8.30.22: Audio automatically transcribed by Sonix

8.30.22: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Producer:
Any examples used are for illustrative purposes only, and do not take into account your particular investment objectives, financial situation or needs, and may not be suitable for all investors. It is not intended to predict the performance of any specific investment and is not a solicitation or recommendation of any investment strategy.

Producer:
Welcome to Money Matters with Mike with your host, Mike Zaino. Get set for a full hour of financial information and economic news affecting your bottom line. Mike works hard each day to educate Americans like you on how to reach the financial freedom they've worked so hard for. And he can help you, too. So now let's start the show. Here's Mike Zeno.

Mike Zaino:
What's up? What's up? What's up? It's Mike Zeno coming to you live from Fort Mill, South Carolina. Happy Saturday, people. What a great day to be alive in these United States of America. Today, we are absolutely bringing the heat again. The whole goal of this show is to arm you with useful information and to give you plenty of meat on the bone to chew on each and every week that you can apply to your personal situations. I'm excited this week to continue our series on Smart Retirement Planning, and once again today I have the distinct honor and privilege of being joined by the one, the only, Mr. Matt McClure. Matt, how are you doing today?

Producer:
I'm doing great, Mike. One of these days, I'm going to actually be able to live up to the introduction that you give me every week. I feel like I'm being oversold or something, you know?

Mike Zaino:
Not at all, my man. Not at all.

Producer:
Well, thank you. I do appreciate it. And it's my honor and my privilege to be here and be a part of the show as well. Of course, folks, this is money matters with Mike. I'm not Mike. I'm Matt. I'm just kind of here along for the ride and and to add some color and hopefully fun to the proceedings here today. But we are so grateful that you have joined us out there in listener land. As we like to say, money matters with Mike is the website. You can go there a free, absolutely free consultation with Mike Zeno about your financial situation. You can go to money matters with Mike dot com for that or you can give Mike call 700 45601573. That's 7045601573. And I should also mention, Mike, our listeners can get the show. They don't just have to, you know, happen to to catch us on on the air. They can go any time to anywhere they get their podcasts, Apple Podcasts, they can go to iHeart, they can go to the big ones there and get us as a podcast. Just search. Money Matters with Mike. Subscribe to us. Rate the show. Absolutely. Love hearing from our listeners. And as you said, Mike, you know, we are going to continue our Smart Retirement Plan series today. We've got a couple of really fun topics, I should say. Everybody's favorite one, taxes. We're going to talk about that again. But but we're going to make we're going to make taxes kind of fun if they can be fun, because we're going to tell people how to minimize their taxes in retirement. We're also going to talk about some rules to follow which people are thinking, oh, I got to follow more rules. But these are actually good ones. They're ones that can help you.

Mike Zaino:
Yeah, they are. Because, I mean, tax tax evasion is illegal. That's what they put Al Capone away for. But tax avoidance is perfectly legal. And there are ways that you can absolutely do that 100%.

Producer:
And we're going to tell you more about that coming up. And also about some smart income income streams in retirement, which are very, very important. So, Mike, let's move along with the show here. And, you know, it's I think every week we pretty much say, oh, it's crazy times because the economy has been so crazy and there have been positive signs and a lot of negative signs, too many negative signs that we don't want to see with inflation. They did release a report last week, I believe, where the economy didn't do quite as badly in the previous quarter as the initial estimate of economic growth still was negative in the most recent quarter, but wasn't quite as bad as they thought. So. So it's like a tiny little silver lining around a dark cloud there.

Mike Zaino:
Yeah, many.

Producer:
Victory. Exactly. Hey, you got to take them where you can get them sometimes. You know.

Mike Zaino:
It doesn't suck as bad, right?

Producer:
Exactly. That's 100% the dynamic that we're experiencing right now. But and it's kind of the same thing with gas prices. You know, they've been coming down, I mean, significantly for a long time. But again, it's all a matter of perspective here. You know, and we have been just, you know, kind of conditioned. Yeah. To to be used to paying more than what we really should or have to. And yeah, it's not a not an enjoyable thing to still have to pay as much as we're paying. Although when you, you know, go back in time and look a couple of months ago. We're paying a lot more. So at least there's that.

Mike Zaino:
Yeah, at least there's that. But, Matt, you know, I guess what I don't understand is if you go back a decade where the price of oil was the same basically as it is today, we were paying a lot less than what we're paying now. So. So somebody's getting fat off our money.

Producer:
Yeah. Yeah, exactly. It's it's all those OPEC guys probably overseas. They're just like, they've got. They're going, hee hee hee hee hee. You know, in their in their palaces on high somewhere. But yeah, no, it's it's true. It's just been a really I think the technical term for it is weird time in the economy.

Mike Zaino:
Very technical term.

Producer:
Yes, very technical term. But yeah. So we, of course continue to follow it all. And the good thing about talking to somebody like Mike Zeno folks, is he can help you navigate all the ups and downs of the economy because because things are going to change again inevitably.

Mike Zaino:
Yeah, that's one thing that remains constant is change.

Producer:
Yeah, absolutely. 100%. And so, folks, a free consultation might be exactly what you need to assess your particular situation. And again, you can go to money matters with Mike Dotcom for more information and to sign up, actually schedule a consultation right there.

Producer:
And now for some financial wisdom, it's time for the Quote of the Week.

Producer:
Well, this week's words of financial wisdom come from, I think, kind of an unexpected source a little bit, man. You may have heard of named P.T. Barnum, who today's entertainment provided by Mike Zeno. But he's known, of course, obviously, for being the guy who started the Barnum and Bailey Circus. But he was also a lot more than that. He was one of America's first millionaires. He was an author, a philanthropist, a politician, for goodness sake. He did a lot in his life. And so he had some financial wisdom to share that that he learned during that lifetime. And so P.T. Barnum is our Quote of the week. And it is money is a terrible master, but an excellent servant. That's pretty true.

Mike Zaino:
It. It is true. You know, if all you do is work for money, it essentially becomes your master. But if you're able to put your money to work for you, to pay for life's necessities, purchasing assets and other investment, that money will in turn serve you. And so you need to strive to be the master of your own destiny by making sure that you're the master of your money. And that we've all heard that people say money is the root of all evil, that money can't buy you happiness, etc., etc., etc. And most of the time that's being said by people without money. And true, while money alone cannot buy you happiness, what it does is provide you with options. And I'm one that can tell you from personal experience. I've been broke before and I now make a decent living and I have options. And I can assure you that having options are better than not having options. And when you learn to be good with money, it can help you get out of debt. It can build an emergency fund, it can help you create a comfortable retirement and allow you to take vacations and enjoy life along the way. But in order to move beyond simply just exchanging your time for money or as my daughter puts it in one of her songs, she's an artist grinding her bones to dust for pennies. You have to be able to put your money to work for you. And what it takes is having a plan and having a lot of discipline.

Producer:
Yeah, it's about controlling it or else it will control you. Right. And you're talking about being poor. I mean, I remember several years back now, I was at a point in my life when I was I was in my early twenties, I think, at the time, and I moved out on my own, you know, and I thought that I knew everything in the world and all that. And I got to the point where.

Mike Zaino:
All bullet.

Producer:
Proof. Oh yeah, 100%. And it just thought I knew everything about everything. And Lord, if I if I knew what I if I actually knew what I thought I knew, I'd have been a lot better shape.

Mike Zaino:
But I have that t shirt, by the way.

Producer:
Oh, yeah, I love that.

Mike Zaino:
I've been there, done.

Producer:
That, been there, done that, got the t shirt. And that's that's the thing. Like I was, I just thought that I knew it all. But I anyway, all that to say, I was at a point one time where I remember literally going around the house, finding the change that was under couch cushions and all that, just to be able to go out and buy like 15 bucks worth of groceries maybe. And it was, you know, and that was not fun.

Mike Zaino:
In 1994, that's how I furnished my first apartment. My my wife and I got married in 94 and I furnished my apartment with change. I used to save all of my change and throw it into an empty five gallon water bottle every day. When I came home, back when we used to use a lot of cash and people use, I'd get changed every day. I'd throw it in there and we literally furnished our entire first apartment with the change. So yeah, I can definitely relate to that.

Producer:
That, that's amazing how far we have both come now and you especially knowing what money can do for you. If, as we're saying here, you make it work for you rather than the other way around.

Mike Zaino:
Yeah, for sure. You know, so in in today's Meat on the Bone segment, I'm going to give you a fruit, a few simple things that you're able to do to start having money working for you instead of you being a slave to it.

Producer:
Hungry for something that you on here is some meat on the bone.

Mike Zaino:
The first thing that you must absolutely do is to know where every single penny is going. And you can do this by creating a budget. And I know the word budget can sometimes just make people cringe. It seems really restrictive, but if you understand what you're doing and why you're doing it, it can actually be pretty liberating. I encourage everyone to track their spending every single penny for at least 30 days. And I do mean every penny because if you don't know where your money is going, you'll never be able to manage it. After doing that, I think you will be amazed and I mean amazed at how much you're spending, how much excess dollars are just leaving your purse or your pocketbook that you could actually be saving. And I'll give you an example. I actually crunched numbers on this kind of stuff. If you are somebody who is used to drinking a cup of Starbucks every single day and you spend somewhere around $5 for that cup, had you saved that money instead in 20 years, you'd have over $49,000. In 30 years you'd have over $87,000, and in 40 years you'd have almost $138,000. And that's assuming that you only got an annual interest return of 3% compounded monthly. What do you think of that, Matt?

Producer:
I am regretting all of my trips to get coffee at this very moment. Like, that's that's crazy when you think about it. When you put it in that perspective, it's like, Wow. Yeah, that adds up quickly.

Mike Zaino:
It definitely adds up. Maybe you're somebody that doesn't like coffee, but you go out to eat every day for lunch during your workweek. So another way to be to look at it would be if you spent $10 a day, which is very easy to do these days on lunch. Right. In 20 years, you'd have almost 65,000. Wow. In 30 years you'd have over 116,000. And in 40 years you'd have almost 184,000. So you can see that even relatively small amounts make a huge difference. And if you start with cutting out some simple things, all right, and instead contribute to savings or investments, some small contributions can add up to really, really big numbers over time.

Producer:
Yeah. And you know what? I think that that's what brings to my mind. People think that saving for retirement or saving for anything, investing for retirement, putting money into an account of some sort or a plan of some sort is such a daunting task. But when you put it in terms like that, where it's just, you know, five, ten bucks a day, which you would go to Starbucks, as you said, or go go out and get lunch, that it's like, oh, it can actually be manageable. And especially when you look at it over time, how much it can accumulate. And then if you've got it in a good plan and you're and you're gaining interest on that, that's accruing over time, then you're really ahead, you're even farther ahead. So that that's fantastic.

Mike Zaino:
And that example was 3% compounded monthly. So we're not even talking about hitting home runs with double digit returns. That's just a 3% compounded monthly return and makes huge pays huge dividends in the long run. Right. So so once you know where every penny is going, you can start with some goals for what you want to do with your money. And I would suggest that you write them down and hold yourself accountable to them. If you're married or you have a spouse or a partner, let them know what those goals are so that they can hold you to it. If you're single, widowed, or divorced, you've got a best friend, you've got a sister, a cousin, somebody that you can confide in just to to make them make sure that they hold you accountable. All right. I'm going to tell you to pay yourself first. If you wait to pay yourself after you've paid all of your bills, chances are you're not going to have very much money left, if any, to pay yourself. And one of the simplest ways to do that is to automate your savings. So if you have direct deposits coming in, you should also have a direct transfer going into a separate account, have your bank automatically take that money out and put it into another account. Because when it's out of sight and out of mind, you'll be amazed at how quickly you're able to save meaningful money.

Producer:
Yeah, that's 100% true. And we've talked about this before where on the other end of the spectrum where that money is out of sight, out of mind being spent on those subscriptions. And the clubs and all of that, the streaming services that everybody has, a dozen of it seems like these days that you might have just forgotten about. But this if it's actually going towards something useful, then that just makes such a difference.

Mike Zaino:
Yeah. And it's meaningful money, right? So the next thing to do is to get out of debt, especially high interest debt if you have a spending problem and a lot of us do and did, the first thing you have to do is admit it that you have a problem and then do something about it. Take the credit cards if that's you and you're used to swiping them every chance you get because you're tempted by this sale or that sale, people like, Hey, but it's on sale for 30% off. Well, it's still 100% more money than you would have spent had you never bought it in the first place. Right. Take them out of your wallet. Take them out of your purse. Make sure that you pay more than the minimum payment. If you can afford to pay double, then pay double. And once you're out of debt, stay out of debt because debt will crush long term retirement savings goals.

Producer:
Yeah, if you're behind, you are going to have to work so much harder to just catch up to where you would have been, just to break even even and then start building. So it's going to delay what progress you are going to make. Yeah. And it's just going to make the whole process a whole lot harder.

Mike Zaino:
Yeah. And sometimes the debt that you're in seems insurmountable. And there are debt consolidation programs that can actually take all of your debt and combine them into one. So that minimizes how much you have to pay. Some of those have some downsides, so you got to be really careful and make sure that you're not paying somebody a fee to do that, because there are plenty of programs out there that you don't have to actually pay for other than maybe a small setup fee for them to consolidate anything. But debt consolidation is huge. If you just have an insurmountable amount right, then the next thing to do would be to create multiple streams of income and those that have actually reached. Millionaire status. Those people typically have many streams of income. We're talking about five, six, seven sources of income. So if you want to become a millionaire yourself, or maybe you just want to be more financially secure, bringing in money from several sources and making your money work for you will help you get there. You can go back to last week's episode of Money Matters with Mike, where I talk about different side hustles and ways to make money without working very hard, or by monetizing things that you're really good at, like maybe cooking or building stuff or fixing things, and just go back and listen to last week's episode because there's a lot of good meat on that bone.

Mike Zaino:
And then the last two ways that I'm going to give you today to have money to start working for you would be to first analyze where your money currently sits and then consider investing. So if your money is in a regular checking account, a regular savings account that doesn't earn you any interest, you might want to consider opening up a high yield interest bearing account or a money market account. Now, I say high yield with a grain of salt because most accounts are not paying that great amount of interest. But guess what, guys? Something is better than nothing, right? And if you're familiar and comfortable with online banks, it's been my experience that there they pay a much higher interest rate because they don't have the brick and mortar and the overhead to pay for it. Yeah. And then as far as investing, you might also consider investing that money into stocks in the mutual funds, into ETFs, real estate, whatever. Just understand that investing comes with risks and whatever you choose to invest in, please at least make sure you have a basic understanding of how it works before you invest. Right? You don't want to you don't want to get that crash course in education because you lost money and also make sure that your risk tolerance matches your time horizon for when you're going to need your money.

Producer:
Yeah, 100%. All great advice there. And you know, it all comes down to just knowing where your money is and where it's going and how it's growing, hopefully for you. And so, yeah, all great tips there.

Mike Zaino:
And again, you have to be babies. Think of a baby. Babies scoot before they crawl. They crawl before they walk, they walk before they run and they run before they leap. So it's the same with you. And no matter where you are and your financial journey, the trick is to just decide to do something and then have discipline and speak with a professional that can help guide you along the way.

Producer:
Yeah. And look, you know, sometimes even when those babies are starting to run, they tripped and fall in their face. But you got to just get back up and keep going. And, you know, if you need to make some adjustments, make some adjustments. And that is that's what Mike Daniel is here for folks. Money matters with Mint.com is the website to go to.

Mike Zaino:
And one of my mentors always said he goes, he goes, Mike. He said, I don't fail. He goes, I either win or I learn. And that was something that really resounded with me. And I'm like, You know what? I'm going to start using that. I either win or I learn and I've learned a lot in life. Yeah, you don't. Don't be afraid to fail. You will miss 100% of the shots you don't take.

Producer:
That's right. Absolutely. That's totally, totally true. And I've learned a lot in my life, too. So we got that in common. Well, that's great. Well, I actually you know, it's so funny because we talked I mentioned the economy being weird and then you talked about people's habits with their money as well. Well, the weirdness of the economy is making people change a lot of their habits right now, especially when it comes to inflation. And I actually did I did a piece this week that I wanted to share with our listeners just a couple of minutes here. And it's about that. It's about how high inflation has caused people to really, you know, take some steps. Some of them are practical things that that make sense to everybody. And then some things are like, go, they did that. Okay, so listen to this. Folks will play it. We'll talk about it on the other side. This is how inflation is affecting how we think about our money. Inflation is hitting us all in the wallet and changing many of our habits. I'm Matt McClure with the Retirement Radio Network. Powered by a mirror life.

Producer:
Well, there are some signs inflation could be easing off. Prices for goods and services are still significantly higher than this time last year. Across the country, the Bureau of Labor Statistics says consumer prices rose eight and a half percent in July compared to a year earlier, with the cost of everything from groceries to appliances to travel going up at levels not seen in four decades, Americans are changing the way we behave with our money. The New York Times recently reported, quote, Some are starting. Budgets and shopping at discount stores. Others are skipping red meat and fish, walking dogs for extra cash, cancelling subscription meal kits and more. The paper spoke with one man who even tries a psychological trick filling up his gas tank when the level only goes down by a quarter. That way, a trip to the gas station only costs about 25 bucks. But some people are taking things a lot farther. Try more than a thousand miles farther. With many of us still being able to work from home. Many Americans are moving to places like Mexico City, where the cost of living is much cheaper.

Eric Rodriguez:
In San Diego. My apartment was probably 20 $500. One bedroom for a forever studio, four studio. Here I have a one bedroom and I pay $800 a month.

Producer:
That's Eric Rodriguez speaking to CNN. He says the transition to Mexico City has gone well.

Eric Rodriguez:
I think there was a sense of we want people to come here to stimulate the economy. Thank you for being here. But I know that recently there's been kind of complaints from locals about the effect that ex-pats living here has had on their own lifestyles.

Producer:
And many locals told the news channel that prices have gone up for them while some businesses are being displaced to make room for luxury apartments. So what changes are you making because of inflation? That's a key question to consider as we all pinch pennies. With the retirement radio network powered by a marine life, I'm Matt McClure. So, Mike, what do you think there? I mean, people I was shocked that people are literally moving out of the country because of cost of living being so much cheaper in places like Mexico City.

Mike Zaino:
Mexico City. I've heard people go into Costa Rica. I've heard people going to Thailand or the Philippines where it's really expat friendly. And if you have to escape the United States because of the cost of living, things are really, really bad. And I guess one of the things that resonated with me, I kind of laugh that because was, was the guy that fills up, you know, when his when his tank gets down. Only so far, I'm the guy that likes to drive until the needle is been buried under the E for 30 miles. And I try to push the envelope and that has bit me in the rear once where I had to coast into the gas station. So just that psychological trick of of only putting in $25 tricks the mind into thinking that he's not paying as much. I love it.

Producer:
Yeah, it's not not so bad if you if you do a little trick on yourself like that. I love that, too. I thought that was pretty inventive actually. And great great on that guy for for coming up with that idea and.

Mike Zaino:
You do such a great job in that report and those reports. Matt, you really do. Kudos, brother.

Producer:
Well, thank you. I appreciate that.

Mike Zaino:
It has a lot to the show.

Producer:
Well, thank you and I appreciate that a lot. And that's the goal is to, you know, help add some context to things and and really help our listeners kind of understand how some different aspects of money and, you know, the economy and life in general are affecting not only them but other people as well. Because, you know, I've been doing those stories. I've learned a lot about, you know, how other people react and, you know, change their behavior. And, you know, it just it teaches me a lot as I go in and do those. So now I appreciate it.

Mike Zaino:
Amazing how much you can learn from other people, right?

Producer:
Oh, so much. So, so much. Well, speaking of learning, okay, we like to help our listeners learn here, Mike, and that is what we're going to continue to do in the Smart Retirement Plan series. We started this a couple of weeks back and it has just been great. I think, you know, sort of laying out the roadmap for our listeners of how to go about starting on a smart retirement plan. And, you know, we talked about it in the beginning, right? Getting that vision in place, knowing where you want to go in retirement. And then ever since we've been started, you know, we started laying out the groundwork for how you plot that course. So this week, we're going to continue a discussion that we started last week with a little bit of tax talk, everybody's favorite subject, talking about everybody's everybody's favorite, the IRS. But yeah, so but we're going to talk about how to be smart about your taxes, because this is the Smart Retirement Plan series, after all. And talk to talk to our listeners a little bit about taxes in retirement, because when it comes to the how retirement plans are taxed, they're definitely not all created equal.

Mike Zaino:
They're not because Matt, did you know and people out there, did you know that different investment accounts are taxed differently by understanding how they're taxed? You can ensure that your money is working, how you need it to work, and when you need it to work. But before we discuss the different types of retirement accounts, there's a couple terms that most people, all people need to be familiar with. And the first one is tax exempt and the second one is tax deferred. And you may have heard these terms before, but don't really understand what they mean. So first, we're going to take a look at the term tax exempt. So any account that you have that is tax exempt is taxed when you contribute the money into it, not when you take the money out of it. And this is a much, much greater benefit in retirement because you don't have to worry about being in a different tax bracket than you were when you contributed into the account. Right. So that's tax exempt. And the next term that people need to be familiar with is tax deferred. And a tax deferred account that's going to give you the tax benefits up front when you contribute to the account. In other words, you don't pay taxes when you contribute, but you will pay taxes when you go to take a distribution withdrawal later on in retirement. So I want to start by looking at a few of the different most popular types of retirement accounts. Matt Yeah, the first one, the first one that I know everybody is familiar with is a traditional IRA, right? Traditional IRAs are taxed.

Mike Zaino:
Deferred. And this means that you're going to have to pay taxes when you withdraw the money from these accounts. And the sad thing is, you have no way of knowing for sure what tax bracket you're going to be in when you start withdrawing funds from a traditional IRA. Everybody just has this theory that they're going to be in a lower tax bracket because they're presumably not earning income. But if you've planned ahead and you have a lot of money in these tax accounts, you could be looking at a reduced payout if you're in a higher tax bracket, which is an extreme disadvantage for you. So that's a traditional IRA type of account, and the opposite of a traditional IRA would be a Roth IRA. Roth IRAs are tax exempt, which means that your qualified distributions are free of both taxes and penalties. You're only taxed on your contributions when they go in. And this is a lot easier I mean, much easier to plan for because your tax, based on your current tax bracket, whatever your tax bracket is now, is what the tax is paid as it goes into the account, then your money grows tax free and then when you need to withdraw money, those distributions are also tax free because you're taxed. When you contribute, your money is protected. It's insulated from future increased tax rates that are out of your control. And I always say, Hey, do you think taxes are going up or down in the future? And Matt, not once has anybody said they're going down, right?

Producer:
Yeah, that's that's absolutely true. I like to think of it as right now, taxes are on sale, you know, and so buy them while they're on sale or spend them while they're on sale anyway. Regardless, spend that money now while it's going to cost you less is the the bottom line there.

Mike Zaino:
Right. And so those are the two types of IRAs, individual retirement agreements is actually a lot of people think it stands for accounts, but the technical term is individual retirement agreement. But then you have these things that almost everybody is familiar with, and that's a 401. K or a 403 B or if you're a federal employee, a thrift savings plan very similar to a traditional IRA. Those types of plans are tax deferred, and those accounts differ from an IRA in that they're employer sponsored plans, meaning your employer sets them up for you. You still get to contribute to them, but your employer has the option and can also match a portion of your contributions. And if you're fortunate enough to work for an employer that does offer any semblance or any percentage of a match, that match is essentially free money. So if you're not at least contributing up to the percentage that they'll match, you're just saying, nah, I don't like free money. And we've already established that free money is the best kind of money. So make sure that you're contributing at least enough to match what the employer is willing to contribute as well. And so there are limits that are set by the Internal Revenue Service every single year on how much the total combination for contribution limits is. And so for 2022 this year, if you're younger than 50 years old, you're allowed to contribute $20,500 of your own money. And guess what? Your employer could actually contribute $40,500 more. Now, that, of course, is not the norm, but the total contributions from you and your employer can't exceed more than 61,000 a year. So if you're 50 or older, the IRS gives you an opportunity to catch up. It's called a catch up contribution, and the limit for that is $6,500 this year.

Producer:
Wow. So, yeah, that's wild. About the employer match. It can can not only is it allowed to match, the employer can exceed your contribution. So that's that's cool. And you know, each one of these different types of accounts for different people will have its own advantages and disadvantages. Right? Like, you know the advantage. Well, one of the big advantages of, say, a 401. K is that free money, it's that employer match, that employer contribution. But then again, you know, with a traditional IRA, it's the same sort of idea of an account. You don't have that match, but you still. Are contributing yourself and all of that. It's also tax deferred, but then the Roth is tax exempt and that's the big advantage of the Roth. So it's like there are a lot of different options out there. And knowing which one of those options makes sense for you isn't necessarily something that that an individual person, like a layperson like me can can know just right off the top of their head.

Mike Zaino:
Yeah, too. And the contribution limits are different in an IRA than they are in an employer sponsored plan. Obviously, an employer can you can contribute much, much more. And another thing that I wanted to point out is whether you have a 401. K or a 403 B or a thrift savings plan. If your employer offers a Roth version of those plans, then I'm going to absolutely encourage you to participate in the Roth side. And sometimes that might affect the match, like they're not going to give you free money and the government is not going to tax you on it. So if they do match, their match will still go on to the traditional side in most cases. But if you can again put that money in at a known tax rate for your current tax bracket as opposed to rolling the dice on whether taxes are going to be higher or lower when you retire and whether or not you're going to be in a higher or lower tax bracket, then I just think that's the prudent move, especially since the limits are so much higher. And if you can't afford to max out your contributions, then absolutely do that. It is never a bad idea to save for retirement.

Producer:
Yeah. And folks, we always say this, but it's it bears repeating each and every week here on the show. And that's, you know, retirement is not exactly the same for everybody. So this is a thing that needs to be customized for you when you think about where you want your money to go, how you want it to grow and what what money you have to set aside, and what your particular financial situation is. There are a lot of different variables for each and every person, and so that's why it's important to get a free financial consultation. Mike Zeno can do that for you and the website to sign up for that. Free consultation is Money Matters with Micah. That's Money Matters with Micah. Or I don't often give out a direct phone number to to people, especially people I like as much as Mike. But he wants you to call him folks. This is this is the case. 70456015737045601573. And that does ring directly to Mike Zeno.

Mike Zaino:
Yeah. My number is not a secret.

Producer:
Absolutely not. We we give it out all the time, and we're glad to do so because we want you to reach out for that.

Mike Zaino:
People have my number. Yeah, millions of people literally do.

Producer:
Well, as we continue on talking about smart tax, let's talk about life insurance a little bit. And people people might say, you know, why are we talking about life insurance when we're talking about retirement and all that? Because they might have in their mind that it's only like it used to be and it's death insurance, really. So talk about life insurance and why it's important, especially in the context of taxes like we're talking about right now.

Mike Zaino:
Yeah. And a lot of folks don't understand that a well structured retirement plan should include a yeah. 25 to 30% portion of life insurance. Why? Because, number one, it's important to know the different types of life insurance policies that are available and which policy type is right for you. Life insurance will help support your family when you pass away. It can help cover the costs of final expenses. It can you different types of life insurances can be structured to pay you guaranteed lifetime income tax free income they can also guard against if you get sick in the middle. As far as a chronic, critical or terminal illness, you have a heart attack, cancer or stroke, any issues like that. And the bottom line is that there's more than one use for life insurance. This isn't we say it all the time. The new school life insurance is not your grandfather's life insurance. And at the root, I think people need to understand what life insurance really is. It's an actual contract between an insurer, typically a company and you, the policyholder. And that contract solidifies a promise to pay a death benefit to your designated beneficiary when you pass away and can have a lot of other a whole host of other benefits. So there are two main classifications of life insurance. The first one is term life, and the second one is permanent life. Now, term life definitely has its place, but it doesn't have a lot of the tax benefits from an income standpoint other than the tax free death benefits.

Mike Zaino:
And so whether you choose a term policy or a permanent policy is kind of going to be determined by how long you either want or need to have the policy to last. If you only need the policy for a short amount of time, say to make sure that a massive debt you've incurred is paid off in the event that you die unexpectedly. Then you might choose term life insurance and you can set the terms up typically in 5 to 10 year increments from ten, 20, 30 years. Those are probably the most common term lengths for a term policy. Now, on the flip side, permanent life insurance will last the entirety of a policyholders life unless you stop paying premiums, of course, in which case whatever cash value you built up will pay those premiums maybe for the rest of your life, but maybe not. So these these plans are typically more expensive because they're guaranteed to pay a death benefit. And even within the the realm of permanent life insurance, you have multiple types. The first one that almost everybody is familiar with is whole life insurance. And this type of insurance accumulates cash value over time. You can then use the accumulated amount to cover policy payments or loan repayments, or just simply for extra cash. If you ever got yourself into a bind, then there's universal life insurance. It's similar to whole life, but this type of insurance accumulates cash value over time, and the biggest difference is that that cash value will earn interest.

Mike Zaino:
And then you also get the flexibility of either paying more or less than your initially set premium amount. If you are either struggling a little bit with your finances, you can choose to pay less. Or if you're making a little bit more than you can pay more than the premium to kind of turbocharge the cash growth. And then there's a product that I like to call the unicorn. It's called Indexed Universal Life. And so with the indexed universal life policy, it gives the policyholder a chance to earn either a fixed or an equity indexed rate of return so you can get market linked returns when the market's doing really, really well. You're 100% protected from downside volatility in the market. So how do you choose, Matt? How do you choose which policy is the right one for you? That's a lot of people. They have no idea how to do that. And you've got to ask yourself a couple of questions. You know, hey, how much do I need? And then, B, what do you plan on using the policy for? Are you using it for mortgage protection? Because like I mentioned before, you've just bought a house, you're starting out, you're starting a family, and you've got this 300,000, 400,000, 500,000. Note that if you died unexpectedly, you want to make sure your family's taken care of for other debt protection. If you have any other outstanding debts, you want to make sure that you're not burdening your family with those.

Mike Zaino:
Maybe it's for income replacement and you're the breadwinner of the family and you want to make sure that if you don't or if you do pass away unexpectedly, you don't leave your family up the creek without a paddle. Maybe you have a desire to leave a legacy and whether that's money for your children, for your grandchildren, or you want a church or a charity to erect a building or you want to donate to a ball field. Legacy is important to some people. And so those when you answer those questions, that will impact how much you need and what type of policy you'll eventually choose. And you'll also want to think about how much your family is going to need to maintain their standard of living should you pass away unexpectedly. And please, please don't forget about funeral expenses. I know some people and they're like, Mike, I can't afford to die. And I'm like, Huh? They're like, I have no life insurance. How's my family going to pay for my funeral, my final expenses? And so the average funeral in America right now is anywhere between 7012 thousand, depending on how close to a big city you are. Because guess what? God's not making any more dirt. Right? There's only so, so many plots that you can purchase. And so these are different questions that you need to ask in order to determine what type of life insurance policy is right for you.

Producer:
Yeah, and that whole thing about being prepared for your final expenses is huge because, you know, when I mentioned this a couple of times when my dad passed away, he had a whole life policy. And that payout, of course, which came to my mom tax free, thankfully, was so helpful in in helping finish off paying a lot of those final expenses. The good thing is, a few years before he passed, he actually went to the funeral home and started some pre-planning and did a payment plan. So a lot of it was a lot of the decisions. Most of the decisions were already made. Like we didn't have to go through and be like, okay, which casket do we want? What do we you know, what? Which program do we want to put in and what photos and all this stuff, the stuff that you just have to do. A lot of that was already decided by him, so we knew what he wanted. There was no question.

Mike Zaino:
And that was a blessing for you. Probably a relief, because the last thing you all wanted to have to deal with was that when you were grieving the loss of him.

Producer:
Absolutely. And I love the fact that he knew that and was prepared ahead of time. So that was great. And it was a great burden off of us as well. Well, so that is a lot about taxes, the different ways that retirement accounts and life insurance policies are treated from a tax perspective and how to think about them in your retirement. There are also like some rules that folks need to follow, but these are not like, you know, running in the halls and those kind of rules. These are some helpful rules, some good rules for folks to follow. So let's talk about some smart rule following here when it comes to planning for retirement.

Mike Zaino:
Yeah, I mean, planning for retirement can seem overwhelming. It can it can seem like it's just so far off or it's so close and you haven't done a good job because there are so many things that you have to consider. Well, luckily, there are a few rules that can help you build a solid foundation for both your money and your retirement. And we'll start with one that's called the rule of 100, the rule of 100. And this rule states that your portfolio should contain a risk percentage equal to the number 100 minus your age. So for an example, if you are 50 years old, then 50% of your of your money should be at risk. 50% should be safe. If you're 70 years old, 70% of your money should be safe. 30% of your money should be at risk. And I guess people are living longer now and they're spending more during their retirement years. And so those old rules might not always provide you with enough money to maintain your current standard of living. So you might need to tweak that a little bit or speak to a professional who's able to tweak that for you.

Producer:
Yeah, absolutely. And of course, folks. If you want to speak to a professional who can help you take that money matters with Mike is the website and the number 7045601573. Told you it's no secret.

Mike Zaino:
It is no secret. Right? So that's one rule. The rule of 100. There's another rule that that we've talked about before, Matt, on the show called the 4% rule. And the 4% rule states that retirees can take 4% of their savings in their first year of retirement and withdrawal. Percentages in every year thereafter would then be adjusted for inflation. And as with any rule, there are some exceptions. So depending on the situation, experts could say that maybe a 3% rule is a little bit more apropos for one person or somebody that's a little bit older. When they start drawing down, maybe they're able to take 5%. But the basic rule is that 4% will last 25 years, four times 25 is 104% times 25 years would be 100% of your money. But again, that takes into assumption two pretty bold assumptions. Number one, you're not making money. Number two, you're not losing money almost as if your money is in a vacuum. 4% will last 25 years. Well, in retirement, not losing money should become one's main focus. And we have solutions for that, Matt. And that's why it's important that we sit down and talk about individual situations, right? So the first one was rule of 100. The second one was the 4% rule. And then another rule that we've talked about in the past is called the rule of 72. And Albert Einstein, pretty smart guy, came up with the rule of 72. And that's just a way to estimate how quickly your investments will double given a fixed interest rate.

Mike Zaino:
So whatever interest rate you think you're going to receive, just divide that into the number two to get an idea when your investments will duplicate, right? So for an example, if you invest $1 and you get an annual rate of 10%, ten into 72 is 7.2 years for that $1 to turn into $2. And the flip side of that is, if you're going to get an 18% return, then 18 into 72 is for your money will double in four years. And that's only an estimation tool. But especially on the lower interest rate side, it can be extremely accurate, right? The main thing is that these rules should only be used as guidelines when you're trying to build your ideal retirement portfolio. There are lots of other considerations inflation, other market conditions. They can affect how well your investments perform, and you might need to take additional measures to protect your money, like talking to an expert, speaking with somebody who knows this stuff up one side, down another, inside out, especially if you're concerned about how your investments will last a lifetime. So if you have any questions regarding your savings whatsoever, who are you going to call? I hope it's not Ghostbusters. All right. Mike Zeno, 704 5601573. Or just go to money matters with Mike dot com and contact me and let's get together and have a conversation.

Producer:
Yeah, absolutely do that folks. That is one great step into your smart retirement plan that we are continuing our series talking about today. We've talked about smart rule following. We also talked about smart taxes and how to think about taxes in retirement in a smart way. Well, let's go ahead and talk about some smart income. You know, when we think of retirement income, I think everybody's mind pretty much will first go to Social Security. If you're thinking about regular income payments in retirement, Social Security, which has been around since it was signed into law in 1935 by FDR, is that thing. And the first payments actually went out in 1940, but it was signed in 1935 by FDR. You know, Social Security, one of the largest government programs in the world, 176 million people paying Social Security taxes. Last year, as of April of this year, more than 65 and a half million Americans receiving Social Security benefits. So it's huge. And it's something that we, you know, take and take into account when we think about our retirement. We've talked about this before, though, that the board of trustees for Social Security says that the funds are going to be depleted by 2034 and a couple of years away. Yeah, 12 years. Exactly. So it's like, should we really count on the Social Security benefits being what we think they're going to be like? You know, it's like, how do you plan for that going into retirement?

Mike Zaino:
It's. It's difficult, and especially as the life expectancy of Americans increases, there are concerns that the program's just not going to be able to support the retirees with less people in the workforce. The baby boomer generation was the biggest boomer, the biggest generation, and now you have Gen X right behind them. You got the millennials, which is bigger than the baby boomer generation. And so with Social Security income, you become eligible for benefits when you reach 62 years of age and you've been contributing into the program for at least 40 quarters or ten years. So you're eligible at 62, but should you take it at 62? It's one of the biggest questions I get asked during our consultations, because if you wait until you're your full retirement age, you get increased monthly benefits, and your full retirement age is determined by the year in which you were born. For example, if you were born in 1955, then your full retirement age is 66 and two months. Right? But if you weren't born until 1970 or later, then, then it's excuse me, 60 or later it's 67. And so it right now, depending on what year you were born, it's either 65, 66, 66 and two, four, six, eight or ten months or 67. And a lot of people don't understand that spouses can collect benefits based on their own earnings, or they can actually collect benefits based on their spouses earnings. Ex spouses may be able to contribute or excuse me, collect benefits on their ex spouse's benefits if they were married at least ten years. And so the amount of money that you can receive from Social Security is determined by a thing called your average indexed monthly earnings or AIME, and they take into consideration your 35 highest years of earnings. And so as of April of 2020, to get this, the average monthly benefit was less than $6,500. It was actually $1,588.89, which is barely $19,000 a year. Wow.

Producer:
Yeah, it's really kind of rolling, right. That's exactly what I was going to say. It's like it kind of puts that in perspective, you know? Yeah, but yeah. So that's that's the average. But there, you know, there are maximums there, right? I mean, people often do bring in more than that from their Social Security benefit.

Mike Zaino:
Yeah, there are. And so a lot of folks don't understand too that you can start drawing Social Security at 62, but every year you delay collecting those benefits starting at age 62, but ending at age 70, your benefit will increase by 8%. So the most that you can get at age 62 is 2364. And that's if you were just maxing out, but you decided to settle for $0.75 on the dollar. On the flip side, if you wait until you're 70 years of age, the most you can get currently from Social Security is $4,194. So that's a really, really big difference. In in $0.75 on the dollar, you get 100% of your benefit at your full retirement age. So like I said before, whatever year you were born will determine your FRA and then your maximum. The most social security will pay out is $4,194. And something to keep in mind too, is that they're pretty good at adjusting for annual cost of living and that ensures that your retirement funds don't lose too much value due to inflation. They typically have not kept up with inflation. But again, something is better than nothing.

Producer:
That's that's right. 100%. Anything's better than big fat zero. So there you go. Well, Mike, actually just about to run out of time here, which I am sort of flabbergasted by. I keep looking at the clock and I'm like, whoa, is that is that right? But yeah, it is right. Just about another minute here to spend with our listeners. So we're going to continue our discussion on the Smart Retirement Plan next week. When we come back with a brand new money matters with Mike. And we'll talk about, you know, retirement income gap and a lot more in the next steps of the smart retirement plan. But, folks, it has been absolutely a pleasure for me to be here. I know. Always to be here. If you Mike, good to be here with our listeners as well who we just appreciate so so much money matters with Mike Dotcom once again is the Web site. If you would like a free consultation or you can give Mike a call, 704 5601573 MIKE It's been great, sir.

Mike Zaino:
It has been great people out there and listener land, thank you so much. Without you guys, this show does not exist. So please share the show. Let people know about money matters with Mike. Sign up, subscribe. Enjoy the rest of your weekend.

Producer:
Thanks for listening to Money Matters with Mike. You deserve to work with a financial and insurance expert who can offer strategies for protecting and growing your hard earned money to schedule your free no obligation consultation visit money matters with mike dot com or pick up the phone and call 704560 1573 That's 7045601573 Not affiliated with the United States Government. Mike Zeno does not offer tax, legal or investment advice. Consult with your tax advisor or attorney regarding specific situations. Opinions expressed are subject to change without notice. These opinions are not intended as investment advice, nor do they predict future performance of any product. All information provided is believed to be from reliable sources. However, we make no representation or warranty as to the accuracy of any statement. This information is intended to be educational in nature. It does not provide a guarantee or a specific result. All copyrights and trademarks are the property of their respective owners. Amara Life assumes no responsibility or liability for the content of this message. The information contained herein is provided on an as is basis with no guarantees of completeness, accuracy, usefulness, timeliness. Are the results obtained from the use of this information?

Producer:
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Producer:
Are you concerned about market volatility, rising taxes, economic uncertainty and how it all could affect your future in retirement? That tune in to Money Matters with Mike to learn how you can protect and grow your hard earned money. Money matters with Mike every Saturday at noon right here on FM 100.1 and AM 1340. Protect your hard earned money today and schedule a free no obligation consultation now at Money Matters with Mike.

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