Subscribe
Share
Share
Embed
Welcome to How to Retire on Time, a show that answers your retirement questions. Say goodbye to the oversimplified advice you've heard hundreds of times. This show is about getting into the nitty-gritty so you can make better decisions as you prepare for retirement. Text your questions to 913-363-1234 and we'll feature them on the show. Don't forget to grab a copy of the book, How to Retire on Time, or check out our resources by going to www.retireontime.com.
Welcome to How to Retire On Time, a show that answers your questions about all things retirement, including income, taxes, social security, health care, and more. The show is an extension of the book, How to Retire On Time, which you can get a free digital copy today by going to www.howtoretireontime.com, or you can grab a physical copy on Amazon. Just search for How to Retire On Time. My name is Mike Decker. I'm the author of the book, how to retire on time, but I'm also a licensed financial adviser, insurance agent, and tax professional, which means when it comes to finance, we can pretty much talk about it all.
Mike:Now that said, please remember this is just a show. Everything you hear should be considered informational as a not financial advice. If you want personalized financial advice, you can request your wealth analysis from my team today by going to www.yourwealthanalysis.com. With me in the studio today is mister David Franson. David, thanks for being here.
David:Yes. Always happy to be here.
Mike:David's gonna read your questions, and I'm gonna do my best to answer them. You can always text your questions in to (913) 363-1234. Again, that number (913) 363-1234, or you can email us at heyMike@howtoretireontime.com. Let's begin.
David:Hey, Mike. What do most people do if they want to retire before full retirement age?
Mike:A little
Mike:bit of ambiguity in that question.
David:Yeah. We have to define What is retirement age? Yeah. What is retirement age? What is full retirement age?
Mike:SO, there are three or four different specific regulatory tax law landmarks that I think are important to note. The first one is the rule of 55, and then 59 age.
David:So Okay.
Mike:Let me explain that. If the majority of your assets are in an IRA, pre tax four zero one k, or in a traditional IRA, then you cannot take money out before 59, or you will receive a 10% penalty. The idea was put money into this account, we'll give you some tax benefits, and that we're trying to keep the money in there for retirement. That's why they put that 10% penalty. Yeah.
Mike:They're trying to incentivize you to save for retirement. So most people will wait until 60 years old to retire. Now the rule of 55 says if you end employment at 55 or later, this is oversimplified definition, but if you end employment at 55 or older, and you keep your assets in your four zero one k, in most situations, you should be able to pull income out of your four zero one k, and not get hit by the 10% penalty.
David:How how do they do that?
Mike:I don't know, it's just the tax code. Oh, okay. Yeah. Yeah. Just how it's written.
Mike:Alright. And so I say that because we don't wanna just say, well, I'm gonna retire at six years old because that's when I have access to my money. I mean, time's your most precious commodity.
David:Mhmm.
Mike:How much is a year of your life worth? If you could retire at 57 years old, and finances were not an issue, would you?
David:Yeah, I think so.
Mike:And then there's other ways around it. You've got 72t, which can help you take income out. 72q, if you've a bunch of annuities that you wanna take out slowly as well. There's some nuance in other ways, they're just, they're really difficult to work with. Mhmm.
Mike:But those are the simple ones. So if you wanna retire before 55 years old or 59, then make sure you're funding a good amount of your assets in really two accounts. So one is your brokerage account. It's after tax. Yeah.
Mike:You sell it, you're gonna pay capital gains on it. Short term, long term, whatever it is, but you can do whatever you want with that money. And then the second one is you could consider life insurance. Again, if you're funding life insurance for tax efficiency, you could borrow against the policy, and bridge the gap into retirement, while still maintaining the death benefit in case you were to pass, and help the surviving spouse get through there. Again, I cannot say this emphatically enough, when we talk about life insurance, it's investment.
David:Yeah. There's
Mike:cost of insurance. You're paying for a death benefit. It has to make sense. Too many times I see people doing podcasts and writing articles saying that index universal life is the most incredible thing, and that's all you need, and forget the four zero one k, just put your money in here, and quote unquote, be your own bank. Oh.
Mike:No. Please don't fall for these marketing traps. Index universal life can be an effective part of your policy, but just please, there's no such thing as a perfect investment product or strategy. Anytime something seems too good to be true, or that you're winning, you're not. You just don't understand either hitting costs or other detriments, but I digress.
David:They're very smart, the insurance people. Right?
Mike:No. It's not yeah. Insurance companies are smart, but it's the agents that sell them have learned how to manipulate people into buying something without explaining the full context of what it is. We need to understand the benefits and judgments of these things. So and I would say index universal life is probably more complicated than buffered ETF structured notes or the more sophisticated investment products on the security side.
Mike:Really? Index universe life is complicated. Yeah. And often a black box of whatever is the inner workings are. Anyway, so that's the 60 years old and before.
David:Okay.
Mike:Now you might say, well, hey, I can't retire because I need health insurance. I don't wanna retire from work Oh, right. Because I need the health insurance.
David:Big component.
Mike:Yeah. Well, if you could afford Affordable Care Act insurance Yeah. You can get a nice policy, a very generous policy. Again, how much is a year of your life worth? I mean, let's say for a couple, you're spending let's say you're gonna spend $24,000 a year in health care from age 60 to 64, then 65 to get Medicare.
David:Okay.
Mike:And you could afford that. Would you rather have five extra years of your life to do more of what you want? A higher purpose, less stress?
David:Yeah.
Mike:Maybe you like your job. Maybe you don't need to retire that early, but people are whole or they're delaying their retirement because they don't know the efficiencies on how to bridge certain gaps. It's just kind of this out of sight, out of mind, I don't wanna think about it. This is what I know. I'm gonna stay in this area.
Mike:A lot of things that could be done there.
David:Right.
Mike:So that's the bridging the gap. And by the way, we do all this stuff in house. We do the Affordable Care Act shopping in house. Yeah. Quick secret, by the way, on Affordable Care Act insurance and Medicare.
Mike:There are some policies that are really, really good, but pay a very, very low commission. They're often not recommended. Mean, David, you head up our our health insurance.
David:I do. Yeah. Did
Mike:notice What was your mandate?
David:Yeah. The the mandate that I was given was we we assigned the policy that best works for the client. Like, whatever, like, fits their needs, that's what we're gonna give them, and no other considerations.
Mike:We we don't care about health care insurance.
David:Yeah. No. We don't.
Mike:It's not our wheelhouse. We just brought it in house because when we would send it out, people would get the wrong policy, and we knew this Mhmm. And that we would confront people, and it was just a hassle. So anyway, alright. So that's the 65 in the Medicare.
Mike:And by the way, when you start Medicare, just as a quick tangent, make sure you get to the right policy that you want at the beginning. It's okay to want original Medicare or traditional Medicare. It's okay to want a supplement plan or a gap plan. It's okay to want advantage plan. They all offer something completely different, and it's important to understand the benefits and attachments of those different options
David:Right.
Mike:Because you wanna start right. Because if you wanna switch later on in in life, well, GAP, you can get denied for some some of the plans.
David:There are some caveats to be aware of and some difficulties, but Oh, yeah.
Mike:But that's the first one. And then 67 years old, Social Security. Some people say, I I can't retire until I can turn on Social Security, and I don't wanna get a discounted rate. I get that. But again, you could retire at 60, just take more income from your portfolio, and then when Social Security hits, they're significantly less from the portfolio.
Mike:You can bridge these gaps Yeah. And still file for Social Security at 67 years old, or seven years old, or 62. Just do not file for Social Security before full retirement age if you're still working, because you will receive a penalty. Mhmm. Because you're not supposed to keep working with w two income or $10.99 income, basically a wage.
Mike:You're not supposed to earn a wage above around 21,000, whatever it is in 2025. If you earn above that, your benefits are gonna get deducted. Uh-huh. And it just doesn't make any sense. But again, that's another one of those things that hold people back.
Mike:So the big takeaways here is if you have money in a four zero one k, there's ways around it still to retire earlier on. Time's your most precious asset. Don't wait for Medicare. You can bridge the gap with other health insurance policies. You pay for what you get.
Mike:So if you want nicer health care, pay for a better policy. If you want cheaper health care, pay for a cheaper policy. It's not rocket science. It's just understanding that you can't game the insurance game. You you pay for what you get for, and insurance is just transferring risk.
Mike:They're gonna win in most situations. That's how insurance works. It's not criminal. It's how it works. It's risk transference and pulling people together.
Mike:And then social security, that's its own conversation into itself.
David:But
Mike:I think I think we covered it all.
David:Yeah. Full, quote unquote, full retirement age is 67 years old. Right? For most people today.
Mike:Yeah. It's changed over time. But Uh-huh. For most people looking at retirement, it would be 67 years old.
David:And that's because they would get the most benefit or near the most benefit each month?
Mike:So it's determined when your age is, and that's just the starting point kind of, let's say, even. And if you wait a year, then you're gonna get 8% bump.
David:Oh, okay.
Mike:You wait two years, you get a 16% bump, and that bump is not compounding. It's simple compounding. It's 8%, sixteen %, or 24% increase of your full retirement age. That's not a compounding 8%, and then eight percent again, and then 8%. Again, it's simple interest.
David:And
Mike:then if you take it earlier on, you're gonna take up to a 30% hit in your benefits.
David:So prior to '67.
Mike:It's just kind of '67 is your starting point, and then you either take it earlier on at a deducted rate or at an increased rate.
David:I gotcha.
Mike:That's all the time we've got for the show today. If you enjoyed the show, consider subscribing to it wherever you get your podcast. Just Discover if your portfolio is built to weather flat market cycles or if you're missing tax minimization opportunities that you may not even know exist. Explore strategies that may be able to help you lower your overall risk while potentially increasing your overall growth and lifestyle flexibility. This is not your ordinary financial analysis.
Mike:Learn more about Your Wealth Analysis and what it could do for you regardless of your age, asset, or target retirement date. Go to www.yourwealthanalysis.com today to learn more and get started.