Stephanie McCullough (00:06):

Welcome to Take Back Retirement, the show for women 50 and better, facing a financial future on their own. I’m Stephanie McCullough, and along with my fellow financial planner, Kevin Gaines, we’re going to tackle the myths and mysteries of “Retirement,” so you can make wise decisions toward a sustainable financial future.

Stephanie McCullough (00:25):

Through conversations and interviews, you’ll get the information and motivation you need, to move forward with confidence. And we’ll be sure to have some fun along the way. We’re so glad you’re here. Let’s dive in. What do a woman entrepreneur in her 40s, an executive in his 50s, a tech worker in her 60s and a woman nearing the end of her life in her 80s all have in common?

Kevin Gaines (00:54):

Ooh, I know! They’re all this week’s episode of Take Back Retirement.

Stephanie McCullough (01:04):

Coming to you semi-live from the beautiful Westlakes Office Park in suburban Philadelphia, this is Stephanie McCullough and Kevin Gaines of Sofia Financial and American Financial Management Group. Say hello, Kevin.

Kevin Gaines (01:15):

Hello, Kevin.

Stephanie McCullough (01:17):

One of the things that I think we struggle with in talking to people about what we do is explaining the value of financial planning. It’s kind of smushy and intangible. People tend to think that what we do is just the investment management part.

Kevin Gaines (01:32):

Yeah. When I’m talking with somebody, whether it’s social occasion or networking group, they drive the conversation to investments, and it’s hard to explain to people what exactly we do. It’s not picking hot stock du jour. It’s about helping you with your life and making the decisions that are going to make you happy.

Stephanie McCullough (01:59):

Yeah. We really focus on talking with our clients about all the money stuff, which includes things like cash flow, all the dollars in, all the dollars out, where to pull cash, if that might be needed.

Kevin Gaines (02:14):

Understanding your benefits, whether it’s employee benefits or if you’re approaching that age, social security, Medicare. Balancing your today versus your tomorrow, both are important.

Stephanie McCullough (02:28):

We definitely talk about taxes. Being efficient about taxes. Taxes are inevitable, yes, let’s be smart about them.

Kevin Gaines (02:35):

Yeah.

Stephanie McCullough (02:35):

Then there’s a lot of conversation about balancing taking care of ourselves and taking care of others. In the end money is for something and the most basic thing it should be for is covering our basic needs. A lot of the clients that I work with, a lot of women are responsible for other people other than themselves, and there’s financial impacts to that too.

Kevin Gaines (02:56):

Right. Then probably the last and the hardest one sometimes to get across this, just to be a friend. We’re here. Stephanie, you’re always saying that money is a scary conversation. People are very hesitant to talk about it. Hey, here’s somebody who knows your life or wants to help you and talk about money.

Stephanie McCullough (03:20):

Yeah. Money is still considered a taboo topic. It’s impolite, and especially my women who are on their own, they’ve got no one to talk to about this stuff. I’m that person. I want to be the person that my clients call when they first start feeling stress about money things.

Kevin Gaines (03:40):

At the end of the day, everybody has their own situation, their own details, their own little things that make the situation a one-off. Yes, you may have same income as other people or same goals and want to spend your money the same way as other people, but the combination, very rare that you come across somebody in the exact same situation you have both in terms of numbers and in terms of your psychology, I guess, you know?

Stephanie McCullough (04:15):

Yeah.

Kevin Gaines (04:15):

What makes you happy? What worries you? And so on.

Stephanie McCullough (04:21):

Yeah. I think there’s definitely a science to what we do. There are spreadsheets and software programs and calculators and numbers, but there’s a lot of art to it as well, which kind of comes into the softer skills and the listening and the really getting to understand people’s motivations and worries, like you said. We’re going to share a couple of different situations that have come up recently.

Stephanie McCullough (04:44):

Our objective is not to say everyone should follow these tips. Our objective is really to explain and try to illustrate for you how unique each situation is.

Kevin Gaines (04:57):

Yeah. Quite frankly, if you say, “Oh, that’s a good idea. I want to try it.” Probably not a good idea because these are very specific situations we’re talking about. Like you just said, Stephanie, that’s what we’re trying to illustrate here, is that everybody has a unique particular situation that what works for them’s probably not going to work for 90, 95, 99% of the people out there, but maybe a variation could. This is why we want to have these conversations.

Stephanie McCullough (05:29):

Our first example is a woman entrepreneur. This is a woman, she’s in her 40s and she happens to be undercharging for her services. I’m going to tell you from my personal experience and also from the research out there, this happens a lot. When I say personal experience, I mean, not only my clients, but myself. Yes, we women, we tend to undercharge. We have this discomfort with asking for what we’re worth.

Stephanie McCullough (06:00):

In this particular situation, this woman was making money. She was making a decent income. She was covering the family bills, but she wasn’t making enough to save, not to put towards an emergency fund or to put money towards retirement. We were trying to have these kind of delicate conversations, trying to get at the, what’s at the root of that unwillingness to charge more money? Some of it, and I’ve seen this again and again, there’s an element of feeling a little bit selfish.

Stephanie McCullough (06:33):

Like, “Oh, I don’t need more and that person also has needs, so it’s selfish of me to ask for more money.” My pushback on that is really understanding your value that you’re bringing to that client or that other person. You’re bringing a huge value and you deserve to be recognized for that. There’s also an interesting psychology about the pricing of things. I think we’ve all seen this. A bottle of wine that’s 15 bucks versus a bottle of wine that’s 75 bucks. We believe that the $75 bottle of wine is going to be better.

Stephanie McCullough (07:09):

I heard years ago a consultant tell me, she was working with a local gift shop nearby. It was a woman-owned gift shop and the consultant came in. The issue was that things weren’t selling and the consultant’s advice was double the price of everything. The woman who owned the shop was like, “Ugh, I couldn’t possibly do that. Oh my gosh.” Finally, she got her to do it and things sold. There’s a little-

Kevin Gaines (07:32):

That’s insane.

Stephanie McCullough (07:33):

Right? There’s a little bit of that psychology going on there too. In this case, my client, she needs the revenue. She’s got a young child, she’s got a spouse to support. She needs that, not just for herself, but for the other people in her life, and also she deserves it. It’s having that kind of conversation. Actually, Kevin, it makes me think back to our conversation with Ed Combs in episode 43.

Kevin Gaines (08:01):

Oh, yeah.

Stephanie McCullough (08:03):

It’s not necessarily just about learning that intellectually, but somehow what I’m working with this client on now is how to learn that experientially. How can I help her really believe that that’s true and that not only can she charge more, but she kind of needs to?

Kevin Gaines (08:21):

Well, and we see it in this profession as well that we may try to increase services or the price that may get charged, I guess, what would you say? Unless you believe that you deserve that extra money, you get some sort of pushback and then you say, “Oh, okay, well, I’ll just do the lower price.” Because in your soul it’s like, “Yeah, I’m overpricing.” And that gets back to some of the stuff Ed was talking about there.

Kevin Gaines (08:47):

And I have that situation too, but at least I can take comfort in knowing you can never charge too much for perfection. Yeah. I know I’m always going to be underpricing. Yeah. Dear compliance officer, that was a joke. I am not claiming or putting myself out as being a perfect financial planner. End of disclaimer. Another situation we’re going to call him Mr. Fuzzy, don’t want to give away his real name, but he claims to be our number one fan, our biggest fan.

Kevin Gaines (09:21):

However, recently having seen Misery… I’m not sure if I’m really comfortable with him saying that, however… And yes, we’ll put some sort of link out there so people can get that joke. Anyway, Mr. Fuzzy situation. Single, doesn’t have any kids, so it’s only him he has to worry about. In his mid-50s, getting frustrated at work. Got skipped over for a promotion, wasn’t feeling appreciated and like we’re saying, unique situations because no one else in the world ever feels like that.

Kevin Gaines (09:57):

But he was in line for another promotion, and he’s been working with me for a few years and he just said, “Kevin, what if I just get frustrated of all of this and everything and I just want to say, ‘F you, I’m going off. I’m going to retire early and I don’t want to have to work if I don’t need to.’ Can I do it?” Well, the short answer was, yes, you’ve got plenty of assets. You’ve been really good about saving and you’ve been really smart about getting into the tax deferred accounts, so it’s all sitting there.

Kevin Gaines (10:34):

Unfortunately, he was a little too smart that nearly all of his assets were in retirement accounts. Big thing about retirement accounts, for the most part, you really can’t take that money until you’re 59 and a half without paying a penalty. He wasn’t 59 and a half, so the question was, you walk out, you tell everybody, “Take this job and shove it.” What do I do until I’m 59 and a half? We talked about a couple things.

Kevin Gaines (11:07):

It’s like, well, you could take some of the money and pay the 10% penalty. That’s not really a good idea. You do have a lot of money in Roth. You can take the contribution dollars out of your Roth, that does not have a penalty or tax due on it, which, okay, so that’s workable idea, but Roths are really flexible. They’re really good to use to control your cash flows or at least the taxes-

Stephanie McCullough (11:38):

Later on.

Kevin Gaines (11:38):

… later on. Do we have a better idea? That just randomly thinking, well, what about this? What if we take a 401(k) loan, just pull 50,000 out, which is the most you’re allowed to borrow against your 401(k), unless you’re buying a house, but just regular loan, $50,000. Put it in a savings account. You don’t have any other concerns about saving for college or supporting your spouse or anything along those lines. You can take the hit on your take-home pay a little bit.

Kevin Gaines (12:19):

Worse comes to worse, you can dip into this savings to cover a particular bad month, if there was a bowling tournament or a particularly expensive casino excursion, shall we say? But at the same time, you still have this money so that when you do go Johnny Paycheck and walk out, you have some money you can live off for a couple of years without having to worry about paying the penalties.

Kevin Gaines (12:52):

Well, the one problem with 401(k) loans typically is when you quit your job, you have to pay back the loan immediately. Again, this came to a point why we were talking about this 401(k) loan, his particular company’s plan said, as long as you continue to make the monthly payments, you don’t have to pay back the loan immediately when you quit, as long as you’re still in the plan. Meaning you don’t take all your 401(k) money and roll it over to an IRA or something like that.

Kevin Gaines (13:30):

As long as you still have assets in the plan and you’re making the loan payments, they’re not going to terminate the loan. Well, that gives him flexibility to say, “Okay. Fine, I’ve quit. I’ve got the money set aside. I can pay off the loan month by month if I want to, or even all at once.” But hopefully he’s had at least a couple of months of working, paying down the loan out of his income so that he’ll still have something in savings that he can live off of without having to touch 10% penalty money or the Roth contributions.

Kevin Gaines (14:11):

However, as it turns out, he ended up getting the promotion and he’s happy, or at least happy enough that he is not quitting yet. But he still now has this non-retirement savings that he can tap for anything without having to stop saving or making other type of sacrifices. Yeah. It was a weird situation.

Kevin Gaines (14:48):

It just kismet or just the stars lined up that this made sense in a situation that normally doesn’t. 401(k) loans, I think this is the only time I’ve ever told a client, “That’s a great idea.”

Stephanie McCullough (15:08):

But that was the details. You need to read the fine print of that summary plan description or the actual plan document. Even though the summary plan description of these plans are supposed to be written in plain English it’s not always the easiest thing to understand. That’s the kind of thing, like when we talk about helping you understand your employee benefits, we want to read those descriptions for you so we help understand what all the choices could be.

Stephanie McCullough (15:32):

It’s kind of like you’re telling us what you want to do, and we’re going to try to help you figure out how to get there using the various financial vehicles that you’ve got available.

Kevin Gaines (15:39):

Yeah. It’s one of my favorite analogies, but the one scene in Apollo 13, this is what we have to work with to make this case, air filter to save the spaceship, let’s figure it out. That’s what we like to do. Stephanie, you have a situation where they didn’t go back to work.

Stephanie McCullough (16:05):

That’s right. I’ve got a client. She is in her early 60s, but she’s not quite to the age where she thought she was going to retire, and her job came to an end for various reasons and I’m not going to give anything that would be identifying about this person. The bigger conversation we’re having is, does she need to go back to work? Spoiler alert, she does not, but I haven’t yet convinced her of that because she’s a saver.

Stephanie McCullough (16:32):

She has worked very hard for her whole career and put aside a lot of money and it’s very uncomfortable for her to see those dollars going down. Market volatility, dollars going down is uncomfortable, but also spending money. It came out in this broader conversation that she would really like to buy an e-bike. One of those electric bikes that has a little motor on it that gives you a boost to get either up a hill or a farther distance.

Stephanie McCullough (17:01):

She really wants one. She’s researched them. She knows exactly how it would enhance her life, but she doesn’t think she can afford it. That’s kind of the conversation that we’re having. One of the things Kevin and I do with our clients is financial projections, which really means this process where we’re trying to guess how much money a client is going to need and for how long. Then we plug it into our software programs.

Stephanie McCullough (17:32):

What we’re trying to do is attempt to get closer to an answer to that eternal question, do I have enough? What I’ve learned in doing these projections for, oh, 20 years now, is that it’s the recurring expenses that get you, not the one-timers so much. A one-time big expense can feel distressing. For this particular client, seeing maybe $5,000 go out the door of her bank account can cause her a lot of angst, but really recurring expenses are more sneaky.

Stephanie McCullough (18:06):

They can add up super quickly. You can easily add say $5,000 per year to your ongoing cost of living by adding a few monthly expenses and maybe a splurge here and there. When we do these projections, 5,000 out the door, one single time has very little impact on a 60-year-old client who might live into her 90s.

Kevin Gaines (18:30):

You think of it this way, Stephanie, it’s like a death by a thousand cuts. That 5,000 is a big headline number to see the drop. You don’t see the three $400 each month slowly chipping away, eroding at what’s going on, but over time, all of a sudden 5,000 is nothing compared to whatever that monthly jump.

Stephanie McCullough (18:55):

Yeah. The recurring expenses. If we are looking at 5,000 extra in living expenses each year of your life compounded by inflation, that’s going to have a much bigger impact. Clients are often surprised when we run the numbers and look at the results. What might feel like a big expense, if it’s just one time, it’s not that big a deal. It’s easier for the plan as we call it to swallow that expense.

Stephanie McCullough (19:26):

Back to my client, her e-bike is more than doable, but also it comes back to, I know this client, we’ve been working together for a lot of years. I know she’s quite frugal. I am not worried about her sneaking in those extra indulgences and splurges to where we’re adding 5,000 a year to her living expenses. That’s not her. At the same time, I’m her accountability partner. I’m her second set of eyes, so if she does start spending more, we’re going to have that conversation.

Kevin Gaines (19:56):

It’s a real danger, and again, I think we’ve said this in a previous episode, we’ve pretty much made all the mistakes most of our clients are going to make. I know I’ve done this one before justify an expense, “Oh, it’s just a one-off.” Then all of a sudden next month, another one-off comes up and then the next month and then the next month. Yeah. We’re not here to say no to what you want to do, but at the same time, we’re going to point out when you’re lying to yourself.

Stephanie McCullough (20:28):

All right, Kevin, you have another example for us.

Kevin Gaines (20:30):

Yeah. Our final example, no pun intended, is the actual term that’s used is deathbed Roth conversion. Learned about this several years ago at an IRA conference. It’s like, yeah, it’s good to know, but I really don’t see this situation coming up because most people something is going to be a reason why you wouldn’t want to do this. Year or two ago, had a client. She’s in her 80s and been working with her two kids to help manage how everything was going and the money… So they were really involved in the conversations.

Kevin Gaines (21:15):

Then towards the end of the year, got the call that we knew was coming at some point. The one kid said, “Yeah, I just got done talking with hospice earlier today. She’s not going to go in the next day or two, but in the next couple of months, yeah, the end is near.” Now, all along we have been working hand in hand with her accountant and the kids were in all these conversations so everybody kind of knew where everything was.

Kevin Gaines (21:52):

It wasn’t hard to say, “Let’s have a conversation about doing a Roth conversion.” We had been doing Roth conversions for the last couple of years. Sit down with the accountant and say, “What does her tax situation look like this year? How much could we convert without moving into a higher tax bracket, for example?” Or something like that.

Stephanie McCullough (22:15):

Just as a little reminder, so what we’re talking about is with a regular IRA or retirement account, you get a tax deduction when you put the money in, but when you take your money out, presumably in retirement, you’re going to pay income tax. Whereas a Roth is the flip side, thanks to Senator Roth from Delaware, just down the street from us, the Roth IRA, you do not get a tax deduction upfront, but you don’t pay tax when you take it out.

Stephanie McCullough (22:41):

In effect, you’re paying tax on the front end. A Roth conversion is moving from the traditional IRA to a Roth IRA, and that means in the year you do it, you have to pay income tax on however many dollars you convert from traditional to Roth.

Kevin Gaines (22:57):

That’s a much more succinct description than I normally give, Stephanie.

Stephanie McCullough (23:02):

I try.

Kevin Gaines (23:04):

Oh, there are so many reasons I appreciate working with you. This is a big one. Yeah. What we were dealing with here was, so we had been doing Roth conversions. We were worried that when she passed, there could be a federal estate tax due. Maybe, maybe not. Congress is always talking about fiddling with tax rates, for example, and when we were having this particular conversation, there was a lot of conversation and rumors of what could be happening out of D.C..

Kevin Gaines (23:40):

Are they increasing tax rates? Are they going to lower the estate tax exclusion? Real quick, the federal inheritance tax, you get a certain amount that will not be taxed. I think for this year, it’s like 12, 12 and a half million or something like that. Anything over and above that, you’re going to pay about 40% on all of those dollars.

Stephanie McCullough (24:06):

Please refer back to episode 33 on estate tax, and episode 20 on Roth IRAs.

Kevin Gaines (24:12):

See, it all ties together these episodes. I love it. That was a concern. It’s like, well, okay. Then for the kids, their peak earning years, their height of their profession and they’re already in high, if not the highest tax brackets. If they inherit these IRAs, they’re going to have to pay income tax on the distributions. Now remember, starting in 2020, if you’re an adult child and you inherit an IRA, you have to empty that account in 10 years, so it-

Stephanie McCullough (24:52):

Which means pay tax on all the money within 10 years.

Kevin Gaines (24:55):

In a very small window, and we’re talking about significant IRAs. This was not $2/300,000. This was a hell of a lot more. It’s like, well, that’s going to put us all in the highest tax brackets for maybe the next 10 years, what do we do? Again this idea of a Roth conversion emerges. Now, doing big Roth conversions even over two years is going to involve a lot of tax dollars getting paid. Unavoidable. Somebody’s paying those dollars.

Kevin Gaines (25:33):

But talking about it in this situation was the tax bill that mom would get from doing these conversions goes against her estate. Now the estate’s a little bit smaller, where that’s important is if you’re just over that line for having to pay 40% to the feds and if you’re in a state that has local or if your state has inheritance tax as well, this comes into play, this reduces that estate. In a way, you can think of it as a… I don’t know want to call it a deduction per se, but it does reduce the estate.

Stephanie McCullough (26:14):

Reduction.

Kevin Gaines (26:15):

Reduction. There we go. Either tax dollars will be less that you have to pay, or you don’t have to pay a tax at all even if it drops you below that limit, and it removes the uncertainty of what tax rates are going to be in the future. If there were conversations about cutting taxes, different conversation, but here we have very real concerns that tax rates are going to go up and mom won’t be around to pay those rates, but the kids are going to be, if that comes into being.

Kevin Gaines (26:53):

In talking, weighing the pros and cons, we said, “You know what? Let’s do it. Let’s just do the Roth conversion, pay the tax, get it done, and that way we don’t have to worry about it.”

Stephanie McCullough (27:07):

The kids will inherit the IRA. They won’t owe any dollars when they have to take that out. Kevin, there was another factor with this situation to do with the calendar, right?

Kevin Gaines (27:17):

Yeah. We kind of got… I don’t want to say the word lucky, but it was fortuitous that we realized we had to do this towards the end of the year or pretty much at the end of the year that we had the luxury of spreading the conversion over two calendar years. This involved a lot of work on the part of the accountant to sit there and run all the what ifs, so if we convert this much for this year and then that’ll leave us X amount in the following year.

Kevin Gaines (27:51):

Just playing with the dollar amounts to figure out how we are going to reduce the total dollars paid to be as little as possible. It was going to be a lot, but hey, every dollar that we could save was going to be worth doing it. Again, like I said, it was fortuitous that we worked together. We had this team, we were all on the same page. All of our ships were going in the same direction for the conversation, so we could just progress.

Kevin Gaines (28:21):

Like I said, it’s a unique situation, but the big underlying theme is having everybody involved in the conversation.

Stephanie McCullough (28:30):

Yeah. You’d already been talking to the accountants, so it wasn’t a new conversation. They were aware. They liked the strategy as well.

Kevin Gaines (28:37):

Yes.

Stephanie McCullough (28:37):

They had the big picture in mind. It can be painful to write a big check to the IRS, but when you kind of zoom out and see the bigger picture, the money’s going to the IRS at some point. How do we be strategic, and totally within the rules, about making sure we get as close as possible to this family’s goals?

Kevin Gaines (29:01):

Yeah. How do we preserve as much money as possible for everybody? The reason they refer to it as deathbed is because you do it as you’re about to die. Here’s the catch, the moment you stop breathing, you can no longer do the Roth conversion, so we had to get everything done in the very beginning of January, because we didn’t know when that end was going to be, but the moment it happened, we were going to be stuck with however we were.

Kevin Gaines (29:36):

Yeah, you can’t do it a week or two later and say, “Oh, but he was alive for this year or this month or something.” No. Once it happens, it happens.

Stephanie McCullough (29:48):

I used to work for the federal government in a past life and the rules can be so arcane and detailed and seemingly silly, but they’re the rules, and especially when you’re getting in with the tax rules. You don’t cross the tax rules. Knowing them, and they are voluminous, and we don’t pretend we have them all in our heads, but Kevin’s got a lot of them in his head and then we’ve got resources to look them up and find them. That can be a benefit, having that knowledge and knowing how to work the system.

Kevin Gaines (30:20):

Yeah. The only thing more dangerous than getting between me and the dinner table is getting between Uncle Sam and tax dollars.

Stephanie McCullough (30:30):

Yeah. Those were our stories we wanted to share with you. Just a couple specific situations. We certainly have more. The details and psychology of these four examples are unique. Our point is that everyone has details and psychology. Everyone has their own situation, which is why we believe so strongly in the value of real financial planning, which means talking about all of it.

Stephanie McCullough (31:00):

We want to talk about all of it. In each of these examples, if we had only talked about how these clients were invested, we would’ve missed these conversations and these opportunities to help.

Kevin Gaines (31:11):

Life-changing events.

Stephanie McCullough (31:14):

Yeah.

Kevin Gaines (31:14):

We’re talking about their life could be in an entirely different path. The thing to understand is, we’re saying these particular situations are unique. This is not that clickbait headline you find on the internet of top five things to do with your retirement dollars today or 10 things you must do to guarantee peace, love, and happiness, or whatever.

Kevin Gaines (31:41):

But understanding the rules, working with people who can understand the rules can help you figure out, hey, this is my situation, what can’t I do?

Stephanie McCullough (31:53):

And creating a safe place to have the conversations about the emotions around money, because really that’s what, in my opinion, so much of our industry overlooks, and it really is what drives us.

Kevin Gaines (32:06):

Right. That’s the difference between us and one of those online calculators that you plug in three or four things and say, “Hey, here you go. Yeah. Yeah. Retirement’s good. Retirement’s bad.” There’s a lot of what ifs, fears, joys that we want to deal with.

Stephanie McCullough (32:23):

Or those so-called gurus who dispense one-size-fits-all advice. We don’t believe in that either.

Kevin Gaines (32:30):

No, because it never is. Rarely ever is.

Stephanie McCullough (32:33):

Exactly. Thanks so much for being with us. We’ll talk to you next time. It’s goodbye from me.

Kevin Gaines (32:39):

And it’s goodbye from her.

Stephanie McCullough (32:43)

Be sure to subscribe to the show and please share it with your friends. Show notes and more information available at takebackretirement.com. Huge thanks for the original music by the one and only, Raymond Loewy through New Math in New York. See you next time.

Disclaimer (32:58)

Investment advice offered through private advisor group, LLC, a registered investment advisor. Private advisor group, American Financial Management Group, and Sofia Financial are separate entities. The opinions voiced in this material, are for general information only and are not intended to provide specific advice, or recommendations for any individual security. To determine which investments may be appropriate for you, consult your financial advisor, prior to investing. This information is not intended to be substitute for individualized tax advice. Please consult your tax advisor regarding your specific situation.