Back To School Retirement Planning Quiz Plan With The Tax Man podcast

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Back To School Retirement Planning Quiz

10d ago 13:26

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The kids may be heading back to class, but it’s not a bad time for adults to hit the books too, especially when it comes to retirement. So, let’s test your knowledge with a quick financial pop quiz and see how ready you really are.

Important Links: Website: http://www.yourplanningpros.com

Call: 844-707-7381

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Transcript:

Marc:

The kids may be heading back to class, but it's not a bad time for us adults to maybe hit the books too, especially when it comes to our retirement strategies. So let's test our knowledge this week on the podcast and play a quick financial pop quiz with Tony here on Plan With The Tax Man.

Welcome into the podcast folks. Thanks for hanging out with Tony Mauro and myself. Tony, of course, is here to answer all the questions and give us some insights as he is a CPA, CFP, and an EA of 30 plus years in the industry and over there at Tax Doctor Inc, helping folks get to and through retirement. And Tony, I want to send you to school today, my friend. How you doing?

Tony Mauro:

I'm doing well. Enjoying the summer. It's fair time here.

Marc:

Good. Good, good.

Tony Mauro:

And kids here are heading back to school.

Marc:

Yeah. Are you a good test taker?

Tony Mauro:

I used to be. I've taken a lot of them, so I've had a lot of practice, but back in school, I wasn't all that great.

Marc:

Got you. Got you.

Tony Mauro:

Especially in grade school.

Marc:

Well, this will be pretty easy for you, but I thought it'd be fun for our listeners to play along as well. And feel free, Tony, once we go through this, it's multiple choice, so it's pretty easy. I'll give you the question, possible answers and then you give us the correct answer or the answer you think, and then maybe just share a client story or elaborate on the answer a little bit, wherever you want to go with that.

Tony Mauro:

Mm-hmm.

Marc:

But we'll let folks play along as well, see how they do. So, ready for it? You ready to get started?

Tony Mauro:

I'm ready.

Marc:

All right, here we go. Question number one, what age can you receive full social security benefits if you were born after 1960? Is it A; 59 and a half, B; 62, C; 65 or D; 67?

Tony Mauro:

Well, for this one, since I'm in this group, I know this one, it's D for 67.

Marc:

Okay. And the trick is the 60, isn't it? The 1960?

Tony Mauro:

It's the 1960 and a lot of people still have, in their mind the magical retirement age is 65 and that's still theoretically true, but what they started doing was moving up the age that we can receive full benefits when the trust fund started seeping out more money than it was taking in. And so that's what they did as a step back from that. But a lot of people still think 65, the 62 answer is, you could take it as early as 62, but for us after 1960, it's 67.

Marc:

Right, for that full retirement age. And it's always, what is it, like 66 and some months or something? I think my brother was one of those, he was 66 and seven months or something like that. But we'll see what happens if they change it. But a lot of times people wonder is it worthwhile to extend it to 70 and all that stuff. But this was again, just when you can do the full and of course the caveat there being Tony, if you don't do the full, if you go early, there are income limitations.

Tony Mauro:

There are a lot of income limitations, yeah, if you take early because if you take it at 62, you can go out and earn income, but they're going to reduce your social security. And this is all the way up to full retirement age, a dollar for every, I believe it's $2 that you earn. And so, the whole idea, I believe, of probably this question is you need to work with somebody and try to figure out what's the optimal age for you depending on your situation.

Marc:

Correct.

Tony Mauro:

Because everybody's going to be a little bit different there.

Marc:

Yeah. Yeah, exactly. And of course, once you get to 67, you can make all the money you want in the world and go from there. But yeah, so there you go. Good job. So good job with this first one. All right, so how'd you guys do? Did you get the question correct? And most people, I think, probably know that one, but again, you might not be aware that depending on when you were born, it could affect your social security or when you turn it on. All right, number two, what is the maximum annual contribution limit for a traditional or a Roth IRA for individuals that are age 50 and older as of 2025? Is it $6,000 a year you can put into that account, B; $7,000 a year, C; $8,000 a year, or D; $9,000 a year?

Tony Mauro:

That's another one of those questions that I think for most people, they've got the general idea, they've probably lost track unless you're like us and live it every day. But the correct answer is C; $8,000 in my mind because... And the reason I say that people get lost is they know it's around anywhere from, I get answers from about $5,000 to $8,000, but they've done a lot for people over 50 now as a catch-up provision. So they give you a little chance to put extra in if you're over 50, which is a great deal.

Marc:

Yeah, I mean, it's not the most massive amount. Sometimes people might hear, oh, $8,000. Because you get what, $7,000 normally and if you're over 50 you get that extra thousand, right?

Tony Mauro:

Extra thou, yeah.

Marc:

But I mean-

Tony Mauro:

That's not a lot.

Marc:

Yeah, but I mean, 8 grand, Tony, if you're 50 and you're not retiring until, see the prior question, 67, that's 17 years at $8,000 a year. I mean, that's not chump change either.

Tony Mauro:

And you got to think, at least I think in my opinion, and even with now what they've done with the recent retirement changes for these 401K's and whatnot, they're really trying to make it known, I don't think they'd do a good enough job, because they don't want us really relying on what we're talking about in the first question, and that's social security. Even though I believe it'll be there, but they're trying to say, "Hey look, we're going to give you every break that we can to try to stock money away so that you're not just dependent on social security." That's my theory.

Marc:

Okay. Yeah. And again, if you're over 50, you get those catch-up contributions and that's just the traditional in the Roth. Then there's the company sponsor plans, which is obviously quite a bit more so the government, every once in a while they do something that makes sense and the catch-up contributions over 50 is definitely helpful for a lot of people. So that's a good place to... Especially for folks who feel like they're behind, which many people who first start thinking about getting into retirement when they get into their 50's are like, "Ah, man, I'm not in good shape." So this is a great way to shore that up. All right, number three, which type of retirement account, Tony, requires you to take the RMD, the required minimum distribution? Is it A; a brokerage account, B; a 401K, C; an HSA or D; a Roth 401K?

Tony Mauro:

Another tough one. This one is the 401K, letter B because it is a qualified retirement account. And so what the IRS basically, unless it's a Roth 401K, that's different, but 401Ks, keep in mind, if you've been putting money in tax deferred for however many years, that's basically a deal with the IRS that basically said, "Hey, we're going to let you tax deferral on this money, but hey, by the way, when you start taking it out, we are going to require taxes to be paid."

But they got smart enough to say, "Well, you know what? Some of these people will never take it out and then we're going to escape. We're not going to get our tax money. So they came up with this required minimum distributions rule of, well, once you become a certain age, we're going to require you to take it out whether you like it or not, and you're going to pay taxes at that time, and that's what that RMD means. And they have an age, brackets now, they have raised those a little bit because people are living longer, but the other ones, your Roth, your HSA, and these other ones, you don't have to take money out of those at any time. You can die with whatever you want in those accounts, but the government is crafty that way because they can say they want their tax money.

Marc:

I don't know if I've ever ever heard anybody say the government's crafty that way, but there you go.

Tony Mauro:

Yeah, some of this stuff they think of it's just, you think they're not very smart and then you think, yeah, that's pretty crafty of them to do that. I get it.

Marc:

Sometimes you shake your head though. You do sit there and go, "What in the world are they thinking?" So good stuff. All right, number four here, Tony, what does the 4% rule refer to? Many people have heard this and most people probably know what it is, but in retirement planning, what does the 4% rule refer to? Is it A; the maximum percentage you can contribute to a 401K, is it B; a tax on high income retirees, C; a suggested annual withdrawal rate from your portfolio or D; the penalty for early withdrawal from a Roth IRA?

Tony Mauro:

Yeah, I would think most people would probably get this one, but the answer is C, it's the suggested withdrawal rate from your retirement portfolio. And we've talked about this before, several episodes back about that. That's the theory these days that if you can take 4% out of your retirement plan and you can stress test it and tell people, "Hey, if you do this, you can't outlive your money. But I don't really like as a one size fits all for everything. I like to work with clients basically anywhere from 4-6% based on what they have and what they want to do. As long as you can stress test the portfolio and show them that, hey, even if you live till you're 95 or 100, in your instance, with what you want to do, you will not run out of money. They like that. Now, it is a general theory to start and it's an easy way to just ballpark things, but I think you need to work it and get it down a little closer than that. But that's what they're talking about there.

Marc:

Yeah. And is it still viable, do you think? Do you think it's something or is it just this gets us in the ballpark?

Tony Mauro:

I think it gets us in the ballpark. I still think it's viable. I think with today's interest rates, in order to do 4% or more, you will have to be willing to accept either taking principle out or you've got to accept a little more risk and delve into either some bonds or equities or some things like that. A little higher paying dividends than just an old time CD. Right now, if you just were in CDs, you couldn't do that.

Marc:

Got you. Okay. And then the final one this week, Tony, is what is a financial risk that many retirees face? This is question number five. I'm going to give you a layup. I got to make this easy. Is it A; outliving their money, B; paying too much in taxes, C; miscalculating healthcare costs, D; being overexposed to risk in the market or E; all of the above?

Tony Mauro:

And one's not on there, is earning too much from their returns, but this is D; all of the above. I think all of these things is what we work with, especially with people, as I just said, making sure they don't outlive their money, making sure they're not paying too much in taxes. I mean, that's really what people are paying us to help them do. I mean, we will help them calculate their social security and their healthcare costs and whatnot. And then D; is trying to make sure that if we are trying to get them between 4 and 5%, that we're not overly exposed in their type of risk. So all of these lend themselves to the stuff that we do. Actually, all of the questions do really, but that number five is really what people are after us to help them with.

Marc:

Gotcha. Yeah, and I think at the end of the day, really just like school, if you think about it, the more you study your financial picture and understand the pieces, hopefully the better the outcome's going to be. But the good news is you don't have to go it alone. You can definitely turn to some help. And obviously, this is a profession that's been around a while, people helping folks get 2 and 3 retirement. You want to do your homework and your due diligence to find the right person for you, but that's why so many advisors, Tony, like yourself offer those consultations and conversations complimentary to get things rolling a little bit, usually the first couple of ones actually, to see if it's the right fit. So if you need help, get onto the calendar. Reach out to Tony and his team at yourplanningpros.com and go back to school, if you will. Now, don't worry, they don't assign a whole lot of homework, I don't think, Tony. It's pretty... He does most to the heavy lifting, but I guess you got to do a little homework on your own.

Tony Mauro:

You have to do a little bit, yeah. I mean, the biggest thing for us with clients is helping them, and we try to make it as easy as possible, figuring out really what they've got going on in their financial life. And so we needed an insight. You've got to show us and tell us some things. We've got to gather data and so you do have to help us with that.

Marc:

A little bit of homework. So not too bad though. So get on the calendar, come on in, have a conversation. Yourplanningpros.com, yourplanningpros.com or call 844-707-7381, 844-707-7381. Tony, thanks for hanging out as always, playing our game with us. We appreciate it. And folks, don't forget to subscribe to us on Apple or Spotify or whatever podcasting app you enjoy using so that you can plan with the tax man. And we'll see you next time. Thanks, Tony.

Tony Mauro:

Okay, take care.

Securities offered through Avantax Investment Services SM, member FINRA, SIPC. Investment advisory services offered through Avantax Advisory Services. Insurance services offered through an Avantax affiliated insurance agency. Investment strategies discussed in this episode may not be suitable for all investors. Please consult with a financial professional.

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