Cure or prevent the tax dis-ease. Especially in retirement. In this episode,
we are going to address the question what are the biggest expenses for
retirees when they hang up their Spurs and write into the sunset of retirement.
My name is Doug Andrew and I've been a retirement planning specialist helping
people optimize all of their assets and minimize unnecessary taxes so they don't
outlive their money. And I've been doing this 45 years. I've written
several books but this is probably one of the greatest concepts that we're
going to address in this episode that people don't understand which causes
many Americans to outlive their money. And I'm sure it goes across the world.
Now, when we retire... And I don't like the word retire. If you've heard some of my
other episodes, retire means put out of use. I don't want to be put out of use. Do
you? But see, in the Industrial Revolution, when they retired worn out equipment and
in factories, put it out of use, they decided also to retire people. Put them
out of use and that's very sad. Because do you know that before the Industrial
Revolution, people didn't retire. There was no such retirement. You basically
worked in the fields as a farmer or whatever until the day you died. But all
of a sudden they said, "Nope. We're going to retire people." And we'll give you this
little pension and so forth. And we'll bring in new blood that's cheaper,
younger people. And so, the Industrial Revolution caused these large companies
to try to save money and retire people. The sad thing is that when you put
yourself out of use, your life expectancy is shorter. At the time the average
person's life expectancy in America was only 7 years. If you were a
government retiree, it was only 6 years. If you're a military retiree they felt
like they lost all meaning. And so, the life expectancy was only 5 years. So,
the whole Social Security system was designed during that period to only have
to pay out benefits for an average of 7 years. When people started living
longer and redefining themselves in retirement, they didn't have enough money
to keep paying for 20 years because now the average life expectancy for a baby
boomer couple for example, one of you will likely make it to age 96. They
didn't plan on that originally. And so, what are the 2 biggest expenses that
run up when you're older that erodes away 40, 50, 60 percent or more
of your retirement resources. We'll go through those right now. So, you probably
already have an idea. But one of the biggest expenses in retirement is health
care costs. Because we're having to spend money at that time in life when we start
to have a lot of health issues. And this is why so many couples their entire nest
eggs, their entire estate sometime gets drained dry because they need to cover
the healthcare costs or maybe they even have to end up into a long-term care
facility. And this is what then created the long-term care industry and to get
long-term care insurance so that it doesn't wipe you out. That's pretty
expensive insurance. I have my long-term care insurance incorporated into my life
insurance policy because I'm maximum fund my life insurance. I do that because
I earn and net internal rates of return of 8, 9, 10 percent cash-on-cash.
But my money is in there. A million, 2 million, 3 million generating
tax-free income. But if I get into trouble with my health, I can access
money out of that tax-free and do it much better. And I'll have a better
benefit than many times when you take out long term care insurance policies
because your self insuring. Taking the same money you would pay an insurance
company for long-term care insurance. And your self insuring by putting it into a
life insurance contract. And even many life insurance policies, if you're
diagnosed with a terminal illness, you're going to pass away likely in 2 or 3
years, if you have a million dollar policy, many insurance companies will
give you maybe up to half of that in a living benefit. "Oh, you've got a lot of
cost here. We'll give you up to 500,000 of your million-dollar
death benefit." Because they know you have enough money in there that will pay out
a million bucks at the end of the day. So, there are better ways oft times
to take care of the healthcare costs than to feel like you've got to have
this Medicare supplemental policy and this and this and this and this and this.
But that's probably one of the greatest expenses I know some retirees that tell
me their prescription drugs that have been prescribed to them gobble up a
thousand, 15 hundred, 2,000 a month out of their incomes. Or they go to
the doctor and they have to have a hip replacement or knee replacements. I know
several right now. I'm 67 and I've tried to keep my hips and my knees in good
shape. And my therapist say, "You will never need knee replacements or hip
replacements", I hope. But many of my friends have. The actual mobility is not
the same. But they spend sometimes 100 thousand, 200 thousand,
300 thousand. Or they have heart issues or maybe they have cancer
and they are trying to nip it in the bud. But health care costs go through the
roof for the elderly. What's the other big expense? Taxes. So, we'll talk about
that next. So, when we talk about the other biggest expense that erodes away
people's purchasing power, besides health care, it's taxes. And a lot of people
didn't see this one coming. I don't know their head was in the sand
and they didn't realize that it was open season as the IRS was hunting around for
their tax revenue that they were planning on getting out of your
hard-earned money that you contributed to an IRA or 401K where you agreed, like
most Americans. You know what? I want a tax break on the seed money. See if
you're a farmer and you have the choice of buying your seed in the springtime.
And you don't have to pay tax on what you pay for that for the seed. So, you got
more money to invest. And it will grow tax-deferred. But when you go to harvest
your crops in the fall of life, now you agree to pay tax. Why do people get duped
into doing that? Because they're told they will likely be in a lower bracket.
Folks, that is not true for most Americans. Most people are not in lower
tax brackets. If you're on a lower bracket, it means you didn't save very
much. Is that why you want to be in right because you don't have very much
money? If you have a respectable retirement nest egg, most people are in
as high or higher tax brackets as they ever were during their earning years
during their retirement years. Even if they have less income. I've seen it
across the board from school teachers to professional attorneys and doctors.
They're not in lower brackets. Even if they have less income. Why are they in
trouble? It's because they were going down the highway with one foot on the
gas pedal the other foot on the brake pedal. And they didn't know they were
doing that. They were putting money into a tax-deferred account thing and they
would be in a lower bracket. But they assured themselves they would be in a
lower bracket with the other foot on the brake pedal by killing their deductions.
They're paying off their mortgage so in retirement they don't have that
deduction anymore. If their business owners, a doctor a surgeon, they don't
have those deductions anymore. The kids are gone so you can't deduct them
anymore. Or if they move back home, sorry you still can't deduct them anymore. And
you're not contributing money to these IRAs and 401K so you don't have all
those deductions. You've killed them all. And now, even if you have less income,
you're paying as much or more in tax. In fact, the average school teacher pays
back every 2 and a half years every dime in taxes they saved over 30 years
on the seed money. The first 2 and a half years of retirement they pay back
every dime they saved in tax over 30 years of the contributions. And they keep
doing again every 2 and a half years. If you live 20 years after retiring as a
schoolteacher, you take 2 and a half into 20 and you're going to be paying back
at least 8 times the taxes. Many times you live 25 years, you can't
believe how many people pay 8, 12, 15 times the taxes back that they saved on
all the years they contributed money. And they just do it again and again. The
longer you live, the more you're going to pay. Isn't that sad? Most people don't
think about that. So, the second biggest expense that
erodes away people's purchasing power is the taxes that they pay on the money
that they are withdrawing out of their IRAs and 401Ks. It's also the medical
cost. Those are the 2 Biggies. Now, there's other expenses. But you can't
believe how many people they sort of see their nest egg, "Ooh, we got a
million-dollar account over here. It's tax deferred IRA. What used to be our 401K
but we rolled it over to continue to save tax." Oh, really?
A million bucks. I don't care if you were earning 10%. You pull out
100,000 and they see that they are only netting 70,000 after-tax. And then they
have all their health care costs, that gobble up another 20 or 30
thousand a year that they didn't see coming. You're pulling out
100,000 and only netting 30 or 40 thousand to live on. But do you
know the sad reality? Most people aren't earning 10%. The average person
with money in an IRA or 401K in the market is only earning 3 and a half.
This is what precipitated the 4% rule in the financial services
industry. That means you can only pull out 4%. If you pull out more than that,
you have to sign a waiver that you will not sue your advisor for running out of
money, outliving your money. So, I started out
this episode talking about how to cure or prevent the tax dis-ease.
When our bodies are not at ease at a cellular level,
that's called dis-ease, disease. Well, I've helped thousands of people cure their
tax dis-ease because in retirement, they were totally not at ease. They were
stressed out because of the amount of taxes that we were eroding away. It's like
a cancer in their accounts. And so, we had to cure that. Now, many of them said, "I
wish I would have met you 30 years ago. And prevented it." Yeah, so do I. But that
time has passed and so we had to cure the tax dis-ease. And I usually would do
that by getting the money out of there IRAs or 401K sooner than later. Get the
taxes over and done with in today's lower rates. And then
reposition the money even. If they didn't need the money, I said get it out. Get the
taxes over with. Reposition it into something that's going to be tax-free
from now on. And when you ultimately pass away, that
money will blossom double triple or more and transfer income tax free. By the way,
it will reimburse you any taxes you paid. How do you do that? In a Laser Fund. I
want you to click on this episode and watch that. And then I would invite you
to take advantage of the offer in this episode to get a free copy of my most
recent best-selling book. It's called the laser fund. It's actually 2 books in
one. One is comprised of 12 chapters with 62 stories. This one is all the
charts and graphs and explanations. Most people like to read both. I would love to
send one out to you free. You just pay $5.95 shipping and handling
and you'll get all kinds of epiphanies on why this is so much better. And it
will cure your tax dis-ease also.