Business Innovators Radio - Interview with John Badalamenti, Co Founder & CEO of Safe Estate Discussing How Taxes Affect Retirement

Episode Date: April 9, 2025

John has lived in this business for a while, 30 years fighting the Wall Street battle! Born and raised in beautiful Michigan with a close family that he loves and cherishes. They spend a great deal of time together traveling and love visiting their family cottage in up north Michigan. One of his truly favorite spots is mystical Mackinaw Island. Being an avid animal lover and protector, he will soon provide a sanctuary for animals that need love and a safe home. This will be in memory of his “ex-partner” and beloved friend Bambi, whom he rescued and who went everywhere with him in his travels. In his business model, he works in many states but primarily the Michigan and Ohio areas, fighting for his students and clients from the stock market insanity.“Emotions run the market,” and he has learned from all those emotions from all his students through the years!Learn More: https://www.safeestate.net/Influential Entrepreneurs with Mike Saundershttps://businessinnovatorsradio.com/influential-entrepreneurs-with-mike-saunders/Source: https://businessinnovatorsradio.com/interview-with-john-badalamenti-co-founder-ceo-of-safe-estate-discussing-how-taxes-affect-retirement

Welcome to influential entrepreneurs, bringing you interviews with elite business leaders and experts, sharing tips and strategies for elevating your business to the next level. Here's your host, Mike Saunders. Hello and welcome to this episode of Influential Entrepreneurs. This is Mike Saunders, the authority positioning coach. Today we have back with this John Bad Alimenti, who's the co-founder and CEO of Safe Estate, and we'll be talking about how taxes affect retirement. John, welcome back to the program.

Hi, Mike. Thanks for having me back. I'm excited. Hey, so I think that a lot of people, when you say, what is your first thought when you hear this word, give us your first reaction, the word taxes at any time of year. I don't care what time of year it is. The word taxes just make someone think about a pit in their stomach

because, you know, you really do have this outflow of money and the old cliche of the kid that, gets the first job and goes, hey, what's all this money leaving my account? Well, let me explain how this unwanted uncle out there gets their fair share. So where do you begin when you're talking with your clients or your classes in talking with people about how taxes affect their retirement? Well, it comes up a ton. And isn't it funny that we're having these interviews right now just what, a week and a half before tax time, right? And now we've got the markets and troubles we were talking about before, but it's really funny because we had mentioned before about the compounding

domino effect on how the market losses hit the portfolio while you're living on the portfolio as a retiree. It starts this domino effect. We didn't even mention before the effect of inflation in taxes. We won't get heavy into the inflation aspect with the spending power, but let's just talk about the taxes. That starts another domino falling because now while you're pulling it out, if you need to draw out whether you're losing in that portfolio or not, let's say 30,000 that year, right? Because you need it to supplement your Social Security or whatever it is. That 30,000 is not gross money you're going to get to keep in your hand. Again, depending on the tax brackets, of course.

That 30,000 is added to the rest of your income for that year, Social Security and everything else. And what is happening is the taxman is going to come and take a percentage of that. So in essence, that year, you want to live on $70,000 total, everything combined, Social Security, the money you pull off from your retirement buckets, all that stuff. You can't just pull out the $70,000 and live on it. You have, we have out there what we call. We call them a silent partner. You know, we love our government.

And then other times we were perturbed, right? Because here comes this silent partner. I've had people in my classroom say, you know, I've got this much in my IRA and I'm blah, blah, I'm golden. And I'm like, you do. You did all the hard work. You saved all that money. Thanks for letting us all know.

There's only one problem. You've got a silent partner there waiting for his piece. With their hand out. He's been waiting for a long time. Yep. He's saying, bring it to me right now. As you pull it out, you pulled out 70,000. And I'm going to take a piece of this.

So you can't just pull out 70,000, depending on your bracket. You're going to maybe have to pull out 90,000. So we see it starts this tumbling of the portfolio where you go, will I outlive that income, as we spoke about earlier? Can it erode quicker? Well, yeah, you have a lot of things playing on that, including your silent partner, the IRS. You're familiar with Ed Slot. I'm sure you are. I've met Mike. I've met Ed many times. And I've seen him speak many times through the year. He's the IRA guru, right? He wrote many famous books. He said something about 25 years ago that we all laughed, and I steal it. And I use it in my classes a lot.

lot. I write it on the board and everybody laughs. I write down an IRA is an IOU to the IRS. And that's basically what it is. You've given like a little promissary note that when you pull out that 70,000 you need, you're not going to keep the 70. He's coming for the little piece you owe him. He's there and you can't get away from it. Because that money's been in that account for decades and the government hasn't smelled a sniffed a dime of it. You got it. I heard someone once say that it's kind of like a fox waiting over the top of the hole of a of a groundhog.

Just wait for them to pop out of the hole and get their meal. And there's the government just waiting on the top of all these IRAs at 401Ks because the minute that it triggers withdrawals and moving, that's when the money hits. And that's a great point. but you also added another word inflation. So not only do you have to pay money to your silent partner, but because of inflation, your money doesn't go as far as it used to. Yeah, we saw it just shoot up to 9% a couple years back and now we're still having an inflation

problem. And what that did was that caused, we started to see a banking problem. People wonder why. The reason is, you know, being an old bond trader, what happens is when inflation's flying up, they start chasing inflation with yields, right? So your current prime rate is at seven and a half and it shot up to eight and a half. They did that to chase inflation, which reached 9%. When you shoot yields up like that, especially on what we call treasury notes or the treasury yield,

what happens is the prices of those treasuries fall and plummet. And all of a sudden you start losing big money in the accounts as the yields shot up, the prices are dropping. So, yes, I mean, that has a lot to do with an inflation, if affects your spending power for the future. And that's why we saw a problem with the price of eggs go up to $7 a dozen. People have been gun-shy with what's coming next. Yeah. You know, let's now polish up our crystal ball and, you know, full disclosure, you and I don't know anything about what's going to go on except the fact that I, as an uneducated professional in the realm of taxes, I would check the

box and say, yes, I feel taxes will go up in the next five to ten years. And you can comment on this, but the reason I would say that is that the deficit, which is in the gazillions and bazillions and trillions and whatever that it is, the way that that gets tamed is reducing government spending or raising taxes. And so because of that, where do you see taxes going in the next five or ten years? Well, they're already slated to move up in 26. We don't really know what's always going to happen every year beyond that. So that's scary for people for the income tax brackets, right? At the same time, our deficit's $36 trillion in the red.

We're dying more and more every day. We don't know what administration can make this change and finally bring it back the other way, we hope. But because of that, we're just keep printing money. And that's what caused inflation and things like that to drive up. All they can do, when I say you have a silent partner out there, I don't mean to sound doomsday, but we have to think about it. If the deficit is so bad and continuing to climb, the easiest place to come to get the money to try to offset that, to bring the revenue in, is to come to the American people and tax us. It's the easiest, quickest way.

And we can scream all we want, but we're still going to have to pay that tax man. And in a lot of these big tax deferred accounts, the silent partner has been waiting to come and get the money. I've had people in my class and say, well, I just won't take it out of there. And I'm like, well, I look at the rest of the room and I say, and if you don't do that, when will they make it take it, make you take it out of there? And people start raising their hands and they go 73. And I'm like, you're correct. Yeah.

They'll make you take the money out. And they don't care when you pull that money out how much you have to live on and how much you might need for a grandbaby and you're going to go short this year. They don't care if you have losses in the money. market because you've got all your money and volatility. You've got to pull the money out. You've got to pay the money to them because you owe them what you owe them. You made a deal with them. Now, let's say that someone sells their RV flush with cash. I don't need any more this year. So I'm 73. I'm not going to take it out this year. What happens then? Yeah, what they'll do is it's

called a required minimum distribution. And years ago, it was at 70 and a half and they finally popped it up to 72. Now it's 73. They require you take your money from an IRA or all your IRAs, and sometimes your 401Ks. There's like a little wall there. We sit down with a lot of people to try to figure that out. But yes, they'll make you take it out at that age. And unless you have it in tax-free buckets, we call it, which we teach a lot in our classes on the Roth IRA, which is one way to kind of hide it from the IRS in the future.

You probably have heard of that book, The Power of Zero, written by McKnight. What a great book. I don't tell a lot of books, but I think. tell everybody, read that book. It's just basically math. What it's telling you is that if taxes go up two times, three times, four times what they are now, it won't matter if your money's in a tax-free bucket because you won't owe the taxes then. You paid it ahead of time for pennies on the dollar. Now, it's hard to get all your money there at one time into that Roth IRA unless you would convert it. converting it all at once means that next year you're going to owe the IRS a huge check.

And believe it or not, I had a lady attend one of my classes in Ohio. And she said, John, the moral of the story is, I want all this money to be tax-free. And we said, well, how much do you have? And she says, I have a million bucks, John. She says, I want to put it all into tax-free world now and get it set up for my tax-free growth in the future. So I never have to pay IRS then. I can pay them now for pennies in the dollar. And we said, well, basically you're going to owe about 300 grand.

She says, I got it. My money's sitting in an account. I don't want to know I have it because of a problem situation. I'm just going to write the check next year. And my million will continue to grow on. Of course, there's a little window we call in there, a five-year window. It will grow tax-free from those moments on. And that was a great plan.

But it worked for her. Not everybody can move a million dollars into the tax-free world all at one time. And maybe the next person would say, I want to do the same thing, but I don't want to pay the 300. So maybe the strategy would be, well, let's do a certain percentage this year, a certain percentage next year. And the point is, the end result is let's move money into a tax-free bucket broth and do it in the best way possible. And it's not one cookie cutter formula. It's not the same thing for everybody.

And a conversion like that might not even be the right choice for everybody. So that's the beautiful part with what you are able to do is you sit down with people and go, let's just roll up her sleeves and see what works best for you. Yeah, you couldn't have said it better. It's work it in stages. Yes. Yeah. I've got engineers that come to my class and those are the guys that love to like hammered

out with me. I said, that's okay. Prove me wrong. He says, yep, next week I see you for class two. I'm going to be bringing my numbers. It says, bring it on, right? So they bring it in and we talk and I say, they show me points. I said, you know, you're actually right.

There's a crossing line there, whether you should convert or maybe not convert and invest the money and make more money rather than giving all the, taxes now to the government. I said, there's just one big what if there. If it works the way you say, it would work great. But there's a what if called the stock market. It's called Wall Street. And it throws a wrench into it. And if it doesn't give you the return you think you're going to get, everything starts changing. So you don't, there's a, there's a give and take to that. So I don't, you know, it's a conversion's not for everybody. You can't do it all at once. You would do it in stages. There are other buckets of money. I know we've talked about it before. We're going to be

talking about it coming up here. There's other buckets of tax-free growth out there, such as life insurance retirement plans. We're not talking about the old style insurance, like term insurance. We're talking about a retirement plan at retirement age that uses life insurance as a backing to give you tax-free build-up. So we can talk a little bit more about that later. But I think to wrap up the conversation, one thought that I had about those required minimum distributions, they're not suggestions, they're requirements. And even if you are flush with cash, you better take it out or else you're penalized. Yes.

We hear they're going to be moving at the 75, but that's coming up the road. So they gave us a little bit of a break. There's always a caveat to what they do. But if you don't pull it out, it used to be a 50% penalty. It's now a 25%. So if they tell you you didn't pull out the amount you're supposed to pull out this year as your required minimum distribution or your RMD at age 73 on, you are going to be penalized 25%.

that year on what you didn't pull out. So if you were to pull out 80,000, you're going to have to give them a chunk. If you didn't take that 80,000 out you were supposed to take out, you're going to own about 17,000 in penalties. Yes. So let's talk a little bit more about some other taxes that we should be prepared for. What are some of the types of taxes that we can be expecting to pay? And then also, I think that some people go, well, I've got a security and pension.

So those aren't taxed, right? So talk a little bit about how those are. I always say to go to your CPA to do your taxes. We can teach you about how taxes affect you and help you with the investments to make the taxes better for you. Of course, you have to deal with the state taxes in your state, right? Your accountant will help you with that. But good thing you brought up Social Security tax, I draw on the board a number 8-5,

and people go, what the heck is that? And I said, that's actually, and I won't get into every detail of it, that's actually the Social Security tax for a household income if you go over what we call the provisional income. And they look in and say, what? You're not taxed 85%. I said, no, you're not taxed 85%. They take 85% of your social security after all of your, you know, your writeoffs and

deductions. And if you're above this provisional income amount for a household, a married couple, that's just one example. You actually will get hit on your social security. And people say, that's ours. We put that away. We never promised that. We put that money away to get it back later.

I said, but too bad. I hate to say it, but they're going to come and tax you on that too if you fall in too high of an income bracket that year. And it hits away Social Security money that you thought you were going to have. And you can say, no, I'm going to lose 4,000 of my 25,000 of Social Security too. Yes, it's a possibility. You know, so that is a big problem. People are concerned because they want all that Social Security money.

They need it. And some people don't have a lot of it coming. It's sad. I sit with a lot of people. It's shocking the amount of Social Security they have coming. And they don't have a lot of income that year. So hopefully those are the ones that don't get hit with the Social Security tax because they're not making enough income for the year, right? But a lot of other people.

And we don't want to go into the weeds of Social Security claiming, but there are some ways that you can advise people to go, okay, when should you claim? And tell me a little bit about your other. Oh, you still are going to work. And let's go ahead and wait because so there's all of those factors that go into that because if you don't want to be taxed up to whatever percent, whatever dollar figure, well, then maybe you should wait. a year or two or three until whatever that project ends or whatever the case is. But that goes into mitigating or minimizing your tax liability. What are some other ways that you're advising clients to, you know, like you say, go to the tax guy to do your taxes, but then there should be a tax strategy.

What are some other ways that you can minimize that tax liability? Well, one of the biggest things I've kind of being redundant talking about what we just did is in order to get a lot of that on the IRS radar so you don't hit those brackets and hurt yourself even on the Social Security end. Okay. And we're not talking about things like a state taxes. Those are whole different babies with largest states and how the estate is tax. I'm talking about just normal income tax and Social Security tax. You need to try to make moves possibly in stages or preferably in stages so that you get more

of it out of the IRS's radar. Taxable income needs to possibly become tax deferred or tax free. And mostly tax deferred buckets, which are the largest buckets out there, there's something like 45 to 60 trillion in tax deferred dollars out there waiting to be taxed. Now, if there's a way we can get it out of that bucket into the tax-free world using the insurance plans, the Roth IRAs, that is a way to keep more in your pocket and keep more of what you make so that the IRS is not coming and taking a chunk of that or hitting your Social Security taxes. So in essence, you can bring the brackets down by pulling part of it tax-free to use to live on.

and part of it from the tax deferred buckets. The most effective ways are using what we were just talking about. There are other things like municipal bonds, which are tax-free growth vehicles. But don't forget, Muni-Bond, something I dealt with in the past in great deals and still deal with, it may be a tax-free yield. But believe it or not, there's default risk there. There's trouble with those. We've seen it.

And also the muni bond interest you make, even though it's tax-free, causes your Social Security to potentially be taxed more because it's added into the Social Security taxable amount. It kind of reminds me of when you play chess and you make a move and you leave your finger on the piece and you look around going, is that what happens if I move here? And is this the right move? You should be never ever Googling solutions online going, I'm going to do this because you can have this. domino effect like what you're describing. So when you're working with someone like yourself, you guys are sitting down kind of going, okay, if this year we made this move, here's what could happen. But like what you just said there with like, oh, obviously mutiny bonds are great because it's a tax-free yield, but we need to take this other aspect into consideration.

Yeah. And I'm not saying muni bonds are bad. I did enough of them bond landers in my life, putting people into municipal bonds. They know there's risk there. There's a lot less risk than with the corporate bond, or especially a government bond, okay, a government bond would be your least risk, right? Okay. And I've had people in my class to say, well, I've got government bonds, so I can't lose. I can't lose. And I'm like, and I look and I smile and I say, oh, yes, you can.

A government bond is backed by the full faith and credit of the government. You will get your $1,000 back from every government bond guaranteed at the end of the term. Yeah. If you have to cash it out for any moment between that or sell it for some reason, you're going to get what the bond is worth on the secondary market. There is a potential for loss of the principle of the bond. Same thing with muni bonds. And corporate bonds, of course, being your riskiest. So, yes, even though the muny bond is tax-free, there's the fault risk there, and it hits you on the Social Security end.

Believe it or not, the same thing with certificates of deposit. Tons of people have been going to CDs these last years, and I don't blame them because, They're using safety vehicles. We call them green, things like CDs. Because the yields shot up from zero. People were making nothing. 0.01. They shot up to five, five and a half.

They're still at four. You can make a, okay, we'll call it some kind of a crappy, fixed, capped rate of 4%. You can't hedge inflation, but at least you're safe and you're making your 4%. but that is also added into the taxation on Social Security so it affects you on the other end. So that causes a little bit of an alarming point too. Not that it's bad. You should have some CDs, of course.

But it should be taken into consideration. Absolutely. Absolutely. So let's shift into kind of like landing the plane in the sense of, okay, you know, let's consider some of these points, mitigating taxes. is what about the end of the end of the end where it's like, okay, now you've got plenty of money to live on until, you know, you're 140. So you're good to go. Don't worry about having enough money. But now let's talk about legacy planning and passing money on to your family.

How do you advise your clients to properly pass their money on with the state planning to be as little tax burden as possible to the family? Well, again, being redundant again, that's a great question. That's, of course, is legacy planning, as you stated. Yeah. You always want to try to leave your loved ones with all the money as much as you can so that they will have enough to take care of them the rest of their lives, especially children. The spouse usually carries on with the husband and wife carry on in the investments or the tax deferred accounts going back and forth to the spouse. And again, you can have whatever investments in the out of those plans, risky or not. But legacy planning a lot of times using powerful instruments like what we call the insurance retirement plan, a LERP week.

call them. I'll explain that a little bit more in the future here. And using tax-free passing on, which we go back to the Roth IRAs, those go on to your errors tax-free. So the more you have in those tax-free buckets goes on to your children, your legacy, and they get to keep all that money because it's tax-free. If you have a life insurance plan, that will have a death benefit, which is much higher, which is tax-free, which will replace. a lot of the taxes that children may have to pay. It's sad. I hear people say, this is ridiculous.

We're getting double and triple tax. We're paying taxes. And then we go ahead and lay money into our kids' hands because some of that stuff was tax deferred or whatever it is. They're going to have to pay all the taxes. Yes, they can stretch it out and pay taxes over a period of time, usually 10 years. But they're going to have to pay the Piper. The government has to get their money. Yep.

They're coming. They're the silent partners. coming now to the kids to get the money from what you did, they're coming to get it from the kids. So a lot of times insurance can replace that to the children. And it's also a tax-free vehicle while you're living. And as we'll speak about coming up here, about an insurance plan as part of the green money, we call it, people have this bad taste in their mouth sometimes about, oh, we were told life insurance, don't bother with that. Sure, it's not for everybody. It's for some people. But if you want to replace the taxes to those children and for your legacy,

that's one great way to do it. But boy, does it take care of a lot of other stones out there. It gives you tax-free growth and usage of the money for a living benefit. And it gives you a very powerful benefit that people are using it for called long-term care and nursing care, which has become a huge topic in my classes. Yeah. Well, this has been so amazing. on how taxes affect retirement and how you can plug up as much of that hole as possible in the bucket. We can ever plug it all the way up. Got to pay the taxes. But if we can minimize it as much as possible, that really helps preserve that cash for retirement. So John, as we said before, thank you so much for your insights. If someone is interested in reaching out and connecting

with you to learn more, what's the best way they can do that? Okay. So I always tell you, and a final I say, so watch out for the IRS. They're on the radar, right? So you can make some moves to absolutely position it so they don't see it. Yes, we love our country. We want to pay our taxes, but we don't have to give it all of them, right? So to get a hold of us, we always tell everybody, come and see one of our classes. We speak a lot of the colleges.

I speak a lot in Michigan and Ohio, but I make my way outside of the state speaking too. Come in 10, one of our classes, we have a lot of fun. You can come and get a lot of information from us and find out all you want about the IRS and taxes and risk and all that. Our classes can be posted a lot of times. They will be posted through our websites and our social media. But contact us directly. Come to our website, which is www.

Safe Estate, S-A-F-E-E-S-T-A-T-E dot net. Safeestate.net. You can call us direct. Our phone numbers are on the website. Or you can call me direct. I will answer or get back to you. And here is my number. I will give it out even though it's on the website.

248-495-3-8-2. That's direct to myself. And I will answer and help all I can. Well, John, thank you so much for coming back on. It's been refreshing and wonderful chatting with you again. Mike, you're awesome. Thanks for having me on. I appreciate the time.

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