The Most Common Questions Pre-Retirees Have About Retirement with Mike Guthrie – Ep 097

Mentally preparing for retirement often generates more questions than answers. From wondering if you’ve saved enough to figuring out when you can finally stop working, many pre-retirees feel uncertain about what comes next. And then you add concerns around taxes, healthcare, Social Security, and market volatility, and it’s easy to feel overwhelmed without a clear plan in place.

In this episode, Keith Ellis Jr. is joined by SHP Financial Advisor Mike Guthrie to tackle the most common questions they’ve heard from clients over the years. With decades of combined experience, Keith and Mike walk through real-world scenarios and explain why there’s rarely a one-size-fits-all answer—but there’s always a better, more informed way to make decisions.

They discuss how to determine whether you truly have enough to retire, how income planning provides clarity and confidence, and why understanding where your money comes from—and where it goes—is critical in retirement. You’ll also hear how concepts like the 4% rule and income buckets help retirees move from uncertainty to control.

Ultimately, Keith and Mike emphasize the importance of proactive planning—especially around taxes and withdrawal strategies—so retirees can protect their lifestyle, reduce unnecessary risk, and enjoy the years they’ve worked so hard for.

In this podcast interview, you’ll learn:

• How to determine whether you truly have enough money to retire.
• Why income planning is the foundation of a confident retirement.
• When it may—or may not—make sense to retire earlier than expected.
• How to think about cash reserves, income buckets, and long-term growth.
• What to consider when deciding when to claim Social Security.
• Why proactive tax planning can significantly impact retirement success.

Inspiring Quotes

• “Doing the right type of planning now to help you in the future is key.” – Mike Guthrie

•  “I think a lot of people come in and say, “I think I have enough to retire.” Or, “I think I know when I can retire.” And then when you go through the planning process that we go through, it goes from thinking to, “Okay, now I actually know.” – Mike Guthrie

•  “Every time you make a decision to pull money out, whether it’s systematic or a lump sum, at some point, there is a tax decision or a potential tax impact.” – Keith Ellis, Jr.

•  “Having a plan provides confidence. Confidence to live, confidence to enjoy your money because you’ve worked so hard to get to this point, now you wanna enjoy it. Obviously, you want to have the confidence to enjoy it, knowing that you’re not going to outlive it.” – Keith Ellis, Jr.

[INTERVIEW]

Keith Ellis, Jr.: Welcome everybody to another edition of the Retirement Road Map podcast, brought to you by SHP Financial. I’m your host, Keith Ellis, along with Mike Guthrie’s joining us today. What’s going on, Mike?

Mike Guthrie: How’s it going, Keith?

Keith Ellis, Jr.: Good. Kind of excited for today’s episode because I’ve been doing this for well over 20 years. I know you’ve been in the industry for quite a while, yourself. And as we sit with different families or different people, different situations, we get different questions, right? So, what we wanted to do today was kind of address some of the more common questions that come up, would you say?

Mike Guthrie: Yeah, for sure.

Keith Ellis, Jr.: Yeah. So, just things that we hear when people come in, they hear us, whether it’s on this podcast, radio show, see us on television, or just what seems to be a lot of friends telling their friends about us, these are the common questions that we get. And I would say one of the most common ones is, people will come in maybe late 50s, early 60s, prepping, getting ready for that next phase of their life, and it’s, hey, Mike, do I have enough money to retire? Like, how do you handle that? How do you know the answer to that question? Or how do you give people the best guidance there?

Mike Guthrie: Yeah, I think, to your point, Keith, while everyone’s situation is a little bit different, most of the questions we get, although they might be phrased in a different way, kind of come down to a handful, and really, one of the biggest ones for sure is when we meet with clients for the first time or potential clients is, do I have enough? And the answer, like anything else is, it depends, right? So, it could be driven by a lot of different factors, right? So, there’s no kind of clear cut, should I have this amount? Because it’s not a simple answer. If you’re one of the lucky few people who still have pensions. if you’ve got…

Keith Ellis, Jr.: One of those.

Mike Guthrie: Yeah, I know. If you’ve got Social Security coming in, and your pension and Social Security and maybe the annuity you have are covering most, if not all of your expenses, then you might not need to have as much saved up as somebody who does not have those things. I think it’s a question that comes down to planning. Let’s take a look at what you have versus your expenses. Is there a gap? Are you having positive cash flow each month? Is it negative? And then we can start to build out that plan. I think one of the things, and Keith, like you said, you’ve been doing this a while too, and so have I, that number that comes up a lot that you hear is like the 4% rule.

Keith Ellis, Jr.: Right, right.

Mike Guthrie: So, I think kind of rule of thumb, maybe back in the napkin, simple, high level, 4% withdrawal rate is probably a good number to think about. So, let’s just say for example, you need $40,000 a year to supplement your income that’s coming in the door. So, you’re getting $60,000 through a combination of Social Security, your pension, whatever it might be, and you need to figure out, hey, I need another $40,000 to do the things I want to do. Not only your essentials, but the fun stuff, your trips, your traveling, gifting, those sorts of things. So, if you’re taking out $40,000 a year off of a portfolio, that’s going to hopefully last for 30 years. You could anticipate needing around a million dollars-ish, right, to pull that out. And then you add inflation along the way.

Keith Ellis, Jr.: Taxes.

Mike Guthrie: Taxes. You might need $40,000 this year, but next year, you might need $40,800 or $42,000, whatever it might be. So, again, it’s a combination of things. When we think about do I have enough, the answer’s different for everybody. But again, if you don’t have those big pensions, if you don’t have a large Social Security, a rule of thumb that we start to aim for when we start to do planning is about 4%.

Keith Ellis, Jr.: Yeah. And I think one of the best things that we do for the families that we work with is we build them an income plan. So, we show them exactly year to year, month to month, almost day to day, where their distributions are coming from, and put the why behind where those distributions are coming from. And what we can do is we show them over their lifetime how this is going to look. Are there going to be changes? Sure, there’s going to be changes in tax law, there’s going to be changes in the inflation rate, whatever it is. But overall…

Mike Guthrie: Expenses.

Keith Ellis, Jr.: Exactly. Overall, people come in and they have a pretty good idea of what the next 10, 15, 20, 25 years of their life are going to look like. So, it provides them confidence, right? I would say having a plan provides confidence. Confidence to live, confidence to enjoy your money because you’ve worked so hard to get to this point, now you want to enjoy it, but obviously, you want to have the confidence to enjoy it, knowing that you’re not going to outlive it. Or maybe your goal is, hey, I do want to leave some money to my kids or my grandkids. Not that you’re going to overspend and there’ll be nothing left. So, it’s like everyone’s situation is different.

But I think having that income plan is extremely important, again, to provide that confidence. And it’s funny because so many people will come in, they’ll say, I remember three, four years ago sitting down with someone, they had about a million and a half dollars and they’re like, oh, I got to keep working because I need to hit that 2 million. They had that in their mind, right? And it’s like, no, you could have retired three years ago if you wanted to. So, now work becomes more of a, like…

Mike Guthrie: You want as opposed to have to.

Keith Ellis, Jr.: Exactly, exactly. And it gives them the power or empowers them to make the decisions going forward for themselves. So, I think having a plan in place is extremely important. Our planning process is called the Retirement Road Map, and like I said, the first thing we do when folks come in because you don’t have a retirement without income is we want to build you that solid income plan, so then you can see, one, do you have enough money where it’s coming from? And one of the questions we also get asked is, when can I retire?

Mike Guthrie: Right, yeah. To piggyback on your point too, I think a lot of people come in and say, I think I have enough to retire.

Keith Ellis, Jr.: Sure, yeah, there you go.

Mike Guthrie: Or I think I know when I can retire. And then when you go through the planning process that we go through, like you mentioned, it goes from thinking to, okay, now I actually know I have enough, or I don’t have enough.

Keith Ellis, Jr.: Or I have to work another year.

Mike Guthrie: I have to work another year, or now I know when I can retire because when you go through that, to that question you just ask, like, hey, do I have enough, potentially? Okay, great. So, like, no. So, can I retire today? Is it a year? I was thinking of a specific date in mind. And again, unfortunately, a lot of these questions, Keith, have the answers “it depends.” But again, if you’ve got your income plan starting to be built for you, hey, I know what I’m going to be, what’s coming in the door when I stop working, I know potentially what we’re going to spend. I know what our nest stake is. So, then you can really start to find, put a finer point on the day you can retire. Maybe not, hey, it’s June 1st, 2026, but within the next year or next six months, or hey, you could do it today because you’re in a position to do so, where it removes a lot of that doubt of, again, I talked to somebody at a cocktail party. They told me you have to have this, or I read a book, or I saw another podcast that said, you can’t do it unless you have this amount saved up. And going through that process and building out that income plan versus your expenses and what you have really provides a lot more clarity around things and starts to answer that question, specifically and generally as well.

Keith Ellis, Jr.: And I would say knowing when you can retire and like you said, hey, you can retire now. It’s an empowering feeling. It’s a good feeling for the retiree that comes in, we have the conversation and we say, look, based upon your numbers, your goals, what you’re trying to do, you could walk out the door tomorrow. Now, do you want to go to work? Do you not want to go to work? That becomes more of a you thing. I just had a client retire at 60 because we put together all the numbers and she was more than fine based upon her goals, her income need, what she wanted to do, and the amount that she had saved. She was planning on working another four years. Now, she got back four more years of her life to live in what we call those go-go years when people are supposedly and hopefully healthy and able to do the things that they want to do because, again, you’ve worked so hard to get to this point. It’s our job as advisors to give you confidence and empower you to live a good life in your retirement years.

Mike Guthrie: I was going to say, in those meetings, one of the things I love to say to folks is, hey, you’ve got choices and they’re all good ones, right? You don’t have to, hey, my choice is I can retire and run out of money, or I have to work a few more years, whatever it might be. No, you’ve got choices and they’re all good ones. So, kind of going from that high level, I don’t know if we can make this happen. No, you can and you can stop working soon. I had a similar experience where they had this number, I got to work another year or two. And then when you build out the plan and say, you could retire on Tuesday, it’d be totally fine if you wanted to. And here’s specifically how that works and why. To see that kind of light bulb go off or the smile across the faces is huge, and again, all that planning is where it takes place.

Keith Ellis, Jr.: Absolutely. And as we start to build these income plans, different facets of that come into play. Like, how much cash should I have? When should I take Social Security? Those are two really common questions. And how do you handle, maybe, the cash question as well as Social Security?

Mike Guthrie: Yeah. I think it’s certainly a little bit different when you’re officially retire, like, when you stop having the income come in the door. Obviously while you’re working, your paycheck comes in and it’s kind of your working cash flow account. It comes in, it goes out. I feel like we’re still in those stages. I feel like it’s out before it’s even in. But when you get to that retirement point, it’s okay, how much cash, how much actual physical cash do I really need? There’s rules of thumb, like everything else. Some people say, oh, I should have six months’ worth of expenses, right? Or three or a year. It really comes down to kind of an individual, what helps you sleep at night? Sometimes we have that conversation. Hey, do you feel better if you had a year’s worth of expenses saved up somewhere?

But I think the question becomes, is not so much how much cash should I have, but where should you have it, right? Should it just be sitting in a checking account, earning next to no interest? Or can you have it attached to an account that is high yield or CDs or a lot of things like that? So, as opposed to getting 0.01% on your checking, maybe find something that’s– you’re losing money safely as we like to say, right? You could put money into a high yield savings account and then transfer the money because you’re going to have a clearer picture of what my cash needs will be if you do the income plan properly, right?

So, again, there’s all sorts of schools of thought. You should have a year, six months, three months, whatever it might be. But what we really try to do, and I know you do and I do as well, when you sit with clients to say, okay, what makes you feel better? And based on your assets, does it make sense to have a certain portion just in cash that you can get at quickly and move around? Or do we say, hey, this money isn’t going to be needed, so maybe we invest it conservatively. Or if it’s a longer-term money, maybe a little bit more aggressively. But again, it becomes a little bit of a different conversation because you’re working cash flow and you may be pulling money out of different types of accounts to get that cash, how it’s invested and where it is, certainly, an individual conversation.

Keith Ellis, Jr.: Yeah, I always say it’s like we want to put purpose around your assets, right? Like you said, like, hey look, this is your immediate money. This is money that you might need. Your boiler breaks, roof leaks, car breaks down, very easy to get to. And then we start to build, I don’t want to say risk, but purpose from there. Hey, look, this bucket is really dedicated to help drive your income, give you that stable income for the next 5, 7, 10, 15 years, depending on the client’s appetite for security and safety in regards to their income.

And then the final bucket is really more that long-term growth bucket. So, you can maybe, again, I have clients that don’t want to take really much risk, even in that long-term growth bucket, and then I have some clients that say, look, I’m not going to need that money for 10, 15, maybe I might never need it. So, we’re thinking of it as next generation or generational money, so we can be a little bit more aggressive there. So, everyone’s situation is completely different, which is why it’s so important as we sit with folks, get to know them, get to know their goals, and help them build out a plan that makes sense and accomplishes each and every one of those goals. And like I said, one of the main questions we get asked as well is around Social Security.

Mike Guthrie: Yeah, for sure.

Keith Ellis, Jr.: So many different thoughts, so many different– and there’s no one set way, but…

Mike Guthrie: I was going to say, guess what the answer is, depends.

Keith Ellis, Jr.: Yeah, exactly.

Mike Guthrie: That’s right. We have the conversation almost daily with clients. You’re coming in because everyone’s getting close to that typically, with the type of clients we work with, at least within a couple of years. And I always like to say there’s really no right or wrong answer. You should take it at this date or you’re going to be penalized if you take it. And really, what it comes down to is a couple things, one, do you need it, right? If you’re retiring and you need the income, well then you should start taking it, right? The other one is do you want it? Which is not always the best way to think about it, but hey, I just want that check. I put paid into it and just start sending it to me.

Keith Ellis, Jr.: Hey, I’ve been paying it for 30 years, give it to me now. Even though it’s maybe not the best strategically, but that’s what they want. You just build around that.

Mike Guthrie: Sure. And really, all things being equal from an advice standpoint, it’s, hey, if you can wait, at least wait until your full retirement age. And that’s a different number for everybody. But then you’ll get your full benefit without any deduction or any reduced benefit. So, if you start at 62, it’s reduced. And then each year, really each month, you get closer to your full retirement age. That potential bump in income comes along the way. And then ultimately, if you can wait to 70, you get the highest level of increase, around 25% from your full retirement age, then sure, if you can wait. I mean, because again, over a course of a lifetime, particularly if you’re in good health and you think you’re going to have a nice long retirement, waiting makes more sense because over the course of time, you’ll collect more of a benefit.

Keith Ellis, Jr.: Assuming you live long enough.

Mike Guthrie: Assuming you live long enough.

Keith Ellis, Jr.: Correct.

Mike Guthrie: And if you’re married, if you have a spouse and they’re relying on a spousal income or something like that, their spousal benefit also increases if you wait. So, again, I hate to keep answering these questions with depends, but I think a lot of it, it does, particularly around Social Security where there’s not a right or wrong answer and really think about, do I need it? Do I want it? And if I don’t necessarily need it right now, what’s the best strategy in terms of waiting to take it to get the most amount of bang for your buck, if you will?

Keith Ellis, Jr.: Well, you’re right, it does depend. And that’s why building these plans isn’t cookie cutter, right? You really got to put the time, you got to put the thought, you got to have the team to be able to, one, build the plan and then execute on the plan each and every year as you sit with the client, the families that we do work with, whether it’s on the tax side, whether it’s on the estate planning side, making sure trusts, if they have them, are funded, funded correctly, so on and so forth. So, there’s so much to this beyond just building that income plan. But you’re right, when folks first come in, those are the main questions. It’s really based around income, and another one is, we have all this money with you in this portfolio that you’re managing. How do we get money out of it?

Mike Guthrie: I know. That one always gives me a little smile because it’s like, well, it’s your money. We’ll send it to you when you need it. But really, it’s because this is a brave new world for clients. Like I’m used to getting the paycheck. It just gets directly deposited into my account.

Keith Ellis, Jr.: All of a sudden, that stops.

Mike Guthrie: All of a sudden, that stops, right? Can I get my Social Security direct deposit? Sure. All those things. And then, ultimately, if I do need to pull money out of my portfolio, like mechanically, how do I do that? So, I mean, it’s pretty simple, right? We can attach bank accounts, we can wire money back and forth, we can set up systematic withdrawal plans. But what becomes important for sure, along those lines is what account am I pulling it from?

Keith Ellis, Jr.: Correct.

Mike Guthrie: And then what are the tax implications around that? So, operationally, it’s simple. We just set it up and say, okay, we can move money to you the same day when you need it. But in terms of pulling those, where am I pulling it from, can really potentially impact your taxes because it’s clearly a tax decision every time you’re taking money out, regardless of what type of account it is. So, getting the money’s easy, right? It’s just making sure that you’re strategically pulling it out in a way that it’s not detrimental to your tax situation or really anything along those lines. So, we want to make sure that when we are pulling money out, that it’s done so in the most efficient way, and kind of an order of operation of what account we go to first. How much do we raise? Do we send it? Those sorts of things.

Keith Ellis, Jr.: Yeah, I mean, it couldn’t have said it any better. You want to be strategic on where you’re pulling your assets from because you’re right, every time you make a decision to pull money out, whether it’s systematic, whether it’s one lump sum at some point, there is a tax decision or potential tax impact. And if you’re pulling from, say, a Roth IRA, there is no tax impact, but you’re depleting the Roth IRA, which long term eliminates tax benefits. So, you’re right. Every time you make a withdrawal, it does have a tax impact or a thought behind it in regards to taxes.

Mike Guthrie: And just on that in one of the questions that we get kind of along with that is how do I pay my taxes? We did a couple podcasts ago that I was on with Matt and we talked about that, like, when I pull an account money from this type of account versus this type versus this type, how do I actually pay the tax? Because right now, like again, if you’re working, it just comes right, it comes right out, right? You pay your taxes out of your paycheck. But now that you’re kind of creating your own paycheck from your different accounts, whether it’s a taxable account or an IRA or a Roth IRA, you’re going to be responsible for that tax bill.

So, again, probably the biggest thing to think about is if you’re taking money out of a traditional IRA where that money has been growing tax deferred, it was funded with pre-tax dollars. When you take money out of that, whether it’s at your required minimum distribution age or before that or above and beyond the required minimum amount, you physically have to be the person that is either (a) withholding the taxes. We help our clients do that when we send out distributions, and then making sure, if you don’t withhold, although we generally almost never recommend that, being able to have enough cash when tax time does come that you’re not surprised with a tax bill by taking money out of that account. So, again, we just talked about it. How do I get money out of my portfolio?

But when you build that income plan, taxes have to be top of mind as well because, again, depending on where you’re pulling it from and then how you withhold those taxes could impact not only today, future years down the road with healthcare and cost of Medicare and things like that, but the biggest surprise, right, when people take money out of that account and then they go to do their taxes and they have this tax bill, they have no idea where it came from. Because they didn’t do the plan, just took the money out, put it in their account, and then this tax bill comes and they’re like, wait a second, what do you mean? Where did this $10,000 tax bill come from that I got to come up with? And then if your money’s only in tax deferred accounts, you got to take that out and pay taxes on that and withhold. So, again, it can be…

Keith Ellis, Jr.: It can be in a spiral.

Mike Guthrie: Yeah, yeah, it can be a spiral that if you’re not doing the planning around it, that you can really kind of get yourself in a jam. So, again, a lot of the stuff that we do, and part of that retirement road map that you mentioned before, there’s a sleeve of tax planning that we pay attention to, not just things like Roth conversions and things like that, which we’ll touch on in a minute. But how do I actually pay my taxes? And what’s the most efficient way to withdraw money over the course of the next 15, 20, 30 years?

Keith Ellis, Jr.: So, exactly, exactly. And so, I’m retiring and I’m sitting with you and I say, hey, now that I’m retiring, I’ve gone through the growth years to build this nest egg, how should I allocate my assets? Should I be more conservative? Should I keep my aggressive allocation? Kind of, what are your thoughts there?

Mike Guthrie: Yeah, it depends.

Keith Ellis, Jr.: It’s a lot of depends.

Mike Guthrie: Yeah, right, I mean, it’s…

Keith Ellis, Jr.: You’re absolutely correct.

Mike Guthrie: Yeah, for sure. I mean, it definitely depends because if you just pull the textbook off a shelf that says, like investing 101, you need to flip to the chart with the age. You should be more conservative if you’re older, and the older you get, the more conservative you should be. I mean, again, in a textbook, sure, but when we’re meeting with clients or prospective clients, everyone’s different. Some people have more money saved up or they’ve got a more aggressive stance or they need this money to last longer. So, pools of that money need to be more aggressive longer term. Or maybe they just don’t quite have enough saved up, but they want to retire.

So, some of that money needs to maybe take on a little bit more risk than the textbook would tell you to do. I think, and when we do our investment planning and the piece of the retirement road map, when we look at that, we’re really trying to not just go now from where you’ve been saving money your whole life and how much stock should I have, how much bond should I have, how much cash should I have in my asset allocation to now asset location where you should, how much should I have in the safety bucket? I’ve got my guaranteed sources of income coming in the door through Social Security, but man, it would feel a lot better if we had an extra thousand or 1,500 bucks a month coming in guaranteed. So, how much do we need to allocate towards the income bucket to help generate some more guaranteed sources of income along the way? And once we have that kind of figured out, and to steal a phrase that you shared with me one time, that’s kind of like your mailbox money, like the guaranteed money that’s coming into the door that you know is going to cover your expenses, your lifestyle money, if you will.

Keith Ellis, Jr.: You’re used to it when you’re working.

Mike Guthrie: Yeah, right. So, then what’s left is going to be invested in a growth bucket, right? And then it determines, okay, not only within that growth bucket is everything aggressive. No, some’s going to be conservative and some all the way up to the aggressive. And is it a tax-free account? Is it a tax-deferred account? And then how are we going to invest that money over time?

Keith Ellis, Jr.: Yeah, there’s definitely a lot of thought that goes into that.

Mike Guthrie: Yeah. And it’s not just as simple as you should be 60/40 and close your eyes and we’ll see what happens, right? Some of the money should be conservative. Some should be aggressive and we talk about it all the time with clients around a risk score. So, what’s the proper amount of risk based on your specific situation? Not just…

Keith Ellis, Jr.: How much are you willing to take?

Mike Guthrie: Yeah. Not just Joe and Mary are 66 years old, they have this amount of money, so the book tells me they should be conservative. Again, it really comes down to doing that planning, saying that income, what’s coming to the door? How are your taxes being paid? How much cash should I have? How does this pool of money that I’ve done, worked my whole life to save, how should I invest this? So, one, it lasts, and two, am I potentially leaving some legacy behind, kids or grandkids, whatever?

Keith Ellis, Jr.: Yeah, you’re absolutely right. I mean, putting purpose around your assets, I said it earlier, is you have that safe bucket safety. That’s your cash, your bank money. Your boiler brakes, your roof leaks, you can go get it. Then you have your income bucket. So, okay, like you said, you’re getting your Social Security, pension, rental income, whatever it is. What’s your income gap, right? Then we need to solve for how much money needs to go into that income bucket to fill that income gap with inflation. If we have enough money in there to get you your income safe for the next 10, 15 years, that really protects your lifestyle. And I think to me, that’s really the most important thing to folks when they come in is, hey, look, they don’t want to think about, hey, can I go out to dinner this week? Because what’s going on in Wall Street or Washington or around the world, you know what I mean? They want to be able to live the life that they want to live, so that’s why having that purpose, that safe bucket, okay, I need it. That income bucket, I know it’s coming.

And then that final bucket, which is that growth bucket which, again, that could be a variety of different investment styles within that growth bucket. And I think a lot of it depends on, like you said, what type of tax status is? For me, if it’s a Roth IRA, typically, I’m telling my investors to maybe be a little bit more moderate, moderate aggressive, or aggressive with that, depending on their risk tolerance because I want that money over the long run because we’re not going to need to touch it, because we have our other two buckets in place for 10, 15, 20 years. I want that money to grow the most growth exposure tax free. And I think that just makes a lot of sense in my mind.

So, yeah, I think it’s just really having that purpose, right? Location, safety, income, growth, and really protecting that lifestyle, I think is what most people when they come in want to see. That’s what they’re trying to do when they build their income plan.

Mike Guthrie: Yeah. Particularly when you’re starting to think about, like you said, like that lifestyle money, we want to make sure that there’s enough kind of money coming in each month that short-term disruptions in the market aren’t going to dramatically impact the success of your plan, because we’ve already allocated for…

Keith Ellis, Jr.: Can’t go to East Bay, I have to go to McDonald’s.

Mike Guthrie: Yeah, right.

Keith Ellis, Jr.: Although now, it’s the same cost.

Mike Guthrie: Yeah, I know, right? Yeah, I know. I know. Especially if you do DoorDash, it’s like twice a month. But we want to give our clients the confidence. Or when you’re retired, you should have the confidence to say, if there is like that short term, the market’s up, the market’s down, that you’re not concerned necessarily about it. Now, again, there will be certain levels of concern if it’s a longer term, the markets are going crazy. But those short term, hey, the market was down 500 points today. And we were going to go away this weekend. Can we still do that? I mean, the answer is, of course you can because we’ve already built this plan out. But I think that really comes from confidence around building the plan and not just going into it without the education around what your plan can do and all the great work that you’ve done up to that point that you’re able to do all the things you want to do. And then when things change, that you’ve got the flexibility potentially to, hey, add more to the safety bucket, or we need to be a little bit more aggressive, or whatever that might be, depending on what the market conditions are.

Keith Ellis, Jr.: You’re absolutely right. And part of our planning process as well is around taxes, right? I think that’s a huge piece. Everyone comes in and they’re so worried. I don’t want to say so worried, but they worry about market, market risks, so on and so forth. But to me, market risks, they’re inherent. They come and they go. It’s typical. People have gone through them before because they’ve been investing for 25, 30, 35 years.

To me, it’s more tax risks because a lot of folks have invested their money in tax-deferred accounts, 401(k)s, IRAs, 403(b) plans that have just accumulated this massive tax burden, and now, they need to start to use that money to supplement their lifestyle. And right now, say, they need $30,000 a year to supplement their lifestyle, and all of a sudden, the tax rates go up a decent amount. Now they need $40,000. Well, in order to get that 30, you probably have to pull out 40. In order to get that 40, you probably have to pull out 52, right? So, you’re depleting that asset a lot faster by not planning ahead in my opinion. So, I think, not only is market risk something that needs to be planned for. I think tax risk is a huge thing that needs to be planned for. And we do and we have been doing since about 2018 when the tax code changed, a lot of tax planning in regards to Roth planning, tax loss harvest. So, speak a little bit about that, if you don’t mind.

Mike Guthrie: Yeah, I know. I think, certainly, the lingo or the jargon, Roth conversion, it’s in the atmosphere. It’s out there. So, people hear it and they think, man, should I convert? I should, by doing this Roth conversion, I’ve got X amount of dollars saved up in my workplace retirement plan. And man, I wish I had done that in Roth my whole life.

Keith Ellis, Jr.: Everyone says that.

Mike Guthrie: Which our answer is, well, we wish you did too. But the good news is it wasn’t available, right? So, you didn’t miss anything. But can I start to take money from a tax-deferred account, which I mean, I think the number is over 90% of most retirees have the bulk of their assets in tax-deferred accounts. And when you’re taking money out initially, so let’s say you retire at 66 and you need to supplement your income with an extra $15,000, $20,000 a year, that is certainly sustainable. It’s a little bit easier to work around that, but fast forward out to when you’re now required to take a minimum amount out and everybody knows required minimum of distribution, RMDs, where through no fault of your own, other than you’ve done a great job saving, Uncle Sam says, now you have to take out $60,000 whether you need it or not and pay taxes on it.

You mentioned before, we don’t know where tax rates will be in 5, 10, 15 years. So, if we can do proactive things now to start to move money incrementally, I think, which is the key, is incrementally year to year to get money out of tax deferred, pay your taxes on it, then get it into a Roth where it’s going to grow tax free forever. And you don’t have to take it unless you want it or you need it. And when you do, you don’t have to pay taxes on it. And if legacy is important, people who inherit it also will never pay taxes on it again. So, that planning can really be impactful over the course of a retirement because now you’re reducing that potential required distribution at some point and that money that you’ve converted is growing tax free, right? So, it’s a whole other animal, like, what’s better, tax free or tax deferred? Tax free.

Keith Ellis, Jr.: Absolutely.

Mike Guthrie: If we could save you an extra 10, 15, 20, and sometimes, six figures of tax savings over the course of a lifetime, who would you rather have spending that, you, Mr. And Mrs. Client, or Uncle Sam? I think we know the answer, right? You would rather have that money in your pocket. So, again, it all comes into play and everybody’s different, right? So, how much should I do? Well, it’s really dependent on your own specific situation, your own specific tax situation. Then we can determine or help determine what’s the proper amount to potentially convert each year. And that number could be different every year.

Keith Ellis, Jr.: Changes all the time.

Mike Guthrie: It changes depending on where you are and where tax laws are. Unfortunately, we’ve got a team here that stays on top of all those things and relays that information to us and we pass it to our clients. So, I mean that tax planning is huge because it’s probably going to be your single biggest expense, or at least very close with healthcare. So, doing the right type of planning now to help you in the future is key for sure.

Keith Ellis, Jr.: And when we build the income plan, we’re inputting all the assets into this income plan, obviously, because you have to do that. And what I think it helps people understand is if they don’t, because we can take a look out, someone’s 65, what does this look like when you’re 75? How much is your RMD based upon today’s tax code? How much more taxes are you going to be paying? Are you going to be paying more in Medicare? Because you’ve delayed pulling taxes out and starting to plan ahead of this.

And then we can show you the exact opposite. What if we do do this? And we can project out, okay, how much can we get over, over the next 10 years? What impact does that have on your required minimum distribution? And I just think it’s really a nice way to, like you said, plan for the future to create some tax savings. I also look at it one more way as well. God forbid something, most folks that come in, they’re filing joint tax returns, God forbid something happened to one spouse. I know, no one wants to talk about that, think about that. But unfortunately, it’s part of our job and we see it all the time.

Well, now you’re a single tax filer. You’re inheriting your spouse’s IRA, still needing to take RMDs, and in that, you’re now paying taxes potentially at a significantly higher rate because you’re jumping through those tax brackets. So, you really are looking at it from a couple different ways, one, tax free while you’re alive, tax free to your spouse, tax free to your kids or grandkids. I mean it’s very important to start to think about this and plan ahead.

Mike Guthrie: And you mentioned it a second ago around healthcare premiums. Healthcare premiums, Medicare, is driven by your income tax bracket, right? Not necessarily just the dollar amount. So, if you go into that next tax bracket, through no fault other than the government is requiring you to take money out of your IRAs now, not because you need it, because you’re required to do it, and now suddenly, your Medicare premiums go up. And you could have done some things now, before that ahead of time to not have that happen, why wouldn’t you, right? It’s worth looking at for sure and making sure that it’s done properly because again, the term Roth conversion, like we said, is out there. So, people understand or at least conceptually have an idea of what it is. But again, there’s some nuance to it as opposed to just, I got my 401(k), let’s just convert it. You retire, get it all to Roth, and we’ll be off to the races. We don’t want to do that.

Keith Ellis, Jr.: No. I’ve had people ask me that. I said, no, no, no, no, no, no.

Mike Guthrie: Please, you can’t do that yet, right? So, there is a little bit of art to around the amount you should do and when you should do it and how much each year.

Keith Ellis, Jr.: You know, I say, one of the last questions or if not the last question, most asked questions is, are we going to be okay?

Mike Guthrie: Yeah, for sure. And I think too, if we just crossed off all these questions, didn’t say, hey, do I have enough to retire? When can I retire? How much cash should I have? What they’re really asking is, hey, look, are we going to be okay? We’ve worked our whole life, we educated our kids. We think we’ve done well. We’ve worked our tails off to save up what we have. Ultimately, are we going to be okay? And I think, from our standpoint, when you’re sitting with clients and you start to kind of step through thinking about things differently than when they were just saving, kind of the day to day, just putting money away, my life is hectic, I’m running around with the kids, I’m putting through school, college expense, and then all of a sudden, you’re on the other side of that hill, if you will, like, hey, did we do enough that we can do the things we want to do? And ultimately, are we going to be okay?

And the best way or one of the best ways, and we have a little skin in the game, so one of the best ways to figure that out is to do a plan, because if you’re just like, hey, I think this is going to work, let’s see what happens, right? No, but if you know, or at least get as close to as knowing as possible that, hey, if we do this and all the great things we did up until this point and then we build out the retirement plan, the income plan, investments, tax planning, what does healthcare look like? Do I have my will and estate and all those things in place that you go from I think we can do this to, yeah, we’re going to be okay? And then, there’s that sigh of relief when we literally put things up on the board, on the TV screen or whatever, and we’re walking clients like, hey, if you’re spending this and this is what your income is and here’s your assets and here’s potentially what might be left, another great thing I love to say to people, you know what this is telling us, and I don’t love saying this out loud, is that you could probably spend a little more and enjoy things more and then do all the things you want to do. Go get the boat or take everybody to Disney or whatever it might be. You’d be congratulated on that. And yeah, you’re going to be okay, and then some.

Keith Ellis, Jr.: And I think, like you said, just having that plan provides confidence. They can see it. We can model it out. And that’s part of our retirement road map process is, we want to build you an income plan, an investment plan, tax planning, healthcare planning, and legacy planning. And if you’d like more information on that, please visit www.SHPFinancial.com. We look forward to seeing you next time right here on the Retirement Road Map podcast.

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