How to Eliminate Fees & Stress from Your Retirement

7.21.23: Audio automatically transcribed by Sonix

7.21.23: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Producer:
Any examples used are for illustrative purposes only and do not take into account your particular investment objectives, financial situation or needs and may not be suitable for all investors. It is not intended to predict the performance of any specific investment and is not a solicitation or recommendation of any investment strategy.

Producer:
Welcome to Safe Money Masters with Greg Castle. Get ready for a full hour of financial information and economic news you can't afford to miss. Greg works hard each and every day to help hard working Americans like you navigate challenges and reach the financial freedom they desire and deserve. So now let's start the show. Here's Greg Castle.

Greg Castle:
Hey, we want to welcome you to another episode of Safe Money Masters It's our main goal here to help you become masters of your money and teach you how to keep it safe. But we hope you have a terrific Tuesday. And my name is Greg Castle. I'll be your host, along with my co-host and producer Matt McClure. You know, Matt, you know, just like all the other shows we've had, I think we have another great show lined up for our listeners today. So why don't you tell us a little bit about what to expect?

Producer:
I can do just that. And yeah, I would agree, Greg. We do have a great show lined up, a lot of wonderful things to get to here as we as we discuss all things money planning for retirement. Also, you know, just really getting getting your financial house in order in general and taking care of things in that way. Of course, we've got our quote of the week, which we start off with each and every week here toward the beginning of the show. So some words of wisdom will start our conversations today. There we'll do a little bit of market up of a market update and actually some good news in the market update this week. That is kind of a rare thing. So we'll talk about that. An interesting story about a multi-million dollar estate and a will hidden in a couch. That'll be something that will be pique a lot of interest, I'm sure. Pensions and retirement plans. How to create your own personal pension is something that we'll discuss as well. Roth Conversions. We talk a lot about them. And you know, Greg, we talk about situations where they do make sense. We'll discuss some situations where they might not make a lot of sense for people. That will also get to some questions from our listeners and our Ask Greg segment.

Producer:
And then if we get to it, because we've got a lot going on here this week. It's this week in history with some events, some birthdays and more. So yeah, a lot of great things to pack in here to this episode. Greg And wanted to say to you, if you are a listener out there and you've been listening to the show because you are interested in improving your financial situation and your ability to actually retire someday because you don't want to get to retirement age and not be able to retire. You know, if you want to keep working, sure. You know, keep on working, but work because you want to, not because you have to if that is your goal. Castle Financial Solutions can help you with a lot of one on one attention. Just give them a call. The number is (813) 722-0020. You can go to the website for the show SafeMoneyMasters.com. Greg and the team there. I'd be happy to meet with you personally. They'll provide customized guidance for you, some solutions based on your specific financial needs. And Greg, that's what it's about. Everybody's situation is different, so it's not like you're just giving them a one size fits all kind of retirement package here.

Greg Castle:
No, exactly. In spite of what the gurus say, there actually is no one size fits all retirement plan. So I know that there are a lot of folks that are really disappointed because their retirement plan was based on winning the Powerball last week when it was $1 billion. Unfortunately, that didn't happen. So, you know, with that said, I think it's probably time that we get started with our Quote of the week.

Producer:
And now wholesome financial wisdom. It's time for the quote of the Week.

Greg Castle:
Well, this week's quote comes from a Albert Einstein who we all know. Albert once said, You know, the more I learn, the more I realize I don't know. So you got any thoughts about that, man?

Producer:
I love that. You know, I think because especially coming from someone who was literally a genius, like, you know, if you're if you're ever going to refer to someone as a genius, you might say, okay, Einstein, you know, that kind of thing. I mean, it's just a household You would think that Albert Einstein would be like, Well, you know, I know everything. No, he was someone who had obviously a lot of humility there as well, because he would admit, yeah, I know a lot of things, but I also don't know a whole lot of things. And really, you know, that knowledge, you know, just realizing that you don't know everything is a good place to be, especially when it comes to, you know, your money planning, planning your finances, planning your future, because it's not always something that you can do on your own. You don't always have all the knowledge that you need.

Greg Castle:
You're exactly right. As a matter of fact, there's a quote that I use all the time. I've used it over the years. It's from an anonymous source. I'm not sure who actually said it. Basically it is it's along the same lines as what you learn after you know it. All that really counts.

Producer:
I love that.

Greg Castle:
As a matter of fact, that applies to most of us, including myself, when I look in the mirror. Uh, so, Matt, before we get into into today's topics, you know, I'd like to take just a minute once again to remind our listeners what the show is all about. You know, as I've said before, the premise of this show is to bring you our listeners topics and tools and information that will help you protect and grow your wealth and retirement income. So we hope you'll keep tuning in. You can catch us every Tuesday evening at 6 p.m. on Moneytalk 1010 and on your local FM stations, 92.1 down in Tampa and 103.1 up in Newport. Richie. And if by chance you happen to miss an episode, you know, feel free to catch the replay at SafeMoneyMasters.com or wherever you listen to your favorite podcast. Now you can also check out our YouTube channel and subscribe to see weekly video highlights the special content and and you'll see why that I have a face that's meant for radio and not TV. Anyway, if you have any questions or comments, you know, we'd love to hear from you. Feel free to email me at Greg@SafeMoneyMasters.com or give me a call directly at (813) 430-7100.

Producer:
Well, let's get to that good news here, Greg, that we sort of teed up a few minutes ago, talking about the markets. You know, we've all so often, you know, we talk about things looking bleak or looking down. We talk about an inflation going up, which, of course, it still is, although not quite as much as it has been. And will we'll mention that in here. But we've got wages that are actually rising faster than prices. That's some good news for the everyday consumer out there.

Greg Castle:
They haven't seen my paycheck.

Producer:
No.

Greg Castle:
I'm kidding. No, actually, you're exactly right. You know, wages statistically across the nation are finally rising faster than prices are. You know, Americans growing paychecks are past inflation for the first time in over two years. And that provides some financial relief to workers, I'm sure you know, While also complicating the Federal Reserve's effort to tame price increases. So if the trend continues, it bodes well for the US economy to avoid a deeper recession. Another bit of good news, too, is that inflation is slowing, you know, due to a recovering supply chain. So inflation back last year had risen to a high of around 9.1, 9.2%, and currently it's hovering right at around 5%. So it's, you know, a question. You have 5% or 3%. Actually, I think it is, right, Matt?

Producer:
Yeah, right. Just right at 3%. Just hit 3% in June.

Greg Castle:
Yeah, that's right. I'm behind the times here. So the inflation has dropped to 3%, so that's quite a drop. So in the early days of the pandemic, we all remember, you know, Americans stuck at home, ordered lots of TVs, computers, furniture and other goods and services. You know, meanwhile, truck drivers, along with port and warehouse workers, you know, left the workforce for Covid related reasons. And that led to a severe product shortage. And price spikes began to happen as shipping containers stacked up on the West Coast ports and and some East Coast ports as well. So many of the pandemic era supply chain snags have been eliminated, which is good news for for most of the consumers. And, you know, stocks are riding a positive wave through the first half of 2023. Overall, the market's up and Nasdaq has been the big winner this year. But, you know, stocks are up and we'll see what happens as time goes on. We'll see what happens if the Federal Reserve actually continues dropping rates. As they've indicated they probably would at least twice more this year. We'll see how that impacts the market. So following a significant dip in major stock market indices in 2022, where all the indexes and the market were down, most have rebounded well through the first half of 2023. As a matter of fact, the S&P 500 is up 16.4%. Dow is up 3.84% through the first half of the year. And Nasdaq is the big winner.

Greg Castle:
It's up 32.7%, you know, for 2023. So far, so hopefully those statistics will continue on an upward trend. However, as I've said before, you know, it's both having been a stockbroker or an air traffic controller, what goes up will come down. Hopefully the landing will be soft, but you got to be prepared for the crash. So hopefully you're well prepared listeners out there. So if you haven't heard from your advisor lately or you simply aren't receiving the attention you deserve through your work based retirement plan, let us at Castle Financial Solutions Group help you and provide you with great service and a complimentary consultation. You'll never pay for our services. We are not a fee based advisory. You know, we provide comprehensive financial and retirement consultations at no cost to our listeners or anyone else. There's absolutely no obligation to continue working with us after we build a plan for you. You know, we only we only want to work with you if you want to work with us and if it's best for you. And we'll show you exactly how much you're paying in fees on whatever service you're currently using and where you can cut costs through strategies like bond replacement. Developing your own personal pension and also smart tax strategies like Roth conversion, which we'll talk about later in the show.

Producer:
Yeah, we'll talk about some scenarios in which that Roth conversion might not necessarily be the best thing for you. And so that'll be an interesting look at that as well. There are a lot of scenarios where it is good, but there are some where it's not. So we'll give you both sides here on Safe Masters. Well, okay, So here's something, Greg, that is very, very interesting. You know, you talked about earlier, you mentioned the the big lottery prize that was just won. Well, this we're talking about a big estate here, but not quite $1 billion. Multi-million dollar estate for sure. But this will that was found in Aretha Franklin's couch is getting some respect from a jury.

Greg Castle:
But I could hear you singing that now, man.

Producer:
Sock it to me. Sock it to me anyway.

Greg Castle:
Well, yeah, you're right. You know, it was a handwritten will and a spiral notebook, and it was found wedged between couch cushions months after Aretha Franklin's 2018 death is validated. So, you know, a jury in Pontiac, Michigan, decided that that particular handwritten will is valid. So the July 11th, 2023 verdict, you know, ended a year long legal dispute among the three of Aretha's four sons over which of the three informal wills that were found in her home should have precedence over the others. And as a result, the four page document in the spiral bound notebook was drafted in 2014, will now guide how the singer's multi-million dollar estate and royalties will be distributed among her heirs. You know, so look, you know, we believe that that having a formal will is something that every pre-retiree and retirees should strongly consider, not only consider, but actually develop and implement. You know, and even if you're younger, having a proper will can prevent legal disputes and ensure that your assets are passed along to your loved ones in a in a timely manner. You know, a lot of folks that I know and me included, sometimes we put a will in place, we forget to update it. So it's important to do that. I mean, as I've mentioned before, I think on this show or not, that. Uh, last December, I had pretty severe lumbar surgery, spinal fusion surgery. And just to be safe, you know, I took a look at my wheel and said, Man, this is not what I really wanted to happen anymore.

Greg Castle:
So you update things like your power of attorneys, you update things like your wheels. So just make sure that not only do you have a wheel, but that wheel is updated. And if you got questions about how to properly create a wheel or establish a trust, you know, give us a call, we can help you. (813) 430-7100. I need to put a disclosure here that while I am not an attorney and an attorney, we do have partners that we utilize and can refer you out to that can help you with things like wills and trusts. And hopefully we plan to have one of those attorneys on our show in the near future to talk about how to develop a trust and how to make sure that you're able to take care of the legal ramifications that you won't be able to ask questions to our our guest when they come on, too. So feel free to take advantage of our complimentary services. We can show you exactly how much you're paying in fees if you have an outside managed account, even if not even if you have an annuity that's five years old or older, the older annuities are not nearly as effective and efficient as the newer annuities, partly because of interest rate increases, partly because of living benefit improvements.

Greg Castle:
But anyway, we can take a look at the fees you're paying even in your annuities or in your managed accounts and help you cut unnecessary cost and things like your IRA, your 401. K or other retirement savings account. And also we can we can build you a custom plan for retirement. That's what we love to do for our listeners and answer any questions you have about your benefits and what you can expect an annual income. So you make sure you have enough to retire on, not only for the things you need in retirement, but also for the things that you want in retirement. And part of that plan will also present you with a Social Security maximization report. And again, all of this is at no cost to you. I know that sounds like a lot of BS, but honestly, we are not a fee based adviser. You know, we work for you and you'll never pay us a penny. So remember, it's your money. If it matters to you and you're tired of paying fees, it matters to us. So if you wanted to if you want to develop an inflation adjusted safe money retirement roadmap that includes Social Security maximization, as we just talked about, then contact us at Castle Financial Solutions Group. Just give us a call at (813) 430-7100 or send an email to me personally at Greg@SafeMoneyMasters.com.

Producer:
Well, let's time for a little bit of financial education as we like to do, you know, during the show from beginning to end, pretty much. But it's definition time. It's almost like I want to do a pop quiz here or something, but an expense ratio, chances are, I would say that a lot of our listeners, Greg, might not know what an expense ratio is. They might hear that term. It might sound like, Oh, this is kind of a wonky, sort of, you know, financial term that kind of might know what it means, but maybe not really. It all has to do with how efficient you are, right? I mean, that that's really sort of the bottom line of an expense ratio is are you being fee efficient or not?

Greg Castle:
When it comes to expense ratio, it's pretty simple. It's basically expense ratio equals the management fees divided by the total investment in the fund that you have. And you'd be surprised just how pricey that is. So that's something that's really important. And also. Uh, you know, all of our listeners should ask themselves this important question. How much am I paying in fees on my retirement savings? Very simple question. And sometimes you're not going to like the answer. So if you don't know the answer to the question or can't quickly pull it up, you owe it to yourself to find out. So we meet with a lot of people who want to find out how much they were paying in management fees in their retirement savings. They had no idea that their old advisor was overcharging for the management of their assets. They had never been told the fees that they were paying on assets such as target date funds, mutual funds, bonds and other types of assets. So you'd be surprised at all the hidden fees that really you can't even find on your statements when they come out. And it's not unusual, especially in a 401. K to be paying, you know, two, three, 4% in fees on your 401. K And there are sometimes better options if you're eligible to to to roll over or work with a portion of that IRA. 403 B TSP or whatever 457 plan. Anyway. So if you're tired of worrying about your future and you're ready to work with someone who sits on the same side of the table as you, you know, give us a call or visit our website. You know, we genuinely love meeting our listeners and helping them on the road to the retirement. All it's going to cost you is a little bit of your time. And as always, as we mentioned time and time again, there is no obligation and there is no fee.

Producer:
So, so important to know that and to reach out at SafeMoneyMasters.com. That's the website. And once again, the phone number 813430 7100 to reach Greg and all the folks there at Castle Financial Solutions Group. Well, you know, one thing that we talk about and seems to come up quite a bit in our discussions because it is so important, is retirement income. You know, so many people are so focused, Greg, on this one big number, right? A big nest egg number that maybe they've had their sights set on for years. They've had this big number in mind and that's their goal. That's what they want to reach. But so much more important is retirement income because that's where the rubber meets the road, as it were. So when we're talking about retirement income, you know, a lot of our listeners might have heard of something called the 4% rule. Can you take a minute here and explain what that 4% rule is? And is it something it's a concept that's been around for a while. Does it still apply today? Yeah.

Greg Castle:
What it is, is somewhat outdated. We'll talk about it anyway. So you asked what the 4% rule happens to be. So the 4% rule suggests that retirees can withdraw 4% of their investment portfolio each year without running out of money, assuming they have moderate investments and a 30 year retirement. So, you know, 4% is still sort of the standard depending on how long you happen to live as longevity increases depending on the size of your nest egg, you know, it could. And also the way the market performs if you're actually stuck in the stock market and another 2007, 2008 happens, you know that your funds at that point, the S&P 500 went down 54% during that period of time. From the end of 2007 to through the first quarter of 2009. So that can really deplete it and pull it out. 4% might still satisfy, you know, the requirement. However, it may not satisfy the expenses you have to pay and the things that you want to do in retirement. So you can't retire on a big pile of money. It's better to have income and guaranteed income with that and we'll talk about it later on. But, you know, if you follow the 4% rule, how much will you be withdrawing to live on each year in your retirement? An example would be, let's say that someone's got $1 million portfolio and they pull out 4%. What that means is they can pull out $40,000 for that year, assuming there's no penalty, pull out $40,000 that year and still over the expected life expectancy, not run out of money. Now, don't forget that, you know, if you're withdrawing money from tax deferred account, you're going to owe taxes on any withdrawals.

Greg Castle:
You know, these are accounts like 401 IRAs, four three B's, 457 plans, tsp's, all that fun stuff. So if you pull out $40,000 and it's a qualified plan such as we just talked about, you got to pay taxes on it depending on your tax bracket, let's say just just 20%, you know, that $40,000 is going to cost you a big chunk of what you pulled out so it can hurt you. If you have most of your savings in one of these accounts, you know, you haven't saved as much as you think because the IRS is your partner in retirement. You've got to be careful. So if you like your retirement savings or you feel like your retirement savings may be too heavy in tax deferred accounts like the 401. Ks, IRAs, four three B's and so forth, just give us a call to talk about how much a Roth conversion could save you or if it could save you anything at all, even if even if you should do it, but could save you any money in future taxes owed during retirement? See if it's going to help your estate or your estate plan. If you don't want to be told when to withdraw your money by government, by the government or government required agencies through a required minimum distributions, then let us put together a smart tax plan for your retirement. And again, just give us a call. 813430 or shoot me an email personally at Greg@SafeMoneyMasters.com.

Producer:
Well, Greg, you know, we talk a lot, of course, on the show about, you know, retirement plans. Obviously, we just mentioned all of the the more common ones today that people might have from their workplace. Right. You mentioned the 401. K, 403, B, etcetera. And those are those are the ones those are the defined contribution plans as they're known collectively that are out there that are most common today. It used to be, though, that the most common thing was that defined benefit plan, a pension, which, you know, the burden of that was then on the employer rather than on the employee. Right? So if you are lucky enough, not a lot of people have them today. We'll talk about kind of the numbers here in just a second about how many people do have them. But if you're lucky enough to have one, you actually do have some options to to take that pension with you. Maybe not still wrapped inside that pension. Right. But take that money with you when you leave a job. You could choose to take the money as a lump sum. You could do that now. You could take the promise of regular payments in the future. That's an annuity, right? Or you could do a combination of the both. It may be possible to do that. So there are some options there if you are still lucky enough to have a pension. But Greg, as I mentioned, that's not necessarily the case for a lot of people these days, but it hasn't always been that way.

Greg Castle:
You're exactly right. I mean, if you take a look if you were to picture in your mind a pyramid, you know, back in the 80s and before picture of pyramid in the very base of that pyramid, the wide part would have been a pension. The middle part would have been Social Security, and at the very top would be retirement savings or annuities. And if you look today. You know, that pyramid has been inverted to where now the the very base of that is basically savings and correction is the pension in the midsection. That, by the way, the bottom part would be the pointy part in this situation would be pensions. The middle part would still be Social Security and the very top part would be your retirement savings. So in the mid 80s, around 60% of private sector workers in the United States had access to pension plan through employers. During this period and in decades prior pensions were very common form of retirement benefit. But by 2020, the number of US workers covered by traditional pensions significantly decreased. And according to the Department of Labor Statistics, a report in 2020 said that only about 16%, that's one 616% of private sector workers had access to a defined benefit pension plan. Now, I deal a lot with federal employees. So federal employees, government employees at the federal, state and local levels are more likely to have pensions, sometimes called a defined benefit plan. Most federal employees actually have have it really well. Not only do they have the pension, but they also have access to a TSP, which is basically similar to the civilian sector or private sector for 143 plan.

Producer:
Now that the thrift savings plan for those federal employees there, and if you are a federal employee, you know all about it. So since those pensions through the workplace, Greg, are very rare. Much, much more rare these days than than they have been. The question then becomes, okay, how do I still get some of those pension like benefits? Is it possible for me to create my own personal pension, In other words?

Greg Castle:
The answer is very simply yes. And we have clients that do it all the time. You can establish your own pension, which is basically a guaranteed lifetime income, using a similar strategy that companies and governments use to guarantee benefits to former employees. How do you start your personal pension? Well, you can establish the lifetime income that you need through a smart, safe or safe money strategy that includes fixed indexed annuities. We talk about them all the time. And, you know, they are a great opportunity, especially a great workhorse in developing personal pension plans. So fixed indexed annuities are insurance contracts that provide a guaranteed income stream for your retirement. They are seen as an alternative to traditional bonds and provide a way for investors to protect their retirement savings from market volatility. Now faces are called fixed indexed annuities. Fees are designed to provide protection from market downturns while providing potential for growth. Basically is a way to get market like gains without having to face the downturn. So some of the benefits of fees include protection from market volatility. The fixed indexed annuities provide protection from market, from the market, volatility from market loss. You know, since the annuity is linked to the performance of an underlying stock market or an underlying index of the income is not directly affected by short term market fluctuations. So this makes them a very attractive option for investors who are looking for steady and reliable income stream. It also provides a tax deferred growth. And what this means is that any earnings that the annuity are not subject or any earnings in the annuity are not subject to taxes until the annuity is actually withdrawn and then a lifetime income stream.

Greg Castle:
The good part about it is that you turn on a lifetime income and if you live to be 120, they still got to pay you as long as you live, so you're never going to run out of money. As opposed to having just your assets, for example, your 41K IRA or whatever. If you start pulling at that even at 4% and the market has a downturn, you still need more money. You could actually liquidate your retirement savings and in that case, run out of money where, you know, taking a portion of your retirement savings, not all of it, but a portion of it, and putting it into something that's safe but provides market like gains without the market risk. That's a very, very smart move. So if you want an income stream, you cannot live where you're confused or lost or frustrated when it comes to planning for your retirement. You know, again, please give us a call. Let us help you out with a no obligation consultant or consultation. Many people choose to meet with us simply because we're not simply because they're not receiving any guidance from their work, work based retirement plans, or they're too busy running their own business to put a plan in place for their financial futures. Whatever the case may be, whether you need help setting up your personal pension or you've got questions about Social Security, we're always happy to help our listeners. So call us today. (813) 430-7100. Or email me personally at Greg@SafeMoneyMasters.com.

Producer:
A lot of great things can be learned when you reach out via either of those contact methods. And the goal whole goal is to keep your money safe, get growth on that money because you know you've worked hard for it, put it to work hard for you as well and have the retirement you deserve. So, okay, we've we've teed this up enough. We've teased the listeners on it, Greg. So so we're going to we're going to rip off the Band-Aid here and talk about Roth conversions in it, right, in a way that we don't normally do. So so we normally talk about, okay, Roth conversion, you can convert to a Roth. You don't have to pay taxes on those withdrawals in retirement. Great. That's what we normally talk about, the advantages of which there are a lot of advantages. But are there some situations where a Roth conversion just really doesn't make sense for folks?

Greg Castle:
Yeah, there are, you know, talking about the positives for a second, you know, one of the key benefits of a Roth conversion is that it can allow you to pay taxes on traditional IRA assets now instead of later. You know, if you expect to be subject to a higher marginal tax rate down the road somewhere by paying the income tax now your contributions and earnings grow tax free in the future inside the Roth IRA. Another benefit is that you can withdraw your contributions, but not the earnings from the account at any time, provided you met the five year rule. Also moving to a Roth IRA also means that you won't have to take required minimum distributions on your account when you reach the required age, which currently is at 73. So and by the way, that increase is increased quite a bit over the last few years from 70.5 a couple of years ago. To 72 and now it's 73 and it will increase again down the road, I think, in 2033. So that's that's all thanks to the secure acts. And now we have the Secure Act 2.0, which increased it further. You know, other than your spouse, you know, your heirs are most likely have to take RMDs on a Roth IRA that they inherit from you, but they won't have to pay taxes on them, which is really kind of important to know, you know, But for plenty of people, this strategy does not make sense and therefore it's ill advised. So if you're considering the strategy, you need to ask yourself a few questions before you make the decision.

Greg Castle:
And one of those questions is, you know, will I be in a lower tax bracket in future years? Um. You know, while this point seems pretty obvious, many people often forget to consider the impact of their state taxes. Now, here in Florida, we don't have to worry about that. But for example, a single person who now lives in New Jersey pays 6.37% on an income between 75,000 and 500,000. But if you're a Garden State resident and plan to retire soon to Florida, which doesn't have a state income tax, thank goodness a Roth conversion may not make sense. Even if you think taxes would be higher in the future, consider whether you personally be in a higher tax bracket. You know, many people are in a lower tax bracket in retirement than during their working years. Thus, you know, if you're still employed, it might not be wise to convert your traditional IRA to a Roth IRA just yet. Second question you got to ask yourself is that, you know, do I have enough cash or savings to pay the conversion tax? Well, by converting to a Roth IRA, a person is paying tax on their IRA now instead of later in retirement. So you shouldn't plan to use funds from the traditional IRA to pay tax on it. So since that's going to cause your new Roth IRA to have much less money or much less balance. So where's that money going to come from? Let me give you an example.

Greg Castle:
Assume you plan to convert $100,000 traditional IRA to a Roth and you're the 24% tax bracket. $24,000 in taxes need to be paid now. So is $24,000. Question If you if $24,000 is withdrawn from the savings account to pay the tax, you know, the new your new Roth will start with the same $100,000. Uh, now, if you pay the tax from the IRA funds that are being converted, your new Roth will start with a balance of $76,000, effectively handicapping it from the very beginning. So, moreover, since money withheld from the conversion for taxes counts as an IRA distribution, you're going to owe a 10% penalty if you're under 59.5. In addition to the income taxes. So unless you can pay the conversion from outside sources, non-qualified, non-qualified sources, it may not make sense to convert, you know, to a Roth IRA or do a Roth conversion. Um, a third thing is that ask yourself, you know, will I need the money within five years or less? The reason you ask yourself that question is because Roth conversions involve a couple of five year rules. Those rules can generate taxes or penalties if you're not careful. So an example would be for anyone under age 59.5. A five year clock starts on January 1st of the year. The funds are converted to a Roth IRA. So if you take a distribution from your new Roth IRA within its five year window, a 10% early withdrawal penalty is charged on the principal. And we're not even talking about the earnings yet.

Greg Castle:
So it's important to note that each Roth conversion you make has its own five year clock. In order for the earnings from the Roth IRA to be distributed tax free, not the principal amount originally converted, you know, five years have to have passed since your first Roth IRA accounts established. Even if you have multiple Roth IRAs open in different years. This five year clock starts on January 1st of the year that you opened your first Roth IRA. What will that be by contribution or by conversion? In addition, you must be age 59.5 to avoid a 10% early withdrawal penalty. So another reason why you may not want to do a Roth conversion. Many of you out there have sizable IRAs and you want to take a portion of it and leave it to charity. So ask yourself, do I plan to leave my IRA to to to a charity? If so, you can imagine that part of the appeal of a Roth IRA is that the assets grow tax free. However, charities, in which case or in most cases are non-profit, non-profit organizations, are typically exempt from paying taxes on the distribution of funds from any IRA, whether it's a Roth or a traditional IRA, because a charity receiving these assets will not pay taxes for selling the assets and withdrawing them down the road somewhere. You know, prepaying taxes on or converting to a Roth IRA effectively means that you're going to be giving the charity less funds at your death than what you anticipated or hoped that you would be doing.

Greg Castle:
Um, another question you got to ask yourself is that will my beneficiary have a lower tax bracket than mine? If your IRA is large enough that it will likely be left to someone else at your death, it's important to consider your beneficiaries tax situation. Deciding whether to convert or not convert may come down to which account owner you or your beneficiary is likely to be in. Which one is likely to be in a lower marginal tax bracket? So if the ultimate goal is to maximize the value of the account across generations and taxes have to be paid from the account, at some point, it makes sense to let whichever owner is in a lower marginal tax bracket pay the taxes. You know, keep in mind that the new Secure Act, Secure Act 2.0 calls for IRA assets to be distributed within ten years of your death if they're left to someone other than your spouse or someone less than ten years younger than you. Plus, there's also a couple of other exceptions. So, you know, your heirs may only have ten years to spread out the income from a Roth conversion, whereas you may have more than a decade to plan. And finally, the last question I would have you ask yourself is, is my estate really large enough to benefit from a Roth conversion? You know, Roth conversions are often considered for those with large estates that may be subject to the estate tax at death. If a person's assets aren't near the estate tax exemption limit, it may not make sense for the estate planning reasons.

Greg Castle:
The federal estate tax exemption is currently 12.92 million per person as of January 1st of this year. Although under current law, the exemption is scheduled to return to 5 million or basically drop back down to 5 million with inflation per person at the end of 2025. So by doing a Roth conversion, you would generate taxes that must be paid from your estate, thereby reducing the size of your estate, and thus the amount of your estate assets potentially are going to be subject to estate tax if the value of your estate isn't close to 5 million. It probably doesn't make sense to do a Roth conversion for the estate tax savings reasons. You know, for instance, we had a client who was considering converting because he was concerned about the estate tax exemption going down from where it is now at 12.9, 2 million down to 5 million at the end of 2025. However, he has a large pension income each year and does not have a large enough estate to be affected by state taxes. Therefore, the conversion would just push him into an unwanted tax bracket without any estate tax benefits. And finally, converting to a Roth IRA is irreversible. It's an irreversible taxable transaction thanks to a recent change in law. Therefore, you should evaluate your situation from all angles to make sure that it's appropriate before making that conversion. So that's a lot to be talking about, Matt.

Producer:
It is. I mean, there's a lot to consider there. And this is what I would say to our listeners out there since there is so much to consider. Talk to the experts about it. I just happen to know a guy. His name is Greg Castle with Castle Financial Solutions Group. So if you're considering that Roth conversion, but you want to make sure that it's right for you, give Castle Financial Solutions Group a call that number 813430 7100. That's (813) 430-7100. You can send Greg an email as well. That email address is Greg@SafeMoneyMasters.com. Well, there are a couple of things here. And you know, this is important, too, to kind of point out because, you know, we talk about getting expert help, right? And getting getting help from somebody who does this all the time, like a guy named Greg Castle. So, you know, when you go it alone, you are likely to make mistakes and make mistakes that that are not, you know, something that is going to be, you know, maybe easily undone or something that is going to be beneficial to you in any way. Right? So if you make mistakes with your retirement, we've got a list here, a short list, but just a couple of things that are the biggest retirement mistakes people make. Now, Greg, I happen to inadvertently mention one earlier, but it was an important and pertinent point a little bit ago in our conversation, and now it's coming back up again. Yes, it's retirement, not about one one big magic number. It's not. It's much more about a different aspect of your money.

Greg Castle:
As we said before, you can't retire on a big pile of money. I know you. I know. We think about that in our mind. We got all this money, we can retire. We're going to be comfortable. That is true. Maybe depending on, you know, how that money is actually invested. You know, retirement is much more about the strength of your income plan than it is about the total balance of your savings to many people that we know have have all or majority or the majority of their savings in tax deferred accounts such as 401 K, IRA four, three B's, 457 TSP. What this means is that the government is a major partner in your retirement. And what that means also is that you're going to be subject to significant and likely rising effective tax rates. So to correct this, we recommend focusing on your different sources of retirement income, Social Security, pensions and annuities. Um. And. You know, those those alone should be able to help out.

Producer:
Yeah, definitely. You know, those streams of income are so super important for your retirement years. Also, the second biggest mistake that people make when it comes to their retirement is that they don't start saving or planning early enough. You know, when you're young, you say, oh, I got all the time in the world for that. I'll just put it off and put it off. And then all of a sudden you turn around and you've waited, you know, 20, 30 years and it's like, okay, now I got to play catch up, you know? Right.

Greg Castle:
Our call today was from Einstein. So we'll we'll refer back to Einstein again about this particular topic. Einstein most of us know already Einstein. Einstein once said that compound interest is the eighth wonder of the world. And he said that with glee. Anyway, the earlier you start saving, the more time you have to grow your hard earned money. So remember, it's never too late to catch up. You know, waiting too long to plan for retirement, you know, could mean enduring a massive lifestyle downgrade, which no one really wants to do. There are multiple factors to align and consider when you talk about savings, Social security, planning, tax planning, pensions, if you have them, when to turn on income and when to take lump sum, whether or not to establish or not, whether or not. But you need to establish a budget that considers rising inflation and taxes. And also the plan needs to take a look at estate and legacy planning.

Producer:
I mean, it's super important because, you know, you want to have all of those things be considered. And again, you know, reach out to the experts and get help in these in these things, because you don't want to be someone who finds yourself having made those mistakes inadvertently. And once again, the website is SafeMoneyMasters.com. You can send Greg an email. Greg@SafeMoneyMasters.com is that address? All right, Greg, we've got some questions here from our listener mailbag. We always love doing this because we love checking in with the listeners, getting feedback, of course, and hearing from our listeners, whether it's, you know, via the Contact Us page there on the website, whether it's, you know, through the YouTube channel, whatever. We love hearing from you, so please feel free to reach out to us. But now we go into the mailbag, we dig deep, and we find this question from Ken in Carrollwood. And Ken says this Hi Greg. I enjoy your show and appreciate your calm manner as I do as well. That's just an aside. Ken didn't say that I did, but Ken did say I will have my home paid for by the time I retire at 65. That's in about two years. He says, I don't have a pension. I'm not a stock market investor. However, I have very low debt. How can I ensure that my retirement savings will last throughout my lifetime? What do you say to Ken?

Greg Castle:
Well, first of all, I'd say thanks for being a loyal listener. We always look forward to talking to to those to all of you. Second of all, ironically, I'll actually be in your neighborhood tonight. As soon as this show is over, I'll be rushing down to Carrollwood Country Club for for a seminar that I'm hosting tonight. Save money. Save Money seminar. Anyway, going back to your question, you know, considering your circumstances, one way to help ensure that your retirement savings lasts throughout your lifetime could be through the use of annuities. You know, as we mentioned before, an annuity is a financial product that provides a guaranteed income stream for a specific period for your life. It could be your entire life. It could be period certain, which means basically you dictate the number of years that you're willing to pay you an income. But, you know, here's how you can incorporate annuities into your retirement plan. You know, first of all, assess your retirement expenses. In other words, determine your expected retirement expenses, including essential costs such as housing, health care, daily living, house maintenance, car maintenance, repairs, those type of things. And also, take a look at discretionary spending like travel, hobbies, if you're a golfer or skier is going to cost you some money. If you got a boat going to cost you some money anyway. So you got to take a look at all those things as part of your expenses and also take a look at long term care needs.

Greg Castle:
Second of all, I would have you create a retirement budget. You know, once you've estimated your expenses, develop a detailed budget to understand how much income you're going to require during retirement and determine if you have an income gap. Income gap basically is take a look at your expenses. Take a look at your guaranteed income. The difference between those two versus the deficit is your income gap. You've got to find a way to make sure you shore that up a little bit. Next, I would take a look at deferred income annuities. Since you mentioned not being a stock market investor. A longevity based annuity like a deferred income annuity, a DIA can be a suitable option for generating sustained income. You know what a dia, what a what a deferred income annuity will do for you is it allows you to invest a portion of your savings today for a future income stream starting at a later date, such as when you reach a certain age, possibly in your 80s. The longer you defer the income payments, the higher your income that you're going to receive when it starts, just like your pension at work or just like Social Security, the longer you hold off before you start it, the better off it's going to be.

Producer:
Um.

Greg Castle:
Another thing that you might consider is to mix annuities with other investments to diversify your retirement income sources. You know, you can consider combining annuities with other investment strategies, such as things like low risk bonds or fixed income investments. This helps provide a balance between guaranteed income from annuities and the potential higher growth you might get from other investment options.

Greg Castle:
We talk a lot about annuities here, and we're obviously big, big, big fans of annuities in most cases for most people.

Producer:
Uh, but at the.

Greg Castle:
Same time, it would not be prudent of us to say, put all your money in one basket and, and, you know, do nothing but annuities so we can help you out with a plan that helps balance things out.

Producer:
And then probably the last.

Greg Castle:
Thing I want to have you do that I can think off the top of my head is consult with a financial advisor. You know, given the complexity of retirement planning and the various annuity options that are available, seek advice from a qualified financial advisor. Hopefully it's us. If not, you know, certainly find someone that you're comfortable with or that you trust because, you know a financial advisor can help you assess your specific situation. Recommend suitable annuity products If that's something that is suitable for you, create a comprehensive retirement plan that aligns with your goals and risk tolerance. And remember, while annuities can provide stability, it's essential to carefully review the terms and other conditions associated with each annuity product before making decisions. Some annuities are going to be better than others. Some carriers have better products than others, so it's always good to look at things and get an advisor to help you sort through the sort through the chaff and find the champion.

Producer:
There you go.

Producer:
Well, just about a little over three minutes left in the show here, Greg, So we got time for one more question, I think, from Omar in Tampa. This time around, he says, I'm 61 and married have around 650,000 saved for retirement. Our home is paid for. I don't plan to retire until at least 67. We have a special needs son, so my wife stays home to take care of him. Other than our home, we're basically debt free. So Omar says, What steps should I take to ensure my family is taken care of in the event of my passing?

Greg Castle:
Well. Well, you know, first of all, let me commend you and your wife for being debt free. And second of all, and probably equally as important, is providing a stable home for your son. So here are a few steps that I would recommend that you consider to ensure your family is taken care of in the event of your passing. You know, first of all, I would have you develop an estate plan. You know, work with an estate planning attorney. It won't cost you that much to have it done if you, you know, unless you have a really complicated estate work with an estate planning attorney to create an update or create or update your will, ensuring that it accurately affects or reflects your wishes and make sure that your asset distribution and guardianship, your special son is all taken care of. Consider establishing trust to provide your son's long term care and financial needs even after you're gone. A special needs trust can help preserve his eligibility for government benefits while allowing you to allocate funds for supplemental expenses. Take a look at life insurance. If you don't have it already, make sure that that's taken care of. Disability insurance, something were to happen to you. It would be important to make sure that you still have an income coming in to provide for your son. Create a financial plan which we can help you with as again, encourage you to give us a call and then then ensure basically take a look at reviewing beneficiary designations to make sure your wife and son are taken care of.

Producer:
Uh, and.

Greg Castle:
Then finally seek professional guidance. We wish that you would give us a call. Casablanca Solutions. (813) 430-7100. Or you already emailed me this question, so feel free to email me again at Greg@SafeMoneyMasters.com.

Producer:
It's this Week in History, July 24th, 1969, is where we start and a big momentous occasion when the Apollo 11 astronauts splashed down safely in the Pacific. Boy, they had been on a journey, huh?

Greg Castle:
They had. They had. And then that was yesterday. Today is July 25th. Today is the day that in 1952, when Puerto Rico became a self-governing commonwealth of the United States. And tomorrow, July 26th in history, the US postal system was established by the Second Continental Congress of the United States, and the first Postmaster general was Benjamin Franklin. That actually happened in 1775. Birthdays for the day. Sandra Bullock, 58. Jason Statham turns 55. Helen Mirren. Dame Helen Mirren turns 77. Mick Jagger turns 79 on this date. Kate Beckinsale turns 49 and yours truly, the host of Safe Money Masters basically turns somewhere between Kate Beckinsale and Bigge Jagger. So with that said, today is special days here on July 25th. Today is World Carousel Day. It's National Thread, The Needle Day. It's also National Wine and Cheese Day. And in one of my favorites is National Hot Fudge Sundae Day. So I think we ought to go out, take a carousel ride, get off that, go out and cool off with some hot fudge sundae, and then later on the night, go out and have some wine and cheese to relax before bedtime.

Producer:
Well, that sounds like a plan to me.

Greg Castle:
I think that probably wraps things up for today. We want to welcome you the correction. Thank you, our listeners, for being with us. And with that said, we'll see you next week. Same bat time.

Producer:
Same bat channel.

Greg Castle:
So long, folks. Thanks for listening to Safe Money Masters with Greg Castle.

Producer:
You deserve to work with a financial expert who has a track record of helping clients exceed their financial goals by implementing safe and proven strategies to schedule your free No obligation consultation with Greg. Visit SafeMoneyMasters.com.

Producer:
Not affiliated with the United States government. Greg Castle does not offer tax, legal or investment advice. Consult with your tax advisor or attorney regarding specific situations. Opinions expressed are subject to change without notice. These opinions are not intended as investment advice, nor do they predict future performance of any product. All information provided is believed to be from reliable sources. However, we make no representation or warranty as to the accuracy of any statement. This information is intended to be educational in nature and does not provide a guarantee or specific result. All copyrights and trademarks are the property of their respective owners. AmeriLife assumes no responsibility or liability for the content of this message. The information contained herein is provided on an as is basis with no guarantees of completeness, accuracy, usefulness, timeliness or the results obtained from the use of this information.

Producer:
Fixed annuities, including multiyear guaranteed rate annuities, are not designed for short term investments and may be subject to restrictions, fees and surrender charges as described in the annuity contract. Guarantees are backed by the financial strength and claims paying ability of the issuer.

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