Mistake number 6 of 10 when saving for retirement. In this episode, I'm answering the
question. What mistakes do people make when saving for retirement? Now, there are tons of mistakes that
I've witnessed people make. But this is mistake number 6 of the top 10. Get ready, a lot of
people make this mistake it's because they're told to do so by their accountant or their tax attorney.
So, my name's Doug Andrew and I've been a financial strategist, a tax minimization specialist,
and helping people prepare for a comfortable retirement. Where hopefully they will not outlive
their money and I've been doing this for more than 47 years. I've been very blessed and honored to
have written 12 books thus far and at the end of this episode I want to gift you a copy of my most
recent bestselling book that's been flying off the warehouse shelves as a token of appreciation.
This particular episode is one of the big mistakes that I've seen retirees make.
I would encourage you to watch all 10 episodes in this series to learn about the top 10 mistakes.
Because I've seen thousands of people make these mistakes. Are you ready? This is mistake number 6.
People when they sock away money usually in traditional accounts like IRAs or 401ks
and if they don't need the money at age 59 and a half when they could access the money without a
10% penalty which is mistake number five leaving it there. But oft times people would come to me
after they were already the age of 70 and a half is the age it used to be where you had
to start taking money out of your IRAs or 401ks or else the government would assess a 50%
penal date on top of the tax. See, the government wants that money out in tax before you die so
they can tax it again when you do die. But here's the mistake people make and now the age is age 72.
The mistake people make is thinking, Well, if I don't need the money
I should only take out the required minimum distribution", that spells the acronym RMDs
I cannot believe how many people are told to take out RMDs starting now at age 72.
That's the worst advice in most cases that could ever be given to these people and when cpas and
tax attorneys come through my advanced continuing education they go, "Oh my heavens, I thought I was
saving my clients money by telling them by advising them to take out RMDs thinking it
was saving them tax. I was only looking at the short-run it was a very myopic short-sighted
instead of looking at the big picture." So, let me explain why so you can avoid this mistake that's
being made by hundreds of thousands maybe millions of Americans every single year after age 72. So,
why does the government have this rule anyway? Well, if you haven't figured out IRAs 401ks are
usually the best savings bond the government ever came up with for themselves. Do you know
that the federal government actually plans their budget their spending based upon their income.
Not only from normal income taxes while people work but they know how many people are retiring. They
keep track of how many are turning age 72 and they haven't been able to tax these people yet and they
must start withdrawing money based upon the government's life expectancy formula.
So they can start getting that money taxed. They've been planning on the revenue for a
long time and if you bugger that up they're going to penalize you, how much? 50%.
So, let's simplify this. If you're age 72 and your life expectancy is 20 years to keep it simple.
That means, if you had a million dollars in your IRAs 401ks or whatever and your life expectancy
is 20 years. You must take out 1 20th at 8.72 or $50,000. If you do not take out $50,000 and pay
tax on that to the government they will penalize you $25,000 bucks on top of the tax.
They'll take 70-80 percent or more of it if you do not start taking the money out so the government
can get their share. They've been planning on this tax revenue okay and they're dead serious
about this. Now, what about when you turn age 73? Well, now your life expectancy is 19 years. You have to
take out 119th, the next year 1 18th, the next year 117th, and so every year you have to take out more
and more out of your nest egg based upon your LE life expectancy. The government will penalize you.
50 percent on what you should have withdrawn if you don't do it. They're that serious about this.
So, most people when they hit age 72 now their accountant their advisor asked, "Well, would you
like to save as much as you can on taxes this year?", well what's the answer most people go, "Well, yeah".
Well, if you don't need the money then just take out the RMD required minimum distribution.
Thinking that saves them tax. It might save them tax in a given tax year.
But I developed a software program years ago that would show people the darkness of the night so to
speak if they followed RMDs and they took out the required minimum throughout their lifetime.
Their spouse's lifetime and then as it passed down to children. It used to be children could hang on
to it for their retirement but now children who inherit IRAs and 401ks must pay the tax on those
IRAs or 401ks within 10 years and so most CPAs and tax attorneys when they get educated realize.
The worst place to leave money when you pass away is in IRAs and 401ks as it passes down to
non-spousal heirs. It could even be subject to estate tax on top of the income tax.
So, what should you be doing? Instead of taking out the minimum distribution, I would show people
by age 70 and a half and frankly for a lot of people I started at age 59 and a half.
Like the story, I told in the fifth mistake in this series. But for sure, by age 70 and a half or age 72
don't take out just a required minimum distribution. Let's take out as much as
you possibly can within your tax threshold and oft times that is far more than the RMD.
Because you want to take advantage of tax rates today because your current tax bracket is likely
the lowest bracket you will ever be in. If you're like most americans you realize that taxes in the
future will likely be higher. At the recording of this episode we're looking at President Joe Biden
with all kinds of tax increase proposals. So, why do you want to wait around for taxes to go up to
take out money? Pay the taxes now sooner than later on all kinds of things. This is why a lot of people
are selling highly appreciated assets to pay capital gain taxes at 20 percent instead of 39.6
percent where Biden wants to take them. You want to look at paying taxes now. You will want to get
the taxes over and done with then reposition the money into something that's going to be tax free
from now on. These are called strategic rollouts. Let me give you an actual story an example
of a gentleman that came to us when he was 70 and a half and he was told to leave money
in his IRAs and 401ks and take out RMDs. He was blown away by the illustration I prepared for him.
So, if this is resonating with you and it has you concerned be sure and share this video
post a comment click like but subscribe to the three-dimensional wealth channel.
Why? Because I have over 500 educational videos like this on this channel. I'm passionate about
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and so subscribe to the channel and stay with me to the end. Because I want to empower you to learn
more about how to correct these mistakes or avoid them in the first place and you can learn how to
do that by reading and studying my most recent best-selling book and I'm not trying to sell
you the book I will gift you a copy. You can click on the link below laserfund.com to claim your free
copy by contributing a nominal amount towards the shipping and handling. Let me share with you
what we did for this gentleman. He was a real estate guru and his wife had just passed away.
He was 70 and a half and so he now had to start taking out required minimum distributions
according to his advisor that's what he was told to do, take out RMDs. Now, he had
$600,000 is yet to be taxed by IRAs and 401k. That $600,000
had dipped below $360,000 twice in the previous decade.
This was from 2000 and 2010. He came to us at the end of 2010
and he goes, "That was the worst decade ever. My $600,0000 dropped down 40% twice.
It's barely back to 600,000. Because of that my advisor is recommending that I do a
4% payout. That's called the 4% rule in the financial services industry. Because
the average person who has their money in IRAs and 401ks in the market is only earning 3.49% average
according to the analysts like dalbar that study investor behavior and so 4% on
$600,000 was $24,000 a year. Now, I don't know if you're like me but
I don't save up 600 grand to have a measly 24,000 of income. But that was the RMD if we took
out just the interest-only he was allowed to take out about 24 000 a year. He has to pay tax on that.
In a 33% federal estate bracket he had to pay how much in tax?
8,000 of the 24,000. He was netting $16,000 to buy gas,
groceries, prescriptions, and golf green fees, pretty pathetic right?
You wouldn't believe how many Americans get talked into doing this. We took him and his 600,000.
We were able to secure a more predictable rate of return he averaged about 7.9 percent for the next
five years and we did a strategic rollout. Not a rollover a roll-out. We took his 600,000 and
it grew to 750,000 in the process. But he took out 150,000 each year. That's more than the RMD.
He had to pay a third of that in tax. You pull out 150,000 he pays 50,000 in tax. He's
only netting 100,000 to reposition into my favorite vehicle the tax-free laser fund.
It was smart, it hurt but he was glad he did it. He wasn't gonna save tax by taking RMDs long
story short this is what we did. In five years, he took out 150,000 a year paid a third 50,000
in tax netted 100,000. He put a 100,000 a year into my favorite vehicle which is
called the laser fund. It accumulates tax-free and he's been earning between 8% and most
years over 10% on his laser fund tax-free. Now, he paid 50,000 a year in tax over five years,
that's 250 grand. Most people go, "Whoa, you just forced him into paying the most intel", no, we
didn't take his tax bracket any higher than he already was he was already in the highest bracket.
We got the taxes over and done with 250,000 and we netted 500,000 in his laser fund portfolio.
The 500,000 is tax-free now. At 8% on 500,000 that's generating
40,000 a year of tax-free income. Most years he's earning more like 10%. What's 10%
on 500,000 50,000. How much more is 50,000 than 16,000. We more than tripled his net spendable income.
We were able to create more liquidity hence the (L) in laser. It's this pillar here safety of principle
he doesn't lose when the market goes down we're using indexing. We're getting predictable rates of
return of 8% even 10% which is more than double or triple his after tax
return in his RMDs on his IRAs and 401ks and we converted to tax-free. He was so grateful and now
when he dies the 500,000 blossoms to 1,250,000 and transfers tax-free to his children.
There's not an IRA 401k around that will do that. So, as I often say in these episodes I felt like
sam I am in green eggs and ham. You will like this you will see it when he was paying 50,000
a year in tax. But at the end when we tripled his income and now we're not only generating
this much more in income instead of this but when he dies we leave behind much more than this. Why
would you generate this much income when you could generate three times that. Why would you leave
behind this when you could leave behind this if it doesn't cost you anything. He was saying thank you
thank you sam I am I like these green eggs and ham. You can correct this mistake before it's too late.
Don't just take RMDs thinking it's going to save you tax in the long run. When you add it up you are
compounding the taxes and you can correct that mistake before it's too late. Learn the story is
in this book this white site is 200 pages with all the charts and graphs and explanations of what i'm
talking about here. You will want to investigate a laser fund or portfolio of laser funds for you.
If you learn more by stories and examples you can flip the book over and read this side. This is 100
pages 12 chapters with all kinds of stories like the ones I just shared with you. So folks,
click on the link below claim your free copy I'll pay for the book. You contribute a nominal amount
towards the shipping and handling I'll fire out a copy to you. You'll see why so many people are
eliminating the mistakes they are correcting them before it's too late and please watch the
other episodes in this series so you understand all 10 of the biggest mistakes retirees make.