Business Innovators Radio - Interview with Maurice Bailey, President of Wealthy Way Financial Discussing How Taxes Impact Retirement

Episode Date: September 3, 2024

As the Safe Money Coach, he has been helping individuals, families, and business owners BULLETT Proof their assets through Safe and Tax Efficient Strategies since 2003. He grew up in Massachusetts where he attained two Associate degrees in Business Marketing and Business Management. Maurice currently lives in Montgomery County, Maryland with my two daughters ages 11 and 17. He currently specializes in Optimal Income Strategies, which assures his clients pay less in income taxes while providing Guaranteed Income streams for Life. His Social Security Income Strategies provide a way for my clients to clearly envision their Retirement from the first to their last day. He is a Certified Financial Educator (CFED) and a member of the National Ethics Association as well as the National Association of Insurance and Financial Advisors (NAIFA).Learn More: https://wealthywayfinancial.com/Influential Entrepreneurs with Mike Saundershttps://businessinnovatorsradio.com/influential-entrepreneurs-with-mike-saunders/Source: https://businessinnovatorsradio.com/interview-with-maurice-bailey-president-of-wealthy-way-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, Maurice Bailey. He's the president of wealthy wave financial, and we'll be talking about how taxes impact retirement. Maurice, welcome back to the program. Thanks again for having me, Mike.

Hey, so I think this could be about a 10-hour conversation and not too fun because we hear talking about taxes. Nobody likes talking about taxes, but guess what? We've got to know about taxes and how that's going to impact retirement. And then probably one of the things we ought to talk about is how can we put some things into place so that we mitigate them as much as possible. So where do you start when you're talking with your clients about that? that concept of taxes? Well, where I start is I usually start with a question. Do you think that taxes will go up in the future?

And I think when you ask that question, especially when I do seminars, 99.9% of the time hands rise and they say that they know that taxes are going to go up because the government actually only, there's only two ways for the government to actually function. they either have to spend less or they have to tax more. And we all know that the government has a bad habit of not spending less.

We're not going to get that spend less option kicking in for Zeroy. Right, exactly. And, you know, I don't think there's any president that wants to come in and start with, you know, severe austerity methods or methods that can be used. I don't think that's going to happen. So the best thing for the government to do is what they have been doing, which is to tax people more. And they can do it in some very sneaky ways where you don't see the money coming out as much,

but you definitely feel the impact when it comes to purchasing items or your regular expenses that you have on a monthly basis. Yeah. And, you know, that's an interesting point you bring up because, unfortunately, even though we have the power to vote, there's many things that we don't fully comprehend. So, you know, do we feel like taxes will go up in the next five to 10 years or beyond? I think everyone would check that box, yes, but how much?

And if you're within five to 10 years of retirement, have you calculated what you need to live in retirement and then how that tax, you know, calculates? I mean impacts that. So what do you do with your clients to help them really clarify that calculation of not only, we feel like taxes will go up and we don't know what it's going to be, but let's kind of gauge it at this number. And then what about people that go, oh, but in retirement,

I'm going to be in a lower tax bracket, right? Yeah. People say that without having the expectation of what that actually means. I don't know when that came about or how that came about that most people feel that in retirement you have less debt. And I would ask a client, hey, what actually changes in retirement? What expenses do you actually have now as you are working that you're not going to have in retirement? And most people say, well, you know, we'll cut down on our bills. We'll do all these different strategies and we'll end up paying less than taxes.

Well, surprise, surprise. when you get to retirement, you actually have less years. I'm sorry, when you get to retirement, you have less right-offs that you have, which increases the amount of taxes that one actually pays. Well, you know what you probably have more of? Time. And if you have more time, well, I mean, obviously you have more time. But because you have more time, aren't you going to be gone, well, shoot, let's take that trip we were going to always talk about.

And let's travel even more. And let's go see the grandkids. And now all of a sudden, yeah, you might not be going to work and paying for transportation gas, lunches out because you're in the workforce. But I would wonder if there's a lot of people that go, man, I'm six months into retirement and I'm finding my travel budget is through the roof. I didn't even think of that. Well, absolutely. I think because retirement is new, it's just like going to your first day at work or your first day doing whatever. it is that you're doing, if you don't have a plan in place, you're not going to really get to

where you need to get to, and a lot of people approach retirement in that way, in that they don't really figure in the expenses. They don't really figure in what are the taxes going to be for me when I retire, and how long am I going to be paying these taxes? We don't think about these things because usually most people spend more time planning for the vacation that they took last year than they do for planning retirement. And that's how people find themselves in very difficult situations financially. I can't tell you how many couples we sit down, I sit down in front of them. And, you know, one of their first thoughts are, well, we're on a fixed budget. We're on a fixed budget. We're on a fixed budget. That means that's another way of saying we can't afford something.

We can't afford something. We can't afford something. What if they would have done a little bit of planning before or during the first part of their retirement, there are some ways that we could minimize the taxes that one pays that severely helps the client. Because if you think about it, if they're paying less taxes, that means that there's more money going into their pocket, which is the key. When it comes to retirement, you want to make sure that you pay less and you have more coming into your household because more is going to be needed. You just mentioned time, right? I believe it was Tom Hegna. an economist that says, you know, in retirement, every day is a Saturday, right?

Yeah. But it'll be a rainy, cloudy Saturday if you haven't planned the right way. Absolutely. So what are the types of taxes that people need to be prepared for? So there are, repeat the question one more time, I apologize. What are the types of taxes that people need to be prepared to pay in retirement? because like, you know, oh, income taxes. Well, I'm not going to be working anymore.

So I don't be, I'm not going to be paying those income taxes because I don't have a job, but there's going to be other taxes that they need to be prepared for. Right. Absolutely. There's always some way to try to get money out of your pocket when you get retirement. And taxes happen to be one of those ways. So there are many different ways in which you can actually be taxed in retirement that most people don't think about.

So let me give you an example. If you, I'll give you another client as an example. I met with a client a couple of weeks ago and this guy had $700,000 in the bank, right? When we looked, I asked him to bring us $10.40. We looked at the taxes. He's paying in taxes $11,000 a year on income that he doesn't even use. Wow. Right?

So in preparing better in going over what we did with him, we were able to take his situation, put some of that money elsewhere, reallocated, if you will, from the bank where it's still safe. He still gets access to it. But he's actually able to save that $11,000 that he was paying in taxes each year after repositioning his assets. That's a bill that he no longer has to pay. And again, this is money he's not even using. So we just repositioned his assets and saved him $11,000 a year in taxes just by making one smart move. Yeah, that's pretty huge.

And it reminds me of the aspect of the old example of the money or the water going into the bucket representing, you know, money in your in your bucket financial bucket. And yeah, you can put more water in, more money in. But if you've got a bunch of holes where it's flowing out like taxes, it's it's something where if you can plug up as much as possible because you never can plug up all of the tax holes. We have to pay taxes, but if we can lessen them or mitigate them as much as possible. So what were the kind of things that you were mentioning to him that he could be considering to do? Well, not only were we able to minimize the taxes from the bank, but also because we then repositioned his actions, assets, the taxes that he was paying on Social Security was drastically reduced by the decisions

that we made. So we saved him taxes in two different ways just by changing one thing. Now imagine that $11,000 plus the amount that he saved in taxes from Social Security. Over 10 years, that's easily well over $100,000 that we're able to save this individual. Now when we say saving him money in taxes, that's, again, money going into his pocket, which means it's $100,000 more that he has to do whatever he needs to do to live that comfortable retirement. Yeah, for sure.

That's really huge. So now let's think about what kind of retirement account should people be contributing to that might even be tax favored, you know, because you start thinking about, well, I don't want to be contributed to an account that is going to make, we pay even more taxes. So what are some things that way? So there's, I don't know who coined this several years ago. I learned about it many years ago now, but there's something called the retirement red zone, right? Where that's essentially, it's a football term, but they use it for retirement planning. It's essentially, if you're five years before retirement or your five years

after retirement, that is the one of the most dangerous times that you have in retirement, not only for the potential of losing money, but also for the potential of how you position yourself tax-wise, right? So if you are a pre-retiree and we sit down and we talk about developing income strategies for when you retire, one of those first things that I'm going to ask you is how much tax do you actually want to be paying? And most people don't want to pay any taxes, especially in retirement. But again, you just, you perfectly stated it earlier, there are a lot of holes that need to be filled, but we can only fill some of them, right? So when it comes to different strategies that we can use, one of those strategies are how do we reposition your assets? I have plenty of clients, so I'll give you another example of a client from the other day.

This guy was 63 years old. He wants to retire today. he's got a pension from his military. He was an Air Force guy. So he's got a pension from his military. He's got disability pension also from the military. And he makes about $200,000 a year. Now, he just started earning that kind of money because he was earning a lot less before. So because he had two pensions coming in, the income wasn't as great. He had to keep, he has to keep up, if you will, with the amount of expenses that he has. right? So he said, look, Maurice, I want to retire in the next year. Can I do that? So we looked at what he had going on and all of the sources of income that he has coming in are all taxable. So after looking at his expenses versus his income, we decided, hey, look, maybe it's not a good idea to retire today. Let's retire five to seven years down the line, which he was okay with. So what we did is we switched strategies for him. Instead of placing his assets, his, his retirement assets,

continuing to put money into his thrift savings because he's a government employee, we end up changing, putting it directly into thrift from a taxable standpoint, and we switched it to a Roth Thrift, which is a Roth 401K essentially. So that stopped the immediate bleeding of all of all of, of his income potentially being taxed. Now he can max out his thrift savings and make at least most of it be tax-free. Don't know if you know this or not, but the contributions from a Roth 401K are actually still taxable. So most of what he puts in will be non-taxable from that strategy that we used.

But that's a portion of how we're able to help. Now, another strategy would be to make. sure if it was another client, I would say, hey, look, depending on your income, let's take a look at maybe positioning your assets to use a Roth IRA or maybe life insurance that both provide tax-free income for that particular client, depending on their situation. So if you're over $200,000 as an example, we may not be able to go to Roth IRA route, but we may be able to use life insurance. And if you're under 200,000, we may be able to use the Roth solution instead of the life insurance or maybe a combination of both. It just depends. But there are strategies that we can put in

place to help to drastically reduce the amount of taxes. But again, Mike, the key is the plan ahead. You can't wait till the day before you retire. Yeah. Before you retire. You know, I was literally getting ready to say that with the example of the gentleman that you said, oh, well, you're 63. You've got two pensions now we need to wait five to seven years. But if he had come to you five to seven years prior, you could have put these things into place and then boom, right? At 63, we're ready to go. So don't put it off. Make sure that people have, that everyone thinks ahead. Because many of these things, it's not just a simple matter of, I want to retire, check this box, check this box, and send me the paperwork, because many of the things that you would be recommending that would

really benefit them, especially regarding taxes, takes a minute to, you know, to put into place and help them out. Absolutely, absolutely. That's why strategically planning makes the most sense. And when you do that, you put yourself in such a better position than someone who's not planned. Imagine, if you will, driving across country, one person has a navigation and the other person has just signs on a road, right? the person who has the navigation will make it there efficiently. Yeah.

Versus the person who's just got signs to read on the road to where he wants to go. So my... That's a really good illustration, but the really great word that you, because both of them will probably get there, but the one that has navigation will get there efficiently. And can you imagine the one that doesn't? You're frustrated. Your stress levels are going through the roof because you need to get there and you don't have that navigation. So, yeah, when you can sit down with someone and show them that path forward and that becomes their GPS navigation for retirement, boy, that just really clarifies things for them.

So spectacular conversation here. I really appreciate you helping us illuminate on these topics. If someone's interested in learning more and then also reaching out and connecting with you, Maurice, what's the best way they can do that? Well, they can reach me at wealthywayfinancial.com. I'm also on Facebook, Instagram, all those other. their social media apparatus, you can find me there at Wealthy Way Financial as well. Awesome. Well, thank you so much for coming back on. 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.com.com.