Episode 1: Why Does Tax Planing In Retirement Matter?
3 Questions From Today’s Topic
Click Below To See The Answer
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Full Episode Transcript
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Adam: Good morning and welcome to Retirement Tax Matters. We're kicking off with our first ever episode. Where we are digging into why retirement tax planning matters.
Garrett: A new era for the internet and everybody out there. This should be exciting.
Adam: This is the first step to world domination we're taking over here. So I thought, Garrett, maybe we'd start off this morning with kind of introducing ourselves for people that don't know us. A little bit of intro, or introduction on how we got here, what we're doing, and why we're doing this.
Garrett: Absolutely. My name is Garrett Crawford. I'm a certified financial planner. I have been at Providence now for, well, I started in 2013, so I'm going on 12 years in the business. I went to school at the University of Tennessee, and I did an undergrad degree in electrical engineering which is maybe a longer story for another day. I started dating a girl. Her dad ended up being the owner of Providence Wealth Management, and life kind of wrote its own story for me. I started here as my first job right out of college. 12 years ago, I didn't even know this industry existed, but Paul, who we work with, said, “Garrett, I really want you to help me understand social security.”Because at the time there were a lot of people that were having questions in that space. Paul was developing a firm that was helping clients with Social Security. He said, “Hey, take your engineering skills, come in, learn all this and that'd be a great first step to serving clients, and we'll kind of see how it goes.” 12 years later, I'm still here, and I think it was probably 2017, I decided that I really liked this stuff. And I told Paul I wanted to sit for the Certified Financial Planner exam (the CFP® exam) and I passed that in 2019. It took a little while to get through the books, but here I am all these years later, and our company is growing. We love what we do and I like what I think the future is going to look like in financial planning and kind of the impetus of this podcast. With all of that, Adam, why don’t you jump in and tell everyone where you came from.
Adam: Yeah. So Adam Reed, I'm an investment advisor representative. I passed the licensing exam here a few months ago. So rocking and rolling and studying for the CFP exam as well. I’ve really enjoyed being in the industry for the last couple years. A little of my backstory is that I was raised by a CPA dad who liked numbers a lot and people a little, and I like people a lot and numbers a little bit.
Garrett: What a good fit!
Adam: Yeah, it worked out great.
Garrett: Yeah, and so we kind of joked through the year, or at least through the time that Adam has been on board, we both love people. We both love numbers and that's why we do this job. But, I think it'll be really interesting for people that tune in just having different perspectives of a very technical topic, which is tax. And I think it'll be a good mix for us doing this.
Adam: Absolutely. So I started here in January. I came from a bigger firm, or more corporate style firm here in the area. I am really enjoying being part of the team, loving the industry, and loving what we've got going on here, specifically the planning aspect, not just, hey, let's invest your assets and hope for the best, but hey, let's have a game plan. Let's plan for the future. Which I think really segues well into the podcast and what we're doing. So to kick us off, Garrett, I have one question for you today, which is: Why does tax planning in retirement matter?
Garrett: Okay. Well I knew this question was coming and I was sitting there thinking this morning, how do we cover this? I don't think we can cover that topic in one sitting, which I think is why I really like the idea of doing this podcast. We were thinking about names for the podcast, and we thought, what about retirement taxes made easy or something? The nature of it is that taxes aren’t easy. They are actually pretty complicated. I would say most of the people that we meet there is a feeling like maybe they aren't doing the best job managing their taxes. They're kind of a hope and a prayer hoping that they're doing well enough. But I think people really appreciate when they come in, and there's a second set of eyes on managing their tax burden. They really appreciate that. But I don't think we can cover that in a 10 minute podcast. But I really look forward to diving into the nuances and doing this question and answer format.
You know, this is episode one and we're just getting going but I think I want to start off with a disclosure. Not the most exciting thing to start a podcast with, and then maybe a story. The disclosure is this: taxes are hard. And so I’ve found in financial planning for 12 years now that rules of thumb are great. They help set our ship in the right direction. How much should you save for retirement? Is it 5%? Is it 10%? How much should I have in my emergency fund? Rules of thumb are great, but they actually don't apply to any specific person individually. I tell that to people all the time. They'll come in and say, “How much money can I take out of my 401k in retirement?” And the truth is it's very unique and it depends on their circumstances. It depends on their current health, how much they want to leave for beneficiaries. So the rule of thumb might be just take 4% out of your IRA, it'll last through retirement, but everybody is unique and different. And so the disclosure, I think anytime we're talking about taxes, or tax planning is that anytime somebody's giving advice, especially in a podcast format, we want to make sure that you're talking to a qualified financial person as they're giving more personalized recommendations. A podcast format is not that. When I sit with a client, I'm helping them think through Roth conversions and how to pull out money from an IRA. I'm pretty aware of what their goals are and what they're trying to accomplish. I just wanted to make sure that is clear.
The quick story that I want to tell this morning is that it's been kind of a tricky balance in our financial planning industry, especially in the 12 years that I've been here, that I've always been told as a financial planner, do not give tax advice. And at a black and white level, I'm in agreement with that. There are certain things that A CPA is trained to do to: represent clients in courts, to prepare a tax return, and I never want to cross that line of giving tax advice when I'm not fully qualified to do as a CFP® professional. However, I think that there is a place for a financial planner, or an advisor, to be a part of that conversation alongside a client and their CPA. Because the reality is that all the things that we're helping clients do, whether it's buying a house, determining how much money to pull out of a retirement account, should it be a Roth, should it be a traditional IRA, should they do a Roth conversion? All of those things touch on taxes. When a client goes to their CPA in February and says here are my capital gains, and my income, and the client asks about planning — it is really too late. This is a reactive approach. So I think that's where the synergy between what we do and what accountants do come in, where I think we can meet with clients throughout the year and look forward and be proactive in our planning so that things are squared away by tax time. It is important to be proactive and have a planning mindset because there are so many moving pieces: how much should I withhold, what type of capital gains do I have, have I triggered IRMAA charges, how much of my social security benefit is being taxed and will converting to Roth trigger more, will I need to pay net investment income tax, and the list goes on and on. That is why I feel so strongly that being well educated on these topics and doing proactive planning can be such a huge value add for anyone in, or nearing retirement. Retirement tax planning really does matter.
Adam: Absolutely. Well, I like that answer, and I think as we go throughout this podcast, we'll answer more and more why it matters and, and touch on some of those matters. Do you have anything else you want to leave the listeners with today?
Garrett: Yeah. I think there's one last thing about how you and I may view taxes versus the average person. A lot of people view taxes on a year to year basis and ask the question, “How do I pay the least amount of taxes possible?” I want to encourage people to reframe the way they think and instead ask the question, “How can I legally minimize my tax burden over my entire lifetime and set myself up the best not only during my lifetime, but also for my beneficiaries?” That is an idea that will stick with us throughout this podcast series. So what do you think, Adam? You ready to do this?
Adam:
I'm ready to do it. Thank you guys for joining us on our first kickoff episode to retirement Tax Matters. You guys go out and make your day matter.