Business Innovators Radio - Interview with Renée Kennedy, President of AAA Life Solutions Discussing How Taxes Impact Retirement

Episode Date: June 16, 2023

Renée Kennedy brings over 25 years of industry experience to the table. Our priority is always our clients and their financial stability, which is why we listen to their objectives and design innovative, personalized strategies that meet their unique needs. Our focus is on customizing employee benefits plans for businesses to reduce or eliminate costs, while offering tax savings. We also specialize in life insurance strategies, 401(k) rollovers, and more to help individuals and businesses build tax-free retirements, secure long-term care and death benefits, and more.At AAA Life Solutions, we always put clients first, with excellent customer service and up-to-date insurance strategies tailored to their individual needs. We do our due diligence to ensure that we make the right decisions for our clients, knowing that our choices will affect them for a lifetime.We provide peaceful solutions in uncertain times.Learn More: https://aaalifesolutions.com/Influential Entrepreneurs with Mike Saundershttps://businessinnovatorsradio.com/influential-entrepreneurs-with-mike-saunders/Source: https://businessinnovatorsradio.com/interview-with-renee-kennedy-president-of-aaa-life-solutions-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, Renee Kennedy, who's the president of AAA Life Solutions, and we'll be talking about how taxes impact retirement. Renee, welcome back to the program. Thanks, Mike. It's good to be here. So I think from the title of this focus, we probably need to be talking 24 hours a day for seven days a week and then we'll still be scratching the surface of this broad topic. So I know it's going to be so important.

So let's just dive right into some of the key points, the low hanging fruit and just to kind of bring some of these points to our consciousness of what we need to be aware of. So where do you start when you're working with your clients when you look at how their taxes will impact their retirement? One thing that makes us different is we kind of have a multidisciplinary approach in that we bring the CPAs in or we use our own CPAs and our attorneys to make sure that all the planning that we're doing is a coordinated effort. And so that is really important because a lot of times you'll have CPAs when people, they just, they're in the middle of tax season and it's a knee-jerk reaction when they say, oh, I don't want to pay that much in taxes. the very first thing they're going to be drawn to is, well, just put it in an IRA and then that'll reduce your tax load. But that's just kicking the can down the road with taxes that are going to be paid later. So it can solve an immediate problem.

So I guess the main thing is we want people to do some tax and financial planning with us on the front end so that we can offset any surprise tax situations in the future. You know, I love that approach where it's holistic. It's the team approach. It's not, I'm Renee Kennedy. I know everything about everything and listen to me Roar. It's, hey, I know my lane and I'm going to stay in it. But you know what?

Do you have a well-respected CPA you work with? Yep. Okay, good. We're going to loop them in. Or you don't. Okay, well, I'm going to bring someone in on our team that, you know, we're going to make sure that it's going to take care of you. Because it's kind of like I play chess here and there. But have you ever, have you ever played chess before?

Yeah, yeah, I have. I'm not good at it. Me neither. Yeah, I can, I know some of the moves. But, you know, when you move a piece and you keep your finger on it and you look around, look around, and then it's fine to move it back. If you haven't moved your finger, but as soon as you take your finger off that piece, it's like, okay, now the other person can make the move. So like what you were describing there, it made me think of that, you know, there should be moves, financial moves that you should plan a couple, three steps ahead before you make them and do the if this, then that. You know, if I do this, then here's what will happen.

And when you have that team behind you and working with you and the client, now it's like, okay, well, Renee, if we did this, here's what the trickle effect or the domino effect. Is that a good thing? Is that not? And so I really like that approach of you bringing in that whole team. Yeah. And that makes us different. I mean, we have never had the philosophy that we know everything.

If anybody gives you that impression, just run away as fast as you can because there's nobody in this business or as a CPA or an attorney that knows everything about everything. Just the Secure Act that was signed into law. It was just, it was signed in December 31st, the very last day of the year. And I think it was between 7,500 pages of law. And so when I went into see my CPA in January and I was like, hey, did you see what, what's all in the law? And he said, no, I don't have time right now. I'm just in the middle of that. He said, but can you send me a summary and I'm like, yeah, I even wrote a book about something. So once I started looking at all the the different ramifications and how it was going to affect people, I'm like, oh, man,

we need to just get a summary that we can look at and give to our clients in a book form, which we are. But it's like, okay, just the Secure Act alone, there's so many changes. Well, isn't that act before you get into that piece, I want to just make sure I'm thinking correctly, Isn't that kind of like almost an addendum to the tax code, which is like 60,000 pages long itself? And then this is like a $7,000 page addendum to that. So it's like, who can keep up with all of that? Right. And so the Secure Act started in 2019 and then by the end of year 22 is when they did Secure Act 2.0.

So when I talk to clients, you know, right now, I sometimes I'll ask them, well, what do you think your tax situation is? right now. And they're like, oh, it's terrible. It's horrible. We hate taxes. I'm like, no, the highest tax bracket that we've ever had in the United States was 90% from 1944 to 1963. It had a peak in 1944 when the top income taxpayers had a tax rate of 94% on their taxable income. So it used to be that Ronald Reagan would only make two movies a year, because if he made $1,000, over 200,000, he was taxed at 94%. And he says, I'm not working for the government, you know? Yep.

So there's things that people need to look at right now and say, is it better to take some as ordinary income this year and next year? Because we know taxes are going up. They have to with the deficit, right? Well, I think that's a huge point, too, is we keep hearing that word deficit. And it's who I think in my mind's eye, I can, I know that there's websites out there or places where they've got this, you know, real-time update number where it's like 80 gazillion, trillion, bazillion, and it's just going up by the second. Boom, boom, boom.

So we know the deficit is growing. And maybe I'm not, you know, the most, you know, knowledgeable person on this answer, but you correct if I'm wrong. Isn't the way to close the gap on that deficit really either one reducing the government spending, how, like that's going to happen, or raising taxes? Yeah, it absolutely is. And usually they... So what do you think our taxes are going to do in the next 10 years? Because we know the government spending is not going to go down. Right.

They're going up. And that's one of the reasons why they push the RMD required age to 73. So if you haven't started taking RMDs in your 73, now if you're not 70, if you're not 72, if you're not 72, they've moved it to 73. But it used to be 70 and a half. And isn't that an odd? number that they would make you take required minimum distributions at age 70 and a half. And if you didn't, there was a 50% penalty.

Well, now they changed the penalty to 25%. So it makes it look good on paper like, oh, yay. Now instead of just paying our normal taxes, if we forget, we have to pay 25% penalty if we don't do the RMD's right. And then people are like, well, how do I figure that out? Well, there's an IRS table, of course. You know. Yeah, good luck with that. And so basically the way you figured out is you take your balance on that account, the previous December statement, and you divide it by how long the government thinks you're going to live.

And that's how much you have to take out that year. And that counts as ordinary income. And what a lot of people don't understand is that we live in a marginal tax situation. So let's say, you know, your RMD comes in. it puts you into the next tax bracket. Well, the RMD is not taxed at the previous marginal tax bracket. It's taxed at the next one. So the RMD is always added at the end, which means you're going to pay the highest taxes

on that particular RMD, whatever bracket you're in. You know, and you mentioned, what if you forget to take out the required minimum distribution? I would say, what if you didn't even know about them in the first place? So I think that there's a percentage of people out there that turn whatever the age is or, you know, 70 and a half, 72, whatever that would end up to be because it's kind of a moving target, it seems like. But whatever that is, I think that they're like, hey, I got all the money I need. So my money over in that account, I'm good to go. I don't need to take it out. So I'm good.

And they ignore it because they don't know that there's this hard penalty. And all of a sudden, when do they find out when it's too late? And they've triggered it. And now you've just lost up and smoke that certain amount of money because of that. percentage. And I think that is a horrible thing because people just don't know, they can't be expected to know. Kind of like, do you know subsection LP page seven on the tax code, 60,000 pages? No. So working with someone that can help you go, okay, let me look at your situation. Here's the things. Here's the low hanging fruit. Here's the summary. Like you were saying,

your book, you know, let's summarize this so that you just know what you need to do in your situation. That's kind of a scary thing if you don't know that. It really is. And a lot of people don't know that their Social Security can be taxed again. So up to 85% of your Social Security can be taxed again. So that's a huge detriment of what if they turned it on and then they got bored and then they went back to work and they've got, you know, they don't have to pay RMDs on an existing or current employers plan, but they do have to start those RMDs on the previous employer plans. And IRAs and 401Ks cannot be co-mingled on the RMDs. So what that means is,

if you have a 401K and a 403B and a 457, each one of those has its required minimum distributions. Now, you want to roll them into an IRA so you can take control of that because the IRA has, you can co-mingle five IRAs from five different previous employers. You can't do that on. individual plans that haven't been rolled into an IRA yet. So here's a question. And I don't, I'm thinking like one of your clients where I don't know anything. So this crossed my mind when you said that, when you said Social Security can be taxed up to 85%, would a required minimum distribution out of your previous, you know, whatever account,

and you know you have to take out this amount of money and you knew about the RMD date and you pulled it out on time so you avoided that penalty good? what if it was sizable enough to trigger the Social Security increased amount to be taxed? Could an RMD impact the so security? Not even because I think a lot of people go, oh, I didn't go back to work. I didn't take that consulting job. I'm just doing what I'm doing. But could an RMD trigger a higher tax rate on your Social Security?

Absolutely. Because it counts as ordinary income. Yeah. So I've had clients that, you know, all of a sudden they wake up and they've got an inheritance from mom and dad and they worked, you know, 30, 40 years and they've got this money sitting around in these buckets. Well, it used to be that you could just give it to your children, and your children could, you know, just hang on to it until they're in retirement age and then they can use it. But they eliminated the stretch IRA too. So people have to take the RMDs.

And if they leave it to anyone other than a spouse, now they have to take those, they have to take that inherited amount within 10 years. So let's say mom and dad left a niece, an IRA or a 401K. And so they might have a million dollars in there. In fact, this happened to one of my clients. Like she inherited a million dollars from her uncle who was an airplane mechanic and he created this box of money and he gave it to his niece. And so she was a nurse and in her highest income earning years, And so now she has to take out 100,000 a year to satisfy this law with the elimination of the stretch IRA. So yes. He had given that to her as a IRA in his, she inherited an IRA.

Right. She inherited the IRA. Which was never taxed. So here's the government. Someone said this to me recently. And I thought it was so hilarious. It's kind of like in this scenario, the government's a fox waiting above a hole for some. you know, groundhog to poke its head out because they're just waiting for that trigger.

You know, and here is this nurse client of yours that gets this inherited IRA. Well, if there's required minimum distributions or if she accesses it, well, that money's never been taxed, but the government's sitting there going tap, tap, tap on the shoulder. We got to get our money and who's going to pay it. Right. So in that case, you know, it counted as ordinary income, which put her in another tax bracket. And so we had to just carefully move it out of, you know, the IRA pay taxes on it up to a certain amount.

And then we put it in something else where she can let it grow. It can be, it can be tax free in the future. So on the next pot of money that we created for her, she would be only paying taxes on the seed and not the harvest later on. So there's things put in place that can help people in that. respect. Yeah. So I think to me, you know, you hear about the phrase, you know, how taxes impact retirement. And you're like, oh, yeah, yeah, taxes. But we've gone about two or three levels deep here to where it's like, ooh, I hadn't thought about that. This is something new to consider.

And there's no earthly way that you can know all of that and know how it impacts you. So what are some of the other things that you see as low hanging fruit or some of those summary points that people don't know, but if they don't handle it the right way, they get caught? Well, I think they need to create more buckets of money. And that is just imperative right now. I mean, think about it. Why is the government, why did they change the RMDs to age 73? Well, what could the taxes look like in three years? You know, like if somebody was getting ready to turn it on right now and then they'll be like, who, I dodged that bullet. I don't have to, I don't have to do the RMDs this year. But they can take money out of these instruments that we use and they can plan for the. this tax liability in the future. But the important thing is they just have to have a plan. They got to know what's going to hit when a lot of people don't even understand that Medicare is only about an 80-20 plan and they need something in place to help offset those out-of-pocket expenses. They also don't know that the more money you make in retirement, the more that Medicare

costs. And we don't really do a lot of medicaid. Medicare stuff, but we do help them plan for it. And a lot of times people don't have anything in place for age 60 to 65 for health insurance. And that's another thing that is imperative that they plan for. So what does your health insurance look like? What are you going to get from Social Security? When do your RMDs kick in? How much taxes? We really don't even know what taxes are going to look like in eight to 10 years. So we've got to plan for the worst and hope for the best. But hope, It's not a strategy. You got to have a point.

You, I love that quote. I've seen it as books and bumper stickers. And unfortunately, it sounds cute and humorous to say. But unfortunately, people do take that, you know, they are acting on hope is a strategy. So as well, hope it'll all work out. And it doesn't. And I think that is just the huge takeaway here is there are things that we know are coming. And how are you going to deal with it?

And more importantly, how is that going to impact your retirement? because you are earmarking a certain number of dollars to help you between whatever retirement age you start retirement and however long you think you're going to live. Well, the back end of it, how long are you going to live is a question mark. We don't know that. But one thing we do know is we're living healthier, happier, eating better, taking better care of yourself. So maybe that, you know, that time we need the money is going to inch out a little bit longer. And now it's like, I need even more money. And then, oh my goodness, if this, attacks hits me, it pops it down, and now you've got this domino effect running downhill.

That's a huge piece that I think people need to know up front rather than in the middle of it because then it's too late. Right, right. Well, and we know that if it looks like it's a gift, sometimes they can be deceiving things, you know, like just the fact that they increase the RMD age and the fact that, you know, they've lowered the penalty. Well, that's all great. But like you said, people need to know what they can do.

And one of the things that they aren't aware of, there's so much bad press out there and usually coming from big brokerage firms and things like that. But one of the things that people aren't aware of that exist is it's something called a fixed indexed annuity. And when you say annuity, people just kind of cringe like, oh, we've heard all these commercials, annuities are bad and all this. but there is this particular vehicle that I personally love is because you can put in an amount. It can be tied to different indices.

You've got S&P. You've got all these big money managers managing these index funds. And you don't own it. You just get to participate in it. And a lot of times, whatever income is generated, it's guaranteed income, your principal's guaranteed. You can have uncap returns. and if you have an income that grows and you need long-term care, well, a lot of times they have something called a doubler,

meaning the income would double for until there's nothing left in the contract, and then it would go back to the original income, which is guaranteed until you die. And oh, by the way, if you do die the day after you start this thing, your family gets everything in there. There's a lot of myths out there about annuities and how they work. And variable annuities are terrible because when I was a stockbroker and I looked at a variable annuity, I'm like, why would you put somebody in a variable annuity that's going to go up and down with the market, but wrap it in a legal contract so they can't move? That didn't make any sense to me.

And I never did those. But a lot of times people have old annuities that they can put into some of these newer products that have the long-term care doubling factor, which, you know, there's no, there's no. no pre-qualifications or medical exam or anything like that for lump sums of money that you put into these fixed index annuities. And on the scale risks, you know, cash, you can argue whether cash is safe or not, but let's just say cash and then the highest, you know, risk factor would be maybe, you know, options or commodities or even crypto, right? So on the scale of cash, cash being the lowest, and then you've got CDs, and then you've got cash value life insurance, and then you have annuities, and then you have fixed indexed annuities. So it's really towards the bottom

rung of risk, meaning your principles guaranteed 100%. So we find the best companies, the best ratings, the people, the companies that have the most reserves in those general accounts. And what that means is that for every dollar of liability, they have five or six dollars in reserves, which is perfect because that means if everybody died at the same time, they still would have five or six dollars per one dollar of liability. And so we manage risk that way, but we also manage when they take RMDs. Do we, you know, open up, you know, take a qualified account and drip it into a non-qualified account? And you can do two or three or five or ten of those types of products. And it doesn't mean you're not diversified because you've got those indexes that we can choose from.

And they're big names. They're Goldman Sachs. They're Barclays Bank. They're huge. They're S&P. They're NASDAQ. Things that people have heard of. They just don't own it, which is great.

It tracks the movement of that. But if you, if those indices tank, you don't lose your money. So having that. guarantee. Yeah. Guarantee is huge, little to no risk, huge. And then all those extra bonuses of tax-free growth and things like that. That's just such a interesting, powerful tool to wrap up what we're talking about here, how taxes impact retirement. We know what's going to happen. What do you do with it? Well, this might be a solution for you. Yeah, I think it's great. And we do it all day long. So if someone has money, they want to put away for the future,

and let it grow. It can do that. If they have an emergency, they can take out a percentage every single year for vacation or whatever. And of course, that's reducing their tax liability in the future. But definitely, there's so much to talk about and think about and to plan and prepare for, you know, the income that you're going to need for the future. And their babies being born right now that are going to live to be 115 years old.

So people planning on dying when they retire, you're going to. going to live to be 90 or 95. And, you know, that's 30 years of needing income. So real. Well, it really is. And I think that people just need to have their customized assessment to see how these things affect them. So if someone is interested in learning more than reaching out and connecting with you, what's the best way that they can do that, Renee? Usually an email if they will send it to info at aAALifelifolutions.com or they can call the number, which is 901, 508, 2433, and we would be happy to answer any questions they may have. Awesome. Well, thank you so much for coming on. It's been a real pleasure talking with you again.

You too. Thanks, 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.