financial professional. You can learn how to turn a portion of your savings into an income stream for life and income for the life of your spouse. If you’re married, we all have moments in our lives when we wish we had taken action sooner. Don’t let procrastination rain on your retirement parade. Act now before it’s too late. Please call our office to set up your no cost, no obligation retirement income review today. All right. Welcome back to the Money Puzzle. I’m Brian Ramsay. That is Chris Vaughan over there. We are partners in a firm called Family Planning Partners located right here in Louisville, Kentucky. We have two of the partners, Eric Douglas and Erin McAndrew. So, by the way, if you’re if you call during the show, our phone number 8449005210. Ironically enough, you get one of us to answer the phone. We we don’t have a call center do it. We actually do it ourselves. So we actually have fun doing it. So if you pick up the phone right now and you call and you’re one of us or you’ll get one of us on the phone, so. All right. Well, that being said, we’re talking taxes, right? It’s so interesting enough. We were kind of prepping for the show. I said we were talking about this particular client. And ironically enough, I had the phone call this morning and it was a conversation around taxes. And so what happened was this was a business owner. Now, I will tell you, the majority of the clients we work with are just individuals that work at LG or UPS or Ford or G.E. or for a small business. And that that’s really the bulk of who we work with. Right. However, we do work with a fair number of small business owners, and their complexity is totally different than when you work for when you work for a company. Right? There’s a different complexity. And so we had a conversation. They own they own a business here in law that’s actually nationwide. They’re based in Louisville, but it’s a nationwide company. And they had a huge tax problem this year. So CPA called and said, hey, look, guys, be prepared. This is coming. And so they called and said, well, what do we do? And I go, Well, first thing we’re going to do is we’re going to get your CPA on the phone. That’s the first thing we’re going to do. So this morning, that’s what we did, got them on the phone and we said, okay, what can we do today to make a difference for last year? But how does that decision impact you three, five, ten, 15 years down the road? So all in all, as we were sort of going through some rough numbers, we had given them a particular strategy. I’m not going to go into it today. So if you want to know from business owner, pick us phone call us. We’ll be happy to kind of walk you through it. But what we wound up doing was we put a strategy in place and we wound up saving them about $125,000 per year, they may say. Now, some of you may say, oh my gosh, that’s a huge amount of money. And so we go, okay, you know, that’s some a business owner. Yeah, it’s relative. That’s a huge amount of money. Not only is it a large amount of money for right now for this tax year, but think about and you said this when we were actually in the airport, what if they took that money this year and got to invest it, which is what they’re going to do? Right. Because of the strategy we put in place. What does that number look like three, five, ten years down the road? It’s a huge number. Right. And it only happened because, one, they picked up the phone to call me and said, hey, we got a problem this year. I want to get their taxes completed. But number two, we got their entire team together and said, let’s strategize on taxes. And that’s the thing that we see all too often is folks walk in our door and they they do no tax planning and they don’t have any conversation about it until after the year’s over. And then they, like you said, take all the receipts they shoved into a shoe box and they go, Well, let’s go have a conversation. And that’s just not the way you need to do it. You need to have a proactive approach to tax planning, and that’s really what we offer our clients. So. All right, you’ve got one more quick story.
Speaker 2 [00:23:34] We’ve got a guy, Michael came in, he was recently widowed and his wife had a pension that was the bulk of their income. And she was a teacher here in Kentucky, which if you know anything about the teachers, they basically are not eligible for Social Security. So they’re living basically off of her pension. She had taken what’s called a single life annuity, meaning when she passes away, it’s gone. And that happened. And he’s left with a very small Social Security check. He’s got an IRA that was all combined from what they had saved. And then he had basically a brokerage account with some money in it. And the prevailing thought was, we need to take money out of that, IRA, and that’s what we’re going to live on. So what we did was we kind of move things around a little bit and we said, okay, so we’ve got our Social Security coming in. It’s a fairly small check, but it’s there. What if we did go over with their CPA on this? What if we take the money that is coming out of the IRA and instead of making that income, taking that R&D and giving it away to a charity because he is charitable, it’s called a qualified charitable distribution. When we do that, what we did was that R&D is now satisfied that he doesn’t have to pay taxes on that money, and neither does in this particular case, the church that he’s giving the bulk of this money to. They don’t have to pay taxes on it. Now, he’s pulling money from a brokerage account which is subject to capital gains taxes. But we’ve kept his income low enough that he pays very, very little in taxes, a little bit on the dividends, and that’s it. And yet he’s got about a $50,000 a year income with virtually no taxes. And that’s exactly the way that the CPA and I, we designed it that way. So even if you’re in a kind of a bad situation like this one was, it’s only about $400,000 to work with. And, you know, that pension had gone. You can still create a. Good, healthy income if you can mitigate the tax situation. And that’s where planning really comes in.
Speaker 1 [00:25:27] Yeah. So we’ve seen if we had another client, you remember Rick, Rick and his wife, Patricia came in. This is sort of a sad story, but a very happy ending because we got to help them out anyway. They had come in and one of the things that we walked through was their their taxes. And we because again, that’s a piece of the puzzle. We’ve got to make sure we address it. So we did. And based on the amount of money that they made, it seemed like they were paying more taxes than what they should have. And that’s really what they complained about was, well, we pay tax every year. We’re like, oh, maybe you shouldn’t. It may be paid a little bit, but it seems like you’re paying more than what you normally would. And so what we wound up doing was we actually went through we’re like, okay, what do you give your CPA, right? Show us what you’re show us all your documents. So we got to looking at their tax return and all the documents. And lo and behold, they were giving their CPA the wrong document. Remember I was telling you? Yes, I do. I think Erin and I were in on this one anyway. They were giving the CPA the wrong document. And so long story how that’ll happen. We can’t really understand how someone would see that document and they think that was a tax document anyway. Point being that they were new client. We walk them through the tax planning process and they wind up we wound up going back to the to the CPA and saying, hey, I think you’re being given the wrong documents. And and this was the meeting at the end of the year we talked to really show. So the CPA was like, oh my gosh, I can’t believe we’ve been making this mistake over the last couple of years. It and so what we wound up doing was we went back and amended their documents, right? We said, okay, let’s go back and make some corrections. Let’s get them on the right path. And so all that now came about because they picked up the phone and called us and said, I need some help. Right. So what what would we encourage anybody that’s watching Day, Chris, that has that and doesn’t do the tax planning? Right. What do we tell them to do other than pick up the phone and call?
Speaker 2 [00:27:20] Well, okay, pick up the phone and call, obviously, is the first thing that you’ve got to get a team of people working for you. You’ve got to put a plan into this. You owe it to yourself. And there’s actually government cases on this one to pay as little in taxes as you’re legally allowed to do. But that requires planning. You got to put some work into it. You got to put some thought into it. You’ve got to get some professional advice on it. So if you think that might be, you give us a call. 8449005210. We’d love to talk to you and kind of help you work through that and mitigate your taxes.
Speaker 1 [00:27:51] All right. There it is. Have a good.