Business Innovators Radio - Interview with Kimberly Pohler, Financial Strategist with Pohler Financial Discussing How Taxes Impact Retirement

Episode Date: March 21, 2024

Kimberly Pohler, CLTC, CFed®, is passionate about helping others. She helps her clients navigate the confusing world of finance by educating them on how to plan for each season of their life. It goes beyond protecting your health. Kimberly has identified many crucial areas of concern: health, life, disability income while you’re working, senior healthcare, Social Security, longevity (never running out of money), the high cost of aging impact on investments, and protecting a legacy for her client’s children. She uses her extensive knowledge as well as a team of specialists to provide cutting-edge resources in an ever-changing environment. She knows that God blesses us daily with the gift of life and the opportunity to make a difference in the world. Each new relationship in her business and personal life is meant to be cherished.Kimberly is an avid gardener who also enjoys cooking what she grows, hiking, campfires, and family fellowship. She lives in rural Indiana with her husband, Jeremy, her two sons, Blake and Preston, and their fur baby Yorkies, Brianna, Finnegan, and their German Shepherd, Gus. She is the author of The Money Garden: Purposeful Financial Planning for Your Seasons of Life.Learn More: http://www.kimberlypohler.comInfluential Entrepreneurs with Mike Saundershttps://businessinnovatorsradio.com/influential-entrepreneurs-with-mike-saunders/Source: https://businessinnovatorsradio.com/interview-with-kimberly-pohler-financial-strategist-with-pohler-financial-discussing-how-taxes-impact-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 us Kimberly Polar, who's a financial strategist with Polar and we'll be talking about how taxes impact retirement. Kimberly, welcome back to the program. Hi, Mike. Thank you.

Glad to be here. A, I know we've been talking in our series all about retirement, how certain aspects impact retirement. And this is a big one, taxes. And I feel like this is such a big question mark in people's minds. So where do you start when you're working with a client to help start to educate them on how taxes actually impact their retirement? Well, we start out by having the conversation. of where they think taxes are going, whether they think that they're going to go up or whether they're going to go down. And of course, you know, Mike, we get the we get the chuckle there a little

bit in a lot of cases where they say, well, they think they're going up. But then they'll turn right around and the next comment will be, but, you know, once I quit working, I'm going to be in a lower tax bracket. And they've heard that, you know, kind of repetitively over the course of time of planning. And the unfortunate thing is that may not always be true. When you start taking a look at our current environment and you look at the amount of spending that we have in our deficit, you know, you can't have continual rise in deficit and think that taxation is going to come down. So the unfortunate truth is it's probably going to continue to go the opposite direction of what they think and continue to go up and really have a big impact on their future dollars.

100%. Now, I know that there's a lot of things that we kind of hear like, oh, we've been hearing this for our whole life, you know, like the tax brackets will be lower. Why do you think that people think that still? Why do people assume that they'll be in a lower tax bracket? Well, I don't think that they put together of why they would be in a lower tax bracket. it. Yeah, they just heard it once and it sounded good. It sounds reassuring and exciting, right? And, you know, you've done all this working. You paid all these taxes.

So you're really hoping that your future is that you are going to pay less than taxes because your income is going down. And I think that is where the association is, well, I'm not going to be having my 40, 50, 60, 80 hour week job, whatever that is for people. You know, so my income is going to be a lot lower. And what I, you know, my attitude kind of has been, well, I think you need to think about that because if your taxes are really going down and you're going, you're suppressing your income, then you're taking on a lot less income. And is that really the retirement that you wanted to live anyways? Shouldn't you be more of actually desiring that you're going the other direction? Not that we like paying taxes, but, you know, ultimately, if you are paying more taxes, you're probably having a good, good income. coming in. And then, of course, like I said, the inevitable is the deficit spending that we have, you've got to have a balance. So just getting them to try to get away from a conditioned of mindset, so to speak, that just because you are retiring means income is going to, excuse me, taxes are

going to go down. Yeah. And I think to your, you know, like your point is, you know, check the box, yes or no. Will taxes go up or down in the next 10 or 15 or 20 years? And nobody knows. Nobody has a crystal ball, but I think that most people can look back in their lives and go, you know, back when I was in high school, I paid this much money for a loaf of bread or a movie. So we know inflation happens and prices go up. And also the tax rates have gone up. And really, in my opinion, the only way that we can attack that deficit that we see, you know, escalating is to either lower the government spending, which probably won't ever happen, or you got to

raise those taxes to cover that. And so I feel like most people would nod their head and go, yep, taxes are probably. probably going to go up. And it's kind of like we've even mentioned in our previous conversations, if you prepare for something that doesn't happen, at least you're prepared. So if you prepared that, what if you're in a different tax bracket and tax have gone up and you've got those things in place and it really isn't as bad as what we prepared for, then that's a good thing. But you want that lifestyle to be delivering to you what you are envisioning. Exactly. Exactly. And so, So what are some of the things that you're hearing back from clients then when you start this conversation?

Like, you know, yeah, yeah, yeah, taxes. When you start explaining some of these things, what are some of the things you're hearing back from clients as far as their fears and what they're needing? Well, their fear is always, you know, for the vast majority, it comes down to, am I going to run out of money? And no matter what you're looking at, that's what they're asking and that's what they're saying. And the key to that is we have to really take a look at the taxation and how it does impact the retirement and how they've structured their accounts. So that is a huge concern. And the big area that I think they miss the point is so many of them are counting that Social Security is not going to have a tax on it. And because that's what they've heard or that's what they've read.

And, you know, unfortunately, this. the shocker comes in that, you know, depending on where your income levels come in at, outside of your Social Security and the timing of when you chose to take your Social Security, you know, everything impacts Social Security and it is still going to have a tax on it. And that tax can range from 50% clear up to 85% taxation on Social Security. And I'll be really honest, I've seen some that's had it happen. And they were so caught off guard by it when they come in. They're like, how in the world I thought I had planned that this wouldn't happen?

What did I not get positioned correctly? Or is this incorrect? You know, is there a mistake? And the unfortunate part, there isn't a mistake. And they just don't realize how vital it is to be aware of how tax plays a role. You know, it reminds me of when we watched Shark Tank and they asked the entrepreneur, hey, what was your revenue last year? And they say a million dollars.

And everyone shouts, you know, and says, congratulations. And then they say, well, what was your profit? And like, well, we lost 100,000. Well, it doesn't do any good to make a million if you paid out 1.1. So the same thing here is, like you see that number, that security number that, okay, when you retire in two years, like you've planned, you're going to get X, whatever that number is. But what then they don't realize is what comes out of that? What is going to land in their back pocket that they can spend? And if they were misinformed about, well, it doesn't get taxed at all. or a smaller amount, that really is going to be a big hit in what they can use to fund that gap in

retirement. Exactly. And, you know, another point to go right along with that is they get taken off guard when they haven't been educated that, you know what, there is a huge impact even on their Medicare. And what I'm talking about is their part B. A lot of times people will retire out. walk away from the corporate America. They're out here and they decide to sign up for Medicare and they're coming into the office and

saying, this cannot be right of what I'm paying for Part B. And I'm like, yeah, it is. And it's because they did not realize how it was going to impact them from an income standpoint to taxation that comes back through even on their Medicare. and they had no plan in place for that because they didn't know. And so that's a real sad spot to be in. And I always hate it when I see that happen when they come in upset about it. But then we sit down and we look at, okay, how do we correct some of this?

Because some of it can be corrected. Some of it can't. But, you know, or change up things. So going forward that puts them in a lot better position than where they are today by diversifying more. Yeah. Well, I think that's the key point is looking at the full picture, being aware of where they can diversify. So talk a little bit about the types of retirement accounts that people could be considering contributing to to really take advantage of diversifying their tax level, their tax burdens. Well, obviously, you know, one of the most common ones I think now in our area that we're in at this point is, 401Ks a lot of times people have the opportunity through employers to contribute. And obviously, a lot of these employers are matching, doing company matches. So that's always a good place to start.

You know, I even, my son, when he graduated from high school, not too long ago, he, he started out here in corporate America. And we, we encouraged him to start right out of that gate, putting money away because it's really important because it takes time to build that nesting of money. But that is one option. Obviously, that is a pre-tax situation. So you will have to take into consideration taxes down the road. But it is a way to get started towards retirement. And then a lot of times you'll roll that over into an IRA or if you're an entrepreneur and you're out here individually, you're going to be using some individual retirement account to do some savings as well. Now, one of the areas that I really like is utilizing some broth conversions for people.

people and basically a rock conversion allows them to take pre-tax dollars that they maybe have inside of a retirement account and convert that over and pay the taxes now. And we'll get asked, why would we want to pay the taxes now? Why not pay the taxes now? Today is the lowest your taxes are really going to be on that money as you're transitioning it over. So once you transition that money over, now all the growth on that money is sitting there growing and it's inside of a tax-exempt vehicle. And so that's a real plus. Besides that, then of course, we've talked before. You can also utilize some other insurance-based products that have growth inside of them.

Cash value, life insurance is one of those two. and it allows you to have that growth without getting taxation when you take and you withdraw from that or do loans from that. And so it's a matter of structuring the different products that are available to you. And I always say cash value life insurance is one of those that is kind of a Roth on steroids, so to speak, because it allows for growth. So those are some different vehicles that we have out here. and most are going to transition from a pre-taxed environment into, you know, transitioning over taking some of the tax hit either all at once or along the way, depending on each person individually, because it's not a cookie cutter situation.

Everybody has a different tolerance and a different goal and desire of how they want to see that happen. And so it's always good to make sure you're just working with someone that's, you know, able to to meet those different needs that you have and see the bigger picture of what is really available. You know, I think that a lot of times people get really frustrated at market volatility. You know, they get tired of seeing the markets go up and down. They get tired of seeing their retirement accounts take a hit. So they want that guaranteed income. And there's a lot of vehicles that I'm sure you would recommend on that. but it kind of makes me think about this, what you said about, you know, do you think taxes will go up or down?

And if you, you know, agree with the fact that probably taxes are going to go up in the future, then taxes today are at the lowest that they're going to be in many, many years. And if that's the case, then doing what you just mentioned, maybe triggering some of these accounts that you haven't paid taxes on right now, getting those out of the way, covering them now in a nice, safe strategy, and then putting it into some tax favored vehicle like what you mentioned, Roth, or cash value like insurance where then for the next however many years it's going to grow without incurring those taxes, that could be really something to think about. And I think that a lot of times people have no clue that that's even available in a possibility.

Oh, I agree. I really don't think that they have been educated and that it's been talked about enough for clients to understand that there is some real power behind making that choice to it that way. The unfortunate thing, Mike, is sometimes it feels very painful to take the tax hit now. You know, and one of the things, you know, I try to express to clients is, you know, I know that it hurts to take the tax hit now. But if we can get a strategy in place to do that systematically and, you know, to mitigate not all, you know, some of that taxation in the future or all of it's for some people. I actually had one client that said, let's do it. Let's do it all in one year.

I want to rip that bandaid off. I was just thinking of the bandaid. Yep. Yeah. So we said, okay. And we planned accordingly for that to help where is those resources coming from to help offset that tax liability. But we also were able to help them get that everything positioned so that it's not going to affect their social security. There's not going to be any taxation on Medicare going forward once they do take that. And then the transfer of that wealth going to create that legacy for them as well, we just were able to position that client in such a better position that they don't even have to do the tax return in a lot of cases. If they've positioned everything correctly, which who doesn't want to get away from having to do that because you've already taken care of it? Right. So yeah. Yeah. I think that is so huge. And just like what you just mentioned there, no one should listen to that and go, that sounds good to me. Let's do it because there is not one solution that is right for everybody. It just depends. And I think that frustrates some people, but it really is caring for your clients to say, let's just talk it through. Let's figure out where do you want to be? Where are you at now? Have you considered this and what about that? And just kind of just talking

through that and listening for some of those opportunities to minimize taxes. I think that's huge. And, you know, when we think about minimizing taxes, what about, and I know you're not an estate planning attorney, but can you speak to minimizing estate taxes? Because one of the ways that retirees want to consider legacy planning is transferring their retirement accounts to their heirs, which means that there could be, in some cases, estate taxes. What do you, what do you advise? in that way? There could be. And part of that depends on how everything is structured and, you know, at the same time, have they utilized a trust and different, different key pieces of, I guess I would say legal pieces that are going to come into play of what they're planning

before they've sat down in our office and had a conversation. So we're going to look at different vehicles and piece that together by do we need to cover those taxes and how how what is going to be the ideal vehicle because there is a there are several different ones Mike that we can use um and as you said you know it's not a cookie cutter so the problem is i can't give one exact solution um because everybody is different but what we can do is really dig into where their estate is at how big is their estate? What are the current laws at this time that are going to impact that? And which of the vehicles that we have available to us can we utilize to minimize that estate tax and give the errors more money to pass that through without the taxation being astronomical? And there

are ways to do that. You know, it's one of those that when we sit down and talk to people, the big thing, Mike, is the first thing is asking the question is, what does that retirement look like? What does that, you know, transfer look like? What is the legacy that you want to build look like? And a lot of times people just think about just retiring. They don't have, they haven't took the time to create the vision of what they really think retirement is. And so I really back them up and say, let's talk for a minute and find out because, you know, what do you want to happen when you pass away? Here's an example.

I live in a farming community. So we have a lot of farmers out here that their intent is to pass the farm down to the next generation. And the conversation will go, how have you planned that exit strategy? Well, when I pass away, they take over. Do they know that? Yep. Are they prepared for that? What do you mean?

And the big thing that they don't talk about, and this is what I'm really, really passionate about with people, is understanding that just because you want to pass that on to someone else, your family, the next generation, you know, family farm, whatever it is, family business, you have to have a succession plan. in place and that goes right along with the estate planning. And it all comes together, but it's that person has to give the vision of what that looks like. Do they want to give a plan in place enough that that family that's going to receive that estate doesn't have to worry about the taxes? And isn't that a huge gift? You know, you think about, you know, making peaceful plan for your family after you're gone,

And what a huge gift that is to think that far in advance and to make sure you've paved the way and smoothed the way and wrinkle, smooth out those wrinkles. It is. And the big thing is a lot of them don't realize that they can do it. That there is actually a way of going in and taking the time to do that plan and it's in and change the total trajectory of where that future inheritance is going to go and how far it can go. And, you know, one of the examples is that, you know, if you think that your kids are going to take over the farm or the business and you didn't do that planning, now what if they have to start, you know, liquidating assets just to pay the taxes? And now, you know, that becomes a vicious cycle. I actually have some situations going right now that we're in that situation.

Oh, my gosh, how do we liquidate down the assets to pay for care because this person got sick? And once we go to do that, it's going to create a tax liability. It becomes this vicious circle. How are you doing it done? So it is really about taking the time to plan and understand there are so many resources out here. But it is, it's not something that you can just go out here and say, oh, I'm going to buy this policy because that policy is not structured to build the estate planning out to help with the estate taxes and the transit. and the transfer of wealth. So there's just all kinds of things that I think people,

if they just understand, getting with the right strategy put in place, makes all the difference in the world. And it is a real blessing because it takes the headache and the heartache out of it and leaves those legacies intact. I love it. Well, I tell you, Kimberly, once again, it's just so neat to hear your caring perspective on these

to help educate your clients. If someone is considering some of these aspects of minimizing taxes in retirement, what's the best way they can learn a little bit more about what you provide and reach out and connect with you? They're welcome to visit my website at Kimberlypolar.com or they can give us a call here in our office. We'd love to talk to them. And our number here is 260, 346, 3456. And we'd love to hear from them and have a conversation. Excellent. Well, Kimberly, thank you so much for coming back on.

It's been a real pleasure talking with you again. Thank you, Mike. I appreciate it. It's been great. 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.w.com.