Tax Efficient Retirement Planning for High Earners: Rob Burnette on Social Security, IRAs, and Long-Term Care
Well, welcome back to the Slash Tax Podcast where we explore the strategies, the incentives, and the financial tools that help taxpayers, investors, and business owners legally reduce their taxes, build wealth, and make smarter financial decisions. I am your host, Heidi Henderson. And today, we're diving into a topic that always impacts everyone sooner or later, and that it is really how to combine smart financial planning with tax efficient strategies that really support your long term goals, making sure we're not essentially outliving our money. My guest today is Rob Burnett. He is the CEO of Outlook Financial Center, and this is someone with a wealth of real world financial and tax experience.
Speaker 1:Rob has worked in financial services since 1985, specializing in case design, investment management, retirement strategies, and he's licensed to offer both investment advice and insurance project. He is a registered tax partner with the IRS and participates in the IRS annual filing season program. So it's interesting. It's a little different than being a CPA. It is different than being an EA, but he does actually have to to help or assist on the actual tax strategy side.
Speaker 1:Rob is also certified as a national social security adviser, which means that he really understands not just how to build wealth, but how to preserve it and how to optimize that during your retirement, stage. His credentials include a bachelor's degree from the US Naval Academy, an MBA, and a financial planning certificate from Kaplan. And he's a member of a number of different financial organizations, which include the Million Dollar Roundtable Court of the Table, the International Association of Registered Financial Consultants, and Ed Slot's Master Elite IRA Advisor Group. His commentary has been featured on some major outlets, actually USA Today, Barron's, Forbes, MarketWatch, WDTN in Daytona, and WHIO in day in Dayton. Excuse me.
Speaker 1:So today, we're gonna unpack what taxpayers should be thinking about, what to know about tax efficient investing, some social security strategies, IRA planning, and really how to build a financial plan that doesn't just grow, but really you're protected. And so with that, those long introduction, Rob, thanks for your patience. But welcome to the show. I'm excited to have you.
Speaker 2:Excited to be here. The introduction's almost embarrassing.
Speaker 1:I know. When you hear it all like that, you're like, okay. Stop. I'm I'm blushing. I think it's really cool that you went to the Naval Academy, and you shared something with me about your your experience there and what you studied.
Speaker 1:So why don't you share that with listeners? It's it it I think it's always fascinating how people evolve and reinvent themselves throughout their careers. So tell me a little bit about, about how you started there, what you studied, and then how you got here.
Speaker 2:My original degree is in electrical engineering. I graduated from the Naval Academy and then went into the Navy nuclear power program after that. And so I was assigned to submarines and my specialty was in the engineering plan. So I actually ran nuclear power plants. I was a qualified chief engineer on nuclear power plants.
Speaker 2:And so people have asked me, say, well, how do make the transition from that to financial services? But one of the things I will say is I don't care what the engineering discipline is. They teach you how to think, how to problem solve. And quite frankly, that's a transferable skill into the financial community. Yes.
Speaker 2:You have a different set of tools, different set of expectations. You don't have to worry about a nuclear reactor, involved in that. But the the whole concept is we are in the business of problem solving. And I tell my clients that, you know, my original training, was in engineering. In fact, I call myself a recovering engineer because I I try to stay out of the weeds.
Speaker 2:Lori, who's my stepdaughter, works with me. She's fully licensed. We do all of our meetings with clients together because we want the clients to have a a feeling that more than one person is hearing them. And if they call in and need help, it really doesn't matter which one of us they get. And if I start to go into the weeds too deep, then she kicks me under the table, and she has permission to do that.
Speaker 1:Perfect. Amazing. I mean, I I love what you're saying, and it's really funny that you have the synergies work, but, you know, I always joke that I'm a reformed accountant. So I appreciate that you are a reformed engineer. And in looking at how all of this comes together in a sense, at at Engineered Tax Services, we are technically an engineering firm.
Speaker 1:And a lot of people, they they always try to understand what you know, engineered tax services. What is this? So I I don't get it. You know, there's this engineering piece. There's this tax piece.
Speaker 1:And we we employ a number of tax attorneys, a number of licensed engineers. How does that all correlate to the tax code? So it's really interesting that you have a background in that. I love your feedback as well in terms of really that that career or that that educational direction really gave you the tools to think at the process. My son's actually going to UNLV right now studying, electrical engineering.
Speaker 1:And so I think it's really interesting, and I love exploring how people have evolved from where they started and then how they've ended up. So now that you're in this space and you have kinda come more into the financial consulting space, what do you love about that? What are you doing with clients that that, I guess, inspires you every day?
Speaker 2:As an engineer, you're just naturally a problem solver. So I look at every couple that comes in as a new puzzle to solve. Nobody's exactly the same. And what I tell them is there's a wide range of tools and strategies and products and just a wealth of things that are available, but what makes sense to you? That's really our job is to take the world of here's everything, which will overwhelm anybody because the Internet tries to figure this out for themselves.
Speaker 2:Mhmm. Narrow it down to something. This is what makes sense to you based on our conversations, based on what you're trying to accomplish. And I tell these, the prospects when they're in, I have no idea what your end solution looks like until I do the work because it's not gonna be the same. Yeah.
Speaker 2:I've I've got a big toolkit, and I'm gonna pull, you know, some of the tools I use often, some I use rarely, once again, depending on the conversation. But when I have people calling in and and trying to, get my business on a business to business level Yeah. They'll ask me, well, how much production did you do? Who do you use? I love the who do you use question.
Speaker 2:I said, whoever's the best person or best company or best service at that time. So when I go through it and put a a plan together, I'm talking all high level strategies. I don't talk products. I don't talk to individual services. If the strategy doesn't make sense to you, you're not comfortable with that, then we probably just, need to depart friends.
Speaker 2:I get into those kind of details in the implementation phase. If I've got a particular product or service I wanna implement into the plan and I've got a choice of which ones I'm gonna use, I'll make that choice typically the day before they come in. I wanna get the most current because financial companies are constantly innovating, and I wanna take advantage of that. And so I wanna be able to look the client in the eye and says, this is the best solution I can come up with literally today because we've taken the time to this is the strategy we wanna implement. Here are the companies or the services that we're going to deploy and over in order to achieve what you you wanna achieve.
Speaker 2:I'm independent. I'm series 65 licensed, which means I I act in the fiduciary capacity. I have to keep their interest ahead of mine at all times. And at the end of the day, you've gotta be comfortable with it. I I jokingly tell them I'm applying to you guys are the CEOs of your operation if if it's a couple.
Speaker 2:I said, I'm applying to be your CFO. That's my role. I can be fired. You guys don't wanna fire each other. That that gets into ugly stuff, and we really don't wanna go there.
Speaker 2:But the idea is if you're not comfortable, then we're just not gonna do it. Or if I propose something, you don't understand it, I'm not gonna implement it until you either do understand it or say, okay. We just need to go find a different direction. And we've been around, this long enough that there's no one, you know, silver bullet solution to anybody's scenario. You know?
Speaker 2:I I lovely joke says, when you walk into my office, I I don't have the answer for you in the bottom left hand drawer of my desk. That's a very different business model. That's one of things I spend some time on too. What are the business models? If you compare you know, take some some of the bigger names.
Speaker 2:You take the, the Raymond James, the Edward Jones, the AmeriPrizes. Those are fine companies. They've got a different business model than I have. Doesn't make me better or worse, but it does make me different. Yeah.
Speaker 2:And so part of the education to the to the client is which business model are you comfortable in? Not everybody likes mine. I'm okay with that.
Speaker 1:Mhmm. Interesting. So tell me a little bit as we get really into the weeds as to how you are working with clients and what that looks like. I have always found, and and many of the clients that we have discussions with find, that there is there is a bit of a disconnect between you've got an individual who's a taxpayer. They typically have a CPA or a tax preparer or an accounting firm that's assisting them on tax preparation and compliance.
Speaker 1:Many people have a wealth adviser or someone helping them on the financial planning side. Or if they're getting close to retiring and they're starting to say, oh, you know, I've been investing in my four zero one k. I'm growing that. Maybe I have a little bit here and there, but haven't really jumped in anything really dramatic. How how do you typically work with clients in sort of merging those two worlds?
Speaker 1:Because I often feel like there's a there's a there's a what I would call large crevasse between the two professions and the two advisers on how they work or oftentimes don't work together in collaboration.
Speaker 2:Yeah. I like to think of it as different silos. So you've got the tax silo. You've got the investment silo. You've got the insurance silo.
Speaker 2:And those three folks have very different perspectives, which is a good thing. Mhmm. But they may give you conflicting advice. That's where you talk about that that abyss that's between the two of them. Well, who deconflicts that?
Speaker 2:One of the things that we do since we've got, experience in all of those areas, that's what we bring to the table. So when you sit down and we look at these situations, each decision that we make, we're gonna talk about the tax impact, the good, the bad, the ugly. Now we tell clients that. The first meeting is all data and discovery. The second meeting is we call it our findings meeting.
Speaker 2:Good, the bad, the ugly, whatever the case might be. And we'll lay out an income plan that goes from today through our typical planning horizons around age 90. Now, I have a couple of clients that know, looked at me and says, you know what? No male in our families live past 70. Wow.
Speaker 2:They've got a very different planning scenario
Speaker 1:Mhmm.
Speaker 2:Situation. I have others where, one of my clients, her dad was the youngest of three brothers. He passed away at 95. The youngest one passed, the next one passed away at 98, and the other one was a 101. So I just looked at her and said, I want to put up with you for a very long time.
Speaker 2:She said, yep. Probably. So that's all gets factored into it. Yeah. We've got the numbers.
Speaker 2:We got the actuarial numbers, but let's go dig down and find out what's really going on under the scene because when we put this plan together, we don't want you to get out to, say, 85, and all of a sudden, you're out of money. Nobody wants that. Nobody wants to have to go back to work. Nobody wants nobody wants to have to learn one of the two phrases I tell people about. First one is welcome to Walmart.
Speaker 2:Now if you wanna go out and be a greeter at Walmart because you want something to do, you want a social interaction, that's perfectly fine. I don't want you to have to for financial reasons. I had a friend of mine, his dad was a a greeter at Walmart until he was about 94.
Speaker 1:Wow.
Speaker 2:He just loved it. He loved working with me.
Speaker 1:It's different it's a choice, and it's something you wanna do for social or other reasons just to get out of the world. But, you know, the other side of it too is is the burden that you could be on other family members or on children who at some point may have to take care of you because you don't have the resources to be able to afford assisted living or some other type of medical needs at a late stage. I mean, I think that's become something that's I think, at the forefront these days, which is the cost of healthcare.
Speaker 2:It is. And we have a number of couples that part of the reason for coming in was mom and dad had to go through some extensive long term care scenarios, nursing homes, things of that nature. And we don't wanna, it was hard on us and we don't wanna do that to our kids. Yeah. So that recognition is really helpful in getting people to look at, well, how does that fit into the plan?
Speaker 2:Now, I tell clients that said, you know, the average long term care scenario for a guy is just under two years for a woman is just under three. So if you look at long term care products, that's kind of how they're priced. Now, the last long term care product I sold was in 2008.
Speaker 1:Wow.
Speaker 2:I don't believe in them. Now, I've got a bunch of folks out there I probably just ticked off, that's okay. I believe in planning for long term care, but I do that using hybrid insurance policies that have long term care riders. From a budget viewpoint, those things, once you've got the contract, you know the price. Long term care is underwritten and priced like health insurance.
Speaker 2:So it's subject to increases and we've seen that. When the long term care industry first started, they were very aggressively priced. They really underestimated how long people were going to live and the expenses were going to go. So that's why we saw that period of upheaval where, used to have hundreds of companies in that business. Now you're down to a handful.
Speaker 2:Just not many people survive that. Their pricing is much better today because they've had a lot more experience, and they're better at it than they were ten, fifteen years ago when some of these products were first coming out. I like using the insurance approach because the insurance companies, they're going to underwrite based on mortality, not necessarily like a health insurance policy. So, you're going to get, once that contract's in place, you know what the premium's gonna be. It's not changing.
Speaker 2:You've got a contract in that regard. And then you know an insurance company says, okay, what's my exposure? My exposure's to death benefit. Whether I pay that out lump sum or in a series of payments because they invoke the rider for long term care. I just think it's a much more stable, predictable solution than long term care insurance.
Speaker 2:Some of the older long term care policies that are still in force, they're awesome. They create terrific benefits, but they're getting expensive. I've had clients that have to either cut back on the benefit or drop them because they can't afford
Speaker 1:Good insights. Can we walk into a specific scenario? Like, if it's okay, can I pose a situation and have you kind of walk through a little bit of how you would work through a taxpayer in that situation and some of the, you know, just ideas of some of the strategies that you typically deploy?
Speaker 2:That would be great. Let's do it.
Speaker 1:Okay. That's what the engineer loves. Yeah. There you go. Let's work on some problem solving.
Speaker 1:Because I think I think two listeners really like to understand something that's really tangible, you know, that's rather than just kinda theoretical. So so let's take the case of a a high income earner. Let's call it, you know, $707,150,000 dollars a year of current w two income as an employee. Mhmm. Married with a spouse also working with a smaller w two income.
Speaker 1:High tax brackets. Some brokerage accounts. Maybe call it, you know, one rental property on the side. It was their primary. They converted it to a rental, and they moved into something different.
Speaker 1:So there's a little bit of rental income, not much. And then, you know, their typical retirement accounts. So they're saving on that stuff. They're in their, let's call it, late forties and beginning to say, you know, right now, I'm paying a lot in tax, income tax. It's all coming through w twos and highest top tax bracket.
Speaker 1:What what are some strategies you would start to look at in that case scenario?
Speaker 2:One of the things I would look at, first is, when I look at their w two income, I'm not gonna tell them to go volunteer for a pay cut. That doesn't make any sense. But what we look at is how does how is it all w two income? Is it structured? Are there bonuses involved in there that maybe we could defer, maybe convert, to a nondeferred compensation plan?
Speaker 2:Just look at what are the various buckets of money that we can still get the income but affect the way it's taxed. The other thing we look at in those kind of cases too is people say, well, I can make a bunch of charitable contributions. Well, those have phase outs as well, so we need to go take a look at, does it really matter? I have one client who is single, has two kids, makes a terrific income. But because she's single, she doesn't get the benefit of some of those higher income tackles brackets and write offs.
Speaker 2:So she comes back and says, all all my deductions went away. I said, yeah. You make too much money. I'm sorry. Yep.
Speaker 2:There's nothing I can do about that today. Mhmm. But then what I wanna plan for is as they get older, let's look at, do they have charitable inclinations? Can we use, donor advised funds to help offset some tax and charitable gift trusts, whatever the case might be. It says, these are things I want to do.
Speaker 2:I'm gonna wanna do them later. But if I can get tax benefit today, let's go look at that and get the tax benefit today. High income people are typically the toughest ones to set up for because they're past all the phase outs. That's the really painful part. And telling them that, they don't like that part either.
Speaker 2:One of the other things I will look at too is sometimes and they're filing jointly, and people say, well, that's always the best thing if you're married. That's not always true. You need to look at the tax structure. Where's the income coming from? So there was a a five year period before my wife retired.
Speaker 2:Yeah, I'm still working because I love what I do.
Speaker 1:Me too. My husband's retired, but I'm still working because I love what I do.
Speaker 2:There was a five year stretch before she retired that three of those five years we filed separately.
Speaker 1:Mhmm.
Speaker 2:Because of how the just the nature of how our incomes got together, where the money came from, it actually and the thing we look at, and I do this for all of our married couples, what's the net benefit to the household?
Speaker 1:Mhmm.
Speaker 2:So if I file separately and the net benefit is the household, pays, you know, a thousand dollars less in taxes or we increase the refund by that amount, then that makes perfect sense. Now my wife liked it when I did that because she always got the refund check and I always had the right one. So she was perfectly happy with this, but don't be just don't think because we're married, we've gotta file that way.
Speaker 1:Mhmm.
Speaker 2:Just take a look at it. And anybody who's a professional tax preparer, you know, in my program, I push a button. Mhmm. And it automatically does a split. I answer a couple of questions about how I want the different things, divvied up between the two.
Speaker 2:And then I get an answer, I get a report saying, okay, this doesn't make any sense for this client, or you know what? Maybe we ought to do it this way. Just don't think you've got the answer before you actually sit down and look at the data, look and do the work. So that's one of the tax things that we always do is we always do a split return, or here's another another scenario you have where you've got a divorce situation where you've got a they have joint custody. The kids spend pretty much equal time between to do, but they one of them gets the tax deduction this year.
Speaker 2:One of them gets the tax deduction the next year. Well, what's the filing status on the year you don't have the child? Mhmm. Do you qualify for head of household? I've had people come in there and I show them that, well, you actually do.
Speaker 2:Here's why. And I say, wow. I get a lot more money back. Yeah. And the free tax software will not tell you that.
Speaker 2:In fact, it won't let you do that. So we're always looking for ways we can do that. If I go back to our high earner couple, then I'm gonna look at their brokerage accounts. They're I'm gonna look at how they're invested, particularly in the taxable accounts, because that's where I wanna look at. I don't wanna create an additional tax burden if I can avoid it.
Speaker 2:So I'm gonna look at tax loss harvesting concepts. I'm gonna look at municipal investments that are, at least the income portion is tax free. And when I look at that, I typically, in my practice, I use a lot of exchange traded funds because of the tax efficiency they provide versus a mutual fund. A lot of people don't wanna mess around with individual, stock choices. That's actually the most efficient way to do it, but a lot of people just it clutters their mind too much.
Speaker 2:They may have three or four individuals they own, but everything else is often an exchange traded fund or something like that. When I look at what they're invested in, okay, what kind of dividends does it throw off? What kind of interest income is there foreign income involved in it? I can look at a foreign tax credit. When I look at all that, I say, well, in a taxable account, if I can use tax loss harvesting and and select the investments, what I wanna do is grow the account without a tax bill that goes along with it.
Speaker 2:I have a number of clients that came to me because their previous advisors did a great job in growing their account, but they created a huge tax bill for them. And they didn't like that part. So those folks are still clients to this day because I kinda walked them through how you avoid that. I said, if it's in a IRA account or a Roth IRA account or a four zero one k, that's not an issue today. It'll become an issue later once you leave service, once you take that account and move it somewhere, then we start looking at, well, when's the right time to do a Roth conversion?
Speaker 2:If you're making $750,000 a year, that's going be a large taxable event period. But over the long haul, it may make sense to do smaller conversions over time until you hit retirement. So now you've met all the five year periods for Roth IRAs. If you wanna do a backdoor Roth IRA, you can certainly do that. There's no limit on conversions so that we kind of talk about, let's do some conversions because I have an income issue limit with the conversions.
Speaker 2:And these are just all the things you just kind of lay out and you run the what if scenarios. What if I do this? What if I do that? How does that manifest itself? Because we wanna make sure too, at the end of the day that, you know, when I look at the ninety year planning horizon, I wanna make sure there's enough money there to handle any late in life long term care issues.
Speaker 2:Want you to be able to choose where you go.
Speaker 1:So talk talk then a little bit because you mentioned earlier a little bit about insurance, and it's not an area that I I have dabbled in a whole lot. But I know that there are a number of different investment strategies that are available that can be smart investments, but they're also fantastic for mitigating risk. And I know, you know, aside from just a typical term life policy, there can be other type of investment type structures for investment. Is that something you're also exploring and working with clients on?
Speaker 2:Yeah. If it makes sense, the answer is yes. If you look into the insurance world, there's a couple of things you can look into. You
Speaker 1:can
Speaker 2:look into if you have a cash value life insurance plan, that's the index universal life, universal life, whole life, something like that. They have a savings component within it. I don't call them investments because they're not, but it is a savings component. Inside those, products, the underlying values grow tax deferred. That's a good thing.
Speaker 2:And then you're only gonna, get a taxable event with those when you start withdrawing those funds. One of the things I tell clients, well, let's not withdraw the funds. Let's take a loan. Because typically, depending on the company you go with, what we wanna do is we want that loan to not come out of your policy. We want it to come out of the general account of the insurance company.
Speaker 2:So let's say you've got a large life insurance policy. It's got a you know, for the the couple we're talking about, maybe they've got a a $10,000,000 face policy, and they've got a million dollars of cash in it. So if they wanna take, money out of that policy, if they withdraw it, they may impair their performance of the product. K. We don't want that.
Speaker 2:So what the insurance companies will do is, well, here's what we'll do. We'll give you the loan. Let's let's say they wanna pay for a daughter's wedding. I joke one of my friends. He's got five daughters.
Speaker 1:Oh my goodness. Ask me. But
Speaker 2:let's say you wanna take out some they they wanna take out $30,000 out of their cash value to, fund a wedding. I've seen people do them for things like that. I've seen it for, they wanna buy a new vehicle, but they don't wanna finance it. They don't wanna pay cash for it. They wanna keep all their money working for them.
Speaker 2:And so if we take it out as a loan, a lot of the companies, because if they leave the contract in place, then that contract is allowed to continue to grow and perform. Now, if they pass away, then they're gonna say, okay, here's the death benefit. I'm gonna reduce the death benefit by the amount of the loan, and then I'll pay the heirs whatever's left over. The beauty of that is what I tell my clients is, look, if you don't wanna ever pay off that loan, you don't have to, as long as the loan doesn't get into a lapse situation. Or if you want to, at least pay the interest on it so that's not compounding.
Speaker 2:And if you wanna pay it off, you can do it at your own leisure. There's no deadline on that. So it gets back up and I have clients doing that as well. It gets back up to full amount and say, okay, now we've got our next thing. But it's a great tax advantaged way of doing things, but you're still maintaining the death benefit while you're doing it.
Speaker 1:What's the ideal age for someone to do that? I mean, is there a point where if someone's at a certain age, it doesn't make sense to do it because it's maybe too late? Or, I mean, what and what's, like, the typical funding structure for something or size of a a a a vehicle like that?
Speaker 2:Well, if I take the the client couple you gave me, they could probably afford a premium of anywhere from 10 to $20,000 a year into one of these contracts without breaking a sweat. Mhmm. You like to buy them earlier because your proximity to the statutory age of when they expect you to pass away is well into the future. When you hit in the fifties, the curve, cost curve in insurance starts to ramp up. When you hit the late fifties or early sixties, then it starts to take that hockey stick shape.
Speaker 2:Yep. So what I tell clients, you know, when I talk about long term care insurance policies like that, if they've got the means to do them earlier, then I'll talk about them. Otherwise, at 50 is kind of the time I like to talk about them because the cost of insurance hasn't gotten out of control yet. So that's kind of the early window. And that's also when I'll start talking about, okay, we need to talk about long term care now, planning for that.
Speaker 2:If I can get them to do it at 50, it costs a whole lot less than if we wait till 60. So it gets down into it becomes a budget issue, not so much a strategy issue. So sooner is better. I've put other programs together. I have a doctor's in one of these programs.
Speaker 2:He's gonna paint his contract for ten years and he's done.
Speaker 1:That's my next question is like, if there's a typical pay in period.
Speaker 2:Yeah, and in this particular case, it's a 50,000 a year for ten years.
Speaker 1:Okay.
Speaker 2:And then when he retires at age 65, based on numbers today, I expect these numbers to go up just because of the earning capacity of of the underlying contract. You know, he'll get a $179,000 a year, and we'll take it out as a loan. So a loan is not income. So, that's a $179,000 a year tax free. He likes that.
Speaker 1:Yeah.
Speaker 2:And right now, he's making he's a a vascular surgeon, so he makes stupid amounts of money.
Speaker 1:I'm just stupid at that.
Speaker 2:He's very, very good at what he does. Yeah. And just very personable too. He's fun to work with.
Speaker 1:Yeah. Okay. So that's typically a vehicle for that's that's good for someone that's making a lot of money right now and can be a good tax free option for building wealth and then having some resources on the back end.
Speaker 2:Yeah. Because what I tell people, there's a lot of living benefits to life insurance and that's one of them. You can set up a retirement income stream out of a life insurance contract that has tax favorable status, nothing wrong with doing that. And like I said, having that tax there, the other thing I use particularly for younger families, I'll use a similar strategy, lower dollar amounts, because they wanna send their their help their kids go through college. So we look at, okay.
Speaker 2:How much money do we have to put aside today in order to generate, let's say and what I tell my clients is, I really don't want you to tell your kids you're gonna pay for their college. I want them to have some skin in the game. So one of the cases I did, we wanna make sure we have at least $50,000 available at the end of, the child's college venue. Because at the time, she's taking out the loans, doesn't have to pay them back or start paying them back until six months after graduation. I said, get all those you want.
Speaker 2:And so at the end, as we were going into that college planning cycle, the I I wasn't, I was their insurance agent, financial adviser. I wasn't their college planner at the time.
Speaker 1:Yep. Yeah.
Speaker 2:The college planner looked at me and said, so do we have $50,000 available in the account to offset these expenses? And I kinda looked at him and I said, no. And my client just stopped and looked at me and said, hey. We've got 80.
Speaker 1:Wow.
Speaker 2:Because we've had a really good stretch, here. And so, you know, that was a case of when she graduated from college, she went to a school that cost about $70,000 a year. And when she graduated, her total college debt was 71,000.
Speaker 1:Wow.
Speaker 2:Our our goal was let's let's the the goal was take your start starting salary. We we want you to graduate with debt less than half of your starting salary. Her starting salary is about 95,000 a year. She was in a very high end biomedical engineering
Speaker 1:Okay.
Speaker 2:Program. Okay. This girl was just wicked smart.
Speaker 1:She really was. Amazing.
Speaker 2:And so, dad said, you only had 71,000 left. We got 80 in the account. Yeah. I'll cover it. But she didn't know that until the day he covered it.
Speaker 1:Well, for people who you know, if I go back to that prior example of the the, you know, the high income earner we were talking about late forties, and maybe now they're at the stage where maybe their kids are in high school or already in college. Mhmm. Maybe they saved, maybe they didn't for those children. But is there anything for people that are in a you know, their kids aren't young anymore, and now they're, you know, at this, you know, kind of sort of mid stage, I guess, in life still working. Mhmm.
Speaker 1:The kids are out of the house. Do you have any recommendations? What do you typically suggest for people with adult kids? Is there any reason to be investing in accounts for children once they're adults for future planning or for estate planning with how how wealth transfers? Or do you primarily just focus on the individual and building their wealth and then how it transfers later as is handled through the trust.
Speaker 2:We'll do we'll do a little bit of both. So as these kids are growing up, some of them will have five twenty nine plans. I'm not a fan of five twenty nine plans, but everybody should have one. Mhmm. Five twenty nine plans, the idea behind it is that's going to impact the eligibility for financial aid.
Speaker 2:It's gonna make the colleges want to give you less. Mhmm. Who think that the, the college loan officer, or college age officer at the college is your friend. That is not true. Their job is to make sure that you send your child to school and you pay the maximum amount possible.
Speaker 2:What they really want is they wanna have successful, generous alumni. That's how you you start to see, you know, somebody just didn't all of a sudden, come down from heaven and bestow, you know, a $50,000,000,000 endowment on Harvard. They got there because they had a lot of very successful, a lot of generous alumni. And at the end of the day, that's really what the colleges want. Okay.
Speaker 2:They wanna make the money they've got to spend spread as far as they can. So understand that college aid officer has a different agenda than you do. So when I'm looking at these situations, the the thing that I always go back to is we wanna help our kids, but don't impair your retirement doing it. Mhmm. I've seen that happen too, where the parents say, okay.
Speaker 2:Four kids say, we're gonna put all of our kids from school. We're gonna pay for it all, and they're, gonna graduate with no debt. That's honorable. They didn't have the income to support that. Okay.
Speaker 2:So they've had to take a reduction in lifestyle and they didn't take a huge reduction, but, they sold their house. They moved into something smaller. They really didn't wanna do that, but they really didn't have a choice either. Wow. So where they're living at, their their current circumstance, they're doing just fine.
Speaker 2:I'm not worried about them long term, but they took a bigger hit, in retirement than they expected to. But once again, when you send four kids to college and they send them to go to colleges, yeah, that hurt.
Speaker 1:Yeah. Absolutely. Yeah. I mean, you know, it seems like education and health care are a couple of just massive issues. You know, as we start to wind down a little bit in our conversation, you know, final thoughts on any of the legislative changes or, you know, where we're headed?
Speaker 1:I mean, you know, sometimes I read things in the news about, you know, the baby boomers and the number of retirees, social you security becoming an issue with its ability to fund retirement, social security payments for the population, as well as always the way we deal with political changes. In my space with dealing with the tax implications and incentives, it's like we are constantly in this influx of ups and downs as tax laws change from administration to administration. Do you see anything as it stands right now, this you know, last year, I guess, I keep forgetting it's already been a year. We've almost had the one big beautiful bill. Anything significant there in terms of changes that you've seen impact investors that that people aren't paying attention to yet?
Speaker 2:Well, the biggest thing, the one big beautiful bill did was freeze the tax rates at the the the place that they were. It's okay. We've made permanent, the the tax rates that were passed originally in 2017. People have to understand permanent in Congress means until we change our mind. There is nothing permanent about any of this because it's given us some stability.
Speaker 2:Because the thing we didn't have the previous two years is we thought these things were gonna expire January 1. Mhmm. And so there are a lot of us in my world were scrambling on how are we going to adjust and adapt to that? So we had a lot of contingencies in place to go deal with that. That passed.
Speaker 2:Okay. That's good. President Trump wanted to have no tax on social security. We didn't get quite that because the reconciliation process wouldn't allow a policy change. So that's where we have the $6,000 for people aged 65 and older, an extra 6,000 deduction.
Speaker 2:But any good deal in the tax code always has a sunset provision. So that one's four years.
Speaker 1:Mhmm.
Speaker 2:I I joke with with clients with that. It says, if you wanna pass pass a tax increase, that has no sunset. Now when we're we're fighting about the, the enhanced subsidies for the Affordable Care Act that were passed during the COVID Mhmm. I'm sitting there, and I don't know what political party everybody is but let's just let's look at the data. The Affordable Care Act was passed without a single Republican vote.
Speaker 2:The sunset provision was passed without a single Republican vote. The the Democrats put the sunset provision in that we're fighting about now and they're trying to blame the Republicans for it. Okay. That's just not has no foundation in reality. It's not how it happened.
Speaker 2:But here's what I do tell clients. I'll ask clients, I'll look at the investment market. Is it better to have a democrat president in administration or a republican administration? And most people will say, oh, the republican. I said, actually, no.
Speaker 2:It's actually the democrats by a hair. Here's what happens. This is one of the things that we do as investment advisers. I watch all the the political news I can. My wife goes crazy when I do that.
Speaker 2:Why are you watching that stuff all the time? I said, it's because it matters in my business. Yeah. I said, so if I've got a Republican administration, I know how they're they think. I know what's important to them, and I know what sectors of the investment market respond well to that.
Speaker 2:Go back to the other direction. If I get a democrat administration, okay, they look at things very differently. What Wall Street has figured out is we can make money either way. It doesn't matter to us. So it's a matter of do we wanna work in a more regulated environment, or do you wanna work in a more free market capitalistic environment?
Speaker 2:You can make money in both. And so if I go back and I look at, the twenty sixteen election, Hillary Clinton was, expected to be our first female president. 92% probability. Well, it didn't happen. What did the market do the next day?
Speaker 2:It cratered because the analysts didn't get what they expected. About three days later, they figured out, you know what? This guy is gonna be good for business on the free market side. We can make money there too. And the market took off.
Speaker 2:Yeah. So, you know, just have a fun telling people, here's the history behind it. If you're going into an election, you're see more volatility because there's uncertainty. The investors and the analysts don't know where the market's going. Yeah.
Speaker 2:Once you get closer to an election, you have a better feel for what the outcome's gonna be. And sometimes you get it wrong, but they're gonna lock in their choices and the market will respond to it. So, don't get too excited on, changes in the presidents and administrations. Everybody gets fired up about it. But from the investment world, it's just a matter of, okay.
Speaker 2:I'm shooting at the left target instead of the right target.
Speaker 1:Yeah. I it's a great perspective. I mean, I I appreciate that because I, I have seen and I hear a lot of alarmist type conversations or messaging that comes out during election times and and just depending on which way elections are gonna go. I get asked that question all the time as well. It's okay.
Speaker 1:Bonus depreciation is made permanent, or we have a current tax bill, but is that gonna be changed? Are they gonna take it away? And, you know, the perception that you just stated is really fantastic in the sense that, you know, we've learned how to make money either way. And another thing that I often tell people is is these tax bills, they are quite effective. You know, whether agree or disagree, the incentives typically that are put in place do cause reactive movement towards things that are incentivized.
Speaker 1:And so right now, it's highly incentivized to buy equipment, to operate entrepreneur businesses, to buy real estate and utilize bonus depreciation, to do things that have those incentives tacked onto them that create tax shelters or tax deferrals, and and people react to that accordingly. And if it changes and goes away, it always seems there's something else. And people tend to react to those and then begin to, you know, do what is going to be most advantageous one way or the other. So in a way, it keeps things interesting.
Speaker 2:In It does. I had a friend of mine, not a client, and he was complaining to me, last year that I had to write a $50,000 check to the IRS. I didn't like that. I said, well, why'd you do that? Well, that's well, it's the tax bill.
Speaker 2:I said, wait a minute. He's he's in the transportation business. Why don't you buy another Sprinter truck? Yep. Write that $50,000 to something that's gonna generate revenue for you.
Speaker 2:Mhmm. Well, my CPA didn't tell me about that. You need a new CPA. I'll just leave it at that because in my world, I'm always talking to CPAs or the CPAs of my clients that it's fourth quarter. How can we reduce their tax bill?
Speaker 2:Let's look forward. Is there equipment they need? And that that's typically the the biggest thing that we look at, particularly from a small business owner who's got a fleet of trucks. Does he need another truck? Let's go get him another truck.
Speaker 2:He he hires another driver. He makes more money. He likes that part.
Speaker 1:Yep.
Speaker 2:So let's be smart about it.
Speaker 1:Yep. Absolutely. Well, Rob, I'm so appreciative of you joining me today. It's been such a fun conversation that I I love the the back and forth. I love learning from people and really seeing how people have built and developed their careers in areas that they they love and and have become experts, and you clearly have done that.
Speaker 1:Your ability of how you're bridging sort of financial planning with some tax strategy and understanding retirement options, it's valuable. And we have so many listeners who are always looking for resources and looking for someone that they can, they can lean on for some of that guidance because it's unbelievably complex. But for those listening, if you wanna connect with Rob or you wanna learn more about financial or Outlook Financial Center, I will have links in the show notes so you can always explore his work. You can check out his resources as well. And then before we sign off, a really quick thank you, of course, to our sponsor, Engineered Tax Services, who is the largest specialty tax firm for over twenty five years, and ETS partners with taxpayers and CPA firms to unlock major incentives like cost segregation, r and d credits, one seventy nine d, and more.
Speaker 1:If you wanna make sure that you're capturing those incentives legally and anything that's available to to you, check out the link in the show notes. And if you enjoyed this episode, please follow the SlashTax podcast and leave a review and share it with a friend. Always appreciate that and, hope that you can benefit from smarter financial and tax planning. Signing off, I'm Heidi Henderson. Until next time, stay informed, stay strategic, and keep slashing your tax bill the smart way.
Speaker 1:So, Rob, thank you so much for joining.
Speaker 2:Thanks for having me.