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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 your retirement Unbroken with your host, Merrit Strunk. Merrit is a licensed fiduciary and financial advisor who always places your needs first. Merrit works hard each day to educate Americans like you on how to reach the financial freedom they've worked so hard for. And he can help you, too. So now let's start the show. Here's Merrit Strunk.

Merrit Strunk:
Welcome again to the Retirement Unbroken show. This is Merrit Strunk, founder and president Momentum Financial Insurance Services here in San Diego. And with us today is Sam Davis, our executive producer. How are you doing, Sam?

Sam Davis:
Merrit I'm doing great. So happy to be here on the air bringing such important information to the people of Southern California and all across the country because Retirement Unbroken is available on Spotify or wherever you listen to podcasts. So if you miss part of today's show, please find us online and take a listen to past episodes.

Merrit Strunk:
Man, that's fantastic. I'm glad you're here. Sam, I want to thank you for showing up and listening to the show. And our mission on the Retirement Unbroken show is to transform our listeners into more educated, more equipped and financially savvy individuals so that they can make better financial decisions for their future. So it's our goal that each episode will awaken your mind and your spirit and give you tools and information so that you can act with intention, so that you may unlock what is possible in your financial future. All right. Our website is WW your retirement unbroken that's retirement unbroken dot com. And if you go to that website you can always hit the free consultation button at the top. You could do that and be happy to talk to you. We could talk about anything that's going on with your situation. There's also a phone number 858521 9708 5852193 700. And you can also subscribe to the podcast, the radio show. Hit that button and subscribe. Give us a rating we'd love to hear from our listeners. Okay. So a preview on today's show. We're going to talk about a lot of things and we're kind of going to pick up on our Smart Retirement Plan series that we covered in the last show. But specifically, we're going to talk about Smart Safe, which is bond replacements. Bond replacements. You may or may not know what's been going on with bonds. Pretty miserable. Worst market for bonds in the past 40 years. Smart risk. Risk is a big thing in retirement. And even when you're coming up to retirement and we're going to talk about some things about structured notes and tactical investment allocation, if you don't know what that is, then your knowledge may be stuck.

Merrit Strunk:
In the past, things have evolved related to portfolios and asset allocation, and tactical allocation is something you need to know about, right? Most people don't know about this stuff. Then lastly, smart taxation. We're going to talk about a strategy that's often used by the wealthy and the informed to create tax free retirement income and a lot of other flexible benefits here. So these are then we're going to we're going to come together and say how how does a family or an individual, how do they use all these things coming together to really create a solid plan? Right. A solid plan. So that reminds me. So if you would like to have a full retirement plan called consultation with us, we'd love to hear from me. We don't bite. Just give us a call. Hit that button. It's in no cost and no obligation. We do this for every person that responds to the show. We talk about IRAs for one case retirement savings accounts, taxation, Social Security, planning, Medicare. We can talk about all those things, things that pertain to almost every single one of us and certainly people who are listening to them. Okay, I'm excited about this one because it has a lot to do with where your head's at. And that brings us to our financial wisdom quote of the week. And Sam, you have the honor of sharing this.

Producer:
And now for some financial wisdom, it's time for the Quote of the Week.

Sam Davis:
Yes, Margaret, this one comes from Henry Ford, founder of the Ford Motor Company, developer of the assembly line method of mass production. And many, many decades ago, Henry Ford said whether you think you can or you think you can't, you're right. And I love that, quote, merit, because I think it really leans into how powerful a mindset can be, whether it be a positive mindset or a negative mindset. You know, I think of standing on the golf course. Maybe you're looking at that four foot putt. And if you think you're going to miss it, you're probably going to miss it. So I think that's a great.

Merrit Strunk:
Quote from Henry Ford. Thank you so much for that. That's funny. You brought in the golf game because instantly Chevy Chase came to my head as like be the ball, see the ball. So talking about what brings us to the market. So the good thing is I'm not going to get too deep on this because that could be kind of boring. But today, as we're recording this not so great, today, we're a little almost a point down. I think the good news is that over the month here from, say, the last 30 days, from July to August here, the market is up. Good news, right? So we've seen successively higher closes and that is what you want to see. And right now, I think today they just reported the major retailer earnings. We've got mixed results on those. And so the market's kind of reacting to some of those things. And I think the way that the market's going up like it is in these successive closes is we do see inflation starting to tamp down just a wee bit. And that's as far as we're going to get into the market and where we are. So the important thing to talk about here and it's all over the news is the new inflation act that the administration passed.

Merrit Strunk:
You know, this is not to be political. This is just sharing the information with you. And the thing I'm going to share is a New York Post, the newspaper of The New York Post has has an article in it. It says an analyst at the CBO. And I don't know if you've heard CBO, if that's the Congressional Business Office, it's a nonpartisan office that really looks at the spending of these bills and make sure that they're as good as people are purporting them to be. And the article goes on to say that, you know, that Bill was supposed to not affect or have taxes on folks who are making less than $400,000. That would be the majority of Americans and a smaller percentage would be making above 400,000. And so the way that the news and the administration talk about people, about those 400,000 is those dirty rascals. You know, they're cheating on their taxes. Right? And so they want them to pay their fair share. So this bill is supposed to not raise taxes on those people who are below the 400,000. And really people we're talking about is the middle class, the large middle class in between. So the administration has promised not to raise those taxes. But what the CBO says that the middle class, the people who that bill and the people in the White House have said it's not going to raise taxes.

Merrit Strunk:
The CBO, who does the estimates and the analysis actually said it's an estimated $20 billion more in taxes to that segment over the next decade. The whole package altogether is $740 Billion package in the bill, which also brings us to the point of it sets aside $80 billion of that package to go where you would think it's going to do something about decreasing inflation. By the way, that's what it's named, right? Wrong. According to this article, it says that that 80 billion goes to the IRS. Your friends at the IRS. Wow. And it's going to allow them to hire up to 87,000 more IRS agents. Well, that is an army. So more IRS agents. And I did look up what how many employees does the IRS have now? And according to the IRS publication, 53, 82, they already employ in 2021, 81,600 employees. The bill says 87,000 more is over a decade and currently they employ 81,600. That's not including the 10,000 temporary seasonal workers for the IRS. 8780 181 six. Actually, it more than doubles the it is doubling the size. So this this would bring the number of IRS employees up to 168 employees, 168,000 employees, like I said, 160, 168,000.

Merrit Strunk:
So I just had to look that up and said if the IRS was a company, where would that put them in relation to the largest employers of America? Are you ready for this? So I found a website is called company's market cap dot com. 168,000 employees would put the IRS equal to a company that you may know and may touch your life, which is Comcast. They own NBC and. I looked up Comcast. Right. And it's certainly publicly traded. The Comcast has a market cap of $172 billion and it's the world's 63rd most valuable, the world's 63rd most valuable company. So the world's most 63rd most valuable company has about 106 equal amount, 168,000 employees. Now, the IRS has that very same workforce or the ability over the next decade to have that workforce. Isn't that interesting? And the fact that they said, no, it's not going to increase taxes on the middle class, anybody under 400,000 and the CEO Congressional Business Office says, oh, yeah, it is $20 billion worth of taxes over the next decade. Sam, based on the data that we just looked at, what's your hunch? Are people going to have taxes raised? Are they going to have audits? Why would the IRS be having a double work, double workforce? Yeah, it's.

Sam Davis:
It's really interesting. Merrit And I always point people to the historical figures because just like you and me, you know, most everybody's crystal ball is broken. We can't see into the future, but we can look pretty well into the past. And if you look at historical tax rates, you can look at the top marginal tax rate. Historically, we are at all time lows while at the same time we're at near all time highs when it comes to spending. And think about budgeting in your own home. If you need to make up a debt which our country has a little bit of that you may want to take a look at the national debt numbers. What do you need to do? You need to increase your revenues or cut your expenses. And it doesn't look like the folks in Washington, D.C. are voting to cut expenses. So what do they need to do? They need to increase revenues. Luckily, they have the Internal Revenue Service. That does a pretty good job of that, just like you laid it out. And wow, Comcast has a comp that is a huge company with some some big subsidiaries that people have probably heard of. So.

Merrit Strunk:
Very cool. Yeah, nicely done. Interesting. We just got through spending trillions of dollars with COVID relief and so on. And any time the government turns on printing presses to do deficit spending, then your dollar becomes less valuable. So if they print multiple trillions of dollars more, that dollar in your wallet is now worth less. Right? It's now worth less. Interesting. So let's let's move on here. I do one last point. You know, a lot of times I ask clients, as we're talking about, so do you think taxes are going to go up or go down during your lifetime? Of course, they always say it's going to go up. You have to be hiding under a rock to think that taxes are going to aren't going to go up. The situation with Social Security trust fund, the situation with Medicare, the inflation upon medical costs, making medical care, Medicare even tougher. Boy, I tell you, the cost is just going up and up and up and you could feel it right now. So inflation is a giant, giant thing. And one of the most eroding things that can happen to your retirement dollar, I've said before you've heard this before, Sam, is that inflation is the secret partner in your retirement that erodes the purchasing power of your retirement dollar.

Merrit Strunk:
It's it's more damaging than almost anything else that we see when we do our analysis. You can have a rate of return go down. You can have Social Security benefits cut, you can have a number of different things happen and still make it through. The big one that will kill a plan is that it just costs more to live on everything, and that's inflation. All right. That brings us to our Smart Plan series. But I tell you what, since we spent a bit of time here, let's take a break and we come back. We'll jump right into Smart Safe. So take a second if you can. Not what? Not if you're driving and go to our website at WW retirement unbroken dot com press the complimentary consultation button there and give us a shout or give us a call at 858521 9700. And we'll be right back.

Producer:
You're listening to your retirement unbroken. To schedule your free no obligation consultation with merit visit retirement unbroken dot com. Are you concerned about inflation, political uncertainty, rising taxes, and how it could all affect you and your family during retirement? If you have an IRA balance over 400,000, you could save six figures in retirement taxes that you would be paying over a 35 plus year retirement. Find out how much you could save today by scheduling your free Roth conversion consultation with Merrit Strunk at retirement on Broken Dot.com. This part of today's show, your retirement and Broken is available wherever you listen to podcasts and online at retirement. Unbroken dot com.

Merrit Strunk:
All right. Welcome back to the show. We are just getting into Smart Retirement Plan series and first time we want to talk about is smart, safe. And the topic we want to touch on is a bond replacement. What's that all got to do with anything? Okay. So normally under this modern portfolio theory, you've got a diversified portfolio, it is risk adjusted and your age has a lot to do with it and your certain situation. So in there is normally is a component of allocation to bonds. The theory is that the more bonds you have, they are less exposed to volatility where there is an adverse relationship between bonds and stocks. When the stock market is up, bonds are down. When the bonds are up, the stock market is down. And that's typically how how it goes. However, recently, when the last couple of years and more, that's been a real problem because we've been in a very low fixed interest rate environment and the situation has become during the tough times of this market here is that there's really nowhere to hide. So folks who had, say, maybe a 6040 portfolio or in retirement, that means 60% in some kind of fixed income or bonds and 40% in equities because they can't have a whole lot of risk. That means the whole thing is down, right. That's been a real drag. And millions and millions and millions of retirees with felt that matter of fact they even some people even talked about the death of an asset class related to bonds. Can you believe it? They are actually saying this is the death of an asset class.

Merrit Strunk:
Why would you even be in bonds? And the longer term your bonds are, the more sensitive they are to the interest rate adjustments. Right. And the other risk you have in bonds is once your bond matures, where do you go? Where do you go? If you if you can invest in something that's paying you back? I remember one point and don't quote me on this. It was there was 50 something countries around the world that have a negative bond rate. So why would you ever give money to to the government where you're expecting less than your money back? So essentially, if you have a bond and all of a sudden the short term rate bonds go up, then that means your long term bond that is matured, you have to sell at a discount rate. And the reverse of that is if you're if your bond that you're selling in, the rates are lower. Now you're selling at a premium. So you make the premium or you deal with the discount in order to unload it. So for people who are having bond ladders, typically retirees end up with bond ladders and you make the coupon rate as the bonds mature throughout a period of time. So you have a laddered up a group of bonds to make your income. Well, that's become a real, real problem. Right. So we're having historically low bond returns during this reality. Right. And then liquidity is is a real concern there as well. So so the idea of a bond replacement comes into the frame, like what do you do? Right.

Merrit Strunk:
And since so many investors are conditioned to associate bonds with safe and predictable right, that that leaves them entirely unprepared for the inevitability of historically low bond rates. That's a tough deal. So where do you look? So the bond replacement situation is we're taking parts of the portfolio and we're we're we're shielding, in essence, a low return rate. So in in the typical portfolio development, if stocks were to do low, then bonds kind of smooth out the negative performance based off their yields. But when both are low and there's no hiding, where do you go? So going back to what is a bond replacement, well, we start looking for things like what? What is a non correlated or an investment or how can we get some yield, some expected yield and still protect the downside. So we're looking at insurance products and we're actually looking at replacing the bonds with fixed indexed annuities. Why? Well, with fixed indexed annuities, you can put the money in in an accumulation annuity. That's that's index linked to an index. And if that index does poorly, guess what? The principal is not affected. But when the index goes back up again, say S&P, the NASDAQ, the Russell, one of those, then it goes up from from where you lock in. And essentially you have no loss to your principal. You only have upside in, although this is not the technical name of the way that that works is there is a no loss provision of sorts.

Merrit Strunk:
The consumer cannot lose principal due to exposure to volatility. Right. So if you if you then say, well, I want to have the opportunity upside growth potential, but I don't want to lose anything. And that is my the role that normally my bonds had. But the bonds can no longer be counted on for that. Where do you go? We're we're doing that with the fixed indexed annuities and saying, all right, we have the potential upside. It's a long term investor. You essentially make a lump sum deposit, you transfer the funds, say maybe from an IRA you can do that or you can make sequential payments over time. That's a possibility. And your money will grow tax deferred inside the annuity. Your investment performance is tied to the indexes, like I said. And those ones, just to repeat that, that would be the S&P 500 NASDAQ composite, Russell 2000. And there are many more there's there's a lot of there is a lot of say I would say custom created low volatility indexes. Some of them I don't care for. And I will tell you also, when it comes to annuity, my personal opinion is I don't think a lot of them are great. I think there are some that do exactly what they're supposed to do for the right kind of person and the right situation. Right. So remember that not all are great. Some of them I don't care for some of the indexes I'm care for. We're looking at ones that do the right thing for the right person and the right situation.

Merrit Strunk:
And so can we essentially get the safety that we're looking for, the upside growth potential and then no loss, no loss to principal due to market volatility? So you're protected against also principal, which means you won't lose any money that you put into the fixed indexed annuity due to market volatility. Right. So the advantage is of using those annuities that are linked to indexes is it limits your losses. It's a possibility that you can protect your gains. I mean, you locking in your your gains. So there's a whole conversation on that. It's you get inflation protection by the potential upside and it's tax deferred growth. Now, there are some disadvantages that you have to be aware of. So potential limits on gains, they may be capped. That's why you've got to have the right one. And there are probably thousands of them to choose from. If you need to get your money back out of that rascal, then there are surrender charges and they can be substantial. So you need to know what that is and you need to know not to put yourself in that situation. And because nobody knows what the index is going to do tomorrow, then there's uncertainty about what the exact returns are. However, those things can be dealt with in the planning, and it's not all of your assets, it's a portion of your assets. You still have investable assets and you've got this bond replacement and it could do much better than what has the potential to do, much better than what the bonds are providing. I've seen some that have been great and I've seen some that have been poor.

Merrit Strunk:
So again, not all are great. Not all annuities are great, not all indexes are great. And this needs some education and an explanation and you need to see it inside the plan. By the way, Sam, I'll tell you this. We've done plans with an annuity. You see what it looks like. And this is, by the way, this is at the request of the client. And we've done the same plan without an annuity. And there are plans that succeed at a higher success rate of achieving their objectives in retirement with the annuity and not with just a non annuity plan. Now there are some times when we run those things and for some people it's not right. And I tell them you do not want to do this thing with the annuity, you do not want to put it in there, you don't want to do it. It's not working for you, but for the people. It does work. It's fantastic. So we're going to do a little break right here. That section was a little long here. And I want to remind you, go to the website, click that button, get a consultation of this off this portion here, bond replacement, retirement income, a portfolio constructed for your success. If that sounds interesting to you, it's just a conversation. I don't bite and I meet with each and every client personally. So give us a call 858521 9700 or click that button on our website which is WW retirement unbroken dot com.

Producer:
You're listening to your retirement unbroken. To schedule your free no obligation consultation with merit visit retirement unbroken.

If I was to say to. We couldn't get much higher.

Producer:
Social Security will get a big cost of living adjustment next year, but there could be some consequences you might not have considered. I'm Matt McClure with the Retirement Radio Network Powered by a micro Life. A new report by the Senior Citizens League says Social Security beneficiaries could see a cost of living adjustment or COLA as high as 10.1% next year. The reason, inflation running at a 40 year high.

Sam Davis:
This is a very, very unusual and unprecedented pattern of inflation that we're experiencing.

Producer:
Mary Johnson with the nonprofit group, told WPTF TV that surveys show inflation has caused about half of Americans to spend their emergency savings and people are carrying more debt on their credit cards. So the highest jump in Social Security payments since 1981 would be a good thing, right? Well, Johnson says it's better than no increase, but there are some things to be aware of.

Sam Davis:
In fact, you can get penalized if you think your tax liability is going to be 10% more next year than you're paying now. You could be penalized if you don't send in estimated payments or have more money withheld.

Producer:
She told the TV station. The increase would not be enough to cover a jump in Medicare Part B premiums, which are taken directly out of Social Security checks. And she says higher incomes mean some seniors could no longer be eligible for some other government benefits.

Sam Davis:
And then a whole 15% were made in eligible because they were their incomes increased over the income limit for food stamps or rental subsidies or the programs in their area.

Producer:
So what should you do? Johnson says Prepare now. Talk to a financial adviser to help you get ready ahead of time and contact local nonprofits if you need help paying bills. So are you prepared for the unintended consequences of a larger Social Security check? That's a key question to consider as inflation impacts all our lives. With the Retirement Radio Network powered by a micro life, I'm Matt McClure.

Producer:
This part of today's show, you're a retirement and broken is available wherever you listen to podcasts and online at retirement Unbroken.

Merrit Strunk:
All right. Welcome back. And if you just joined us, we're right in the middle of our Smart Retirement Plan series. And we talked about bonds, the situation with bonds low return and how to beat that return, potentially with bond replacement strategies using fixed index annuities where you have potential upside and you've got some principal protection on there. And how that works within a plan, within a portfolio investments as well. So not all your assets, you would never do that, but as a bond replacement and we're we're using those things that are exploring with clients and try to beat what's going on in a rather tough situation with a market. Look, if bonds were doing great, it wouldn't be a problem, wouldn't even be a conversation. We're looking for bond alternatives. So that brings us back to smart risk, risk and retirement and risk and growth while you're in your accumulation years. Risk has a lot to do with everything, right? How do you know you have risk? Well, for a lot of people, they don't know. And then how do they find out? Well, the market went down and they look at their form one K and they're like, you know what the comment is, is like, oh, my gosh, look how much we lost. Well, it's a loss in value until you sell it and then you lock in your losses. So your hope, of course, is that well, hopefully it'll come back. The only question is, is how long will it come back? So as you go through this kind of realization and your age gets a little older here, you start to really start paying attention to is how do I limit my loss? I'm coming up to maybe pre-retirement or I'm in retirement.

Merrit Strunk:
Very interesting. I'll tell you a story. We looked at a41k the other day and the person's already retired. They're in a target date fund and it turns out they had a beta of 108 well, 108% risk exposure below the top of their head off. They had no idea because they thought where they were was a safer and less risk strategy. And in fact, I'll tell you, a lot of people have no clue what their real risk exposure is compared to what their psychological risk acceptance is. When I say psychological risk acceptance, what I'm talking about is the ability to go to sleep at night knowing how much risk your assets have and exposure to the market. So talking about smart risk, there's an interesting thing and you may not be aware of these things called structured notes. There's also structured notes that are buffered. So a lot of times what we can do instead of bond replacements is within the entire plan is we can ladder structured notes. These are generally underwritten by a very large bank. They generally have an expected rate of return. They can also be, although they're in senior notes with debt notes of companies, sometimes there's also a index link so you can get the lesser rate of return a say the S&P, the Dow and the Nasdaq.

Merrit Strunk:
And then you can you can have that. They generally are issued every month opportunity to get in. They generally have a duration of something like 12, 18 to 24 months. And then after you're done, you get what's credited to you and you're back in wherever you want to put it. If it's an IRA that works, if it's after tax money, 1099 tax the tax class, that's fine, too. So that can we can use that by way of lowering your fees, transactional costs and things like that. We can reduce your sales expense ratio and avoid mutual funds by doing that. By the way, mutual funds, the sales expense ratio is the thing that you know about that they publish. It's the transactional cost that you don't see. So in 2020, you saw mutual funds with 150% turnover that that manager has got a trade and try to beat or at least maintain the goal that he has set. And he's turning over the contents of this mutual fund based off their objective and there's transactional costs. So that can really add up. So the sales expense ratio is what you see and generally it's pretty low. Sometimes there's front loads, sometimes at very often is 5%. Can you imagine 5% of 100,000? Now you have 95,000. What if the market doesn't do 5% that year? That happens, but that cost you 5% right off the front end.

Merrit Strunk:
A front load mutual fund. Did I just blow your mind? Most people don't know about those things. So there are more costs in mutual funds than you see structured notes can. We can help you reduce those things. The other one I want to hit you with is and again, this is this hasn't been around forever, so people don't know this. So listen to this term, tactical portfolio allocation or tactical asset allocation. Tactical means it's actively managed. And some of these are daily de. Really tactically managed portfolios. Think about this. You've got a bunch of mutual funds sitting in an E-Trade account. And by the way, you can't sell those mutual funds intraday. You have to take the elevator down. So if you called your broker and said, sell, sell, sell, you can't, you could say yes on the phone, but it gets redeemed at the end of the day. Unlike ETF funds that have entered day trading, so they are generally not tactically managed or actively managed. Tactical management of a portfolio design for certain benefits. Related to that is it involves shifting and adjusting your portfolio to take advantage of things that are happening, pricing anomalies and strong market sectors, things like that. It gives extra value to investors because their portfolio will benefit from the advantages in market changes. Isn't that nice? So contrast that to a passive mutual fund index related portfolio over here, active management.

Merrit Strunk:
What's going on in the market? How do I take advantage of it? Completely different. You see tactical management that we use some tactically manage portfolios that we have for clients who are very conservative, we have what's called a diversifier bucket and very conservative. So look, things started going poorly. We tactically that day managed and reduced risk in those portfolios because these might be people in their seventies or a retirement. They don't need the they may be in the situation where losses can hurt them more than gains could help them. Is that your situation or are you a pre rich retiree? That's a highly accumulated or a retiree who look, if you just get a reasonable rate of return, you and your spouse and your family and your heirs, you're going to do great. Then why do you have the risk that you have? Why do you have the risk exposure that you have? You're not trying to get 30%. So using our tactically managed strategy and approach means wealth protection, because if you're living under that mantra of losses can hurt you more than gains can help you. That's definitely something you need to know about. Look, if you don't know how a tactically managed portfolio can help you, give us a call. Go to our website at Retirement Unbroken. Talk to us about that because you need to know about that.

Merrit Strunk:
If you're not aware of this, it's like it's like this. My dad caught a giant bass, largemouth bass. He's been fishing forever. And I asked him, I said, What'd you catch it on? And he told me what he called him. And I was like, I've never even heard of that. I didn't know how you tie that. I don't even know what you're doing with that. And what dawned on me is the the approach in strategy and fishing and the way is doing it has changed. It has evolved. If you're living in the past with the understanding of portfolio and investments and it is old and it's just not evolved where we are today, we tactically manage portfolios and you need to find out. Start fishing with the right bait. I like that for analogy. So tactical allocation can reduce your risk, you can increase returns, and it can truly diversify your portfolio. Okay. So that brings us to smart tax. So where we were was smart risk. Understand your risk, right? We talked about bond replacements. We talked about structured notes and now we talked about tactically asset, tactical, tactical asset allocation and portfolio management. So this one is smart tax. If you were in the show earlier, you heard us talk about the Tax Act and the army of IRS agents that are going to be hired. What, 87,000 of them, that puts them on par with Comcast as one of the largest employers in the world.

Merrit Strunk:
Sic what, 60? Somewhere in the 63rd wasn't I think it was largest market cap company in the world. Okay. So let's talk about smart tax. How about this disinherit the IRS from your retirement account? Whew. Isn't that interesting concept? You're going to disinherit the IRS from your retirement account? Well, if you if you didn't hear that, your ears should perk up. Please merit. Tell me more. How do you do that? All right. Well, a lot of wealthy people know how to do this. And I'm going to share with you a strategy that if you put it together with your bond replacements, your investable accounts or tactically manage portfolios, and now we're talking about this interesting animal. Well, if I say divest the IRS, then what is it? That's tax free money of some sort? Well, there are only a couple of things that do that. You've got a Roth account tax free. Right. And the other one is life insurance. And then the other one is certain types of trusts. I'm not going to get into that. Okay. So life insurance index, universal life 1035 Tax free exchange of cash value, life insurance into an index universal. A life insurance policy. That was a lot of terminology. Let me try to unpack that a little bit. Did you know that a different investment accounts, different investment accounts are taxed differently? We call this tax class diversification within your financial plan over and over and over and over again.

Merrit Strunk:
Where do people have the majority of their money the yet to be taxed, but when it is, it will be taxed forever. Bucket Right. If we had to get up and line up under the three buckets, where would we line up? We would get under the tax free forever bucket, wouldn't we? We'd all line up there. So this is the conversation on how to do this. So by understanding how different accounts tax class are taxed, you can ensure that your money is working and how you need it and when you need it. Smart people have done this. People who understand this. Interesting. So before we talk about the types of retirement accounts, there are two that you should be two different tax classes you should be familiar with. Excuse me. Tax exempt, right? Tax exempt is an account that is taxed when you contribute, but not when you withdraw. Right. This is a great benefit of retirement because you don't have to worry about being taxed in a different tax bracket when you contribute those dollars. The other one is tax deferred, and this is the one we're all pretty much familiar with the tax deferred account. Like a traditional IRA, it gives you the tax benefits of up front. You won't pay taxes when you contribute, but you will pay taxes on any distributions to or withdrawals. Right. And with IRAs that are traditional ones that happen, it used to be 70 and a half, now it's 72.

Merrit Strunk:
But you don't have a choice in retirement. There's this thing called our MDS. That's an acronym that stands for required minimum distributions. Who's requiring it? I like to call it compelled distributions. So the government is why? Because you haven't been taxed on it yet. And what do they want? They want your tax dollars so they make you take it out. Whether you need the income, what you've got to take it out. Okay. So what's the benefit of this life insurance that I mentioned in that scenario? So the greatest benefit of life insurance, obviously, is the death benefit that's paid out by the insurer. And it's usually probate free and tax free. Probate free means it doesn't go through the probate court judge to decide where it goes. That's directed by the beneficiary. And that death benefit is coming to you tax free. Has the administration consider different ways that they can get more money out of you? Yes. Have they considered different loopholes and things? I got to tell you, life insurance is the last sacred cow out there. Roth is on the in their microscope right now. Okay. So sometimes a beneficiary may be required to pay some taxes with certain types of policies, any interest accumulated by the policy, but never on the base amount. I'm going to give you an acronym. I view l is so funny. We talked to people about index universal life insurance and they have no clue why it didn't always exist out there.

Merrit Strunk:
And it's interesting when they hear about the benefits, you're like, I've never heard about this. So it's another type of insurance that earns cash value. It grows and it gives the policyholder a chance to earn a fixed or and or equity index rate of return so you can have a life insurance policy. It grows like the S&P and it can get a rate rate of return like the S&P within reason. Yeah, it can. So interesting. So the other thing is highly flexible. Some of these policies provide chronic care if you don't have any long term care, the death benefit, obviously, but you can also get tax free retirement income while you're retired for the rest of your life. Okay, it's possible. Wow. Merrit, you're blowing my mind. Yes, that's true. With an IUL, you have a lot of flexibility. So we've got the death benefit if I die, but if I get sick, I get chronic care. And if I don't die and I don't get sick, I can get tax free retirement income. Yep, you can. Well, that's a beautiful thing. Tax free retirement income in retirement is a beautiful thing. So so that brings us to our example. So here's, here's a great example. Play this out right. A married couple, let's say they're 58 and 55 and they want to retire in 7 to 10 years.

Merrit Strunk:
So they're saving around 52,000 a year and tax deferred 401 K accounts for retirement never been paid taxes on right going to have taxes for for as long as that exists every time they take out withdrawals after 72 so they saved about $1.2 million in their 41k plans. Hasn't hurt. Right. And because all this is tax deferred money, they're concerned about their future tax task or tax risk and they should be that's a big one forever, especially if the taxes go up over the lifetime. So they expect to way they figure it, about 47,000 in combined Social Security income per year. Fantastic. They're. Expecting retirement expenses to be around $6,000 a month. So what do we do? How does this fit in? Well, the married couple is choosing to invest in an i ul index universal life policy, reducing their taxable income now and generating tax free retirement income later. So they're also investing in an annuity. So now they have this IUL right as it may be a tax free retirement income and they have the annuity as as a percentage of their assets to establish another income stream. So that would be an income annuity. So they have guaranteed income. So additionally, they're interested in reducing that tax liability by converting some of their tax deferred retirement savings into a Roth IRA. So that's after they stop working. So their income tax is lower, so their W-2 is low. Great time to put into a Roth conversion.

Merrit Strunk:
From this. Going to be tax bucket, right? So if you've got no income from W2, then your income is low, your taxes are low, and you can do a Roth conversion that's called a what? A backdoor conversion into a Roth. So once they stop working to reduce their future tax exposure, this is what's called, again, the backdoor conversion. So get that in your head there. By the way, is the administration currently talking about reducing those and the ability to do that? It's been a conversation. So a couple of things you have to know about a Roth. You have to open a Roth while you're making W two. Okay. And money that's in that in that Roth cannot be taken out until after five years. So there's some rules there. Right. And there's an age, a requirement, a component as well, if you take out a money out too early. So Roth IRA, you've got to have that W-2 or 1099 income. So you've got to set it up. You've got to set what I call it is you've got to have a catcher's mitt. Right? Put a couple hundred bucks on that, get that Roth open. So when you retire, you can move that $1,000,000 over there, maybe over five years or so on. Now, that would be tax free forever. All the capital appreciation, all the dividends, all the interest forever. And to onto your legacy, right into your heirs.

Merrit Strunk:
So even if you're still working, you can work with us. Let's put that plan in place while you're still working is a great idea. That's the problem. If you wait till the end and you're already retiring you now we're going to talk about somebody about getting some strategies together or reduce your taxes. Now, the Roth is possibility is gone for you unless you go back to work. And that's a possibility, too. So we can help you plan for Social Security benefits, and that can make a huge difference during your retirement. You put the put all those pieces together. You want your money to have the the tax class diversification or different tax buckets, tax deferred and tax free. Right. Having too much in that tax deferred, which is where everybody is. I mean, I've seen some giant 401. Case and IRAs, tax deferred. That's a big mistake. Start talking, asking the right questions, talking to a fiduciary financial advisor. Figure out how you can do that. You know, right now you just have to say the what I wish we did that. I wish we had that. Then later on comes the how. All right? Just just take action when it comes to money. Action. Action. Right. So interesting today we talked about. We talked about smart, safe, right with with the the annuities. We talked about bond replacements with annuities. We talked about structured notes, something you probably are not familiar with, how you can have upside potential and no loss to your principal.

Merrit Strunk:
We talked about reducing expenses and now we talked about that being tax smart, how we can make that happen. And by the way, if you if you've got a situation where you don't have long term care provision and you still want tax free retirement dollars, and it's still early so that we can get some time in there plan. That's a great conversation. Another kicker was the Roth conversion. Fantastic. I mean, you've got to be thinking about these things. So when you take all these things together, some people have called that the smart plan or the ideal plan. You've got all these things together, right? You've got your investments, you've got your bond replacement, you've got safe, you've got guaranteed income. Fantastic. And by the way, there are ways that we can potentially increase your income. That's guaranteed every single year. And we can show you how to address inflation later in retirement by having that increase that increase at certain segments of your retirement. It's a beautiful thing. So if you put all these things together as opposed to you're not having the conversation, you don't have a plan, you haven't seen the projection, you don't know these things. You're missing out on the critical information. So we're reaching the end of the show here. So I want to tell you go to our website W WW retirement unbroken dot com click on that button to get a free consultation I don't buy it.

Merrit Strunk:
There's no cost, there's no obligation. And we'll do a current financial situation analysis for you and with you so that you can see where you are. What are your tax implications? Are you exposed to long term care? Are you exposed to the gotchas in retirement? And a lot of these are gotcha, especially about the taxes. Taxes are big, inflation is big. We want to build a moat around your financial situation for you and your family so that as these threats and dangerous, unexpected gotchas are coming around the castle, that is your financial life. It's like you're fighting them off. We've got a plan. We're going to be okay. The survivors are going to be okay. Your errors are going to be great. That's the whole idea is we've got to check those boxes. Do we have all those things right? And we'll even talk to you about some of the estate planning and tax efficiency that that is wise to do into the conversation. We'll make sure we can check boxes there. So it's been great having this time with you today. Welcome to the Retirement Unbroken show. And again, we want to give you tools and strategies so that you'll make better decisions in your retirement. My name is Merrit Strunk and I am the president and founder of four of Momentum Financial here in San Diego. But we have clients all across the country. And give us a call. We'd love to talk to you.

Producer:
Thanks for listening to your retirement, Unbroken. You deserve to work with an experienced and licensed expert who will strategically work to protect and grow your hard earned assets to schedule your free no obligation consultation with merit. Visit retirement unbroken or pick up the phone and call 858521 9700 That's 858521 9700 Advisory services are offered through Momentum, Financial and Insurance Services LLC. An investment advisor in the State of California. Insurance products and services are offered through merit, strong and independent agent. California License number 07510. Certified Financial Fiduciary is a federally recognized professional certification.

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. Structured notes involve risks not associated with an investment in ordinary debt securities. The securities are not bank deposits and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency. Nor are the obligations of or guaranteed by a bank. The securities will not be listed on any securities exchange and the secondary trading may be limited. Therefore, there may be little or no secondary market for the securities. Accordingly, you should be willing to hold your securities to maturity. The securities are subject to the credit risk of the issuing bank, and any actual or anticipated changes to its credit rating or credit spreads may adversely affect the market value of the securities. How long will inflation last? I'm Matt McClure with a retirement radio network powered by Emera life. Americans and people around the world are struggling through the worst inflation we've seen in four decades. Everything from a gallon of gas to the food you buy at the grocery store is all more expensive these days.

Sam Davis:
We're also seeing it in all sorts of other everyday services. Nail salons, hair salons, you name it, you're seeing difficulties in terms of higher prices.

Producer:
Tara Sinclair is a professor of economics at George Washington University. She says the inflation situation is a bit of a vicious cycle right now.

Sam Davis:
Employees are asking for higher raises and then employers are trying to figure out how to pass those costs on into the goods and services that they're selling.

Producer:
Ongoing supply chain issues are a huge factor driving inflation. In an ideal world, Sinclair says, fixing those issues would be a perfect outcome.

Sam Davis:
If we could provide all the goods and services that people are demanding at the current prices, then we would be in much better shape and we wouldn't see this competition to buy these goods and services. That's really pushing up the prices.

Producer:
But it doesn't usually work that way. Instead of increasing supply, the way we usually tamp down inflation is on the other side of the equation.

Sam Davis:
And so instead it's about slowing the demand for goods and services. And the way that that happens is through the Federal Reserve, our central bank, raising interest rates.

Producer:
And that means things like car loans, mortgages, home loans and credit cards get more expensive. It's not the most pleasant way to do it, she says. But that is likely how inflation will cool down in the coming months. The Fed's interest rate hikes have also caused a lot of volatility in the markets. But Sinclair says if you're planning for retirement, it's not all bad news.

Sam Davis:
It is important to remember that they have seen strong years of growth recently up until now. And so we're seeing a lot of people that have a lot better financial conditions now then, particularly if we think about people that were trying to retire after the global financial crisis.

Producer:
And she says many pre-retirees are looking to move assets into safer investments.

Sam Davis:
And there are these higher interest rates from the Fed are good news. So hopefully they can look forward to to that and maybe be able to find a steady annuity that will support them in retirement.

Producer:
So how will you respond as interest rates go up in an effort to bring inflation back down? That's a key question to consider as you plan for your retirement years with the retirement radio network powered by a merrill life. I'm Matt McClure.

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