What If The Stock Market crashes? How To Approach it in Retirement? Retirement Planning at 60’s

 

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Mark Elliot: Welcome back to the Retirement Income Show with Troy Sharpe, the CEO and founder of Oak Harvest Financial Group. You can go to the YouTube channel and find out more about Troy, anything that’s on your mind. Financial-related, retirement-related. Troy’s probably got a video on it. Social security, Medicare, you name it, volatility on the markets, all those kinds of things. Just search for Oak Harvest and Troy Sharpe.

You want to find out more? You can always easily just go to the website, oakharvestfinancialgroup.com. You can always call with your questions or concerns 800-822-6434.

We’re talking about retirement basics today. The Oak Harvest Retirement Process process, it starts with investments, goes to income, then goes to taxes. The fourth part is healthcare long-term care. The fifth stage is legacy and estate planning, and social security is in the income part. Medicare’s in the healthcare part. There’s a lot of moving parts.

One of the things that I think is so cool about your Oak Harvest Retirement Process process, Troy, is that you do have to factor in the what-ifs. What if the market tanks? What if we have a healthcare issue? What if we have to go to a long-term care facility? What if a spouse passes away? There’s so many what ifs. If you had to rank them, the what-ifs that are so important for retirees, how do you approach the what-ifs?

Troy Sharpe: There’s so many what-ifs in retirement. It’s really, really difficult to rank them. The obvious ones that come to mind is what if the market loses 50%? That’s a big one. Honestly, it’s just that one depends on how you’ve originally allocated your investments because, despite the claims to the contrary, no one can successfully get you out of the market and get you back in consistently over time.

The way you avoid losing 50% of your money is what we call asset allocation. You need to have money that is invested according to your willingness to take on risk, but also your portfolio’s capacity to take on risk. Without going too far down that rabbit hole, do have a new book coming out where we’re going to be talking a lot about this. Also, you can go to the YouTube channel, we talk about portfolio capacity and portfolio or risk willingness, several videos there.’

The simple answer is the only way to avoid that is through a proper asset allocation strategy that is a function of your portfolio’s capacity to withstand risk and also your emotional willingness or tolerance for volatility. That’s a big one.

What if taxes go up? It’s one of the ones that not only is about to happen, although possibly not nearly as severely as 10, 15, 20 years down the road, it just depends how long the government can keep up this charade of printing money to solve our problems before inflation really begins to rear its ugly head. I know we’re experiencing some inflation now, but primarily, it’s due to supply chain disruptions because of COVID and government lockdowns. It could last for some time, but the big concerns long term, when you look at the fundamental solvency of the federal government, it is not pretty. Here’s the reason why.

The federal budget is broken down into two sides. You have what are known as mandatory expenses. These are constitutionally mandated, as soon as the money comes into the Treasury, they must be paid first. Now we’re talking about interest on the debt. We can’t not pay the interest on our debt. Medicare payments, social security payments, Medicaid, Obamacare subsidies, these go on the mandatory side of the budget now. Those are 100% mandatory, meaning there is no discretionary decision-making involved.

The last study I read, we are getting pretty close to 100% of the tax revenue that the government receives annually having to be allocated to cover our mandatory expenses. The other side of the budget, this is the one that Congress is always negotiating and fighting, and bickering about. That’s the discretionary side of the budget.

How much do we allocate to the FBI, to the CIA, Homeland Security, Department of Labor, Department of Education, all the port projects that are back in the budgets now? All that money, pretty much 100% of it has to be borrowed. If it’s not at 100% quite yet, it will be very soon. When we look at the bleakness of the budget situation, as far as the amount of tax revenue coming in and the amount of mandatory payments going out, combined with the discretionary side of the budget–

I’m not concerned about President Biden’s tax hikes right now. They are worrisome from a business standpoint. They will absolutely slow economic growth, but I’m more concerned about the long-term consequence of the current budget situation and what that has to do with taxes. The what-if in this scenario, what if taxes go up? That’s where my focus is, that’s why we’re such a big proponent of doing Roth conversions right now, of getting money out of those tax-infested retirement accounts and getting them over to the tax-free place.

You don’t have to worry about the government changing the rules on those, that is a myth, that is nothing you need to be concerned with. You’ve paid taxes on that money, you will not have to pay taxes again. For some of you, it might be the 10%, or 12% bracket, or 22% bracket, or 24% bracket. It depends on your situation but when we do this analysis– Had a client come in recently, the reason he came aboard was, “Troy, I’ve been hearing you talk about taxes for years, I never took it seriously, and then I had that light bulb moment that you talk about on the radio.”

He says, “I saw I’ve had every dollar I’ve ever saved go into my retirement account and the light bulb hit me that if I want to buy a second home, if I want to go on a vacation, if I want to help my children out, if I want to do anything, I have to go into my retirement account, take that money out of there, pay taxes at whatever rate the government says the rates are at that time, and I get to keep whatever’s left over. Instead of listening to you and calling you five years ago and going through the Oak Harvest Retirement Process process, I’m calling you now.” He said, “Pplease forgive me.”

We go through and we do this analysis. He was working with a firm that I respect, good firm. They just simply are only investment people and they don’t do any of the planning. He liked the guy he was working with. He said, “Troy, I’ve known him for a long time, he’s a good, good person. They just can’t offer what you talk about, and what I have come to now know is extremely important.”

We do the analysis and it’s estimated over $800,000 this new client is going to save by tackling the taxes versus not tackling the taxes. Now, when we’re doing that analysis, of course, we have to model out what the portfolio’s going to grow at. We have to model out life expectancy. We have to model all these things out, but we’ll do a sensitivity analysis under various scenarios and come up with a median number, let’s call it, that helps us to understand whether it makes sense to move in this direction versus the next or versus the other.

In this scenario, the median for him, some of them were over a million dollars in potential savings, some of them were 500,000, 600,000, but when we have a range where, okay, worst-case scenario, if this happens but you do this, you’re probably still going to save a half million taxes. We need to move in that direction, but we need to do that analysis.

What if taxes go up? Longer-term, I am concerned about it, but we need to be getting money out of that tax-infested account, but you need to optimize, you don’t just willy-nilly, but one of the big mistakes that I see people do is they say, “You know what, I heard Troy talk about in the radio we should do some Roth conversions. I have a million bucks in my 401k, I’m going to convert 10,000.” No, that’s a drop in the bucket. That’s like taking a salt shaker and putting it into the ocean and saying, “You’re going to increase the salt content.”

The Roth conversion strategy can change. Sometimes it needs to be accelerated. Sometimes you might need to slow it down. Sometimes you want to do it in the beginning of the year. Sometimes you want to wait and see how things play out through the end of the year, so 2020, we did all of our Roth conversions in March and April for our clients. It was close to 10 million-plus.

The following year in January, that’s when we began the Roth conversions because if you go to the website, look at our 2020 first half outlook or 2021 first half outlook, or even go back to our 2020 second half outlook, we felt this year was going to be very, very strong. Whoever won the presidency, it didn’t matter, we felt 30, 35% was the upside, and here we are, so we were doing conversions for our clients in January instead of waiting to the end of the year for those accounts to grow and that tax-infested retirement account to be worth much more then paying taxes on that higher amount and moving it over.

Long story short, what we offer is a relationship and a partnership but what we focus on is not just the investments like the gentlemen whose story I’m sharing with you now, like his advisor did. Advisor was a great guy, actually worked for a good firm. They just simply didn’t provide the planning services that he realized he and his family needed at this stage of life.

It wasn’t really a difficult conversation for him to have. He gave him a call and said, “Look, I appreciate everything you’ve done for me over the years. It’s just time for me to make a change, and I’m making this change because I want the tax planning services. I want the specific income planning and everything that Troy’s offering over at Oak Harvest.”

If you want to make that change, if you want to even go through the analysis, 1-800-822-6434. 1-800-822-6434. All you’re going to do is leave a message. If you’re listening on the radio right now because I also record the radio show for YouTube. If you’re listening on to the radio, simply give us a call and leave a message. If you’re watching this on YouTube, it may be eleven o’clock, twelve o’clock at night, it may be during the daytime and we’re operating, but give us a call, simply give us your information and let’s learn about your situation.

If we can help, we’ll be glad to schedule an appointment and do that either over the phone or through Zoom, or you can come down to I-10 in Bunker Hill right here in Memorial City and sit down and have a conversation. The phone number, though, you have to take that first step. You have to give us a call. 1-800-822-6434, Oakharvestfinancialgroup.com.

Voiceover: Investment advisory services offered through Oak Harvest Financial Group, LLC. Oak Harvest Financial Group is an independent financial services firm that helps people create retirement strategies using a variety of insurance and investment products. Investing involves risk, including the loss of principal. Any references to protection benefits or lifetime income, generally refer to fixed insurance products, never securities or investment products.

Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Oak Harvest Financial Group, LLC is not permitted to offer and no statement made during this show shall constitute tax or legal advice. You should speak to a qualified professional before making any decisions about your personal situation. We are not affiliated with the US government or any governmental agency. This radio show is a paid placement.

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