Sam Maupin interviews Jason Parker about his book, Sound Retirement Planning.
Below is the full transcript:
Announcer: Welcome back America to Sound Retirement Radio, where we bring you concepts, ideas, and strategies designed to help you achieve clarity, confidence, and freedom as you prepare for and transition through retirement, and now here is your host, Jason Parker.
Jason: Seattle, Tacoma, Olympia, Gig Harbor, all the good people here in Kitsap County, and for those of you tuning in from around America via podcast, welcome back to another round of Sound Retirement Radio. I’m Jason Parker and it is my good fortune to have a friend of mine, I’ve known him since he was just a kid, he’s in the studio with me today. Sam Maupin. Sam, welcome to Sound Retirement Radio.
Sam: Thank you Jason, it’s a pleasure to be here. I’m aged, time flies.
Jason: It does. When I saw Sam again after about 10 years, he came up and gave me a hug and said, “You’re all grown up.” I knew him when he was just a kid, but recently graduated from college, real radio connoisseur, somebody that’s making a name for himself, he’s got a podcast that he’s doing, so I thought it’d be fun to have him in and help co-host the show here.
Sam: Thank you for having me Jason. I have to say it’s a pleasure to be here and to be back in big name radio.
Jason: Yeah, 1300AM KKOL, for those driving down the street this morning, but like I say, we got a lot of listeners from around the country, so welcome back and thank you for making this show awesome because it is our listeners that make it so.
Sam, I like to start every morning by renewing our mind, and I have a verse here from John Chapter 15 Verses one and two, and I want to share this with our community. It says, “I am the true grapevine and my father is the gardener. He cuts off every branch of mine that doesn’t produce fruit, and he prunes the branches that do bear fruit, so that they will produce even more.” That’s Jesus talking. That is awesome.
Sam: That is. Good verse to start off the morning and get you in a good state of mind.
Jason: Absolutely. The other one is, I have a joke. Our listeners love these jokes we come up with every Saturday morning. My daughter actually shared this one with me this morning as I was on my way in, and so … Sam, why did the cow cross the road?
Sam: I have no idea.
Jason: To go to the moooovies.
Sam: Mooooovies are good.
Sam: I wonder which new movie we’re talking about.
Jason: I don’t know but, hey have you bought your tickets for Star Wars yet?
Sam: No, I haven’t. I have quite a few friends though, especially in school, the film and video studies kids who are going crazy over the new Star Wars. I see Facebook pop up left and right with, “Have you seen this trailer and this trailer?” It’s kind of overwhelming. I can’t wait to see it, but it’s a little bit of a tidal wave right now.
Jason: Yeah. My wife bought us our tickets, so we’re going to be going not on opening day, I think on the next day because that’s just the way that it worked out, but anyhow let’s get this show started. Today’s episode 071 is the one that our listeners are listening to. It’s a little bit almost about one year past the anniversary of when my book came out, Sound Retirement Planning, and I was hoping that you and I could have a conversation about it. I know that you’ve got it actually sitting in your hands there.
Sam: I do.
Jason: Sam, you’re not a finance guy. You’re just a normal guy like most of the people that are driving down the street this morning, and there’s a lot of people in this community, a lot of people around our country that are getting ready to retire, they’re just getting ready to make this decision and they want good advice, and that’s the reason that I wrote the book, was so that they had a foundation to build from, but what kind of questions do you have on this topic?
Sam: First off, because obviously I’m just getting into the job force and trying to get up into the high ranks of employment and so forth, how would this book apply to a young person like me who’s just starting out because I’m sure on the road to retirement that there’s steps you can take beforehand, so can you tell me a little bit about that?
Jason: I’m glad you asked that question because this book actually is not tailored towards the younger person that’s 30, 40 years old, 20 years old looking at retirement. Now there’s some things in here that I think are good concepts, like having a good budget, that’s part of a good cash flow plan and that really doesn’t matter what age you are. That’s just telling your money where to go, and being disciplined, and not spending money that you don’t have. I think for a lot of young people, it’s really easy to get caught up in this race of, “Well you know, I want to have a nice car and I want to be able to go out more often”, and so they’ll spend money they don’t have. That’s never a good plan whether or not you’re 20 years old or 60 years old, so avoiding debt and living by budget.
Another good point I think that you can take away from the book if you’re just starting out, and I learned this from Steven Covey. He taught this principal of begin with the end in mind. The powerful exercise that he has in his book is to close your eyes, imagine you’re at your own funeral, and you’re sitting in the front row of the funeral as your friends and family and neighbors get up and they talk about your life. The two questions that I took away from that exercise were number one, how will you be remembered, and number two, what have you contributed?
If you start this process with those two questions kind of driving every day. The other thing Steve Jobs talked about the fact that when he was diagnosed as being very ill, that that really motivated and inspired him to appreciate every day that he had and to think about what he could do that was amazing. Any time you have a health scare or you experience a family member that has a health scare, I think that’s a good reminder of just how precious our time is, so if you’re just getting started out, I would say keep that in mind. Begin with the end in mind and go after life with a passion and a zest. Don’t just go get a job to make money. That’s not a good way to live your life. It’s not a good way to approach retirement either.
Back to the book Sam, the purpose of this book is really, really for people that are within five years of retirement that want to have a good cash flow plan, that want to have a good foundation for understanding the risks as well as how to structure a lifetime of earnings to replace their income once they retire.
Sam: Absolutely. On that note, for older people closer, I would say my parent’s age, for them as my dad’s getting closer to retirement, what would you say would be good on his end? I’ve noticed that most of my education was actually paid for through stocks and different means like that, investments in different companies, so as you get closer to retirement with possibilities for making money, taking a chance, investing in different companies and startups, what would you recommend for that?
Jason: That is a great question too because once you’re in retirement, you think about money differently, or as you’re making this transition to retirement. You’re thinking about money differently than you did during the accumulation years. When you’re your age, by all means take risks, buy the companies that you like, go be aggressive, don’t wimp out here and try to be conservative at 20- … How old are you now?
Jason: 25 years old, yeah take a lot of risks. You’ve got a lot of time on your side to recover from those and you’re going to learn a lot. In fact, if you don’t take risks and lose some money, you’re never going to get better, so we want you to take risks at 25, but once you get to be 55 and you’re turning that corner and you’re saying, “Man I’ve saved, now I’ve got my kids through college. Hopefully their house is getting close to being paid off”, they’re thinking about their money a lot different than they did in the accumulation phase because now they don’t have as much time to recover from a lot of mistakes, so we really want to emphasize that again, retirement’s about cash flow. How do you take this pile of money that you’ve accumulated and start thinking about that in terms of transitioning into retirement.
I’m a big fan of dividend pay in stocks. I think dividend pay in stocks are a cool way to create cash flow. You make an investment in a company and they basically one of the ways they reward you is by paying a dividend to shareholders. I think dividends are one way. I think you can buy bonds, but bonds can be kind of a dangerous investment tool today given that interest rates are so low, so that’s a way to generate cash flow. You can stick your money in a bank CD, and unfortunately we call those bank certificates of disappointment today because they’re paying so little interest that you’re just not really earning anything.
Sam: That’s interesting because CDs, we had a death in the family. My dad’s mother was giving us CDs and in fact that was kind of a way we got the inheritance was mostly through CDs, so why are CDs not working as well as they should and for that matter, why are things not going so well?
Jason: It’s a great big scam actually. Maybe that’s a little bit too harsh of a word, but the federal reserve has slashed interest rates down to zero. They’ve artificially kept interest rates at a very low rate where banks can go borrow money at basically 0% and then they can turn around and charge consumers 4, 5, 6% on anything from mortgages to car loans and 18,19,21% on credit cards, so it’s a great deal for the banks. As Americans, we’re financing that. We’re footing the bill for it. We’re the ones that …
The federal reserve is this really kind of unregulated entity. The people don’t get voted for to take the positions, they’re appointed, and they get to set this, they’re the ones that get to make the determination that interest rates should be as low as they are, and they’ve done that artificially, and the belief is that they’re propping up the economy. They’re trying to help the economy recover, but the people that are really paying a price for that are the retirees. They’re the people that have saved, people that are good savers, people that have money in the bank, and so CDs just aren’t the financial vehicle that they used to be.
I’ll tell you this, I met with some folks recently and they had a lot of money and they’ve always used CDs because they’re very conservative, they’re retired, and the CDs are maturing now and when you go to look for a place to roll them over, the interest rates out there are so low, so one of the questions a lot of people have is they’re looking for ways to keep their money relatively safe, but also earn a better rate of return than what the banks are offering them. Banks today, if you lock up your money for five years, you’re just hardly going to earn anything. I think last time I looked, bank CDs, one of the websites I like to look at is bankrate.com, and they were showing that interest rates were hovering right around 2% on five year bank CDs and that’s pretty lousy. You figure people interest …
The government will tell you inflation’s not more than 2%, but most people that are out there buying groceries would probably disagree with you.
Sam: Bringing things back to the book, I did do a little bit of reading beforehand, and I noticed you mentioned an IRA, and correct me if I’m getting this acronym wrong, an income retirement account, or what was the definite?
Jason: You’ve got a couple of different thing, tools, yeah. You’ve got your IRAs and there’s where people have put a lot of money, you’ve got 401Ks, 403Ds, TSPs, especially with a lot of federal employees, now a lot of the teachers have teacher’s retirement system. They have both in many instances, a defined benefit and a defined contribution, so there’s a lot of these tax advantage tools that people can use. There’s also tax advantage tools that are also retirement accounts, but they’re different in their structure. You’ve got things like US savings bonds that are tax deferred, deferred fixed annuities, so you don’t pay interest or taxes on the interest right away, you’ve got variable annuity, so there are some other tax, I don’t even know if you want to say advantage, but some tools that you can use where you don’t have to pay taxes in the immediate year.
One of the things I talk about in the book is that may not make a lot of sense. From a tax planning perspective when we’re talking about cash flow, we don’t just want income, we want tax efficient income and it’s one of the reasons I’m a big fan of the way social security currently works. With all the changes happening with social security we could see this change too, but it’s not just retirement cash flow that you want, but it’s tax efficient retirement cash flow, and knowing which pool of money you want to take out of at different times to make sure that you’re not overpaying taxes, you’re not paying too much money in tax.
In fact, I’ve got an article on Sound Retirement Planning that I think would be a good one to refer a lot of our listeners to. Especially if they’re already collecting social security income because it was actually inspired by somebody that I met with, they had a lot of CDs, the CDs were creating interest income for the every year, creating 1099 interest income, they were paying taxes on that interest income, but they weren’t necessarily spending that money, so it was causing more of their social security income to become taxable, and then everything it just kind of flows through a tax return, and they end up paying a lot more money in tax.
We were able to show them how to still keep their money relatively safe, but also reduce their income tax liability on an annual basis, so there’s some neat strategies out there, you just have to be thinking about your tax return as you’re making some of these retirement decisions.
Sam: Along that vein, if let’s say 20 years down the road I’ve been stacking up money, working hard, putting it away, investing in either an IRA or a 4K, or one of the plans that you mentioned, what would you say is a good way for me to reduce the taxes that I’m going to have to pay on that so I can continue to obviously support family, put kids through college, whatever the situation may be?
Jason: Two things I would recommend for you, especially right now, and it’s going to be tough because when you’re just getting started in the business world, you’re just trying to have enough income to be able to survive and live, it’s hard to think about saving extra, but if you have a good budget that you’re working from, that’s going to help you tell your money where to go instead of wondering where the money went at the end of every month.
The two accounts that I’d really recommend you consider maximizing, number one, is your health savings account, your HSA. You get a tax deduction when you fund it, in the year that you fund it, the account’s going to grow tax deferred, and then if you have any medical expenses, all that money comes out tax free. It’s really a great account. The way my wife and I think of that as, we think of it as we don’t really want to use it actually. We fund it as much as we can, and then when we get to retirement when we’re 65, we’re going to have this pool of money to help pay our healthcare expenses, and it’s all going to be tax free money. I’d highly recommend again, you get a tax break for funding that. I’d highly recommend it if you have a health plan that qualifies you, you have to have the appropriate type of health insurance to get that, but I would definitely think about that.
The other thing I would recommend for you is the Roth IRA. Roth IRA, you don’t get a tax break when you put money into it, but it’s tax free coming back out as long as it’s qualified, as long as you’ve met all of the requirements of the Roth IRA. The reason that that’s important Sam, is because we have 10,000 baby boomers retiring every single day in our country right now, we have social security that it’s not bringing in enough money for it to remain sustainable, so the social security trustees report says by the year 2032, we’re only going to pay .77 cents on the dollar, or something’s going to change.
Now if we end up electing somebody Like Bernie Sanders, you better believe that taxes are going to be going up by a lot, or Hillary Clinton for that matter, they’re promising that that’s what they’re saying that they’re going to do in order to deal with some of these shortfalls. Bernie Sanders especially. I listened to the last presidential debate and he wants to, and realistically I think it doesn’t matter who’s going to get elected, whether you’re a republican or a democrat, we’ve got a problem that needs to be solved and the problem is we’re spending too much money on entitlements and we’re not bringing enough revenue in, and so if we don’t solve that problem some way, it’s going to be ugly. For a young guy like you, if I were in your position, I would be betting that my tax rates are probably going to go up in the future, and so by funding the Roth IRA now, you’re going to have compounding growth on a tax free basis, that money’s going to come out tax free for the rest of your life.
One of the risks we face that I think we could see too, that with the Roth IRA, is that there could be some type of national sales tax in the future. That wouldn’t surprise me at all, so instead of taxing you on just when you earn money, tax you on when you spend money and then the Roth IRA would still end up being taxable in some ways.
Sam: You keep on mentioning the Roth IRA as opposed to the regular IRA. Can you give me a brief definition of how a Roth IRA is different from the average or traditional independent retirement account?
Jason: Yeah. That’s a great question because really the biggest difference, you basically have access to the same financial tools, so stocks, bonds, mutual funds, annuities, bank CDs, hedge funds, limited partnerships, most where there are some nuances there you have to be careful with in terms of what you put into an IRA, so you want to look at the IRS code to make sure that you’re not putting an asset inside an IRA that’s going to get you into trouble because there are some instances with some of these limited partnerships or [inaudible 00:18:10] that can get people into an ugly situation if you’re not careful, or even collectibles. You just got to be careful what you put into an IRA, but they’re essentially tax advantage accounts in one of two ways.
A traditional IRA, you get a tax break when you fund it, so you get to take that money off of the tax return, and then it’s going to grow tax deferred, but then all of that money’s going to be taxable when it comes back out. A Roth IRA, you don’t get any tax break up front, but it grows tax free and then it’s all, the money’s going to be tax free coming back out. This is especially important even for people that are getting ready to retire. It may make sense for us to say for example, delay taking somebody’s social security so that we can strategically start rolling money out of an IRA and into a Roth IRA, doing a conversion over a period of years so that we can get some of that money into a tax free status. That’s some of the type of the planning that you do for people once they get into a retirement zone.
Sam: Interesting, and definitely applicable these days. In fact, I was even talking to a friend before this interview who is my age, works in Portland, and is already putting her money into an IRA.
Jason: That’s awesome.
Sam: That’s why this is so interesting. It seems like you’re never too young to start. You’re never too young or too old to start planning ahead for what should come. Especially when it comes to stocks, investments, especially with a lot of the changing legislation that have been proposed for better or for worse. There’s a lot of ways that new companies that you can invest with, and things that could make you a lot of money, at the same time could easily go the other way, and this day and age, especially having this conversation, it’s important to keep that in mind.
Jason: I love that you bring this friend of yours up in Portland that’s started early because just this morning I was at the gym and I ran into a friend that I hadn’t seen in a couple years. He’s 49 years old and he’s hoping to be retired by the time he’s 55. That’s what you can do when you are smart about this. You don’t have to have a degree in finance, you just have to have some discipline and you have to have the desire to want to learn. America’s the greatest place in the world. Retirement is changing. This idea of just going out to the golf course and playing golf is not what most people want. It’s how are they going to spend their time? What impact are they going to have? What business are they going to start?
For me, I love the work that I do, so it’s hard for me to ever imagine wanting to retire from something that I enjoy so much, but when you think about retirement, retirement’s not going to be what it was for our grandparents where they just go and hang out and camp five days a week or play golf. I don’t think that’s what most people want anymore. They like the idea of being productive, they like adding value to their communities, and for a lot of the people that we serve, what that means is for years they’ve wanted to be more involved in their church or some of these charitable organizations that they’re passionate about and they haven’t had the time to do it, and now this next phase of life gives them that opportunity.
One of the things I’m excited about with the baby boomers going into retirement, we’re going to have so much talent, and intelligence, and passion working towards these things that are really important to people that it’s going to change the way America looks again and maybe we can make a big dent in things like people’s addictions and homelessness, and hunger in America because there’s going to be so many passionate people that have the time to actually devote all of their resources to those problems.
Sam: To go right along with that, I know we have only a short time left, but I’ve been volunteering at the local food bank in Poulsbo and it’s incredible to see the amount of people who are retired, who are spending their time to put a foot forward.
Jason: What’s been your biggest takeaway so far from that time you’ve spent at the food bank?
Sam: It’s very rewarding in a lot of ways because we have people coming in all the time that say thank you for being here and a lot of people it’s a very humbling place, and it’s a lot of ways, a judgement free place just because things come up, people have problems, everyone’s got to eat. It’s been very, I have loved being there. It’s a great group of people, and it’s fascinating to hear a lot of the people who are retired and are doing that basically not for resume builder, not for any kind of funding, but just to be able to help out and give back to the community. When you’re retired, like you brought up, the older generation who in the past spent time at the golf course, nowadays this is the time to do what you really can do. Another organization that I’m a part of is Aikido Dojo in Poulsbo, and it’s incredible to see the amount of older people that are there too. In fact, they train just as hard as the rest of us and put in a lot of time into the organization because they have time.
Jason: Yeah. That’s what I’m excited about. Like I say, America’s going to change again over the course of the next 10-20 years, and it’s going to be dramatic, and it’s going to be awesome, and that coupled with just all the technological advancements and the way the healthcare is changing, people are going to live a really long time, so there’s a lot to look forward to. I would encourage all of our listeners, get a good plan. That’s going to give them the confidence that they really need to be able to move into retirement and through retirement and to think about that question of what have you contributed. That really drives me and I hope it drives more of our listeners.
Sam, we’re out of time, but I wanted to thank you for helping me co-host this show today.
Sam: Thank you for having me. It’s been a pleasure to be here.
Jason: Thanks. Until next week, this is Jason Parker and-
Sam: Sam Maupin
Jason: Signing out.
Announcer: Information and opinions expressed here are believed to be accurate and complete, for general information only, and should not be construed as specific tax, legal, or financial advice for any individual, and does not constitute a solicitation for any securities or insurance products. Please consult with your financial professional before taking action on anything discussed in this program. Parker Financial, it’s representatives, or it’s affiliates have no liability for investment decisions or other actions taken or made by you based on the information provided in this program. All insurance related discussions are subject to the claims paying ability of the company. Investing involves risk. Jason Parker is the president of Parker Financial, an independent fee based wealth management firm located at 9057 Washington Avenue Northwest Silverdale Washington. For additional information call 1-800-514-5046, or visit us online at soundretirementplanning.com.