Can I Retire?


Can I retire? I get that question… A LOT! And the answer more often than not is YES YOU CAN!

Unfortunately we’ve been trained to believe we need millions, MILLIONS I tell you!, in order to retire.

I don’t get it. Well, actually I do get it. Is it possible the folks saying we need MILLIONS would actually benefit from us saving more? Just throwing it out there as a possibility.

In this episode which I’ve divided into two videos, I share with again the Motley Fool article about what the average retiree actually needs in retirement for income.

The good folks at The Fool use actual, empirical evidence from the Bureau of Labor Statistics (BLS) to show that the number is much lower than most people realize.

I also break out Ty Bernicke’s classic article from the Journal of Financial Planning in June 2005 called Reality Retirement Spending which also uses BLS numbers via the Consumer Expenditure Survey (CES) to show that retirees actually spend LESS as they age.

Crazy right???

So taken together the picture begins to be painted that maybe, after all, one could retire sooner, or with less assets than was previously considered.

In fact, in this video I show you how $100,000 can do it for you. Should you retire with $100k based on my video alone?

No. Do your own research. But I bet when you do you will be pleasantly surprised and for once can see the light at the end of the tunnel.

How to Pay No Tax on Dividends and Capital Gains


If you are married filing jointly with taxable income of $77,400 or less, you are in the 12% tax bracket. However, add $1 more and you are in the 22% bracket. See how that works? $77,400 = 12% bracket. $77,401 = 22% bracket.

This is how marginal rates work: the more income you receive the higher the tax rate on that additional income will be. The tax you paid on your previous income doesn’t change though. You only pay higher taxes on the amount that puts you into the next bracket.

How Qualified Dividends and Long-Term Gains Are Taxed

Now, let’s say you have total income of $70,000 which consists of $60,000 of work income and $10,000 in the form of Qualified Dividend Income (QDI) and Long Term Capital Gains (LTCG). But you need $80,000 to maintain your lifestyle. So you take a $10,000 distribution from your IRA. That puts you in the 22% tax bracket.

The following April you go visit your tax guy to file your taxes. Your tax guy gives you what you initially thought to be a pleasant surprise. He says that you only have to pay 15% on the $10,000 you received as dividends and capital gains even though you are in the 22% tax bracket. This is good news, right?

Unfortunately, the reason you’re in the 22% bracket to begin with is the IRA distribution put you there. Now, you owe over $3,000 in taxes. This is bad.

You wise up and use a different strategy for the following year. You still need $80,000 to get by. You’re still only making $70,000 from work and dividends. To make up the difference this year you take a distribution from your Roth IRA, not your Traditional.

Now, when you go back to your tax guy you really do get a pleasant surprise: you pay $3,000 less in taxes! “Wait a second. How can this be?” You ask.

Your tax guy explains. “Your IRA distribution last year not only increased your marginal tax rate to 22% but it also made your dividends and capital gains taxable as well. That $10,000 IRA distribution cost you $1,500 in income tax plus $1,500 in taxes on your dividends and capital gains. A double-whammy if ever there was one!

“Because your Roth distribution is tax free you remain in the 12% bracket. Taxpayers who are in the 10% or 12% brackets do not pay tax on their qualified dividends or long term capital gains. So, not only do you not pay taxes on your Roth, you don’t pay taxes on your other investment income either!”

Isn’t the Roth beautiful?



The PERFECT Retirement Plan


With a Roth you determine when you want to pay the taxes for what you put into the account. This is a benefit of the Roth that way too often gets overlooked.

Remember, anything contributed to a Roth is with after-tax money. If you choose the Roth, you pay tax now. If you choose the Traditional you pay tax later. It’s up to you when you want to pay the tax.

Let’s play out a scenario to see how this may work for you. Sarah and Dan just retired. Sarah is 62 and Dan 66. They are not taking Social Security yet just living off the savings they were able to squirrel away.

They have no mortgage and they figure they spend about $50,000 a year total, on everything, vacations, bills, helping the kids out occasionally, etc.

They have accumulated $300k in their 401ks and rolled those accounts to IRAs. They also have $150k in savings accounts. They wonder if they should start taking Social Security.

NO! Absolutely not!

Given they have no income other than minimal interest they’re making on their bank account they are paying NO TAX. They will continue to pay NO TAX until they reach 70.5 when RMDs kick in. They should take advantage of their $0 tax and start moving money over to a Roth, now! Any income they receive up to $25,300 is TAX FREE! ($12,000 is the Standard Deduction in 2018 for Sarah and $13,300 for Dan).

Let’s say I am able to convince them to convert $50,000 this year. That $50,000 will be taxable as ordinary income. But with their $25,300 of standard deductions kicking in and the fact they have no other income their taxable income will be all of $24,700. They’ll pay only $2,583 in taxes this year.

$2,583 in tax today is a tiny price to pay for all the benefits of the Roth IRA. Heck, I’d even advocate they convert a full $100,000.

If they convert $100,000 in year 1, $100,000 in year 2 and the rest in year 3, they’ll have moved all their money from their to-be-taxed accounts to never-taxed-again accounts.

In year 4, when they have exhausted their cash savings, then they both take Social Security. Dan will get his as a 69-year-old, meaning he’ll have nearly maximized his Delayed Earnings Credits (DEC) and will enjoy a significant bump in his benefit.

Say Dan averaged $75,000 a year over his career. His Averaged Indexed Monthly Earnings (AIME) will be $6,250. This means his Primary Insurance Amount (PIA) will be $2,519 at his Full Retirement Age (FRA). If he waits to file for Social Security at 69 his Social Security benefit will be $3,173 a month because of the three years of Delayed Earnings Credits.

If Sarah made the maximum under the Social Security rules at her FRA her benefit would be around $2800 a month. But because she is going to file at 65, a year before her FRA, her benefit will be reduced to $2,600 a month.

Following this strategy, Dan and Sarah will receive nearly $70,000 a year in Social Security benefits, which will meet all their income needs and it will be TAX FREE.

If they need to dip into their Roth IRAs to augment their Social Security income they can do so and will still pay no tax. It’s a beautiful thing to behold. Their primary source of income is Social Security which will be tax free augmented by tax-free Roth IRA distributions.

Dan and Sarah have another 20-25 years ahead of them and they will NEVER pay income tax again. Let that sink in. Can that work for you too? Absolutely!

Roth IRA + Social Security = An Amazing Benefit of the Tax Code

The beauty of this retirement cannot be overstated. Yet, very few people take advantage. Why? They’ve been taught, incorrectly, to defer taxes as long as possible. I take issue with this philosophy. If you can pay a small amount of tax today to avoid huge taxes in the future, you absolutely should.

Tax Free Wealth for a “Non-Working” Spouse


Let’s say you are the breadwinner and your spouse is a stay home mom or dad.

Due to all the contributions to your retirement plan at work your side of the balance sheet is growing significantly more than your spouse’s. You are concerned about “equalization of estates”. (Equalization of estates is an old estate planning term when there was more concern with estate tax. The estate tax issue is a non-starter for most nowadays but there is something to be said for both spouses having ownership in something.)

What you should do is plop down $5,500 in January in your Spouse’s Roth IRA. Doesn’t matter if he or she isn’t “working” for an income. Only matters that you are.

Do this every year and you’ll be surprised at how quickly the account can grow. Have I mentioned that Roth’s grow TAX-FREE too???

Investment Fees vs. Commissions


Are fees the panacea for investment management clients? Are commissions EVILLLL???

In this episode I show you how fees may not be the best bet for you when you’re looking to hire an investment advisor.

We compare the American Funds Income Fund of America A shares with two indexes, the SP 500 and the Russell 2000.

The American Funds will have a 3.50% front end commission with an annual expense of around .50% or so.

The two indexes have neither.

This is before tax too, by the way.

Unfortunately, I got cut off at the end of this episode so definitely watch part 2.

Don’t forget to download my new FREE BOOK here:

Vanguard ETF Investment Allocation Models


Vanguard has a wonderful chart you should use when planning your own investments.

You can slice and dice your portfolio anyway you want put remember fees and taxes are the biggest headwind you face.

Keep your fees and taxes low and you will most likely outperform the vast majority of your peers. Not all the time, of course, but more often than not.

So always remember, complexity does not equal investment success. Keep it Simple, Stupid is the #1 investing rule to follow.

And that is what makes Vanguard so great. You can get a wonderful, low cost, low turnover (tax) portfolio with just 4 of their ETFs. And then you’re done.

No fuss, no mess.

Take the Social Security Quiz!


How to Avoid Doubling, or Tripling, of Your Medicare Premiums


Medicare is not free! I can’t stress this enough. Medicare is not free!

Medicare Part B and D Premiums

You have premiums for Part B and Part D. Yes, you could have a Medicare Advantage premium, or a Medicare Supplemental premium but those services are voluntary.

If you are on Medicare and you will have a premium to pay.

Now, here is where it gets interesting. What are those premiums? Well, for most Americans they pay $134 a month in Part B and $34 a month in Part D, per beneficiary.

Modified Adjusted Gross Income Affects Medicare Premiums

But once they breach a certain threshold with their MODIFIED Adjusted Gross Income (MAGI), those premiums can change, and drastically too.

Single taxpayers with MAGI of less than $85,000 pay the premiums stated above.

Single taxpayers with MAGI of over $107,000 pay double. $22,000 difference in MAGI and premiums increase by 100%.

How is MAGI Calculated?

What is included in MAGI? It’s ALL your income, to include tax exempt interest.

What is NOT included in MAGI??? Roth IRA distributions.

Thus, a Roth is the easy way to prevent huge increases in Medicare premiums.

Roth IRA Distributions NOT Included in MAGI!

Weird how no one talks about this, isn’t it? Almost like the less you know about the tax code, the less proactive planning you will do and thus the more revenue that goes from YOUR accounts to the IRS.


If you want the book for FREE just click on the link below and put in your email, first name and state and you’ll be able to download it immediately.

Social Security Benefits Can Be Garnished to Pay Student Loans


Did you know that if you don’t pay your student loans on time, the EDUCATION DEPARTMENT can garnish your Social Security benefits?

“n the 2015 fiscal year, according to the Government Accountability Office, the government garnished the Social Security benefits of almost 114,000 student loan borrowers over 50 years old, reducing their benefits, on average, by more than $140 per month.”

That is wrong on so many levels. Having the Education Department take your retirement benefits paid for by the Social Security Administration. And guess what? You can’t discharge student loan debt in bankruptcy!

Oh, but you think this can’t affect many people? Think again.

“Americans over 60 years old are the fastest-growing category of student loan borrowers, having roughly quadrupled in number between 2005 and 2015…”

Not only are older Americans the fastest growing group of student loan borrowers and they “account for just a sliver of the more than $1.5 trillion in total outstanding student loan debt they’re more likely than younger borrowers to be behind on payments.”

This is bad, folks. Very bad. Growing debt levels hurt your retirement flexibility. And what exactly are you borrowing for to begin with? To help little Johnnie? Don’t do that. Please.

Let him go to community college for two years first, to prove he’s up for the task of attending university.

If he can’t get out of community college with shining colors, you certainly don’t want to risk you retirement on a 4 yr school.

Think long and hard before you go into debt for student loans for any reason!