Business Innovators Radio - Interview with Linda Jensen Principal and Owner of Heart Financial Group Discussing How Taxes Impact Retirement

Episode Date: June 29, 2023

Linda has been self-employed for her entire life. A successful financial advisor since 1994, she has enjoyed all aspects of entrepreneurship, especially problem-solving, sizing up dilemmas, and working through complexities with creative solutions. She is a lifelong learner. In addition, she has a passion for establishing a good rapport with business owners and clients helping them access a wide range of resources. “Business owners are in a lonely place,” says Linda. “I want to develop a relationship with the business owner, offer counseling and serve as a referral service.” Linda began her career in 1994 with Prudential Preferred Financial Services; for three years Linda was an agency leader in Tacoma, Washington.Since starting her own firm in 1997, Linda has enjoyed working with individuals and business owners helping them achieve their financial dreams and goals. She is an expert in all aspects of retirement planning.Linda has lectured widely on financial topics to both the general public and business professionals. She is passionate about helping business owners leverage corporate cash to create benefits for the owner(s), and key employee(s) and to identify estate-planning solutions.Linda calls the Pacific Northwest home. She married her college sweetheart. She and her husband Brad have two children and five grandchildren. Linda loves learning, reading, hiking, sewing, and cooking.Learn More: https://www.heartfinancialgroup.com/Investment advisory services are offered through WealthWatch Advisors, an SEC registered investment advisor. Wealth Watch Advisors and Heart Financial Group are independent of one another. Please note that registration with the SEC does not guarantee the success of investment advice.Influential Entrepreneurs with Mike Saundershttps://businessinnovatorsradio.com/influential-entrepreneurs-with-mike-saunders/Source: https://businessinnovatorsradio.com/interview-with-linda-jensen-principal-and-owner-of-heart-financial-group-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 Linda Jensen, who's the principal and owner of Hart Financial Group, and we'll be talking about how taxes impact retirement. Linda, welcome back to the program. Thank you, Mike. So I want to dive into this because I know that these are two really huge topics,

taxes and retirement. And I think that many people don't plan for either one of them enough time in advance and fully thoroughly properly. So I'm excited to talk with you about that. What are some of the first steps that you are educating and teaching your clients on as it relates to taxes and how that actually impacts their retirement? Well, you know, as a fiduciary, I have to really get to know somebody to give them any advice. And so when we meet, we go through a process of discovery.

And for a lot of the folks I deal with, they have quite a bit in the pre-tax column. See, there's tax now, which is basically like dividends, capital gains, interest on bank accounts. There's tax later, which is IRA money. and then there's tax never. The only thing in the tax never bucket is properly structured life insurance and Roth distributions. So the next to the later area

are all these qualified plans. And Mike, when we were funding them, if you're retiring, it's probably 30, 40 years ago. You started putting money into a 401K, TSP if you're federal, if you're a state employee, 403B if you're in a nonprofit situation, like a hospital or medical facility.

And so we put all that money in pre-tax. And Mike, we did it decades ago, not knowing what the tax rate would be today, right? And what they told us when the ERISA law was passed is, oh, get the tax deduction today because when you're retired, you will be in a lower bracket. And Mike, I got to tell you, I hardly ever, ever see that. So when we do our discovery meeting, and for a lot of folks, if they have quite a bit of money piled up in the IRA kind of category, taxes could be their business. biggest expense in retirement unless they have a long-term care of it. And we see it all the time. Okay. Well, that myth that you just mentioned about, you'll be in the quote-unquote lower tax bracket. I think that I'm correct in seeing news stories or reports out there that tax brackets can expand

and contract. So you don't even know what the brackets are or will be. But then the actual tax rate can go up and down. But I think the one thing that remains consistent is, taxes are going to go up because it's the only main thing that's going to address that big old deficit we hear headlines about because the other way to reduce the deficit is for government to lower their spending and we kind of know what the answer to that is. We do know the answer to that is. Yeah, I know. And so, you know, taxes could be, and right now we know they're on sale. Taxes are actually at an 80-year low. We know going up and the brackets are changing when the tax cuts and jobs act ends.

December 31st, 2025. So we have the next three years at these lower rates. And we do know the brackets that they will be. Now, Congress has to change that. And I'm of the opinion, too, Mike. The taxes are going to have to go up. And I teach people this all the time. I'm basically an educator at heart.

We have huge spot screen TV in the offices. So I can show people PowerPoints. And I actually show them the national debt clock, believe it or not. And I tell them, look, this deck clock now, is up to almost $32 trillion. It was sitting at $30 last February. It's gone up almost $1 trillion in less than a year and a half. And the problem with that is just even $1 trillion,

I mean, if you have $1 bills, you'd stack up almost $60,000 above the earth surface with $1 trillion. The government spent this same article in the journal announced the government spent $7 trillion in two years with COVID. That's one of the reasons we had this hyperinflation. And what is most disturbing to me is, that they're only bringing in about 4.7, almost 4.7 trillion in revenue. And that's paying for

Social Security, Medicare, Medicaid, interest on the debt. They're printing or borrowing, everything else. So I agree with you. Taxes could double in our lifetime. In my audience here, if you have Prime video, please write this down. It's a documentary on Prime called Power of Zero. The tax train is coming. And David McIntyre makes a pretty compelling case that taxes could double in our lifetime. Wow. That's a great note. Thanks for that tip. So when we think about taxes, we've got, you know, state, federal, all these things, but what types of taxes do retirees need to pay in retirement? Well, you know, most, I'll tell you, when the government passed in 1935, the Social Security Act, they made two promises. One is that little card they give us would never be used for identification purposes. And the other promise they paid is that Social Security would never be taxed. They, They broke that promise in the mid-1980s, Mike. And the thresholds to not have taxes have never been increased.

They've never had a cost of a living hike. So as a single person, your Social Security has to be less than $25,000 and a married couple less than $34,000 to not be taxed. To put that in perspective, I live in Washington State in Western Washington. In our county, you have a real estate exemption for a senior. if your income is less than 48,000. Can you imagine? So 25,000 and 34,000 as a married couple is, in my opinion, almost poverty level. And so you can have up to 85% of your Social Security tax because of the potential for increases in taxes.

We help our clients pretty much with Roth conversions so that they're trying to, because we have a known tax rate today to shift that money from taxable at sometime in the future. And why is that, Mike? Well, 50% of us are living toward 92, 25% of us toward 97. And so retirement could be 30 years, give or take, right? We have no idea what those tax rates will be in the future. So because of Roth conversions, you have to be careful with that. We help our clients do that, help develop a strategy. Because when you do Roth conversions, it can also trigger and earn a penalty for your Medicare premiums. So your your Medicare premiums can be anyway about $160, $60 a month per person to $560. Could you imagine?

So that goes up almost another $5,000 per person just for Medicare taxes. And then if you sell real estate, it can increase your capital gains tax. I mean, these taxes to me are like a big spider web. And when you jiggle at one place, it can show in other places. Yep, I love that spider web. It reminds me like a dominoes. You know, you tip one domino and here they go. And like you just mentioned, I think a lot of people don't realize the domino effect of, oh, if this, then that.

If I, you know, take out money out of a Roth to do what I Googled and heard on the internet. So let me go ahead and pay some taxes now. I'm going to do that. And they try to do it on their own. But they don't realize the domino effect of, oh, but now you're going to trigger an irma of this or a Medicare increase. I think that that's the problem these days. People feel empowered by the internet. they assumed something they read and they didn't work with a financial professional to look at the

big picture. There's another one, Mike, because if you're still working and you think about collecting Social Security early, there's a big penalty if you're working and collecting. You can only earn about $21,000 a year right now. So, you know, up until your full retirement age and then it changes. But so I was doing, I've done Social Security seminars for probably 25 years. I was doing class once a couple years ago. and this lady in the front row told me before class that she didn't understand that rule.

And after she retired, she got a bill from the IRS for 25 grand. You see, every $2 over that number, you give the government back a dollar. So in her case, she didn't get her social security checks for about a year to pay back that penalty. Good night. And once you've triggered that and you're aware of this penalty, it's too late. You know, the toothpaste is out of the tube. You can't put it back in and go, oh, okay, no, no, no, what I'm going to. it's too late.

You need to know going in. You need to know all of these ramifications. And so, you know, some of the things you mentioned about, you know, that domino effect and maybe even one of the solutions is the, you know, Roth conversion, you know, it's, when you mentioned that, it reminded me of like the old saying, you know, I want to deal with the devil I know now rather than the devil I don't know in the future. Well, we know what tax rates are now. And like you said, studies and numbers and research shows we're at the lowest tax rate.

for many, many, many years. If that's the devil we know, maybe it makes some sense to maybe to do that Roth conversion. We don't have time to get into that strategy here, but just, I think it's important to know there are some ways to minimize tax liability. What are some other ideas and ways that you educate your clients on minimizing tax liability? Well, you know, we also have a partner with a national network of CPAs and one of the services we can offer if somebody feels that they're, you know, maybe they're a higher tax bracket that they're paying too much in taxes, is we can actually do an evaluation of their tax return to see if the accountant is missing something. My experience has been of CPAs is this. I think they're forensic. They put

together what you did last year and the IRS. And for the most part, they do not want to have to defend you to the IRS. So sometimes they're kind of delinquent in sharing with you, legal tax deductions that you can get, you see. And so we offer that, you know, we can review their tax return. Unfortunately for people, we have a graduated tax. You get a chunk that's tax free, that's your standard deduction, then a 10%, 12%, then we have 22, 24 right now, and then it goes up from there. And so for some people, especially let's say they're trying to do Roth conversions, they want to keep their income low. Maybe they'll delay their Social Security. Maybe they'll delay their pension check, you see. And that's where it's really important to understand the tax code.

So I actually give tax advice, okay? And a lot of times your CPA doesn't. So if there's a way to save tax dollars, we can do that. And then I also have tremendous resources for the folks that we work with. You know, you mentioned a phrase just a few minutes ago that I loved tax never. So the type of investment accounts that we can get into, talk about. Talk about. a little bit about some of those tax never accounts because I think that when you look at moving money into accounts toward retirement age, you need to make sure there's very little volatility, very little risk, and really err on the side of having guaranteed income. Well, you know, let's talk about the tax never first, and then we'll talk about guaranteed

income. So tax never, there's only two things that don't show up on your 1040. properly structured life insurance and Roth distributions. That's it. Now, if you're lucky enough to work where you have a 401k or TSP or something, you can actually put in a lot more than the average person can into that plan. And do your matching. If you get 5% match, by all means, do your match. But for a lot of people, I'm telling them, try to do Roth after that, you see.

The rest of the activation do a Roth. I had an interesting meeting this past week with a physician, and he has two children that are also doctors. One of them has kind of a smaller amount of debt, believe it or not, it's still a lot to me, $200,000. But he was telling me, there's some kids getting out of their residency with $700,000 and $800,000 in debt. Wow. Well, these are younger people, right? So I love it when I can deal with the kids or the younger people and show them how flexible life insurance is. In fact, we have a program called Debt Free for Life, where we teach.

people and have a program where we can help them get out of debt a whole lot quicker. Let's say somebody has a 30-year mortgage, we could probably get it paid off in less than 10. And so to me, also, when you're retiring, the short rule of retirement is pay off as much debt as you can and save as much as you can. Now, when it comes to income, I'll tell you what, income is the most important part of retirement. Because if you have guaranteed income, if you have a pension check, it's extremely valuable. making a decision about when to take your social security is a very important decision because it's basically like a pension check.

So those are your guaranteed sources of income. For those people that don't have pensions, we have a program where we can put them in to give them guaranteed pension type income if they're married. As long as one of them is alive, they're going to get that income. That's what we do, right? And so to me, retirement equals income, income equals lifestyle. for our clients are taking their require minimum distributions that are mandatory in their IRAs. We do planning so that those RMDs come out of the gains or the interest or the dividend, just say. So they're leaving that nest egg intact because the last thing a retiree wants,

and stock market is a big risk, right, is to lose 20% of their money in a year, right? That's devastating. Because I outline the risks of retirement, Mike, their longevity, because half of it's are living to a 92, 25%. percent of us turned 97. The stock market is a huge risk. We have investments that take the wind down sales out of that risk, by the way, because I pretty much, my entire career, work with folks who are retired, close to retirement. That's a big, you know, client base for us. So we have investments in line with that. We do tax planning for them, because for a lot of people, taxes will

be the biggest expense. I'll save a long-term care event. We'll do long-term care planning. And then another one that is really important for folks to understand if they're married, when one of partner dies, their taxes will go up and their income goes down. So why does that happen? Well, your standard deduction is cut in half when you're single. That's why your taxes go up. And then, like, let's say you're a federal retiree. You can only give half of your pension to your spouse. You can only keep the higher social security.

So your income definitely goes down. I have a slide that I show folks. Here's just an average couple earning $60,000 a year, both alive. They're paying a little bit less than $1,000 in taxes. Same income. One of them dies. They're paying over $5,000 in taxes. So we help our clients plan for those tax increases and we help them plan for these risks

of retirement. You know, and Linda, I know that when you think about taxes and tax breaks and deductions and benefits and all that, sometimes there's only so much you can do when you are a W-2 employee, but it really opens, the world opens up when you're a business owner. Give us a high-level, surface-level approach to what some of those opportunities are on business owners for reducing and mitigating taxes. Well, for business owners, I think one of the big one, when they want to retire, is selling their business.

Yeah. And usually there's a huge capital gains tax issue at that point. And so we actually have partners where we can eliminate that pretty much mitigating. those taxes, 80% of them. And that's a huge benefit to whether that's highly appreciated real estate or it's on the business itself. So we can eliminate those taxes. Another problem I see for business owners, and we love working with business owners, Mike. It's one of my passions is working with business owners because we have strategies to actually lower their expenses and save them tax dollars. But a problem with the business, it's multi, they want to,

to go on to the next generation is they're so busy taking care of themselves. They don't plan, you see. And I have seen businesses have to sell instead of being passed off to the next generation to pay the estate taxes. So there's not only capital gains tax, but there's also, it could be federal and also the state of the residence estate taxes. And so all of that really takes a plan. people are more successful if they have a plan.

You know, isn't that true? And you feel kind of like that sigh of relief like, okay, it was a little bit of work to get that plan in place. But now that it is, that just makes me feel so much more confident. So I think that is so powerful. And I'll tell you, Linda, you brought up so many great things to think about here. If someone is listening to this thinking, how would these things impact me? What's the best way they can learn more and then also reach out and connect with you? And Mike, you know, before I give you that, I'm happy to.

I would just take just a minute here to explain where we are right now. The yield curve is inverted. What that means is it's been a predictor of a recession since 1969 consistently. And there's other data, too, I don't have time to go into now with inflation and banking. And it looks very likely that we're going to enter a recession this year. Well, you know, if we have these bad years, last year was a terrible year in the market. This year is pretty volatile. next year is an election year.

That's what guaranteed income is so important, Mike, because then you can actually take the bumps out of that retirement of yours because the number one concern of folks in retirement is if I'm going to have enough money, we see. So for the most part, people feel like, you know, I took all this risk when I was working. Now that I'm retired, I'm not interested in taking that much risk because I'm going to protect my nest egg.

And the way to get a hold of us, my email is Linda L-I-N-D-A at Hart-H-E-A-R-T. Financial Group.com. You can check out our website at hardfinancialgroup.com and the office phone number is 360-878-8065. Belinda, thank you so much for coming back on today. It's been a real pleasure talking with you. Thank you, Mike. 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. www.

influential entrepreneurs radio.com.