Business Innovators Radio - Interview with John Martin with Compass Wealth Strategies Discussing Roadblocks to a Successful Retirement

Episode Date: October 5, 2023

Hard-working business owners and Professionals shouldn’t have to forfeit paying unnecessary taxes while working and especially during retirement.John Martin, CEP, RFC, IAR of Advanced Tax Planners started his career 27 years ago as an independent financial advisory & wealth management firm in New York.He has served the business community by providing tax reduction strategies, along with creating, protecting, and preserving his client’s wealth for their families.John integrates education with holistic financial planning as the foundation for building real Financial Independence more rapidly, especially when taking advantage of all the tax reduction methods the tax code allows.Each client can expect the highest level of integrity and confidentially working together to design and implement the right strategies to best achieve their individual goals and aspirations, and to control their financial life.John is based in Western New York and married to his wife Kit. They have a son and a granddaughter Emma. He enjoys time with family, reading, golfing, and traveling.Learn More: https://www.compasswealthstrategies.net & https://redwoodtaxadvisor.comFinancial Advisors do not provide specific tax/legal advice and this information should not be considered as such. You should always consult your tax/legal advisor regarding your own specific tax/legal situation. Separate from the financial plan and our role as a financial planner, we may recommend the purchase of specific investment or insurance products or accounts. These product recommendations are not part of the financial plan and you are under no obligation to follow them. Investment Advisor Representative offering Independent Investment Management utilizing Tactical Active Management through Redwood Private Wealth, SIPC.Influential Entrepreneurs with Mike Saundershttps://businessinnovatorsradio.com/influential-entrepreneurs-with-mike-saunders/Source: https://businessinnovatorsradio.com/interview-with-john-martin-with-compass-wealth-strategies-discussing-roadblocks-to-a-successful-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 Martin with Compass Wealth Strategies and we'll be talking about roadblocks to a successful retirement. John, welcome back to the program. Thanks, Mike. Nice to be with you again.

Yeah, so I want to hear all about roadblocks because I think a lot of people hear, you know, the word roadblocks in retirement and go, I don't want any roadblocks in retirement. So let's identify those things and minimize them as much as possible. So get us started with identifying some of the roadblocks. What would some examples be? And then we'll talk through some of the risks and how to avoid or minimize them. So where do we start? Yeah, I think there's probably three or four major risks in retirement. You know, I think when a lot of people first retire, they have a lot of time to spend money, a lot more than they used to.

And so they tend to spend probably a little more than they should in the early years, which can deplete an asset base or a portfolio, you know, quicker than it should. Certainly, taxes is probably the one or two top risks to a successful retirement. A lot of people think that due to our national debt of $33 trillion, somewhere between a million and two of a yearly budget deficit, that taxes are going to have to be higher in the future in order to be solvent. And so, yeah, and, you know, most retirees assets are in tax deferred accounts like IRAs, 401Ks, 403Bs and so on. And those accounts are all going to be fully taxable at ordinary income rates when they make withdrawals and access those accounts in retirement for their income. You know, John, you bring up a huge point right there.

The first thing I want to touch on is that time. You know, a lot of people think, you know, oh, retirement, I'm going to have all this time and do all these things. And I don't think they really look at it through the perspective of you're going to have so much more time to spend more money. You know, and it's like, oh, we're going to be able to travel. It takes money. I'm going to be able to play golf more. It takes money. So that's a huge aha.

But even more so if we were to say, hey, at this day and this time and this moment right now, John, What are taxes going to be in the next five or ten years? Nobody knows. But the indicators are pointing to the fact that what you just said, because we can look to the deficit and it's not getting any better, we know that the only way to make the deficit close the gap and get smaller and smaller is either, A, stop government spending, which we know won't happen, or B, you've got to raise taxes or get taxes to close that. So since we know that, most probably taxes are not going to be going down in.

anytime soon. And then it almost makes you feel like you're in a ticking time bomb if you've got a large percentage of your retirement tied up in tax deferred accounts because the minute that those trigger, here comes taxes. And then if taxes are at a higher level than they are right now, then there's got to be something you can do about it. So I just wanted to comment real quick on those two T's, time and taxes. So when someone says to you, well, how do I, you know, I'll do with the time. I'll keep my spending down. That's fine because that's wonderful. But what do you do when someone goes, man, I follow your logic there?

How do I make sure that my taxes are as low as possible on these qualified accounts? Well, you've got to try to as much as possible, convert them into tax-free accounts like Roth IRAs, some annuities, high cash value life insurance. Those are all tax-free accounts. and it might make sense to pay taxes today over time, over a five to seven year period, and convert some of those deferred assets to tax-free assets. So you can get as close to a zero tax bracket as possible when you retire. You know, people talk about investment diversification, which is very important, but tax diversification is also probably just as important.

Having the right amount in tax deferred accounts, tax free accounts and taxable accounts, the right amount can get you very close to a zero tax bracket in retirement. And you mentioned five to seven years. I know it's different for everybody, but it makes me think of a question. So how would you receive? respond to a client asking this question. Okay, John, I recognize the strategy there. So let's go ahead and pay taxes on these chunks of, you know, we can't take it all out at once. But if we can start taking it out sequentially, let's pay taxes now at the known rate, because if taxes go up in the

future, I want to pay them on the lower rate. Great. Well, if, and let's just pick a number of $50,000. If I took $50,000 out this year, I'm going to pay taxes on that amount of money. So really, I might want to take out more than 50 so that I've got it to pay the taxes. Is five to seven years ahead of retirement enough time? What should be thought of that way to make sure? And I guess it also depends on the amount of money you have in your accounts to do that strategy, if it makes sense. Well, if you're five to seven years before retirement, that would be an ideal time to start. But just as important, if you're younger than that, you know, I've got a longer time horizon before retirement. Try to get as much as your retirement contributions into a Roth 401K.

A Roth 401K is an ideal strategy. So, you know, you're going to pay taxes today on those contributions, but they'll grow tax-free, and they'll come out tax-free, and you can contribute quite a bit to those. And not all employers offer Roth 401.com. case and so it depends on your you know where you work and so on um but you know trying to get as much money out of tax deferred accounts as soon as possible is as a real key and just like i'm sure you would agree this is not a set in stone strategy to blindly just do for every single person with every single no it's it's an idea and it works but let's see if it works and is best for your situation so I think that's the point is that that might be something to look at.

So let's let's move on to some other risk and roadblocks. We've got time and taxes. What are some other risk and roadblocks? Well, certainly I think prevalent today is the market volatility. Yeah. The market has been pretty ugly in the last couple months. You know, over time it performs, you know, well. But volatility is a key when you're in retirement and you're making distributions

from your accounts, you know, if the market is down and you're pulling money from those assets, you know, your portfolio will not last nearly as long as if you had some tax-free accounts that you could make withdrawals from those accounts that don't lose money, like indexed annuities or, again, high cash value life insurance. We call it a volatility buffer, where in down markets, you take from those accounts that don't lose money instead of from the stock portfolio that is realizing a down market. And then in a year or two, when that account comes back, you can begin to take income from those risk assets. That's certainly, you know, the volatility buffer is a key, I think, today,

and distributing assets and down markets. Yeah, and you know, I think with the volatility, if and when that happens because we know, you know, markets are up down and all around. And at a certain age, ahead of retirement, you know, that runway ahead of retirement, you need to start thinking about what you said, move it into, you know, less volatile accounts. Well, the problem with volatility is you take a hit of whatever percent, you know, oops, the market adjusted. So my portfolio is down X.

Well, you feel like you got to scramble and scurry. to get back up to where you were, well, if you lost 10%, it doesn't mean that the market has to go up, 10% has to go up that much more. So it becomes this vicious cycle to go, I've got to take even more risk to get back up higher than what I lost. So you want to avoid that volatility as much as possible. And I think that's a huge point that you're bringing up is maybe possibly you can't eliminate it altogether, but if you can minimize it, that's what the focus needs to be. Yeah, and as we talk with potential clients, you know, we typically ask, you know, how much, how are you positioned? How much risk are you taking?

And they'll say, well, most of my portfolio is in the stock market. And then I'll ask, well, how much are you willing to lose in a down market? And they'll say zero or very low. Right. I vote zero. Yeah. So those two objectives don't correlate with each other. And we find that even people in retirement are, you know, they've got 80 to 90 or more percent of their assets in risk investments.

They don't realize the level of risk they're taking. Huge. Well, you know, it seems like another cost or expense in retirement is health care. And I know similar to what we just talked about with taxes, nobody knows what's going to happen. nobody you know we don't control it but we do know that health care is a broad kind of scary topic that you know the care itself changes the cost itself changes so how do you plan for health care costs during retirement well um certainly you have to have the right type of medical insurance whether it's you know most people are on medicare when they're reach age 65 and older and they

have a supplement plan to pay for the things that the Medicare plan doesn't. So those can be, you know, those are expensive. There's another item that many people are not aware of, and it's called Irma, I-R-M-A-A. Are you familiar with that, Mike? I've heard it before, but I don't, I couldn't define what it is. So I'm glad you brought it up. Let's hear what that is. Yeah. And almost nobody out there in the in the public know what Irma or even aware of what Irma is. It's a surcharge on top of your Medicare Part B and Part D premiums for having too much income, taxable income. And it can amount to, you know, a million to $2 million in many cases with people that are facing a surcharge based on their income level. And all income levels count, you know, distributions from deferred accounts,

you know, rental income, dividends, interest. They all count towards that EMA, that EMA base, which will determine if you're going to be charged an additional premium. And so that's, we have a report that we can provide people that shows them if they're going to face an Irma, an Irma charge on top of their Medicare part B&D and some solutions to reduce that dramatically. And again, that involves in getting money out of taxable accounts as much as possible. Yes. Well, I think that is huge. And the point is it comes to my mind is, oh, I can just Google that. Good luck. You know, nobody can disseminate all the accurate, relevant for your situation from Google. So I think that all of these points are like, they should be a aha moments like, ooh, yeah, taxes. Oh, volatility. Oh, health care. You know, what do I do? How about another big one that I can think of is inflation. You know, you can't control that. But we know it's similar to volatility where some. times inflation is up, down, and all around. So talk a little bit about inflation concerns. Well, yeah, we're certainly in an inflationary environment, you know, currently. It's come down somewhat

over the last year. It's not rising as fast, but it's still with us. A lot of people think it's going to continue for quite some time. And so, again, you've got to have assets that will earn more than the inflation rate after tax, you know, after the tax liability to compensate for those increased prices and cost that we all use and want, you know, every day. And that may be high dividend, you know, stocks or stock funds. It could be indexed annuities that typically average, you know, well above the inflation rate and the same with high cash value life insurance. And also going back to the health care, you know, long-term care is certainly an issue, too, that many people don't think about that can really ruin an ideal retirement when you think about

home health care or assisted living facilities or nursing home facilities. Those are very expensive items. there are a number of programs that you can purchase that will pay for that, those types of expenses. But ideally, if you never need those services, you get your money back from it. So it's either a life policy or an asset-based long-term care policy that can pay for those expenses, but not lose the money if you don't use it or need it. You know, that's a huge one because it makes me think about my homeowners insurance or car policy.

If I don't wreck my car or make a homeowners claim, I can't call up my policy or my homeowner's policy and go give me my premiums back because I already paid it. But what you're saying is with this, you know, long-term care, there are special types of, you know, vehicles that would cover you if you need a long-term care. But if you never needed it, you didn't lose the premiums as a car. I think that's a huge thing people should really be informed about. Yeah, yeah, definitely. And, you know, the bottom line is my practice here as a Institute of Financial Wellness Certified Professional, we can really help people provide clarity and confidence with a customized retirement roadmap as a certified professional is kind of the bottom line here.

Well, I think that's a great point to wrap up with John, because like we said, a few times, it's like, how would this work for me? Should I convert this or how do I handle volatility? How do I lower taxes? There's so many questions swirl around in people's head because everyone is different. Everyone's situation is different. And the common pre-retiree don't know how to make these decisions. So if someone was interested in learning more and then reaching out and connecting with you to see how some of these could affect their retirement and playing for them end of time, what's the best way that they can reach out and connect with you?

They can go to my website, which is Compass Wealth Strategies.com. Or they can give me a call at 716-823-1869. Excellent. Yeah, that's the best way. Excellent. And I'll make sure also to have the links to your website in the show notes. Well, John, thank you so much for coming on today. It's a real pleasure talking with you again.

All right. Thank you, Mike. It's been my pleasure. You've been listening to Influential Entrepreneurs with Mike Saunders. To learn more about the resources mentioned on today's show or listen to past episodes, visit www.com.