Women & Wealth: The Power of Financial Planning in Retirement

 

[00:00:00] Jessica Cannella: Welcome to the first inaugural She Loves Money round table discussion. Today I’m here with the Women of Oak Harvest, including Nicole Riney, certified financial planner, income planning expert, and the authority at Oak Harvest Financial Group on whether you should take a lump sum or a pension. Also, we have today with us Dashkevich. Anna is also a certified financial planner and she specializes in long-term care and life insurance strategies. Last but not least, we have Lizzie Krog, also a certified financial planner, who is our resident tax planning expert.

Today we’ll be discussing the unique opportunities that women have to take control of their financial future. I wanted to share a statistic that makes this so meaningful for the time that we’re living in today. This is a statistic that was reported by the McKinsey Group Research Group that over 70% of our nation’s wealth will transfer to the hands of women by the year 2030. We’ll begin with speaking to Nicole Riney, Certified Financial Planner. Nicole, thanks for joining us today.

Intro to Nicole Riney

[00:01:06] Nicole Riney: Thank you.

[00:01:06] Jessica: If you would begin by just sharing with our viewers why you chose Oak Harvest Financial Group out of the plethora of options that you could have been developing your career at.

[00:01:15] Nicole: Oh man, the day I found Oak Harvest and they found me, I consider one of the luckiest days of my life really. I was looking for a firm that was more about the people and the service, and really how to provide a quality relationship with people and not about the products. You need to make sure people are investing in this because you’re going to get a commission in this and we really want you to push this. That was my fear, was I would end up working somewhere like that, and that’s not who I am. That’s not who I want to be and I just absolutely love that I found this firm and we’re about creating a plan that is sustainable and those long-term relationships with our clients.

[00:01:55] Jessica: Yes, people first is always a good way to stay. People before policy and people before product, of course. I’m always talking with the team here at Oak Harvest about how important it is to see the people in front of you because how can you possibly begin to speak to them about the intimate nature of money without first knowing the person that’s sitting across the table from you or the couple. With that, would you talk to us a little bit about investments and income strategies?

[00:02:21] Nicole: Yes, absolutely. Those two words are so intertwined and you can’t have one without the other. You can’t have an income without some kind of an investment. If you think about it, you may be thinking, oh, I’ve never invested my money. Well, you’ve invested your time and your time investment is what creates your wages and your salary. If you think about it, every time type of income has an investment that goes along with it. Any commissions that you earn, well again, there you’re investing your time or you’re investing in a product that you’re trying to sell. I think of the Nordstrom ladies, they’re trying to sell you whatever, or I don’t know.

[00:02:56] Jessica: The perfume, always the perfume.

[00:02:58] Nicole: Okay. The perfume. [crosstalk]

[00:02:58] Jessica: Unless you’re putting it it on, you’re not getting without smelling the perfume.

[laughter]

[00:03:02] Nicole: Exactly, so then there you’re investing your time, your nasal senses maybe, that’s part of the investment, so that’s another form of income. There’s Social Security where, again, your time, the time that you work, but then taxes. You also owe taxes, so your money is being invested in the Social Security industry. Then pensions, same thing, still time, and most of them will have you contribute or the employer contributes a portion of their assets to the pension, so that’s another form of income. It all just comes down to what kind of income do you need in retirement and throughout your life and making sure you have multiple kinds of income.

Then you’ve most likely heard of dividends, which is another form of income that can come from, if you own a business, you can take a dividend, or if you own stocks, which stocks are essentially owning part of a business and you’re taking dividends or they could pay you dividends from there, and that’s another form of income. Capital gains, that’s income. That’s the IRS’s way of saying income from selling properties, selling again, stocks is another good example there. Real estate, rental income, you can get capital gains or rental income through real estate, and the list goes on and on.

There’s just a lot of different types of income and it just depends on how you want to invest your time and/or your money and what you know and what you’re comfortable with. If you don’t know much about real estate or being a landlord, maybe don’t go that route or don’t put all your money in that route, and it’s another important aspect to remember not to put all your eggs in one basket as you hear all the time, so that if something happens to one basket, you’ve still got another one of a certain type of in income coming in.

[00:04:51] Jessica: Yes, and the way that we develop plans at Oak Harvest, the very first conversation that we have is that we work with clients who are in or approaching retirement, is around income. I believe and it’s a theme around here as well that the sun rises and sets on income in retirement. It’s a no-brainer that you would need to replace your earned income in order to maintain your current lifestyle. We start with really unveiling what is the need for income and we have ways to break that down based off of what are your expenses.

I know that we use a tool with our clients that helps them really hone in on what those expenses are and they’re categorized in four different categories. The first is your need-to-live expenses, and I would put your utilities, the roof over your head, the gas that goes in your car, your car, any income that is going towards fueling your lifestyle, your need-to-live expenses. The second category is your live-your-life expenses and these are the extras that make life enjoyable, but that can be somewhat routine things for me, like getting my hair done every eight weeks. Sorry, honey, if you’re watching, [laughs] but getting my nails done or dinners out with friends, entertainment, lifestyle expenses.

Then we have the third category, which is your live-your-best-life expenses, which would be bucket list items. For myself personally, if Miranda Lambert is coming here to Houston to perform, I’m going to the concert, and not only am I going to the concert, but I’m getting great seats and I’m taking all of my friends in the limo with me to go and see that concert. That’s live-your-best-life expenses. We typically want to look about a year to three years out to plan on that. My least favorite category, one that we’ve all lived enough life to know happens is life-happens expenses. That would be like having to replace your roof after time or needing here in Houston, your air conditioning unit goes out. That is a–

[00:06:44] Nicole: Far too common occurrence.

[00:06:46] Jessica: Yes.

[00:06:46] Lizzie: Definitely.

[00:06:47] Jessica: In that example, that’s another great example of a life-happens expense, and these are all things that we can get ahead of and plan for through identifying what your core expenses are. Of course, we’re going to start with your need-to-live and lifestyle expenses. That’s crucially important when we look to stop working and enjoy retirement.

[00:07:06] Nicole: Absolutely.

[00:07:07] Jessica: Can you tell us a little bit about some of the underlying investments? Once we have that income piece identified, then we almost reverse engineer it and select the tools that are going to supply that income. You expressed real estate was a great example, stocks, bonds, mutual funds, so if you could elaborate a little bit more on the investment tools.

[00:07:30] Nicole: In determining which tools we want to use, basically we’re looking at what types of income do we need, how much income do we need, and we look at the tools available to us. Stocks, bonds, some insurance strategies, safe money, money markets. There’s really no wrong way to approach it as long as you’re using multiple tools and you’re using them in unison and together, and you don’t want your tools, your investments, working against each other. There’s a interesting analogy that we speak on here at Oak Harvest about, it’s like a symphony. Your financial plan, your investment plan is like a symphony, where you have all these pieces and they’re making noise in their own right.

When you’re warming up, if you’ve ever been to a symphony and you walk in and you hear the trumpets and you hear the violins or whatever, and they’re all doing their own thing, warming up their instruments, getting ready to go to work for the conductor. Once the conductor walks in and they tap their little baton on the podium there and they start waving their wand, they are now making sure all of those instruments are working in unison. You can think of us as the conductor and our investment team and your financial planner team, we are conducting those different instruments to help serve your purpose and create beautiful music, if you will, throughout retirement.

[00:08:47] Jessica: Which is income in retirement. That is what makes it a beautiful melody to know that you have the ability and flexibility to say at what point in time are you going to turn on which stream of income. It’s crucially important that you have a rhyme and reason to that because we have some real threats to retirement income. Taxes is one of the biggest threats I believe. Also market volatility.

We don’t want to take from an investment account that has stocks and mutual funds in it, or higher opportunity for volatility when the market is down in the example of a recession, because then you’re actually realizing those losses. We want to have flexibility and diversification to say, okay, you turn off for now, we’re going to let that build back up. We have this other tool that we can turn on for income. Having a guide in retirement to help you make this decision is what creates a melodious retirement.

[00:09:41] Nicole: Yes. You may really like the drums, and the drums are my favorite instrument. I just love hearing the drums and it’s like, that’s great. You can have drums and you can love drums but they’re not the entire symphony. We need to have other tools and we need to have other things working for you, because what if someone comes by and kicks a big hole in your drum? Now you don’t have that drum anymore. You need to have some backups built in. We are looking for that and we’re planning already what’s going to happen if the worst happens.

It’s not about if a recession is going to happen, it’s when because there is going to be recessions throughout the next forever. That’s just the way the economic cycle goes. We need to make sure that we have tools already in place. We already have a plan in place, an exit strategy. Not necessarily exit strategy, but– If you have kids and you want to do fire drills in your home and the kids are like, “Why do we have to do this? This is never going to happen,” and you’re thinking, “Well, it could.” It’s the same thing. We want to make sure that we have that in place, that plan to–

[00:10:42] Jessica: It’s being prepared, right?

[00:10:44] Nicole: Absolutely.

[00:10:45] Jessica: We plan for the worst and hope for the best and that’s a solid way to live life versus the reverse of that. I think when it comes to income planning, it is very important to consider the amount of time that you have. When it comes to investment planning, the biggest asset that you have in your arsenal is time, is the amount of time while you’re still earning income that you have to ride the volatile market because it is going to do what the market’s going to do. It’s going to go up and what goes up must come back down.

In retirement, this becomes crucially important to consider. You don’t have as much time and you don’t have earned income to buy you time when it comes time to pull out distributions from your portfolio. Having flexibility in multiple streams of income is really what helps to have a harmonious retirement. Nicole really highlighted how there are many different ways to view investing, whether that’s your time, your resources, or your dollars. I would also suggest that there are many different ways to view streams of income or tools.

When I say tools, I’m referring, yes, to the underlying tools that are generating the income, but I would view Social Security, that’s a tool. If you’re lucky enough to have a pension, that’s a tool. If you have a life insurance policy that you can withdraw cash value from tax-free, that’s a tool. Same thing with a stock bond, mutual fund, annuity, and the list goes on and on. It’s understanding how the tools in the toolbox come together to accomplish the mission.

You’re going to be perpetually disappointed if you open your toolbox and you need to hammer a nail into your wall to hang a photo, that’s the goal, right, but all you have is a screwdriver. You could maybe try and really get it done with the back end of the screwdriver, but pretty inefficient. It really becomes a conversation that’s very highly individualized to what is most important to you as a person first, as a couple first, and then we talk about income. What do we need for those need-to-live expenses and those lifestyle expenses? Then we move on to the underlying tools that help us to accomplish the goal and I believe that the most important part of the puzzle is the guide that is going to help you make these decisions.

I said, time is the most important investment element when you’re working or when you’re younger and have time to ride the market. I think communication becomes the highlighted overarching theme that you need to have in retirement because you are a partner in your plan. It is crucially important that there’s mutual understanding about what is going on in our clients’ lives. If you’re working with an advisor or a team of professionals and you hear from them just twice a year, or you’ve got to call them for your annual review, I would encourage you to start the interview process with somebody that’s going to be proactive, because as life is happening, your finances need to reflect that. The same thing is true of the economic environment, the political climate, and again, the list goes on.

[00:13:48] Nicole: Yes, I love that. That’s my favorite thing is when something’s happening in my client’s life, when I’m one of those first phone calls. Whether it’s good or bad, whether they just got a diagnosis or they just bought a boat, it’s like they want to share that with me and, okay, how does this affect my plan? Or before I buy this boat, tell me where’s the best place to grab that money from to buy that boat? It’s just fun helping their dreams come true. They’ve been working so hard their whole life for this, and it’s just so much fun to help those dreams come to fruition.

[00:14:17] Jessica: Yes, one of my favorite memories is, it’s a little bit sad, but it is very meaningful to me personally. It really helped me to understand the importance of what we do early on in my career. I had a client call in and I was the third phone call that she made as her financial advisor when her husband suddenly passed away. She was frantic. She knew to call me. She called her children and I think her sister and then me. I thought that was a wonderful moment to know that like, hey, this is the real importance behind what we do.

Because especially when it comes to somebody getting a diagnosis or losing their spouse, where time helps heal your heart, it can be detrimental to your financial picture, and knowing that you already have a plan in place and a person to turn to, or a team of professionals in our case to turn to, can really make the difference of you being able to focus on what really matters when something like that happens. Like repairing your heart and going through that emotional timeframe, and let the professionals work on your behalf to repair and not even repair, if you have these professionals, it’s already being done. That allows for the professionals to be able to focus on the financial aspects so that you can focus on what really matters to you.

[00:15:31] Nicole: Right, and it’s just so crucial because you need to be able to focus on your family and your life. There’s been more than one phone call of, I’m trying to put so-and-so in a nursing home. I’m no longer there to care for them. How am I going to pay for this? It’s like, we’ve already got a plan for that in most cases. You just focus on getting the care that your family member needs, I’ll focus on making sure you’re going to have those funds ready when you need them. It just helps take such a load off and I feel like that’s one of the biggest values that we can bring

[00:16:02] Jessica: It’s the most fulfilling. Again, it’s about people first and money second. Everything that we’ve alluded to here is really what is encompassed in our retirement success plan, which is our proprietary process for merging financial planning and investment management together. Making sure that we are dotting every I and crossing every T. Of course, any plan needs to have built-in flexibility because 20, 30, 40 years in retirement is a long time that we’re looking at to plan. We’ve all lived enough life to know that life has– You make plans and God has other plans and your financial plan needs to have flexibility to be able to pivot when life throws curve balls.

When I talk about holistic planning, what I’m referencing on the retirement success plan is looking at things like income planning, investment tools, spanning far past just the investment management component of a plan. I think this is something that your average consumer does not realize is that there is such a distinction between working with somebody that specializes in the accumulation phase or when you’re working and building that nest egg, and then helping somebody that is going to now have to take that nest egg and distribute it out to themselves, basically replace your paycheck. It is so much more nuanced in retirement.

We cover everything from asset management to income planning, investment planning, insurance planning, medical planning, tax planning, lots of planning, and of course estate and legacy planning, helping us get ahead of some of those curve balls. Nicole, if there was anything else that you wanted to add along the lines of income and investing planning, now is the time before we move on to Lizzie.

[00:17:43] Nicole: Well, the other key thing about investments is that risk tolerance factor.

[00:17:48] Jessica: Yes, thank you for bringing that up.

[00:17:50] Nicole: Yes, and that is something that people can either overstate or understate and they can say, “Oh, yes, I’m fine with risk,” and what that means is I’m fine with the market going up. That’s all they’re thinking but what about when the market goes down, and it can go down just as much as it’s gone up? That’s really conversation that’s so crucially important is, and I always use the boat analogy, don’t rock the boat. How big of a wave can we handle before you get seasick? That’s our conversations ongoing is– and there’s a couple of ways that you can look at risk.

One is, how much risk can your plan tolerate, your financial plan? We don’t want to have more risk in your portfolio than you need. It’s like what Chris Paris says all the time. We want to meet your needs before your greed. I love that line because that just helps refocus, this is why we’re doing this. This is maybe we’re not outpacing the S&P because maybe that’s not the plan. Maybe that’s not the goal.

[00:18:45] Jessica: Yes. It’s very different. If somebody has a million dollars, they’re going to have what Nicole is referring to as risk capacity, your ability based on your financials, to take on risk. Somebody with a million dollars has less capacity, or $500,000, to take on risks than somebody who has $5 million. They’re not going to feel the impact of a market downturn because there’s plenty of money left over. Risk capacity is one aspect of how we look at risk and then speak to risk willingness or your emotionally ability to stomach risk.

[00:19:17] Nicole: Yes. That’s where the seasick comes in. Where it’s like, okay, are you nauseous yet? When we hit in 2022, just last year, it was a rough year and it started out good. We were high in January, nobody was complaining then, but then it just started taking a nose dive and that’s when we really learned who our clients are, who ourselves are.

It really shown that the majority, I think the vast majority of the clients here at Oak Harvest didn’t have to make any drastic changes to their investment plan.

That’s really what we’re trying to accomplish is let’s find an investment strategy that you can emotionally handle those waves up and down without getting seasick or feeling like you need to jump ship because you just can’t take it anymore. It was very fulfilling to know that we’ve already planned that. We’ve already put those safeguards in place.

[00:20:10] Jessica: Yes. It’s your emotional willingness to stay committed to a plan, and even though plans have built-in flexibility, it’s very important. There has been study after study after study that indicates people who act emotionally around money, and COVID is another great example, when you act emotionally and you see a market downturn and your knee-jerk reaction is, “Oh my gosh, I should go to cash because I don’t want this to go down any further,” that could be very detrimental to your plan. That’s why it is important to get that very clear at the outset of building a plan because risk capacity and emotional willingness to stay committed to a plan or risk tolerance are very different things that are married together in the context of a plan that will help to determine what the outcome of the plan is going to be.

When we called out proactively to our clients in COVID, nobody saw that was around the riverbend, right? I’ll admit it was mentally taxing to pick the phone up and make the first phone call. Of course, I called my favorite client and it wasn’t soon after that I’m making these calls that I realized I’m having more panicked conversations with my clients about toilet paper shortages than I am about their investment plans because they were reminding me like, hey, we appreciate the phone call, Jessica, great time to step up and be an advisor, right? The most important time. You’ve told us we have a plan, so let’s revisit the plan, and that’s exactly what we did.

We made those phone calls outbound and they were not panicked. We did not have anybody that wanted to pull the trigger emotionally because it is so important to get crystal clear on what your risk capacity is. We help you to figure that out and we walk you through different scenarios on our softwares to help identify what your risk willingness is.

[00:21:52] Nicole: Absolutely. I hope this kind of shows to light that it’s not easy. It’s not just one tool to fix at all. Duct tape is not the best situation or the best tool to be using in this situation. You need to have multiple tools. You need to have multiple conversations about what’s important because that changes. That’s really why it’s crucially important to keep that line of communication open with your advisor, with your planner so that we can continue to make those improvements to your investment and your income throughout retirement in that whole phase of life.

[00:22:27] Jessica: The most important thing is to just begin the conversation and it is just a conversation. That’s how I want you to think about it. It can be intimidating for a lot of women who have not previously managed their own finances. Maybe their man handled it. Maybe they weren’t encouraged to get involved with an asset management or financial planning discussion when they were growing up and to each their own, but it is just a conversation.

A talented and caring advisor will talk to you about what’s important to you as a person and then be able to mirror that to be reflected in your financial plan. You do not have to go into a planning meeting or an initial conversation with an advisor thinking well, I don’t even know where all my income streams could potentially be. It doesn’t need to feel overwhelming. It’s not that complicated. It’s just a conversation and the action step is to start the conversation.

I always give this feedback when I have questions about how do you know which advisor is the right fit. I would say start by thinking if something happened, do I feel comfortable to call this advisor? Would I invite them to have a cup of coffee with me and do I feel confident enough to share what’s really going on in my life? Or are they giving me pause on that? Do I feel intimidated by them? Are they making sense what they say? Do I understand it? No matter what financial savvy you come in the door with, you should always leave the room with a financial advisor having a better understanding of your picture than when you walked in.

That’s a critical thing to consider when you are interviewing financial advisors is somebody that can meet you where you are at and speak to you in plain English, which is something that I really pride ourselves on or pride myself on that. The ability to take what can be complex financial jargon and then put it into plain English that somebody like my own mom who never worked outside of our home but worked her butt off inside of the home raising myself and my three siblings. She doesn’t have the financial prowess to have an informed discussion. She needs a little bit more handholding and she needs to have plain English from the other side of the table to help her understand and feel empowered and confident to make financial decisions that could impact her life negatively or positively. Nicole, thank you so much. Was there any closing thoughts that you have before you move on to Lizzie?

[00:24:53] Nicole: Oh, just thank you so much. This is been really fun. I look forward to next time.

[00:24:56] Jessica: Yes, hopefully, there will be many more She Loves Money round table discussions to come.

[00:25:02] Nicole: Absolutely.

Intro to Lizzie Krog

[00:25:02] Jessica: Next, I want to introduce you to Lizzie Krog, also a certified financial planner, and Lizzie is a tax planning expert here at Oak Harvest Financial Group. She gets lit up to talk about tax planning, and without further ado, Lizzie, please share with us the importance of tax planning as it relates to women in retirement.

[00:25:20] Lizzie Krog: Yes, thanks, Jessica. I appreciate that. The reason I really get passionate about tax planning is because it impacts so many aspects of your retirement plan. Talking about income investments can even impact your healthcare and of course estate planning so it re really touches in every aspect of what we do here in the full financial plans. We complete the comprehensiveness of our plans is driven a lot by tax planning strategies.

Just to expand a little bit more, Jess, just making sure that we are meeting income needs, of course, but also are we meeting them in the most tax-efficient way? What strategies are we deploying? What investments are we deploying with our different buckets of taxable income in order to create the most tax-efficient income streams? That’s really one of the major goals of us sitting across the table from clients.

[00:26:16] Jessica: Yes, and with tax planning, there are so many different types of accounts in retirement. We have what is our IRA, we have tax-deferred accounts like your 401K. When you stop working, that’s the account that you have when you’re working that you’re making contributions to and it’s growing tax-deferred. When you pull the trigger on retirement, many people will choose to move that 401K money into an IRA which is an individual retirement account, also grows tax deferred.

The way that you take money out of your tax-deferred accounts in the eyes of the IRS, it is viewed as regular earned income as far as how it’s going to be taxed, and so it becomes very important to consider if you have, well, we call that qualified money or tax-deferred money, and you also have non-qualified money which would be like your brokerage account or a savings account where it doesn’t have the same tax treatment as a qualified account does where it’s grown tax-deferred and it’s going to be charged at the regular earned income tax rate at the point that you’re withdrawing funds.

It’s growing, if it’s in an investment brokerage account, it’s going to be growing tax, it’s going to be taxed at capital gains tax rates which are lower typically depending on what tax bracket you’re in than the qualified accounts that are growing tax-deferred. I just said a lot of financial things. I hope that that was in plain English for you, but just to highlight here, the point that I wanted to make was that it matters in which order you distribute money or take withdrawals from your various accounts in retirement because it’s going to make the difference of Uncle Sam getting his, which he will, and you retain more of your dollar. Lizzie, if you could speak a little bit to the importance of understanding that there are more than two distribution strategies when it comes to retirement?

[00:28:06] Lizzie: Right. That’s a really great point, Jessica. When we look at the type of different retirement accounts, you typically have three to four buckets. What you were saying earlier, the individual retirement accounts which is taxed at ordinary income rates, the non-qualified or your brokerage accounts, the capital gains rates, but really one of the driving forces behind Oak Harvest’s tax planning is also looking at the third tool which is the Roth IRA. Looking at where does our income sit in our tax bracket and can we move some money from our IRA account into our Roth account for more of a long-term strategy?

Right now, we’re under pretty favorable tax rates set to expire at the end of year 2025, so what we’re doing for a lot of clients is taking a look and saying, hey, does it make sense? What type of impact will it have for us to move funds from our IRA bucket into our Roth? Of course, realizing tax on those funds but also moving those in a very deliberate way and so we’re building up our after-tax or our Roth bucket for later life expenses or for legacy purposes if that’s the goal.

[00:29:16] Jessica: Can you speak to the importance of a Roth like why a Roth over a deferred account?

[00:29:21] Lizzie: That’s a great question, Jess, so the importance of Roth is it’s really one of the only tools in the IRS tax code that putting money into a Roth, you’re taxed upfront, so any growth you get on those funds throughout your lifetime, they’ll never be taxed again. When you go to pull money out of that Roth bucket, there’s no tax due on it, so it’s really one of the most advantageous avenues and types of accounts currently to get growth on funds and to be very tax efficient and deliberate on the growth of those funds.

[00:29:52] Jessica: Thank you, and a major consideration there as well if I have this correct is that, when you take money out of an account that’s not Roth, your traditional IRA, or your 401 K, it affects other aspects of retirement income streams. For instance, Social Security is taxed anywhere between, what is it? 50% to 85%, correct. Yes, and that’s largely determined by what in the eyes of the IRS is your ordinary income. If you’re pigeonholed to making large IRA or any IRA withdrawals, that’s going to have an impact on not only how much your Social Security check is going to be taxed, but also what your Medicare premium is going to be, which is a big range, anywhere from $160 a month per person up to $577 a person in your family.

Sometimes it can make sense to look at doing Roth conversions under certainty where we know what the tax code is today, versus leave it up to chance. Lizzie, why don’t you speak on that about why that’s so important with the required minimum distributions?

[00:31:00] Lizzie: The importance of Roth conversions in your financial plan is what they do later on in life is they really limit your required minimum distributions. If we have a pretty large taxable account or an IRA account, and those funds continue to grow over time, Uncle Sam steps in at a certain age and says, “Okay, Mr. and Mrs. Smith, you’ve been allowed to defer taxes on these funds for so many years, it’s now time for us to get the tax that’s due on that.”

When the government steps in and says you have to pull out so much from these pre-tax buckets, what it can do is it can number one, throw you into a much higher tax bracket, and by the time you hit that age, it’s pretty uncertain how high those tax brackets will be. Also, it can impact your Medicare premiums, as Jess was saying earlier, throw you into a much higher, what’s called an IRMAA bracket, an income-related monthly adjustment. It can throw you into those higher brackets, so not only are you paying more tax on those funds, but you’re also paying more for your healthcare expenditures, which can be very penalizing later in life.

What we look at here at Oak Harvest is would it be beneficial for us to move some of those funds from the IRA into the Roth, meaning we’re realizing the tax upfront on those, but knowing that we’re accomplishing two goals later in life, taking control of our taxable nature, and taking control of what our Medicare premiums will be at that time.

[00:32:32] Jessica: Yes, and I think that’s another important area to highlight is that when you take money from a Roth account, it does not count as ordinary income tax. You have already paid taxes on it, and it’s going to grow tax-free, including any gains in interest for the rest of your life. If you need to use maybe your Roth money to pay for a long-term care event because you don’t qualify for long-term care coverage, or whatever the case might be, you have a bucket of money that you can maintain control over. I love how Lizzie said that, and say, “Okay, I can take this money out when I want to, and it’s not going to have this detrimental impact on my taxes due because it is tax free. The Roth is a wonderful tool to consider. If your advisor has not talked to you about Roth conversions, I encourage you to ask if that’s something that they can give you guidance on. Lizzie, one last question that I have related to the tax conversation with Roth, can you speak to first, why it’s important to have this conversation?

Ladies, if you are married, there is benefit to filing jointly, and hope you’re sitting down for this information, but the tax bracket’s nearly cut in half once we file single status. If there is opportunity to do Roth conversions, it’s most optimal to consider them before you are that required minimum distribution age, which they just changed all the rules, but it’s anywhere from 73 to 75 years old right now. If you’re younger than 70, you want to have this conversation with your advisor, and while your husband is still alive. The reason is, Lizzie, please expound on that. What happens to our tax brackets when we file single?

[00:34:12] Lizzie: Great question. Currently, under the tax code, marrying and filing jointly is the most advantageous. Meaning, it has the most room moneywise to hit different tiers of the tax bracket. What we see a lot with clients, unfortunately, we don’t get to go out of this world hand in hand with our partner. When one spouse dies without completing any Roth conversions, or having a fairly advanced tax plan, they now inherit the other spouse’s pre-taxed or IRA accounts.

They’re now facing the same exact required minimum distribution amount, but now they’re in a single tax bracket. As Jess said, it basically cuts in half. You’re still being required to take out the same amount of funds, but due to the unfortunate event of your spouse passing away, you’re now getting taxed at a much higher rate, and Uncle Sam is pocketing more of those funds than you are.

[00:35:04] Jessica: Yes. A critical thing to understand also, is that that requirement of distribution starts at about 4% and it ticks up a little bit every year. When we have spouses that pass away into their 80s, what the heck is the distribution amount going to be? What starts at 4% could be 6% or 7% by the time you are in your 80s or 90s. That is when it becomes more probable to lose a spouse. Now, it’s a money grab, but you’re quickly accelerating those tax brackets and you’re filing single, and that can have a big impact on your bottom line, which segues into my next question, is about wealth transfer.

We talked about the importance of having this conversation upfront, early as possible, before age 72, ideally, and while you’re still married, if you are married. If you’re not married, still have the conversation with your advisor. We always say that when it comes to Roth money, it’s more important that we get money in Roth in most instances than it is to try and maximize that for everybody. I still encourage you, if you are single, to go ahead and have that conversation with your advisor and see what they’re willing to discuss with you on that front.

My next question, Lizzie, was going to be about the wealth transfer process. A lot of the rules just changed with the Secure Act 2.0, on once both spouses pass away and now we have IRA money versus Roth. Can you walk us through what that looks like?

[00:36:28] Lizzie: Absolutely. The rules for inheriting a Roth and a traditional IRA account are very similar under current law. Currently, if both spouses pass away, typically, assets pass on to their beneficiaries, kids typically. The rules are still the same no matter what type of account you have. You do have to get those funds out within the 10 years. However, what comes into play, and what’s the big consideration when it comes to tax planning and estate planning, is inheriting an IRA as a kid, I say kid loosely.

As a young professional with a family, your kids are typically in their money-making years when they do inherit your assets when you do pass away. With that being said, they’re going to be having to take these funds out of a traditional IRA under ordinary tax income. Not only are they making money being professionals, growing their career, but we’re also placing another burden on them of almost increasing their income and increasing their tax liability. While inheriting a Roth IRA, you still have to get those funds out within 10 years. However, taking those funds out of the account now becomes not taxable.

The benefit of inheriting a Roth compared to a traditional IRA, it’s just so much more tax efficient and it really allows those funds to grow over the 10-year period, and just allows the assets to stay more in your beneficiary’s pocket instead of those assets being split with Uncle Sam.

[00:38:05] Jessica: Thank you. I had an example of this very recently with a client of mine that came in the office. It was a married couple. They had a higher net worth portfolio of about almost $5 million, and it was 100% in IRA. They have two professional kids that both make six figures, and they’re going to have a big tax issue, and a third primary beneficiary in Uncle Sam, when it comes time for that IRA to pass down to the kids. They’re in their early 60s currently, the couple that I was working with. Their kids are in their 30s and they’re both married, they have dual income, well into the six figures.

My clients, who have $5 million today in IRA, we do a good job of investing that over the next 10, 20, 30 years, that could easily be, with the rule of 10, it could be $10 million, it could be $12 million, and that creates a huge liability, from a tax perspective, once that wealth transfers. In my example of five million turns to 10, we don’t explore Roth conversions. Then we have $10 million, in an IRA, $5 million going to one daughter, $5 million going to the other, and they have 10 years to draw that down.

Uncle Sam is going to have a heyday on that situation, because who knows what the heck, let’s say they live another 20 years, the couple that I’m working with. What the heck are tax brackets going to be in 20 years? What it ends up is, you want to evaluate, we’re going to pay taxes. Okay? That couple, they’re going to pay taxes. The choice for them, through our analysis, then becomes pay taxes now, under certainty, before they’re due at their age 75 for their own requirement of distribution or before they pass away and they have to leave that legacy to their children at risk, which is, what the heck are taxes going to be 20 years from now, 30 years from now?

It’s always a question that we look at every single year in working with our clients. Your advisor should do the same with you, about what’s going on in your life? How are we getting ahead of this this year? There’s choices to be made around that. Lizzie, would you speak to the importance of having a tax planning conversation every year? That’s not a one-and-done conversation.

[00:40:22] Lizzie: You’re right, Jessica. Absolutely. What we do with our clients is we re-explore the conversation every year. We have multiple software analysis here at Oak Harvest that allow us to take a look at multiple different Roth conversion strategies. Hey, maybe one year we decide we want to go to Europe, or we decide we need a new car, life happens. Maybe we’re drawing down on our portfolio a little bit more this year than we’re expecting in future years. Maybe we only look at converting a smaller conversion this year, knowing the next couple of years, likely our ordinary income will be lower and we’ll have more room to convert to a Roth conversion.

That’s really the value of an advisor, is taking into account what’s going on in your lives, what type of assets do you have, what are your income needs? Really mirroring, how can we be most tax efficient, not only now, but in the long run? That’s a year-over-year conversation. That’s what we’re here for, we’re your trusted resource, we’re making recommendations and taking all of those different aspects into account.

[00:41:28] Jessica: Yes. Not only do things change in the lives of our clients, but also the political pendulum swings from the left, back to the right, back to the left, and so does the tax code. Would you agree that there is opportunity now under the Trump tax code?

[00:41:43] Lizzie: Yes, absolutely. As I stated before, the Tax Cuts and Jobs Act is set to expire at the end of 2025. Politically, who knows what will be going on then? I think everybody in this firm is in agreeance that these are the lowest tax rates we’re going to see for quite a while, and really just capitalizing on the tax rates before the current tax code sunsets at the end of 2025 is really going to be beneficial for your retirement plan and also just more tax efficient over the long run of your life.

[00:42:20] Jessica: I’ll take this moment to remind everybody, it is just a conversation. Especially when it comes to paying more tax before you have to, just save future pain of uncertainty, but again, it’s just a conversation. We are not encouraging you to go ahead and do Roth conversion. That is something that I can’t stress the importance of having a conversation with a financial professional that can help you to make that type of decision.

This is not investment advice to go ahead and pull the trigger on a Roth conversion. It is something that needs to be looked at in the context of a financial plan and explored with a professional. Lizzie, was there anything else that you wanted to speak on as it relates to tax planning before we move on?

[00:42:58] Lizzie: No, just I think it’s important to add, just like what you said, Jess, so this is part of what we do, is just educate clients on the tools and the resources we have. Nicole likes to say to clients, you’ll be fine if we do or do not do this with the awesome plan we put in place, with all the variables taken into account, but we just try to educate and make recommendations, and of course, at the end of the day, it’s your money, but we just want to empower clients to feel that they have control over where their retirement is going and how their assets are being managed, and how they’re being used in a tax efficient manner.

[00:43:36] Jessica: Thank you, Lizzie. Before we wrap up, I forgot to ask you why you chose to work with Oak Harvest.

[laughter]

[00:43:42] Lizzie: I chose to work with Oak Harvest because of the family values of the firm. I personally, when I sit down across from folks, I imagine myself sitting across from a member of my family, whether it be my parents, hi, mom, my aunts or uncles, anybody across my family, but just upholding that value of respect and working in their best interests. Is this a recommendation I would make for someone in my family? If the answer is yes, in their best interest, then that is the conversation, and that is the same value I lead with in my client meetings.

[00:44:15] Jessica: And we get super geeky with tax planning at Oak Harvest.

[laughter]

[00:44:21] Lizzie: Absolutely.

[00:44:22] Jessica: Thank you, Lizzie.

[00:44:22] Lizzie: Thank you.

Intro to Anna Dashkevich

[00:44:23] Jessica: Next, we’re going to chat with Anna Dashkevich. Anna is a certified financial planner as well, and Anna specializes in life insurance and long-term care strategies, which is part of our retirement success plan. Anna, I’ll begin by asking you, why Oak Harvest Financial Group? Anna left a 14-year career at her previous place of employment and took a leap of faith on us, and I want to know, what initiated that decision?

[00:44:52] Anna Dashkevich: Thank you so much, Jessica. What drew me to Oak Harvest is that we’re not just your typical investment advisor firm. Not only we’re talking about things like financial related things, like taxes, income, we also talk about social aspect of retirement. We talk about legacy aspect of retirement. I’ve never been at the firm before where the very first question I would ask a prospect client, “Are you ready to retire? What is your vision for retirement? What are you going to do in retirement? What are your hobbies?” Usually, that client or prospect client, they’re ready to talk about financials, they’re ready-

[00:45:30] Jessica: Yes, talk to that money first, statements [crosstalk]

[00:45:33] Anna: Yes, statements. Tax statements, and I’m like, “Wait a second.” Yes, this is super important because sometimes we don’t think about not only when we’re planning to retire, but on what income, or are we really ready to play golf eight hours a day?

[00:45:51] Jessica: Some are. Yes.

[00:45:51] Anna: Some are, but-

[00:45:52] Jessica: I have a few of those.

[00:45:54] Anna: – that’s the major reason why I chose Oak Harvest.

[00:45:58] Jessica: Anna, I love what you shared about the depth, that what attracted you to the firm was the depth of understanding that we seek with our clients. I always use an analogy, you’ve probably all heard it before, but I think that retirement planning is much like putting together a puzzle. I’ll ask this question when I do live events, what is the very first thing that you do when you sit down in a cabin with your family, or at the beach, and you want to put together a puzzle? I’ll always have somebody raise their hand and say, “The corners first. You do the corners first.”

I have to argue and say, “Actually, you have to look at the front of the box of that puzzle and see, what is this supposed to look like?” When you said we get clear on retirement vision, it’s so important. If your retirement advisor has not asked you what you desire to be doing in retirement, and what your lifestyle looks like, how are they supposed to understand what tools and income streams can then bring that to fruition? I love that you shared that little anecdote, because it is truly at the core of what we do, is to see people first and understand what is most important to them before we get into the nitty gritty of financial planning.

Talk to us a little bit about your area of expertise, which is the long-term care and life insurance area, which would encompass our slow-go years, when life starts to slow down and those healthcare needs become more probable.

[00:47:24] Anna: Let me start with life insurance because the reason why I’m super passionate about this area is because sometimes we plan to live, that’s why we plan retirement, but unfortunately, I see it quite often, unfortunately, when someone is posting on social media, GoFundMe, a husband just lost his wife and now we have three kids and he’s completely lost and looking for funds to support that family needs, his retirement needs, and college planning for the kids. When I see something like that, I feel like, “Okay, this is a really good reminder for everyone. Start planning now. Start planning when you’re young, when you’re healthy.”

It does not necessarily apply just for younger families with young kids. Also, about retired couples. Why? Because like Lizzie indicated, that Roth conversion might never happen. Maybe no financial advisor talked to that client, and now there’s a huge tax bill that has to be covered. Even if you’re maybe in the late 80s, and you just lost your spouse, you still have to dine, you still have to entertain, you still have to deal with medical bills, and that’s why life insurance is super important to be placed before and while we’re young, and covering female is cheaper than covering a guy.

Another thing, what I would like to bring up, is that when I sit down with husband and wife, and we start talking about life insurance planning, she looks at him, he looks at her, and they’re like, “Okay, who is the breadwinner?” I always say, “No, this is like the reason why I even bring it up. It’s not because who brings money to the table, it’s about the value that each partner provides to that family.” The most recent study showed that a stay home mom brings value of about $180,000. You’ll be like, “Wow, that is too much. Show me the money.” I can tell you, go and try to find mommy, nanny, teacher, accountant, I love this one, crisis manager.

[laughter]

[00:49:48] Anna: Personal cook, taxi driver, and those things add up. That’s why when I see those GoFundMe pages, it feels super sad, and I would like to plan before this type of situation happens.

[00:50:03] Jessica: Yes. With the recent innovations in life insurance, a lot of the way that we use these tools with our clients is the living benefits. Can you speak to that inside of a life insurance plan?

[00:50:15] Anna: Absolutely. This comes with when we sit down and plan for maybe couples that already have kids that are adults, we call them off their budget when someone does not need that critical amount of money, because again, maybe all needs are taken care of, then value of that cash value in the policy becomes super valuable. You can take cash value as a loan, and it will be tax-free loan. You can enjoy sometimes built-in long-term care benefits to the policy. There’s a lot of bells and whistles that can come with that insurance policy.

[00:50:57] Jessica: Yes. In the past, it has been widely understood that you purchased life insurance with the goal of having the death benefit. That is still very true. Life insurance is always designed to provide the death benefit, but inside the last 10 years or so, that death benefit amount, so let’s say that your cash value is a couple hundred thousand, your death benefit is over a million. There are policies today where you’re able to access your death benefit to cover the cost of long-term care needs while you are living. That’s a really powerful tool to have in the arsenal when we talk about supporting you in the slow-go years.

[00:51:35] Anna: Not only loan, but you can also fund, maybe some of the expenses like purchasing a house. Maybe you would like, instead of going to the bank, you can borrow from your own policy. Nowadays, there’s a lot of cool features that policies can provide, and we’re here having access to dozens of different companies that offer those policies, and being as a fiduciary, I think that’s why we bring up those things. Not just to sell you another product, but also to make sure that all your needs are being taken care of.

[00:52:10] Jessica: It’s a way to make sure that there is not a stone that goes unturned in retirement. It is, back to that holistic approach, taking into all threats that could potentially blow up your retirement plan. Life insurance is not for everyone. There is a cost for insurance. That cost goes up every year that you are older, before you’ve purchased your policy. If any of the life insurance strategy sounded of interest to you, you want to have that conversation as soon as possible with your financial advisor to save yourself the cost of insurance. Anna, would you speak a little bit more about some of the long-term care planning that you do with our clients?

[00:52:46] Anna: Absolutely. Long-term care is a very tricky subject, because again, when we sit down with a husband and wife, we always think of a breadwinner. Who brings money to the table? When it comes to long-term care, we need to realize that women live longer. Longer life means longer retirement. That’s great, sounds great, especially if we have a plan for you. Longer retirement can means also higher needs for long-term care, because 80% of the nursing home population are women. 70% of us, at some point of life, will need that long-term care.

There’s a lot of misperception when it comes to long-term care because people usually think, “Oh, it’s hospice, or nursing home.” Not necessarily could be the case. The definition of long-term care, that you cannot meet two out of six daily living activities. It could be just assistance at your house. It could be assisted living type of a facility. We would like to make sure that you understand what type of policy, what type of process you might be going through. Women are caregivers. As mothers, as grandmothers, wives, we take care of our family. Usually, statistically, woman is the one who’s going to take care of her spouse. Then her spouse is gone, now she has maybe 10, 20 years of life ahead of her, and-

[00:54:18] Jessica: Who’s caring for her?

[00:54:19] Anna: – who is caring for her? Exactly. Now, we’ll have the situations when kids start stepping in, and they go and interview different facilities, and everyone is in shock how expensive those facilities are. I’ve seen some 60, 70, 80, $90,000 costs associated with being in that assisted living facility. What I always advise to my clients, before you even consider maybe staying in the area where you’re staying, or moving to a different area of the country, go to, www.healthcare.gov. Check the zip code, just out of curiosity. It’s a really great exercise, even for women of our age.

Go and see how expensive it is to be in that single room, or maybe a shared room at a regular, average nursing home facility in Arizona, or in Houston, Texas. You will be in shock to discover that all these different facilities will have very significant costs. Again, when we are in the 50s, 60s, I think it’s a good time to start that conversation about long-term care. Policy will not solve all the issues. It will not cover you for the rest of your life, but it will help, in addition to maybe it’s a very successful income plan, successful tax strategy, and social security, other sources of income, that policy could be a great help.

[00:55:50] Jessica: Yes, thank you for that. It’s also important to consider that not everybody is going to qualify for long-term care, or for life insurance, because there is an underwriting process where they’re going to deem you healthy or not healthy, and then give you a table rating. That’s going to determine the expense of having you in that policy. What I would encourage you to talk to your advisor about is still a plan for long-term care. That does not mean it needs to be a life insurance or long-term care policy, but you need to know that if you need, an honest example, to go to a facility, most of our clients want the ability to have in-home health care.

Somebody to just come over and help lighten the load, take care of you, help take care of a spouse while they’re still living. Then it’s important that you’re building that into your retirement plan. Is a place that you have money that you know is going to be there for you. Ideally, it’s growing, that you can go and access it and use it for whatever your needs might be in the slow-go years. My favorite part about planning for the slow-go years, is that it makes the Go-Go years, where it’s time to get going and enjoy your life, that whole retirement vision picture, the boat buying, that Nicole referenced.

It makes spending, in your Go-Go years, a lot more joyous if you know that you have a plan for the slow-go years. I can’t tell you how much it saddens me when I sit in front of a prospective client and they’re expressing to me that they want to pinch all of their pennies because of the what ifs down the road. When, in the meantime, the risk you run there is that life is passing you by, and you can’t take the money with you.

Now, if you have big legacy goals, your kids will love you for pinching your pennies, but one of my favorite parts about my role in working with my clients is that I give them permission to spend flexibly in their Go-Go years, and assurance in knowing that we’ve got a plan for the slow-go years and the no-go years, which is the last five years of your natural life cycle, where you get to look back and say, “I lived my life, and I didn’t do it in fear, and I had a fulfilling, wonderful life.” That is really the power and the core reason and value in exploring a financial plan for yourself. Anna, did you have any closing thoughts?

[00:58:06] Anna: Just a few pieces of statistics. You’re working with me, you know I like numbers, and [laughs] what– It puzzles me always that if we own a house, there’s a less than one chance for our house to burn down to ground due to the fire.

[00:58:25] Jessica: Unless you’re in California.

[laughter]

[00:58:26] Anna: Unless you’re in California. Yes, but we’re [crosstalk].

[00:58:30] Jessica: Here in Houston. Low chance.

[00:58:30] Anna: We are in Houston, and all of us are required to get this coverage. 70% of us will need some sort of long-term care in the future, and less than 10% of population has that coverage. Don’t wait. If we have a plan, we’ll always ask like, “Do you think you can self-insure? Do you think that your money will last throughout the entire lifetime and you can’t afford to be 10, 15 years, maybe living in assisted living facility?”

I can tell you, there is a game changer when it comes to the conversation with kids involved, because then they’re sitting with mom and dad and that kid is like, “Wait a second. What you’re telling me, you’re self-insuring, but I’m getting less dollars when you guys gone.” What is more important for you? Legacy, is that important? Maybe not a question, but sometimes bringing kids to the conversation make a lot of sense because they’re the one who will be dealing with us once we are incapacitated in some way.

[00:59:37] Jessica: The biggest gift, and I’ve heard this time and time and time again from my clients, that you can give to your children is the ability to remain independent in retirement. If there is legacy left over, wonderful, but it’s not very often that I see an adult child coming back to take care of mom and dad, and that is the biggest gift. I have a two year old son, Lizzie, Anna, and Nicole all have children, and I think we can agree when I say that we don’t raise our kids to be independent only to then turn around and become a burden for them.

Again, it’s back to just starting the conversation with your advisor. What is your plan for me for long-term care? Because that can look many different ways. I just want to encourage you to begin that conversation. Ladies, as we wrap up here, thank you, Anna.

[01:00:23] Anna: Thank you.

[01:00:24] Jessica: I always wanted to do like a quick rapid-fire. I know that you two have appointments to get to, but we’ll take one minute, and I’m just going to go around and let’s talk about, Nicole, I’ll start with you. When it comes to women, what do you think, in one word or one sentence, is the most important thing as it relates to their money to women?

[01:00:45] Nicole: Security. Definitely, that sense of security. That’s absolutely what’s behind every woman, and that’s why they’re afraid to spend money. It’s knowing that they have a secure plan in place.

[01:00:56] Jessica: Yes. To avoid that vision that we all fear as women, is that being the bag lady underneath the bridge because we run out of money. Anna, most important thing to women as it comes to their money.

[01:01:05] Anna: Power. Why? Because I think women think that if they’ve got money, they feel secure and they have power.

[01:01:14] Jessica: Love that.

[01:01:15] Nicole: Yes. It’s empowering. It’s empowering to them. Yes.

[01:01:18] Jessica: Lizzie?

[01:01:19] Lizzie: I was going to say empowerment as well. Empowerment and education to control and feel control over your financial life moving into retirement.

[01:01:28] Jessica: Loved all of those answers, ladies, and I will give mine, which is, I think it’s crucially important that you understand enough about your money that you feel connected to your finances. That capitalizes on feeling empowered, having power, and feeling secure, is having the emotional wherewithal to feel like you know what’s going on. With that, I strongly encourage, again, I’ve said it before, I’m going to say it one last time, please start the conversation, and we would love to be generous of spirit and have that conversation with you.

If you have another advisor or firm in mind, I have a YouTube video out that just released, called, How to Talk to Your Financial Advisor, and interview them to see if they are the right candidate for you. I strongly encourage, check that out, and start the conversation. We look forward to seeing you back here again.