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Welcome to How to Retire on Time, a show that answers your questions about all things retirement, including income, taxes, Social Security, healthcare, and more. This show is an extension of the book How to Retire on Time, which you can grab today on Amazon or by going to www.howtoretireontime.com.
This show is intended for those within 10 years of their target retirement date or for those are are currently retired and are concerned about their ability to stay retired.
If you try to play chess with just one piece or maybe two pieces, you put the pawn out there and you just try and win with one piece, you're probably not gonna do very well. You have to use all the pieces at hand strategically to advance your agenda. Mhmm. Even in checkers, using all the pieces available to you to advance your your your narrative. Welcome to How to Retire On Time, a show that answers your retirement questions.
Mike:Say goodbye to the oversimplified advice. This show's about getting into the nitty gritty you can determine what is right for you. My name is Mike Decker. I'm a fiduciary financial adviser. With me is my associate, David Franson.
Mike:As always, text your questions to (913) 363-1234, and we'll feature them on the show. David, what do we got today?
David:Hey Mike, is cashflow the most important part of retirement planning or am I missing something? The most important part.
Mike:Yeah. So let's define cashflow and income and separate the two just for a moment. Okay.
David:Okay. Okay.
Mike:Cash flow is the movement of money within your accounts. Income is what you spend.
David:Okay.
Mike:And so cash flow, let's take a rental property for example. Your cash flow is how much are coming in is how much is coming in from rent. Alright. And then where does it go? So part of it's gonna go to a an account for future repairs.
Mike:Part of it's going to go for an account for taxes because, you know, you got property tax.
David:Right.
Mike:Part of it's going to go for income. But the flow of that, you've got to understand that you're not spending everything. You need to put some money aside for future repairs, new roof, AC unit, whatever it might be. Prolonged moments that you might want to take as income that maybe there's two or three months where you don't have tenants. So you're treating your rental property as a business.
Mike:The same is true when it comes to dividends. Okay. So dividends could be treated like cash flow. You get a dividend from a stock for an example, and then you reinvest the dividend or you spend it. But the dividend is a cash flow and you're either going to use it for growth, capital appreciation or growth of of your overall net worth or you're going to spend it.
Mike:But do you see how cash flow is just the movement of money?
David:Yeah, the flow part. The cash is flowing around. It comes in, it goes out other places, right?
Mike:Yep. Okay. And so the question is very insightful though. I don't know if it was intended to be this insightful is what is your cash flow and what are the tax ramifications of that cash flow and does it create efficient income or not efficient income?
David:Okay.
Mike:For example, I recently had a situation where someone said, well, hey, look, I've got a lot of money in a brokerage account, but I wanna keep that focus for legacy purposes. I said, no problem. What do the dividends look like? Well, they're high paying dividend stocks, but they're reinvesting the dividends to keep going. I said, okay.
Mike:Why is that? Well, I don't want to sell the positions. I'm going to keep just growing the positions because I want them to inherit this stock.
David:Okay.
Mike:I love the stock. It's been a lifelong family heirloom. Said, okay. Are you aware the fact that you're every time you reinvest that dividend, you are now going to pay taxes on that, which will affect all of the other parts of your plan. And as you reinvest the dividend, that dividend burden, which is a tax burden, is going to get bigger and bigger and bigger.
Mike:They say, no, I didn't really think about that. So what if we take the dividend and reinvest it into other stocks and we'll create other family assets, other family positions. The classic example is like a Berkshire Hathaway that's never going to pay a dividend, but now you've got a another position that could be a legacy play that won't balloon this tax burden. It kind of mitigates what you should expect over a long term period of time that won't bump you up to other inefficiencies like Irma or higher tax brackets or whatever it might be. And they said, oh, that's very insightful.
Mike:I appreciate that. And in this situation, wanted to focus on their IRA assets. So they wanted to spend down their IRA assets and grow the brokerage accounts. But you see how the cash flow and how that plays can create tax issues. Where's the money flowing?
Mike:What are the tax consequences? How are you going to take income? And then what's the purpose of the other parts of your your money?
David:Sure.
Mike:Limited partnerships. What's the cash flow look like? Privately traded REITs. What does the cash flow look like of the investment? And then how do you take the income and or do you use the income or do you reinvest it in other ways?
Mike:So you have to understand kind of the flow within your overall plan to really answer this question. Is cash flow the most important part of retirement planning? I would say it is an important part, but it plays hand in hand with tax planning. And it's not just income planning, it's cash flow planning, it's taxes. It's the whole nine yards.
David:Yeah, the cash flow affects the taxes, right? Whether you have to pay more or less. Is that yeah.
Mike:Another way to say about it is everything you do will affect everything else that you do. Your cash flow planning could affect your income planning and your growth planning. Your cash flow planning could affect your health care planning. Your cash flow planning could affect just fill in the blank. How do you approach health care?
Mike:Are you gonna do an advantage plan? What what plans do you qualify for? Are you an affordable care act? And do you get a deduction or not from it? You know, or supplements.
Mike:How does the health care side and your options, how are they affected by the taxation? How does your cash flow affect your adjusted gross income? Does it affect your modified adjusted gross income? And now do you qualify or do you not qualify for the senior deduction that just came out that will start next year? So it it all plays in.
Mike:But generally speaking, you've got your cash flow planning, which is not just income planning, but it's understanding the flow. You've got your portfolio planning, your growth. It's your distributions. It's how are you hedging against flat market cycles or market crashes? How are you hedging against inflation?
Mike:How are you hedging against just the the markets and the cycles? And it's not just the stock market. You've got the bond market. You've got the real estate market. You've got the alternative market.
Mike:You've got the insurance product markets. You've got all these other markets to be concerned about. Then you've also got your your insurance risks. So what risks do you want to transfer for it to an insurance company? No, the odds are against you, but you want to pay the premium for the peace of mind.
Mike:By the way, many people, they, when they realize that they don't, when they enter retirement, to pay an insurance company to get rid of certain risks. No problem. Some people want to pay an insurance company to take care of some risks that they're just concerned about. No problem. But that's, that's a part of the conversation.
Mike:And then how you pay, how do you pay for those insurances? If all of your assets are in a four zero one ks, then you might need to be concerned about the taxation of that. So do you see how it all you've got cash flow, you've got portfolio, you've got the insurance conversations, you've got your estate planning conversation, your social security optimization, they all affect each other.
David:Right.
Mike:And so that's why you've got to have kind of a coordinated effort. I mean, let's take chess for an example. Okay. You don't play chess much.
David:I tried. It didn't take very well. So
Mike:if you try to play chess with just one piece or maybe two pieces, you put the pawn out there and you just try and win with one piece. Probably not gonna do very well. You have to use all the pieces at hand strategically to advance your agenda. Even in checkers, you're using all the pieces available to you to advance your your your narrative. You know, Ted Lasso is being filmed here in Kansas City right now, which is really fun.
Mike:Yeah. Really exciting. For all those who don't know what Ted Lasso is, it's a really fun series that was on Apple TV about a guy, Ted, who is just this incredibly optimistic individual who is given a task that's near impossible and he uses his optimism and what he has available to him to bring a team together to to win. That was the premise basically. Anyway, what was really interesting is as the story is developing, the players were trying to win individually.
Mike:Ted brings them to pick the, you know, the classic bringing the team together kind of situation. They do it with their own twist. It's wonderful. You If haven't seen it, go watch it on Apple TV. Was such a fun series.
David:Absolutely.
Mike:Very uplifting. Yeah. In a dark world, it was a very uplifting show. Sure. But the, the point I'm saying, by the way, for all those filmers of Ted Lasso, shameless plug.
Mike:Yeah. No. It's, but the include me in the show. No.
David:Yeah. Please.
Mike:But the, the point being is they had to bring the team together and everyone had to play their part to advance their, had to advance their agenda, which is to win the match. And this is in all facets of life. You have to be a team. You've got in finance to figure out all of these different parts of your plan, bring them together. So from a holistic and comprehensive position, you can advance the purpose of your money, the narrative that you're looking to do.
Mike:Whether that's maximum income, whether that's legacy planning, whether that's hedging against healthcare risks, maybe you're at risk of early Alzheimer's or dementia, whatever it is. What is the agenda? What's the purpose of your money? And how do you use the resources available to you to coordinate those efforts and advance that agenda? That's what it should look like.
Mike:Cash flow is a player. It's not the only player. And I think sometimes we oversimplify. How do I get paid in retirement? Great.
Mike:Let me take that income stream to solve everything else out because that's what we're used to. It's different. It's more it's a higher level of financial management when you get to retirement and you have a net worth to manage. It's higher responsibility, but you've got more resources available to you because you've got more to work with. The question is, are you working with it well or not?
David:Hey,
Mike:thanks for watching this video. Make sure that you like and subscribe first and then go to www.retireontime.com to grab a copy of my book, How to Retire On Time, take a few courses about retirement, join my newsletter, and so much more. Now, if you want to work with one of our advisors here at Kedric Wealth who can help you put together a retirement plan that's designed to last longer than you, just click the button, get started. Everything we do is intended to help you retire on time. We hope you enjoy, and we'll see you in the next show.