For retirement reposition assets into 4 buckets. In this episode, we are
going to address the question "How do I stay balanced with my investment
portfolio?" This is episode 21 of 21. Congratulations if you have watched the
previous 20 episodes. Because I'm going to connect the dots here and talk about
at retirement planning which is different than what you maybe did for
retirement planning. So, put on your seat belt. My hope is that by investing 4
or 5 hours into this entire free course, you will be in power to
accumulate at least an extra million bucks that can generate $100,000 a year
of tax-free income for as long as you live.
So, I'm Doug Andrew and I've been a financial strategist, tax minimization
specialist, a retirement planning specialist for more than 45 years. So, let
me share with you what would happen when most people would come to me prior to
retirement. Now, if I were a physician, I would prefer to have prevented a lot of
dis-ease(disease) because when you're not at ease physically, we call that disease. But when
you're not at ease financially, I cured a lot of people's of financial dis-ease. But I
would have rather prevented it 20 or 30 years earlier. But let me share with you
what would happen when most people would come maybe 5 years before retirement.
Sometimes people came to me right at retirement during retirement or after
they had been retired 5 years. And they were going, 'I think we're going to
outlive our money unless we change things." So, I have always been a proponent
of diversification. But if you've been watching these various episodes, you want
to diversify into superior vehicles and investments. And I have found that most
retirees will draw retirement income from 1 of 4 buckets. Maybe 2 or
3. Maybe all 4 of these buckets. So, let's go through each one one by one and
talk about the differences here. And maybe what ratios of your income would
come from these buckets. The first one is what I call the investment bucket. This
is where actually most people that would come to me would have most of their
retirement assets. Frankly, they would be way too top-heavy in this bucket. They
would have 80, 90. Maybe 100% of the retirement nest egg in yet-to-be
taxed IRAs and 401Ks in the market and stocks bonds and mutual funds. And I
would go, "What are you thinking?" And they would go,
"Well, doesn't everybody do this?" Unfortunately, all too often many people
have most of their money in yet-to-be taxed IRS or 401Ks.
I think they've been duped into doing that being told, "Oh, you'll be in a lower
bracket when you retire." And most people are not. If you're in a lower tax bracket,
it usually means you didn't say very much. And so, I have to cure their tax
disease. So, we had to start reanalyzing and do a strategic rollout from money
out of this bucket into one of the other 3 buckets I'm going to put on the
screen. But many times they were way too top-heavy here. I would recommend at
retirement be at age 60, 65, 70 when you're going to start taking income that
no more than 30% of your retirement assets ought to still be in
that bucket. Many times, we've helped people where none of it is in that
bucket. But no more than 30%. So, if you've got 80 to 90 percent of
your retirement in that bucket, you better start a strategy to roll that
money out over a 5-year period. Maybe a few years longer. Especially if you're
going to be retiring in the next 5 years or so. So, what are the other buckets? One
that a lot of people like to draw income from during retirement might be their
real estate. Some people don't like real estate. They just want to own their home.
Theirs, they maybe have rental properties. Frankly, I'm one that I will buy real
estate properties, I will flip them and I will make money but I do not like being
a landlord. I don't like fixing toilets, evicting
tenants, taking out the trash. And so, I don't have a huge real estate portfolio
but I probably own more real estate than most Americans. But many times, people
will have a personal residence and investment real estate. This is often
referred to as non-owner occupied income real estate.
Rental properties. Sometimes people think that they're doing great in these until
we do an analysis. For example, in California many times in the San
Francisco Bay Area, we would find people that would have a 5-bedroom home that
they bought for $230,000. 35 or 40 years ago, they
raised their family in it they redid it remodeled it several times. And now,
this home is worth 4.7 million. Yeah. Well, they thumped
themselves on the chest and say, "Well, we're renting our home for 10,000
bucks a month. We're renting it for $12,000 a month." I go, "That's
pretty pathetic." They go, "What? 10 grand a month." I'm going that is worth 4.7,
4.8 million. Your rate of return is a pathetic 2% a year. And so,
I would show them 2 alternatives. Many times I'd say, "Do you like being a
landlord?" "No. Actually but I'll have to pay a huge capital gain." "So, why don't we
use a real estate manager?" And many times they have sold that home and purchased
as many as 20 or 30 homes in another city like Memphis or Orlando. And they
own 20 homes that are 5 bedroom homes that are newer that are worth
300,000 each and the rent multiplier is 1% a month. A
300,000-dollar home is renting for 3 grand a month. In other
words, if that home in California is really worth 4.7 or
4.8 million it ought to be renting for 48,000 a month.
Not 12,000. You're getting one-fourth what you could have been
getting. So, by selling doing 1031 exchanges, sometimes they quadruple their
cash flow. Sometimes they just don't want to be a landlord anymore. So, they sell it.
They pay the capital gain and they take the net and put it into a laser fund and
they're often shocked that the laser fund generates tax-free income equal or
greater than the rental income after tax out of all their properties. And they go,
"Wait a minute. I don't have to be a landlord anymore?
What am I going to do with my time?" Why don't you enjoy a retirement? So, you
often want to analyze how much money you want to leave in the real estate bucket.
Let's go through the next 2 buckets. Now, the third bucket I call the
guaranteed bucket. I would recommend that anywhere from 0 up to 80 percent of your
retirement income could come out of this bucket depending upon your risk
tolerance. Back here on the real estate bucket, I would personally recommend that
no more than 30% of your retirement income come from that bucket because of
the unpredictable real estate markets, okay? Now, guaranteed income might be your
social security. It could be a defined benefit pension if you taught school
let's say. And they pay you 2% for every year of service. If you taught
school for 30 years, 2 percent times 30 is 60 percent of your last
average paychecks the last 5 years you taught school. So, if you were making
in 5000 a month, you might get 3,000 a month in a defined benefit
pension. And so, that would be a pension. Otherwise, the only other type of
guaranteed income might come from an annuity. Now, I've said, "I doubt
I'll ever own an annuity because I would rather use my tax-free bucket because
annuities are not tax-free." When you take the money out it's taxable and it's
taxed LIFO. But there are a couple of annuities, they're indexed annuities that
if you put money into them, if the annuity runs out of money, when you're
age 85 or age 87, the annuity will keep paying you income if you live to be
120 and it will have a cost of living increase. So, if you want
guaranteed income, it may not be the highest rate of return but it's more
important that you are not poor. See, when I ask people would you rather be rich or
would you absolutely want a guarantee that you'll never be poor?"
I think I'll take that one. Then maybe you're a candidate for some of your
money here. So, I would say anywhere from zero to 80% could come from this bucket.
What is the fourth bucket? My favorite one the tax-free bucket. Now, in the
tax-free bucket, we have Roths. Roths are a step in the right direction.
Roths came out in 1997. They have 2 benefits. You fund a Roth with after-tax
money. Your money accumulates tax-free is the first benefit. The second benefit is
you can access your money tax-free. I have those 2 benefits with a Laser
Fund and 4 additional benefits that Roth's will never have. So, I always say,
"Why would I own a Roth when I can have the 2 benefits of a Roth and 4
additional benefits and it doesn't cost me anything?" It up performs most Roths by
far. Some people say well I like municipal bonds. Oh, really?
Well, not as much lately because a lot of municipalities have had financial
trouble and they file bankruptcy. So, sometimes they cannot honor that. And
people say, "Well, they can still raise taxes or.." Whatever, yeah. But see, municipal
bonds have always performed 2 or 3 percent less rates of return than my
laser funds have earned. So, my favorite vehicle is a max-funded, tax-advantaged
insurance contract what I call the laser fund in this whole series. Because it's
the only vehicle that allows you to accumulate your money tax-free like
these do. But then you can access your money tax-free like these do. But these
don't blossom when you die. If I die, every million in my portfolio of laser
funds would blossom instantly to 2.5 million currently at my age of 68.
There's not a Roth around or a municipal bond that will do that. And people say,
"Well, how much does that cost?" Nothing. It's being paid for with a miniscule
portion of interest that would otherwise go out the window in unnecessary income
tax if I left my money here. So, how do i balance my portfolio at retirement
so that I can draw from these buckets? I would recommend 40 to 60 percent
of your income come from this bucket at retirement. So, what does that require? How
do you reposition your money? So, to rebalance at retirement, many times, I had
to start performing a strategic rollout. Not a rollover. These are explained in my
book the laser fund. And I've helped many many people get money rolled out of this
bucket down into this bucket. You have to do it strategically usually over five
years to comply with Tamra so your income is tax-free the rest of your life
out of here. And so, you're taking the money
strategically out of your IRA or 401Ks and taking care of taxes sooner than
later. Don't take RMDs, required minimum distributions. You're not saving
tax. I can show you you're actually going to pay more in taxes you keep stringing it
out taking the minimum distribution over your life expectancy and your spouse's.
And people say, "Well, how come they tell you on CNBC to do RMDs if you don't
need the money?" Because who's funding CNBC? tax revenuers. Why would they
ever want to kill a partnership where the longer your money stays here, the
government will always get at least 30, maybe 40, maybe 50 percent. They can
change their percentage anytime they want when taxes go up. Why would they
kill that partnership? So, with a strategic rollout, we take money out of
here, get the taxes over and done with, strategically. And then we take the net
after tax monies and we put it here so in it accumulates tax-free from now on.
And at the end of the day, when you pass away, it blossoms and transfers tax-free
and reimburses you many-fold for the taxes you pay during the rollout. So, it
doesn't really cost you anything at the end of the day. Many times, we create new
deductions with real estate that help offset the taxes. And so, I've helped many
people roll out 750,000, a
million dollars of money from here over to here with no tax consequence. The
stories are in this book, okay? And so, we get money out of here so that no more
than 30% of your money comes from here in retirement.
Many times people... We have taken couples who were in the highest tax bracket and
in 5 years they wanted to roll out mostly over to here. And they went from
the highest tax bracket to a zero percent tax bracket. Now, some people like
to keep real estate. Others, they don't want to be a landlord anymore. So, I would
say no more than 30% comes from here. Between 0 to 80 percent
comes from here. But I would recommend 40 to 60 percent of your money
come from the tax-free bucket. What does that mean? I'll give you an example of a
couple who came and said, "Hey, our assets will allow us to experience
$200,000 a year of retirement income." They were proud of that. And they
ought to be. I said, "The problem is it's mostly over here. 100% of
this is showing up on your 1040 tax return." They go, "Well, is there a better
way?" I said, "Hello? It's going to take 5 years." And we did
a strategic rollout. And after 5 years, they still had 200,000 of
income. It was more predictable. But 120,000, 60%
of it now was tax-free. In other words, only 80,000 of the
200,000 of income showed up on their 1040 tax return. The IRS knew they
were getting the other 120,000 out of this bucket. But they know it's tax-free.
It's been grandfathered in the Internal Revenue Code for over a century. What did
that mean? Well, they only had to pay tax on 80,000 instead of
200 that save them 40,000 in their 33% tax bracket
because on 120,000 of tax-free income, they used to pay 40,000
in tax. If they live 25 years, likely one of them will last 25 years,
with that one maneuver, a strategic roll out,
we saved them 40,000 a year of unnecessary tax times 20 years, 25 years.
That's a million dollars right there that we save them in unnecessary tax. Let
alone the predictable rates of return and what they leave behind when they
pass away. So, that's why I would implore you to study this out. Get a copy of the
Laser Fund. I will provide the copy for you free. Claim your FREE copy of this
book by going to laserfund.com. I'll pay for the book you pay $5.95
shipping and handling and you begin reading and studying the stories and
examples of how The Laser Fund can be used not only for retirement but for
emergency funds, real estate management, cash flow management, a working capital
for your business, college funding. It's the dream solution that I've been
talking about in this whole series. If you have not watched all of the episodes,
since this is the final, 21st episode, go back and watch the ones you
missed so you have a thorough understanding. And then I would implore
you to get together with a professional that can help you implement that. And on
our website, we can help you do that. And I can point you to the ones who
understand who can answer the questions that I've talked about in previous
episodes.
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