Welcome to the Dr. Friday Show! Hoping your Thanksgiving weekend went well like my Thanksgiving weekend did! For this episode, I focused more on planning for retirement. That’s why I have Hank Parrott of Estate and Financial Strategies, Inc. in this episode. Hank, aside from being a good friend of mine, is an expert when it comes to planning your retirement. Together we talk about:
- Risk Being in Retirement
- How to Get Hank Parrott’s Free Consultation
- What to Do to Protect Your Money for Retirement?
- Required Minimum Distributions for Couples
- Social Security During Retirement
- Why Roth Conversions Is Not a Do-It-Yourself Process?
- Tax-Efficient Income in Your Retirement
- Using Capital Gains Tax Rates to Your Advantage
- Sunset Provision
- Why Having a Second Opinion Is Better When Talking About Taxation
- Is There a Way out of Annuity?
- Different Types of Annuity
Transcript
Announcer 0:01
No, no, no, she’s not a medical doctor, but she can sure cure your tax problems or your financial woes. She’s the how-to girl. It’s the Dr. Friday Show. If you have a question for Dr. Friday, call her now. 737 WWTN, that’s 737-9986. So here’s your host, financial counselor, and tax consultant, Dr. Friday.
Dr. Friday 0:29
All right. We’re here in studio today with Hank Parrott with the Estate and Financial Strategies. How are you, mate?
Hank Parrott 0:36
All right, another good day.
Dr. Friday 0:38
Another good day in the neighborhood. We’re going to have an awesome day. And we’re going to talk a little bit about some of the risks of being in retirement, how that might affect people’s taxes, Social Security benefits. All those kind of things because it’s that time of the year where I think people also need to be making some pretty major decisions as far as are they on track or do we need to make a final adjustment before year-end.
Hank Parrott 1:02
Yeah, good time. I mean, we’re talking this is Roth conversion time, this is a great time before the end of the year, would meeting with clients here recently and have found some great opportunity for them to do Roth conversions and then doing the Roth conversion, we’re clearing out some taxes, take advantage of the really low tax rates that we have right now. And in many of these instances, when we’re doing the analysis, we’re saving, I mean, we’re talking about tens of thousands of dollars in tax savings and money. They’re not going to have to write checks to the IRS.
Dr. Friday 1:34
Well, and that’s why I love having you on the show to a point because my job is really to do taxes. I’m an enrolled agent. I’m licensed with the IRS, but I do taxes and representation which basically means instant gratification, in most cases. Sure, put some money in an IRA, if it’s a good thing, and I don’t know their final tax plan. So I’m just looking at a standard IRA because that’s going to help me tax-wise may not be a great approach because of Roths or whatever. So that’s why I think people have to have that plan to have a bigger picture, then going to your tax person every year and say, here’s my portfolio, which of course, I have absolutely really no idea if that’s a good fund or bad fund. It’s not my background, right? I mean, so all I’m gonna say is, well, if you take money out, this is what you pay in taxes, if you leave it here, you don’t pay taxes, you know, and that’s kind of the extent. You need a bigger picture.
Hank Parrott 2:20
Yeah, it’s a good point about the portfolios, because a lot of times, when we’re saving up for retirement, we’ve got most of our money in in deferred accounts in 401ks, or Thrift Savings Plan for federal and military IRAs of different kinds. And in doing so, we’re not, you know, as you say, we’re not paying tax this year. But eventually when that money comes out…
Dr. Friday 2:44
It’s gonna come back eventually, could bite you if it’s not…
Hank Parrott 2:45
And that’s where the projections come in. So, when I’m meeting with someone, just like we’re talking about the Roth conversions, we’re looking ahead. All right, when you hit age 70 and a half, you have to start taking those required minimum distributions. How big is that going to be? And we’ll do the projections of how much their accounts will grow, alright? We’ll determine that of course, as far as rates of return on their money and, and do those projections, and then we can say, okay, now here’s what your accounts going to be worth it, you know, say they’re five years out, or six years or seven or whatever it might be.
Dr. Friday 3:14
And you’re also gonna talk to them about Social Security. In that time period, prior to retirement, and up to 70 and a half, or 70, there’s a window in which you, you will probably have to sign up for Medicare and Social Security and all that. And you’re going to talk a little bit in this plan, and we keep talking about the planks. I’m building up to what the plan is. It’s on the corner of my seat, you know, I’m excited. But you will tell people maybe in your case, my case, and maybe take it at 65 next person walking in might be better or whatever your retirement age, 70. And there’s a lot of windows between that.
Hank Parrott 3:45
Yeah, you can. The earliest is 62 up to 70. And what is the best time? Again, the Roth strategy can come in there as well because now we’re just saying, okay, well how much are your accounts going to grow if we want to do some Roth conversions? And when you’re taking Social Security, how’s that going to impact the taxation of your Social Security benefits?
Dr. Friday 4:03
Right.
Hank Parrott 4:04
So balancing it out, sometimes we’re saying, well, why don’t we delay taking Social Security? Allow us to employ this strategy, your account, your, your income is going to go up. So we wait, we’re always weighing and balancing out all these different pieces that go into it.
Dr. Friday 4:17
Keeping Uncle Sam as much as possible out of it. But sometimes you can’t. Sometimes it’s better to bite the bullet today, or in a plan situation multiple years. So that way, in the long run, you aren’t going to be having to continue to do that.
Hank Parrott 4:31
And there goes that part about the RMD. So if my Requirement Minimum Distribution is going to push me up into in 2025, it’s when the sunset provision comes into play. So now after that, you’re looking at a 25% bracket, let’s say for a married couple over $100,000. So now they’re going to bump if that RMD is going to be such a size and I just met with a person this week that was going to be I think it was around $38,000 and that was going to push them up over 100. So now we’re saying okay, How can we address that too, because we can get it down now and just pay 12% tax rather than 25%. I just cut your tax on half.
Dr. Friday 5:07
Even if you still, for those four years or whatever is left to this, you are actually saving them hundreds of thousands of dollars, Parrott, possibly, over the long run of their time. Alright, so I want you to tell everybody, what kind of plan will they get because you are my friend and you’re going to give them something?
Hank Parrott 5:22
There we go. For the first 10 callers to my office and the number is 615-376-5325. We will do up a comprehensive financial plan. So we’ll look at many of the strategies that I employ with my clients, such as the Roth conversion strategy we’re just talking about. In addition, we talked about Social Security, when’s the best time to take it. We basically are going to show you your financial future based on the things you’re doing today. And I can show you what that means for you 10, 15, 20, 30 years down the road even what would affect the decisions you make today are going to have so that you can make better decisions, make better choices. So that’s the planning, it’s a comprehensive plan that may take two, three visits. It’s not just a free consultation, again at no charge 615-376-5325. When you call in, we’ll get your information will send you out a checklist of things to bring to your appointment with me. We’ll do a full comprehensive plan and when you come in to see me, I’ll also give you a free copy of my book, Seven Steps to Financial Freedom in Retirement.
Dr. Friday 6:24
Okay, so one of the things that often people come to my office, they always worry because they’re getting closer and closer and they’re talking about the risk in their retirement. They’re always afraid. What if we have another downturn like we had a number of years ago? Right now, I know we’re in a bull market, but everything goes up must come down, as the old saying. And so, when they’re doing this evaluation, I’m assuming you’re also going to be looking at the potential risk because as we get older, we’re not going to be able to replace that money as fast as we may have been able to do in our 30s.
Hank Parrott 6:51
Sure. And you’re not, and this is the thing when your accounts are just growing on a tax-deferred basis and you’re just pumping money in, you can ride out the ups and downs in the market, the bulls and the bears, so to speak. But when you get into retirement, you start taking money out of those accounts, now you need to smooth that volatility out. So asset allocation is more important than ever when it comes to your portfolios in retirement. You’re taking money out and some other hedging of risk may be needed as well just to assure that you’re going to be able to maintain your standard of living, meaning you’re going to maintain that stable income from your accounts, no matter what’s going on in the market. So you’ve got and we do a lot of different strategies, laddering strategies, and different things, to help make sure we reduce your volatility and help you make sure you’re going to maintain your income throughout and you’re not gonna have to worry about running out of money. You’re not going to have to worry about going back to work in your 80s kind of thing or something.
Dr. Friday 7:49
Being a greeter at Walmart, my dad always said that’s what he was going to do. Okay, but I had a friend that her husband just passed away and they were in the middle of a situation but they didn’t seem to plan for one of them passing away because now the household income is dropped quite a bit, you know. And so she’s now getting 100% of his Social Security or something. But basically, they’ve lost at least half of that along with certain pensions and things because they are, I’m assuming again, when you’re looking at this, you’re not just looking at two individuals and saying, Hey, this is what we have. But what if this happens kind of situation, right?
Hank Parrott 8:24
And most of my clients are boomers. So we have, you know, some on either end of the spectrum there as well. And I just met earlier, and I think it was last week with the couple that’s a little younger. And that was one of the concerns. Well, if I die early, what about my family? Do I want to make sure the kids get to go to college on it, you know, all those kind of family things. Well, even later, this can come into play as well, of course, and what we look at when we’re doing your projections, I said I can show you your financial future based on the things you’re doing today. And that includes saying, Okay, well, you know, I usually pick on the husband guys, go for it, right? All right, let’s say if something, God forbid, you know, you die in the next 1 to 3 years and we’ll do that. We’ll just say, okay, he’s gone now and I saw in the programs we use, the software we use can do this all right. We just put that in there now, is she going to run out of money? Is she going to be okay? And then we can determine.
Dr. Friday 9:16
You will actually put a plan together, saying if the worst scenario is then, you know, health insurance needs to be considered or this or that kind of investments, or you need to be maximizing or whatever that might be.
Hank Parrott 9:26
We may determine that life insurance is needed. All right? We can find out if do we need it or not? If she’s going to run out of money, and we say, okay, well, how much you know, how much would she need not to run out of money and will play around with $250,000? $500,000? What’s the dollar amount that if you died early, she’s not going to have to worry? Then we determine well, how long do we need to do that. So for instance, if you died next year, maybe she needs you know, half a million dollars but if it’s five years from now, maybe it’s less.
Dr. Friday 9:55
So, in the sense, you’re reevaluating this, too. So every year, I know for a fact to a lot of your clients, we meet your clients, every year because we actually work together with taxes. But I’m assuming that it whoever has their own financial person, should be seeing this person, at least twice a year. And then of course, if something changes, someone’s getting married, divorced, whatever happens, I’m assuming…
Hank Parrott 10:18
I’ve got some clients that we’re meeting four or five times a year. And if they’ve got a lot of different things going on in their lives know, be as frequent as they need to restrict them It’s important. It’s extremely important. We want to make sure that the plan is going to, in fact, stay valid for you, they stay current. So life’s going to happen, things are going to change, the plan needs to be flexible enough to adapt to whatever these changes it might be.
Dr. Friday 10:41
So you’re saying if I haven’t seen them for a few years, that’s probably not the most hands-on financial person in the world?
Hank Parrott 10:46
Now that’s true. Unfortunately, I have people come in and I don’t even know. They probably got something from someone five years or more ago and hadn’t seen him since.
Dr. Friday 10:54
Exactly. I mean, that’s the way mine. Yeah, before I had, I knew you and I had brought a life insurance thing I hadn’t seen the person in years. It’s just the money auto-drafted. And that’s all I knew. Hate it like that.
Hank Parrott 11:08
Nah, it’s all good.
Dr. Friday 11:09
All right, so we’re going to be able to come back we’re going to talk more about the risk you might have some of the things you might need to look at to figure out what to do to protect your money so it will last you through your lifetime and possibly through your children’s lifetime. If you want to reach Hank at 615-376-5325, we’re going to be right back with the Dr. Friday Show.
Dr. Friday 11:35
Alrighty, we are back here in the studio. All right. We have Hank Parrott, state financial strategies, one of my best mates. He’s here in the studio talking today about retirement. It’s so important. It’s the end of the year, we didn’t really touch on the first part of the show. Let’s talk a little bit about this Roth conversions because there is I mean, it’s not a DIY any longer, especially now under the new turn tax laws where there are no corrections allowed. You do it, you’re living with it. And we have seen through just dealing with each other’s people that do that in the past, but it will save them a little bit. That isn’t going to happen now. So really having good advice is going to make a huge difference in saving tax dollars. So why don’t we talk a little bit about what people should be thinking when they’re doing a Roth, who maybe should be considering it, just give them a little outline, so.
Hank Parrott 12:29
So one of the ones we were talking about if I’m doing a projection and we’re saying, okay, you’re going to have you know, $35,000, $45,000, $50,000 or more, you know, whatever it might be…
Dr. Friday 12:37
Required Minimum Distributions
Hank Parrott 12:39
Required Minimum Distributions. And for a couple both typically working, two RMD tagging in. Now we’re looking into the future and we’re saying, okay, you’re going to be, you know, at that time here, your other income streams. Maybe you got Social Security, maybe you got a pension, whatever it might be. Your IRAs are coming into play. If that’s going to push you up over $100,000 by 105. And you know, for a couple aged 65. And in his situation a 70 and a half. So if it’s going to push you up when you reach that age up over to where at that point sunset provision, we’re probably looking at a 25% tax rate on the monies that are up over $100,000. So now, if we look at today, when we’ve got a 12% bracket for under 100, and we can do some conversions and stay under 100. That’s the first thing we’re looking at. We’re always looking for those and that those are pretty much a no-brainer, right? Pretty easy. We know that if I pay that 12% now, I’m going to avoid paying 25% later. By turning those into tax-free distributions in the future, or just letting it grow on a tax-free basis and taking the other monies. We balance it also with what you’re going to have for Social Security. So when the best time to take Social Security sometimes has to do with the taxation fees of Social Security and what other income you’re going to have. This is why when you’re working, and you’re between 62 and your full retirement age, which is up to, say, 67, let’s say if you’re still working, you don’t want to start taking Social Security for most people, because it’s going to create two issues for you. One, you’re going to lose benefits for every…
Dr. Friday 14:10
Right. You limit how much you can earn. So you have to either earn $17,000 or a little over $70,000 a year. And that limits what you can I mean, normally…
Hank Parrott 14:19
There it goes. For every $2 over that you lose, $1 benefits are going to recapture that. And then the recapturing of it. Now, when you reach full retirement age, they’re going to do a recalculation and spread over your lifetime. Those recaptured dollars, but you’ve just basically reduced your benefits. So better to just delay taking Social Security while you’re working. Because it’s not just the loss of benefit potential, it’s also keeping in mind that Social Security benefits that you would retain will be taxed. And that’s going to be pushing you again, as far as brackets and stuff, potential issues there. So we just say usually, the best, you know, there are always exceptions. That’s why we do personalized planning, right? You know, I don’t, so this information like today, we’re giving some general information for your specific situation.
Dr. Friday 15:03
Absolutely, this isn’t a DIY kind of thing. And that’s the reason I always bring you here. For one, I have no expertise in this conversation. Often a lot of people listening because taxes, and estate planning and financial planning all go together. And a lot of times, there’s moving parts that do crossover in like, if someone’s doing a Roth conversion. We’re going to look and see we want to stay in the 22 or less percentage, then I can say this is how much based on what their normal incomes are, or if their Social Security is becoming taxed or whatever it might be that we’re working with. So that way you know that this person is going to meet the goals that you’re setting up. But other than that, you don’t want to have that surprise at the other end when I’m preparing the taxes. And then next thing I’m saying oh, you owe $22,000 because you did this and oh, I thought I was going to have a 10% tax and you kick yourself into the 22. And so it’s 12% more than you expected.
Hank Parrott 15:52
And this is where, you know, understand. Yeah, well if you’re under 59 and a half, you’ve got a 10% tax. You start you know playing around with taking these distributions and stuff. If you don’t take your distributions, you get that 50%. So we’re always weighing. There are so many different factors that go into play when it comes to Social Security. The working, you know, between 60 to your first earliest age at which you can take Social Security in your full retirement age, because it’s different rules come into effect there. That means that full retirement age 66 to 67, depending on your date of birth. That means once you cross that threshold, at least with regard to the $2 $1 thing, that’s a misconception.
Dr. Friday 16:29
People always say, Well, I can earn all I want at that point, it doesn’t mean it’s tax-free. It just means there’s no money having to be paid back. So I had a client asked me to ask you a question. And I was just remembering it when you were talking. And it was, basically, they’re saying they’re in their 60s before their full retirement, but they’re wondering instead of going on to Social Security, should they go ahead and start drawing from their retirement from their IRA 401k and wait till full retirement or do it themselves? And I realized this is a generic question, everyone’s going to be different. But they do need that extra income. So it’s going to be at the lower tax bracket, potentially, since this is their other source of income besides what’s in the bank, and I did send them your direction. But what would you be a generic answer on that if you can get along those lines?
Hank Parrott 17:16
One of the things when it comes to when’s the best time to take Social Security. So it’s one of the great things with the kind of planning that we’re talking about. So again, I’ll throw it out there for the first 10 callers to my office, if you’d like. Because what I’m going to describe here is a way for you to find out what the future result of that decision might be. So, in this situation, what we’re looking at is we’ll run it both ways and we will say okay, if you take it at 62, let’s say, or you wait till your full retirement age and let’s say that 67 or 66 in six months or whatever it is, all right? We do the projection and we show you, okay, if you did it this way, how much money will you have total 10 years, 15, 20 years down the road. Basically what we find is that there is a breakeven point. And it ranges in it. This is why it differs so much and why it’s important to have this done for yourself. There’s not a general answer. It can range. I’ve had it from 72, up to 72, 73 range up to 82, 83. There’s like a 10-year spread of the breakeven and depending on the breakeven, and then you start having a conversation about longevity.
Dr. Friday 18:24
Yeah, that’s what I was thinking because I know both of my parents passed before they were just right before 80. Grandparents made it into their 70s, the ones I knew. And so, you know, I mean, do you have that kind of question because looking at some numbers you have here, according to this, it’s saying that a baby born in 2015…
Hank Parrott 18:46
Time Magazine from 2015, yeah.
Dr. Friday 18:48
Theoretically says it could live to be 142. I don’t know if that came from, you know, there are some people there like hit their 120 maybe this is their grandchild or something. I have absolutely no idea but the fact is, medicine has done a lot. No question and so then our lifestyle in some ways has created the ability for us to all live longer than maybe our parents and grandparents.
Hank Parrott 19:08
For a married couple, in fact, I’ll give you some statistics that are a little more, you know, realistic than the baby that the infant there on the cover. But if you’re a female age 65 you have a 50% chance of living to 87, 41% chance of living to 90. And by the way, when you’re married, it does add to the years basically, to longevity. Who knew
Dr. Friday 19:31
That’s not gonna happen. Too late now.
Hank Parrott 19:34
You never know, never know. There’s a 50% chance for both two people for a couple age 65, 50% chance at least one of you will live to be 91 years old. And the 31% chance to live to be 95. The largest growing demographic is for 100-year-olds right now. So it’s crazy.
Dr. Friday 19:54
I’ve seen it. I mean, you see it because on Facebook and things you see people celebrating their hundredth birthday or whatever.
Hank Parrott 20:01
The word there is projections. That’s the question. Then you ask the things that come into play. Well, how old are your parents? What about your family history, you know, genetically? How about yourself? Would you have any health issues? Are you taking care of yourself? So you have those kinds of questions that come into play. And for some, I’ve had people that, you know, I got some they got real health issues. And they’re saying, you know, for me, 15, 20 years is probably about as much as I expect and then others…
Dr. Friday 20:26
It’s something you’re gonna look at Social Security a little differently. I’m assuming on those individuals or you’re, you know, you’re going to take into play because that’s what a lot people are for. I don’t want to leave Social Security on the table. I’m going to take it at 62 even though I’m still full-time working, because I don’t want to leave any of that money on the table.
Hank Parrott 20:43
Lots of unknowns. But we do look for a statistical probability basically. What’s going to be the most likely event and then we get into that helps us as far as when to take Social Security and we talk about taxation if you’re still working, the effects that can have because you said even though you don’t have to worry about losing dollars, taxing taxation of those dollars can still take away quite a bit of that money.
Dr. Friday 21:04
All right! We’re gonna take a quick break when we get back we’re going to talk more about how taxes can affect your retirement in ways.
Hank Parrot 21:14
We’ll give people an opportunity to come in, get a free comprehensive plan, answer the questions for themselves about Social Security and how to invest.
Dr. Friday 21:20
Wow! All right, we’re gonna be right back with the Dr. Friday Show.
Dr. Friday 21:31
We are back live here in the studio. I have Hank Parrott with me. And if you want to reach him directly, I have to pick up the phone 615-376-5325. And he has got an offer that is going to help you understand. Keep in mind, even if you have another financial person just like another tax person, it never hurts to get a second opinion. Is this person giving you everything you need? Because we can’t do a do-over. I mean, at least with taxes. I can amend a mistake. If you don’t financially set yourself up for retirement, when you hit retirement, there’s no like, you can go back and say, oops, I should have put a little bit more into my 401k, right?
Hank Parrott 22:10
Very true. And this is one of the things about doing the projections and the planning that we do. So I have most people when they come in, I am able to save them money almost in that first, many times, in the first appointment. Just some of the tips that I’m able to share with them in their specific situation. You know, show them a different way to do something that can benefit them, put more money in their pocket, save on taxes, whatever it might be. Tax-efficient income is one of the things that we really stress as far as retirement because again, if you want your money to last as we, they make times right. It’s not just what you make, it’s what you keep. If you want to keep more, that means sending less to the IRS. You know, there was a quote, Judge Learned Hand was his name. And this gentleman was a judging in US Court of Appeals for the Second Circuit from 1924 to 1951. And what he said basically was anyone, he’s most quoted, by the way judge, including anyone on the Supreme Court, anyone may so arrange his affairs so that his taxes shall be as low as possible. He is not bound to choose that pattern which best pays the Treasury. There’s not even a patriotic duty to increase one’s taxes. We don’t want to be wasting money simply because we don’t understand the rules. So again, if you want to get it, take advantage and learn some, you know, get some tips here.
Hank Parrott 23:30
Be one of the first 10 callers 615-376-5325. When you call my office, we’ve got people standing by. They’ll get your information and we’ll send you out a checklist of things to bring to your appointment with me. And when you come in to see me I’ll give you a free copy of my book, Seven Steps to Financial Freedom in Retirement. We talked about all these different risks, all the different ways to be tax-efficient. Here’s an example tax-efficient income in retirement, looking at your individual situation. If you’ve got mainly everything in your 401ks and IRAs example, then you know, that’s going to be somewhat more limiting. But there are strategies. If you’ve got money in a Roth IRA and a, you know, a Roth 401k, or, you know, Roth and traditional retirement accounts, as well as a savings, maybe just in a brokerage account, what we call non-qualified, non-tax-qualified monies, now we can blend these things together. An example would be understanding when we talk about taxes, capital gains tax rates. Another great way, knowing those rules and depending on how you’re invested, there are some ways that we can, a lot of times, use that to the advantage of giving you extra income. And imagine on your capital gains, we’re talking, you know, real estate, but many instances of what I deal with more stocks and bonds and mutual funds and that they’ve got big appreciation gains. Maybe in those when we talk about how to capture those, how to basically prune that out and pay no tax on it. Imagine that.
Dr. Friday 24:59
Right, because we have a zero percent capital gains rate. So if you do it right, you can do that. But one of the things I always hear you talk about, we always hear people say diversify. But it’s also a game to Hank, or maybe it’s an odd, better term, possibly. But you always talk about like, putting bonds into your 401k and putting your stock possibly in a Roth because the way the taxation or you know, whatever. But, you know, you pay ordinary income tax no matter what on bond income, or you know, interest because ordinary income rates versus other types of taxes, we have that. We’ve had certain income, like stock where there’s a zero percent capital gains rates, if it’s done right. Or if you even a lower because if you’re not in the zero, you’re most likely in the higher income and therefore you’re paying 15% vs 35% or whatever the difference might be. I mean, so knowing how to play the game.
Hank Parrott 25:48
Capital gains rates are always going to be lower than what your ordinary income tax rates would be. And this is one of those areas when we get into tax-efficient income. If I’ve got someone that’s got capital gains that we can take advantage of, as well as money, we’re going to be looking at from the IRAs, this can also help, by the way, with Roth. Because here’s what we’re thinking, or what we’re talking about, is if your income need is $100,000 or more, let’s say, or, you know, whatever it might be, we’re looking to balance it out. So let’s say I’ve got maybe a client that only needs $50,000, we’re saying okay, well, here’s where we get to 50. Now we’ve got another 50 that we can bracket, we can do some conversion strategies, some other things on let’s say, you need 150. Now, we got to say, Well, how can I get you 150 but maybe still keep you under 100 as far as your taxation?
Dr. Friday 26:39
Which is why the plan and doing it far enough in advance where you can take and move and do things with this while you still have the time to maneuver it or whatever, because…
Hank Parrott 26:47
And looking at all your individual, for each individual, what are your resources. And then we work with those resources to maximize the benefit for you.
Dr. Friday 26:55
So we’ve seen the income brackets or the income tax go up, go down. I mean, back when my parents were married back in the 50s, 60s, 70s, we had really what we consider extremely high rates. And then Reagan came in, lowered it and then went back up. And well, we’re at the lowest that we’ve had historically. But it’s going to go back up most likely. I mean, the odds are it’s going to happen.
Hank Parrott 27:18
If you go back just about 20 years, and you would have had, you’re making $50,000 a year today for an individual, you’re in a 15%, excuse me, 12% tax bracket. And of course, before this tax cut, it would have been 15. And if you go back about 20 years, it would have been 28. Yeah, that’s more than doubles today, and almost double what it will be back when the sunset provisions occurred.
Dr. Friday 27:41
So, I’m assuming you take that someone in account when we do this big plan that is going to help us?
Hank Parrott 27:46
Sure. One of the things we’re looking at is the future of what taxes are going to be we know the sunset provisions going to occur. So we got that down. We also know we got $22 trillion in debt that we have to pay, and how is that gonna get paid at some point? I mean, I love the idea of broadening the tax base and bringing in more dollars that way to get more people paying in, but we still have a serious problem with too much spending and not enough money coming in. So at some point, even with a broader tax base, it seems we’re going to probably have to raise taxes. So that means today is probably, especially with these rates knowing the sunset provision, this is a great opportunity to maybe pay more or pay, not pay more but of course, pay tax now to avoid paying it later.
Dr. Friday 28:35
And that’s the secret to the whole or part of it. And also knowing where your money is so it doesn’t have the risk that maybe you have right now. Because, again, we know we’re in a bull market but no markets going to stay bull always.
Hank Parrott 28:48
Sure. Longest bull market in history, exactly. A lot of people are concerned that, you know, it’s kind of getting long in the tooth and when’s it gonna, you know, go in a bear. And I don’t have a crystal ball, I can’t say that. But what I can do is I can put together a plan. And what I do with my clients is we put together plans, our portfolios are designed to minimize risk even in a bear market. So an example would be if you look at the last bear market, when in backing away when the market taken over the whole Bay Area, it was about a 55% drop that year alone was 38%, almost 40% drop. And yet the portfolio design if you’re in a 50/50 portfolio design that we were using at that time, it only dropped about half that, about 20. But if you’re looking at it, it also recovered in two years versus the market taking five years. So you’re well-positioned. And then we do other hedging. So if we know what your income needs are, we can say okay, well, we, we can put some money over here in the market saying that 50/50. We know it’s going to ride out and it depends there are a lot of other factors. This is again, very general, but then we look at it. Okay, what else can we do to make sure that you’ve got at least three to five years worth of income that’s not going to be subject to market risk. Or that we can even reduce it further to a more conservative portfolio. Exactly. So you can then switch over and start taking that income and right out that bear with your portfolio without having to take money out of it.
Dr. Friday 30:15
Okay, cuz that, I mean, that’s one of the biggest concerns again, and most people I talked to is that they’re always afraid they’re going to run out before and you keep telling us now we’re going to live longer than what we thought we were going to live initially.
Hank Parrott 30:27
Anyway, how long are you planning for your money to last?
Dr. Friday 30:30
Yeah. When it’s over, I’m over. Apparently, that’s my plan. No, no, I mean, that’s, you know, that’s what people need to know though. Because there’s a lot of things and as well as many of us would love to leave something to the next generation, leave something that maybe will help them as I was helped many times, you know, and help change the lives of other people.
Hank Parrot 30:49
I’ve got some clients say, look, I’ve already helped my kids. I’m good. Just make sure I’m okay and that my wife’s, you know, that kind of planning. And then you have those that are saying, look I want to have a legacy here. I want to, you know, help my kids and my grandkids and you know, maybe even some charitable things, you know, I want to do something for the church, whatever it is. And we course again designing plan around what their goals and be in what they want out of their money throughout their lifetime. This is one of the things to when it comes to planning in why it’s so individual as far as how these things work and asking yourself these questions. How long do I want my money to last? How long do I intend, you know, and my people are living longer. We’re talking, you know, 30 years potentially in retirement 30 years without a paycheck. You need the resources and get the thing make good use of these resources.
Dr. Friday 31:40
Because you may not always, I mean, if you get put in a home, there’s all kinds of different things you have to work with those ideas. There are ways of having other risks and protecting some of those assets we’ve talked to…
Hank Parrott 31:49
We address that as well, long-term care issues and stuff.
Dr. Friday 31:52
And that’s the kind of thing. Do I need long-term care insurance? Is it something that’s not really something but if we’re living longer, it sounds like that’s more of something we need to talk more and more about as well.
Hank Parrott 32:02
And there are ways you can cover it without that doesn’t necessarily involve long-term care insurance. For some that maybe, you know, something they need, but I would say for most, most of my clients are able to self insure because of some of the planning we do. And we have other products that can help them with regard to long term care needs without necessarily paying a premium that’s gone. In other words, just using the resources you have without giving up those resources.
Dr. Friday 32:28
I have a health insurance savings account because I don’t want to have a pay a high premium that doesn’t necessarily get used. This way I can maximize it and it will grow and knock on wood. I haven’t need to use it really. But um, Alright, so let’s talk one more time or at least before the break one more time about what we’re going to need to do.
Hank Parrott 32:46
Okay. 615-376-5325, that’s my office number. If you’re one of the first 10 callers to that number, we’ll set up an appointment and do a comprehensive plan for you will send you out a checklist of things to bring to your appointment. So when you call the number 615-376-5325, we got people standing by, they’ll get your information, then they’ll send out checklist. And this checklist will have things that you’ll need to bring to your appointment with me. When you come in to see me, I’ll do investment analysis, we’ll talk Social Security, we can talk Medicare, all the different factors, tax planning, estate planning, whatever your needs are, we’re going to cover it all. Again, at no charge to you. And I’m going to tell you, this not a one-time thing, it takes about two or three visits to do this kind of planning. But again, at no charge if you’re one of the first 10. 615-376-5325. And when you come in to see me, I will also give you a copy of my book, a free copy of the book Seven Steps to Financial Freedom in Retirement. And we’ve been talking long term care example. Chapter six is about long-term care and all the different options available to you. But we cover the whole planning process, IRA mastery, how to minimize taxes on your retirement accounts.
Dr. Friday 33:58
You touch on not just financial plan but I know you have Jack or Russ attorneys that will come in and talk about the estate planning side. Do you need a trust, do you need a will, do you need the five essential documents, whatever those might be. And I know I’ve said it more than once when there’s a tax issue or just talking about the taxes understanding what the tax needs are for the people. So if you have questions on that you need to give him a call just because it’s free people and you need that second opinion. If you don’t have a second opinion, how do you know you have the best person doing what you’re doing? No matter what, there’s no obligation. So if you walk away and say, hey, this didn’t work out fine, but give him the opportunity to at least give you a second choice of who and what you have.
Dr. Friday 34:37
You might find out that you’re losing quite a bit of money where you didn’t know cost being spent, fees going out that you really don’t see because, a lot of times, some of those are hidden and people don’t always let you know about all those fees. Sometimes I hear, sometimes that can be a hidden cost to managing your accounts. So again, 615-376-5325. As you know, this is the Dr. Friday Show. We talked about taxes, and I am an enrolled agent license with the Internal Revenue Service to do taxes and representation, which basically means if you have IRS issues, haven’t filed taxes in a number of years, if you have problems with getting caught up, you’re like, Oh, I don’t know where to start, I can help you. We can get a power of attorney, we can contact the Internal Revenue Service, we can find out what years you need to file, and we can get you back on track, because you can’t really go buy a house.
Dr. Friday 35:25
It’s difficult, even getting married because now you’re offering may be bringing the problem into the marriage. If you have IRS issues, that spouse of yours could end up helping to pay for it. You need to deal with a lot of this before you make some of those big decisions. That way you can protect them, as well as yourself. So if you’ve got questions about this or anything else, you can give our office a call. But we’re going to be right back, Hank, and we’re going to talk one more time or not one more time, but more about what people need to know what risk they might actually be looking at, and why they maybe should just get that second opinion because we can’t rebuild this profit of the money that they’re getting. lose. And I think that’s always the biggest thing. Every time someone comes in, they’re just afraid they’re going to lose all their money, and they don’t know where they should put it. And so often they get tied into things like annuities and things like that. Maybe it’s good, maybe it’s bad.
Hank Parrott 36:12
We all notice it’s just one of those big, big fees. And unfortunately, people are not aware of what they’re getting into.
Dr. Friday 36:20
They just see guaranteed money. When I hit retirement, I’m guaranteed this much money and that’s the kind of thing we’re going to have. So we’re going to take one more break here. And when we get back, we’re going to talk a little bit more with Hank Parrott at Estate and Financial Strategies.
Dr. Friday 36:37
Alright, we are back here in studio! Have I ever told you but I am a bass player, so I just love bass, okay I’m just saying. So anyway, so let’s get back to what I make my living at, not what my hobbies are. We’re going to talk a little bit about, before the break, I was talking about how people are often talked into, I think the biggest thing is people like that idea of a guarantee. I’m going to guarantee this much money. If you put this much in over the next 25 years, you’re going to make this much which sounds good on paper at the day you sign for anomalies or annuities. And most of us don’t really know the difference between a variable, a fixed, whatever the different types are. All they’re seeing on that piece of paper is, I’m going to have $1500 dollars when I hit retirement, which sounds good, but 25 years from now, it can feel like only $1,000 because of inflation, or whatever else, you know what I’m saying? It doesn’t adjust for inflation, it just sounds like a gift. So maybe some advice to people before on what should they be looking at. And if they are in an annuity, is there a way out? Is there something they can consider now? Take the board.
Hank Parrott 37:40
So variable annuities are one of those. So there are three categories will call, they kind of, you know, to simplify it. Fixed annuities, they give you a set amount of interest for a set period of time or basically like CDs, okay, at least with regard to something you would relate to. You’re going to get like right now., I think, two or three year fixed annuity you’re looking at somewhere around 2.7 to 3%. Okay, so not really exciting. Yeah, not very exciting and say not enough to stay ahead typically of inflation and taxes, for instance. But, you know, for some people, they just want a guarantee, I know exactly what I get is, is it and then at the end of the two or three-tiered timeframe. You know, you get either a renewal and you like those rates and you do it again, or you just take your money and you go do something else. So basically, that’s the fixed side. Then you have variable annuities, variable annuities are have what are called sub-accounts. Sub-accounts are basically mutual funds. You know, same thing, same money managers, same type of funds that you would find out in the marketplace. The difference is variable annuities typically have pretty steep fees. So usually when someone comes into my office for the first time, and they’ve got variable annuities, I’ll sit there with him and do a conference call with the company. And we’ll go in, because I know what questions to ask. And we’ll walk through all the different fees. And then they’ll see typically, it’s three and a half to 5% in fees. So imagine how, imagine in your portfolio, and you’re if you’re investing in mutual funds, and you had those fees of that nature. And by the way, this is you’re talking about three and a half to 5% per year, every year. Unlike, say, a load mutual fund.
Dr. Friday 39:24
So, we’re averaging 6% growth, or you know, I mean, you hope to have a 6-8% growth, and you’re getting charged 3-5%.
Hank Parrott 39:30
You gonna need to be making 10 or 12, just to get a 5 or 6 return. It’s going to be very difficult to do. In fact, it’s really I mean, over the last 10 years, yeah, you might have got lucky and got those kind of returns. But if you look over the last 20 years, in other words, incorporate in from 2000 forward, two bears and two bull markets, and you’re looking at a market return of around five. And if you imagine five and you get those kind of fees, that means you’re going to get 1 or 2% over the long term. Yeah, so that’s why I definitely do not I’d stay away from variable annuities, I recommend you stay away from variable annuities as well. The fees are crazy. And there are other better alternative. If you’re gonna invest in the market, you still get the same risk, you know. Why take on those fees, which is, you know…
Dr. Friday 40:13
They convince you that you’re going to have a – you never lose your investment. Yeah, I mean, kind of thing, right? So if I’ve got $100,000, and I want to make sure I never lose that hundred, you can put it in something like that. But at the end, what you’re saying is, you may not grow $1.
Hank Parrott 40:27
Well, they Exactly. They can, in fact, lose. Variable annuities, you can lose your money. Oh yeah, you can have negative returns. If you hit a bear market, they’re going to get hit just as much as anything much more because you get to higher fees as well. But what you’re what you’re looking at there, they may say well, we’ll give you this guaranteed income, you know? Well, that’s like buying what’s called an immediate annuity where I give somebody $100,000 and I’m going to get whatever it is $5,000 a year for the rest of my life or something. There are better options again to accomplish that goal as well. You have also what are called fixed index annuities. These are ones that are probably the most missold, if you will, if that’s a word. But basically, they’re misrepresented in many ways or misunderstood might be a better way to say that. They are probably the most misunderstood products. Because here you, you’ve got someone saying, oh, you’re going to get a market return, but you’re not going to lose money. And that’s just not fair. And it’s not accurate. Academic research, we have available to us different white papers showing the actual historical returns on a fixed index net. And again, you got to be very careful there. There’s some of these have high fees as well. And some of them have caps that limit your growth. So if we’re talking an uncapped fixed index annuity, yes, they can outperform bonds, but typically over time, they’re not going to outperform a stock-bond portfolio. So very misleading in that and they’re going to be long term. So you have to understand.
Dr. Friday 41:52
I mean, it’s not like if you don’t like a stock or bond in your portfolio, normally you have the ability to sell it without penalties or fines or whatever. If it’s locked into an annuity that’s all the other problem is. A lot of times they’ll fine you.
Hank Parrott 42:04
And it’s not to say these can’t fit into a plan, but it you have to be a lot more careful. And out of 1000 different products, you’re looking at maybe about 40 or 50 products out of 1000 that, you know, could be a value to you. And they have different terms. But as you said, you can be, you know, three years, five years, seven years, ten years. So the longer you know, you need to look at your against specific situation which one’s going to make the most sense for you, if any at all.
Dr. Friday 42:33
All right! It’s been another show Hank, we’ve done awesome! If you want to reach Hank 615-376-5325. Hank Parrott has been doing this a long time guys. So you might want to just consider. Give him a call, find out get that second opinion or if you haven’t had a plan, seriously, this is the time to do it. How do you know if your money’s really going to grow or do what you want unless you get that plan? 615-376-5325. Also, you can reach me directly if you need his number or my number 615-367-0819. Check out our new website, drfriday.com. You can set up your tax appointments. You can email me You can contact me, book me for speaking engagements. You name it, it’s all on the web. Hope you guys have an awesome holiday season, talk to you later!