Roth Ladder Conversions and How to Kick the IRS Out of Your Retirement Plan

February 20, 2022 00:47:55
Roth Ladder Conversions and How to Kick the IRS Out of Your Retirement Plan
Retirement Results
Roth Ladder Conversions and How to Kick the IRS Out of Your Retirement Plan

Feb 20 2022 | 00:47:55

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Show Notes

On this episode of the Active Wealth Show, Ford gives a market update and discusses how geopolitical events have affected the markets historically. You will also learn how a Roth IRA can be an investor’s most valuable tool in their portfolio.
Activators, if you’d like to get more information you can call us at (770) 685-1777 or go to www.ActiveWealthShow.com and set an appointment. We will give you a free portfolio analysis and a free financial plan to your 95th birthday. We’ll see you next week on the Active Wealth Show!

Schedule a conversation with Ford now: ActiveWealth.com
Watch more episodes: www.ActiveWealthShow.com/podcast
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AWR SHOW 0218.mp3: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Producer Sam Davis:
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Producer:
Welcome to the Active Wealth show with your host Ford Stokes! Ford is a fiduciary and licensed financial advisor who places your needs first. He’ll help you protect and grow your wealth. The Active Wealth Show has grown because activators like you want to activate their retirement planning with sound tax efficient again and now your host Ford Stokes

Ford Stokes:
And welcome activators. The Active Wealth Show on Ford Stokes, your chief financial advisor and I’ve got Sam Davis, our executive producer, here with me, Sam. Say hi to the folks.

Producer Sam Davis:
Welcome to the weekend activators. Happy to have you here in Atlanta, Georgia, listening to the Active Wealth Show and we’ve got a lot to talk about today. So stay tuned.

Ford Stokes:
Absolutely. We have a lot to talk about. So I wanted to kind of just talk through several things that a lot of people have had questions about. We’ve gotten calls this week. Also, if you want to know what to do during this Russia Ukraine stuff, we’re going to have information on that about geopolitical events and what’s happened in the markets also. But if you want to talk to a licensed financial advisor who can help kind of put things in perspective, I would encourage you to feel free to visit Active Wealth.com, click that set an appointment button in the upper right corner, and we’re happy to have the conversation with you. Absolutely at no cost to you and help you plan. Get an idea. Do a portfolio analysis and a financial plan to your ninety fifth birthday. This is a marathon, not a sprint, obviously. And so all you have to do is just visit Active Wealth.com and click that set an appointment button the upper right corner or feel free to give us a call. At (770) 685-1777 again (770) 685-1777 So let’s talk through what we’re going to talk about today.

Ford Stokes:
Number one is we’re going to share what our February structured note came in at on a rate of return for a 12 month rate of return. We’ll do that here right after the market update. We’re going to also talk about jobless claims and we’ll talk about geopolitical events, as we said and what’s happened in the markets since nineteen fifty when we had large military conflicts. We are also the main point of today is going to be tax preparation versus tax planning and how that can benefit you. And we’re going to try to help you divest Uncle Sam out of being your partner in retirement. And we’ll talk about smart income, smart tax and smart risk options for you and also talk about what to do about that Medicare to your look back when you start planning for Medicare, let’s say when you turn start, you turn sixty one years old and and beyond. So there’s a lot to pack in here. But first, let’s go straight into the market.

Producer:
Update your Active Wealth market update.

Ford Stokes:
U.s. stocks retreated as investors continue to monitor tensions between Russia and Ukraine, as well as the Federal Reserve’s preparation for a March rate hike. All three major averages fell over one percent, with the Dow Jones Industrial Average down over 400 points. Oil slipped below 90 dollars per barrel in earning news. Wal-mart shares rose after profits and sales came in ahead of expectations, and the retailer delivered a solid forecast for the year, with profits expected to rise by mid-single digits and sales around three percent. It also boosted its dividend to fifty six cents a share. And this is interesting. Doordash shares also popped up after quarterly revenue beat estimates as food delivery demand showed no sign of slowing. By the way, folks, the DoorDash market cap is a whopping thirty five billion, if you can believe that. Chip maker Nvidia also in focus After posting strong quarterly results faster, the cloud management company saw its share sink over 30 percent after forecasting weaker than expected revenue and a wider than expected loss in economic data. The Labor Department released that there were two hundred and forty eight thousand jobless claims this past week, which were above the two hundred and eighteen thousand estimated, and also continuing claims which tracked the total of number of unemployed workers. Collecting benefits are anticipated to fall by 16000 to one point six zero five million. Meantime, the Commerce Department is expected to say that the number of new homes under construction in January fell zero point one percent to a seasonally adjusted annual rate of one point seven million. That’s down from one point seven zero two million in December.

Ford Stokes:
Permits for future construction are anticipated to fall six point six percent to one point seventy six million in January, down from an 11 month high of one point eight seven three million in December. And the Philadelphia Federal Reserve will release its index of manufacturing activity for eastern Pennsylvania, southern New Jersey and Delaware. It’s expected to slip three point two points this month to a reading of twenty point zero. Any reading above zero means more manufacturers say business conditions are improving rather than worsening. Bitcoin also hovered around forty three thousand dollars. I would encourage you to really consider not investing in cryptocurrency, so many problems with it, and Warren Buffett and his partner, Felix Unger both feel like, you know what? It’s Bitcoin is actually pretty close to moral. We don’t want to. They’re saying, Hey, don’t replace our U.S. currency. And then also, there’s not really intrinsic value with bitcoin, and you have to find somebody else willing to buy. There’s not to purchase from you. It’s just something to really consider. Be very careful on investing in cryptocurrencies is all I would say. Now let’s get into what our February structure notes ended up at. We had a minimum structured note of paying thirteen point thirty five percent offered by Bank of Montreal and the end result for the structured note that was offered to our investors and our clients. This past month was thirteen point five seven percent, which is a very great 12 month annual rate of return, obviously with structured notes. They are securities. They do involve risk. And for folks that are investing in our structured notes, they are American style, structured notes that have a principal buffer of 30 percent.

Ford Stokes:
So as long as the S&P five hundred, the Nasdaq 100 and the Russell two thousand don’t lose 30 percent of their value any of those three indices. As long as that doesn’t happen, then your principal is 100 percent protected and you will continue to get. The one twelfth of that annual rate of return of thirteen point five, seven percent, thirteen point five seven percent, you would actually receive one point one three percent a month. That’s pretty great considering you’re looking at, you know, obviously a bank CD is a different product and doesn’t involve market risk, as these structured notes do. But it’s interesting to me that you could get one point three zero at one point one three zero percent. It’s interesting to me that you could get one point one three zero percent when a bank CD or to your bank CDs offering zero point six from Ally Bank, or zero point zero five if you’re going to a bricks and mortar company on a 12 month annual rate of return, and we’re talking about a one month rate of return of one point one three. That’s a remarkable difference. And, you know, structured notes do involve market risk. They are securities, but it was something that I would recommend you consider as a bond replacement strategy. Imagine what your portfolio could do if you’re the bonds that you hold. We’re actually earning between nine and thirteen point five seven percent, which is what our structure notes of average over the last 12 months between our different offerings.

Ford Stokes:
We also have a different structure to note that is offered every single month. And I would encourage you to reach out to us, just visit Active Wealth.com, click that set an appointment button, or you can pick the phone up and call us (770) 685-1777. We’re happy to help you get you a structured note consultation, get your retirement income consultation and help you with a portfolio analysis and a retirement plan to your ninety fifth birthday. All of that also includes a Social Security maximization report and includes a retirement income gap analysis. We do all that. It’s about a fifteen hundred dollar value, and we give it to you on the front end, especially to our listeners, to the Active Wealth Show up front on purpose for free. So you make you can make an informed financial decision about your retirement future. So we think that is a great offer. We’re trying to educate as many Atlantans as possible or many folks that watch us on our podcast and also our podcast. The Active Wealth Show is available on Stitcher, Spotify, Google Play, iTunes and iHeart Radio. We are also extremely proud to be partnered with Salem Media and we sincerely appreciate our radio station hosts and we are huge fans and I mean huge fans of Amazon to the answer. We appreciate our family home there as well. So the rest of the show we’re going to talk through, you know, tax prep versus tax planning. And I think you’re going to find this to be an enlightening show.

Ford Stokes:
But we’re also going to talk about geopolitical events as well. What happens when we’ve got military aggression, what happens in the markets and how quickly they recover? We’re going to talk a little bit about just the update on Ukraine versus Russia versus Ukraine and where Russia is trying to invade an entire country. President Trump also said, How are you going to give sanctions on Russia when you know he can go just annex an entire country? That’s a very strategic and beautiful piece of real estate. That’s what former President Trump said about it. But we’re going to. Kind of share some really interesting information that you’re going to find enlightening and educational about what happens in the markets with geopolitical events, as we said. We’re going to talk more about tax prep versus tax planning, how much you can actually save. And here’s a hint, folks. It’s actually six figures during a thirty five plus year retirement if you implement a Roth Ladder Conversion correctly. We’re trying to help you divest or delete Uncle Sam out of your retirement. And then also, we’re going to talk about what happens when you replace your bonds with either fixed indexed annuities or structured notes. And we’re going to talk about the two year look back with Medicare, and this is be a very educational Active Wealth Show. Hope you stay tuned to us for the next three segments. Thank you so much for being with us here this week on the Active Wealth Show. We’ll be right back on AM nine 20.

Ford Stokes:
Ok. Welcome back, activators. I’m Ford Stokes chief financial adviser, and I’m joined by our executive radio hosts, Mr. Sam Davis and Sam. We were talking about news spread that, you know, Russia may invade Ukraine. Investors should be aware that there’s likely to be a quick knee jerk reaction in the markets, but geopolitical events often do not have a lasting effect or impact on the financial markets. We’ve got a good framework to see how stocks have kind of responded to other geopolitical events based on history. The average one day decline is around one point one four percent, with a total event driven drawdown of four point thirty nine percent on average over a 16 day period. And then it generally recovers in an average of thirty five days, all the way back to the original market value and market cap value. So it’s just interesting that, you know there’s no reason to panic. Also, it also means you need to stay invested because you need be able to get some of those, you know, top three, two to ten trading days so that you can recover and and stay invested and not just have a melting ice cube strategy. A couple of things here. So when we had U.S. terrorist attacks on 911, the markets went down four point nine zero percent in a single day. That was the largest drawdown and there was an eleven point six zero percent total drawdown. The bottom came in 11 days and the recovery was in 31 days.

Ford Stokes:
That’s after, you know, the U.S. terrorist attacks on the World Trade Center and the Pentagon. So I thought that was interesting. Iraq’s invasion of Kuwait was a one day drawdown of the largest drawdown was one point one zero percent. The bottom was seventy one days later, and 189 days was a full recovery. That’s the longest. The greatest single day drawdown was when North Korea invaded South Korea in on six twenty five nineteen fifty, and that was a negative five point four percent one day drawdown. The total drawdown was twelve point nine zero percent. The bottom was in day twenty three and the recovery came in day eighty two. You know, we’ve just seen a lot of different stuff. We’ve got also, the North Korea missile crisis was only up point one percent drawdown on total drawdown of one point five zero percent. The bottom was in day 14 and the recovery was on thirty six day. So there’s just a lot of things. Even the Boston Marathon bombing was a negative of two point three zero percent in a single day. Three percent total draw down the bottom came in day four and the recovery was in day 15. So we’ve got plenty of historical reference here and we’re looking at the performance of the S&P. 90 in the S&P, five hundred is is what the index that we’re looking at these on.

Ford Stokes:
So it’s just good to know that your average is going to be single day decline of one point one four percent if it does happen. And then also it’s going to recover totally within thirty five days, more than likely on average. So that is an average number not saying that’s exactly what’s going to happen, but that’s what’s happened historically. So I thought that was interesting then. Let’s talk about tax prep versus. Tax planning, so a lot of people are getting prepared for tax season, they’ve got all their W-2s, their ten point ninety nines in and. That’s great tax preparation. They’re getting things together. Many of you may be familiar with French cooking. The term mise-en-place means that everything has its place and everything in its place before you start cooking. So same kind of deal you want to have all of your W-2s, you want to have all of your all of your ten ninety nines. You won’t have all, all of your, you know, all the different forms like your your mortgage interest forms. So you can write that off in your taxes as well and make sure you do your your deductions for your children and yourselves and things like that. Well, that’s tax prep and you. You might be using TurboTax. You might be using an accountant. But that’s all well and good and fine. But I would encourage you to consider tax planning. I’m not a CPA.

Ford Stokes:
We work with Wilson Lewis. There are CPA firm here in Atlanta. They’re great and they do a great job and we can help get you a lower cost tax return prepared by them. If you want, all you have to do is just visit us and at Active Wealth.com or send me an email at forwarded Active Wealth and I’ll introduce you to Philip in the boys over there and gals over there at Wilson Lewis CPA firm. One of the things we do every day is we help people with Roth conversion. So when people come into our office and they’re like, I need, I want to reduce the amount of taxes that I’m going to pay over my thirty five plus year retirement. We give them an actual. Plan to their ninety fifth birthday with a Roth Ladder Conversion in the first five to 10 years of or even three to 10 years of their retirement. We delete or divest Uncle Sam out of being their partner in retirement. We fill out something called a Roth Ladder Conversion form, what they need to do or what you need to do. If you’re going to do a Roth conversion, you implement a Roth conversion a little bit at a time because we like to try to stay below the thirty two percent income tax bracket and try to convert it 20 to twenty four percent or lower. If we can that twenty four percent bracket at the end, the top of the twenty four percent bracket is, you know, bumping up against three hundred and forty thousand dollars for twenty twenty two.

Ford Stokes:
And so you’ve got a lot of room. If you’re making a hundred grand, you got two hundred and forty thousand dollars. You could still convert from your IRA to your Roth IRA. And I’m going to give you a couple of hints here. So number one hint, try to use your taxable account. To pay the taxes on the money you convert from your IRA to your Roth IRA so that your tax deferred money moves dollar for dollar into your tax free bucket. So you got tax deferred bucket in your IRA or your four one K, you’re four fifty seven or you’re four or three B or your simple IRA or Sep IRA. We move money from your IRA. Let’s say you’re moving one hundred grand a year for five years, you’re going to be five hundred grand. You may have one hundred grand over. Let’s say you’re at a 20 percent effective tax rate with the conversion. So we take $20000 out of an investment account or a savings account and pay the taxes. But the hundred grand moves from the IRA to the Roth IRA and you have to wait five years to access the principal and the gain so you don’t have to pay any taxes on the gains that you’ve got.

Ford Stokes:
With Roth IRA, and by the way, there’s only two types of tax free investments out there, folks. You’ve heard me talk about it many times, but it’s Roth IRAs and life insurance. That’s it. There’s no other truly tax free investments out there. Municipal bonds don’t cut it because interest for municipal bonds actually generate additional taxation on your Social Security income, and it also contributes to. Medicare surcharges, additional Medicare surcharges. So we want to be careful about that. So if you invest in if you implement a Roth Ladder Conversion, you’re investing in a portfolio that’s implemented by ETFs, you’re keeping your expense ratio down as well and expense ratios basically the the ratio of your entire portfolio that you’re paying out each year in fees, someone call them hidden. They’re not necessarily hidden, but there they are talked about in prospectuses on mutual funds as an example, where they’ve got 12b one fees, which are just marketing fees that mutual fund companies charge. And they don’t do any marketing, so they just put it into their pocket. And that’s OK. I mean, it’s they’re in business to do business and make a profit and doesn’t make them bad people, but it is, you know, a different model. And what I would encourage you to do is try to invest in a portfolio that is implemented with something called exchange traded funds. Exchange traded funds are a lot like mutual funds that can give you the same type of diversification.

Ford Stokes:
But their fees are a fraction of it. Unlike a typical mutual fund within a four one K plan is charging between 0.7 and over one percent a year in 12b one fees and see share fees. Well, an ETF that’s got similar investment strategy and similar diversification. Like our portfolios, we implement our portfolios without a point one five to zero point one seven expense ratio. That’s a lot less than zero point seven to over one percent. Our goal here, always at Active Wealth and on the Active Wealth Show, is to help you build a tax efficient fee, efficient and market efficient portfolio. And we’re going to talk about all three today. So tax efficient would be, Hey, let’s divest the IRS out of being our partner. In our retirement account, they’re not the kind of partner you want, they’re the ones that just take money from you. So let’s get rid of them. By implementing a Roth Ladder Conversion in the first five to 10 years of your retirement or do it even sooner while you’re still working and still stay below that three hundred and forty thousand dollars threshold, we’re we’re bumping up against the where the thirty two percent tax bracket starts for married filing jointly, folks. And we’re here to help, for sure. Number two is let’s try to understand, at least get the portfolio analysis done. So just visit Active Wealth.com, click it, set an appointment button in the upper right corner, and let’s go ahead and figure out what’s the expense ratio.

Ford Stokes:
That we’re paying the last deal is on market efficiency, let’s get more market efficient with investing in bond replacement strategies to reduce market loss and account loss with bonds and a slightly rising interest rate environment. We’ll talk about that in segment three and segment four. But we’re talking about tax prep versus tax planning and the best way to tax plan two things. Figure out a Roth Ladder Conversion from your IRA. Into your Roth IRA and then also consider building retirement income, and we’re going to talk about that right when we come back from the break. How to build tax free retirement income. Think you’re going to find it very interesting? We’ve got a new story to share of a new client that we that we’ve just invested into this type of product and you’re going to be blown away by what the illustrated income is tax free when they turn sixty seven years old. It was the Active Wealth Show right here on AM. One of the answer come right back here and talk about how to generate tax free income and also more on tax preparation versus tax planning. Thanks so much for being with us. You’re going to want to come back for segment three and segment four to try to get more tax efficient with your retirement nest egg.

Ford Stokes:
And welcome back activators, the Active Wealth Show Ford Stokes chief financial adviser, I’m joined by our executive editor producer Sam Davis and Sam, you’ve got a personal story about an inherited IRA with your wife, Bailey, and I wanted you to just share that because at your young age, and maybe you would be willing to share your age at your young age, you’re dealing with RMDs today.

Producer Sam Davis:
Yes, that’s correct. So just to, you know, give the background, you know, this is we were talking about Roth Ladder Conversion and the tax savings and the benefits of that. Another one of the benefits that we talk about from time to time on this show, but we don’t highlight as often is the advantage that you have with a Roth IRA of a tax free benefit to your heirs. So my wife, Bailey, her father, unfortunately passed away when she was in high school and she inherited his IRA. It was great. Fantastic, helps pay for school in a car and expenses like that growing up. But now I’m 26. She’s twenty seven. We’re both about to have our birthdays this spring and will each be a year older. But even though we’re in our mid to late 20s, we have RMDs already. We have money that we are required to take out of that account each year. And because we’re both working full time, that money is actually getting taxed at a higher rate than it would be if it was our retirement income and we were older.

Ford Stokes:
And also, what happens when you you’re taking the RMDs right now that gets added to the AGI, the adjusted gross income, your ordinary income that you’re making as a household, correct?

Producer Sam Davis:
Yeah. And you know, it’s just how many opportunities do you have in life where you have a tax free option? I mean, I know we are about two months away from from Tax Day here in the United States, and I already have a pile on the kitchen counter of ten point ninety nine and W-2s and all the different tax forms. That stuff takes time and effort and energy, and it’s it’s a lot better. You’ll never get rid of taxes completely, but it’s a lot better if you can sit down with an expert and plan out how you’re going to handle taxes, especially in retirement. You won’t. You don’t want to deal with taxes now, but you’ll really not want to deal with the stress of taxes when you’re in retirement.

Ford Stokes:
Yeah. And also it’s a great family legacy thing, but at the same time, you’re still dealing with RMDs. You have to keep taking out and make your own money, and it also puts you guys in higher tax brackets. I mean, that is, you know, a lot to deal with in your 20s. And so I would encourage everyone that’s listening to the sound of our voices here. Do me a favor? Visit ActiveWealth.com, click the set an appointment button and let’s set a Roth Ladder Conversion plan for you. We’ll do it. Absolutely no cost to you. And if you’ve never done a Roth conversion plan to really see how much you could really save. Let me just share a really cool, a really cool actual story. So Rob and Janice, we talk about them on the show about once a quarter. So Rob is an engineer with a local large Fortune 500 company here in Atlanta, and he makes about one hundred and sixty thousand dollars a year, and he’s converting one hundred forty nine thousand dollars a year for the next four years. And then and he’s got a seven hundred and sixty thousand. Ira, and he’s going to convert one hundred and fifty thousand dollars a year for. The next four years, and then he’s going to convert about 40000 until he converted the rest of it over the next six years after that. But he’s going to save.

Ford Stokes:
He’s going to take his total estimated retirement tax bill, down from eight hundred and thirty four thousand paid over thirty five plus year retirement, down to three hundred and fifty six thousand for a tax savings for him personally, a four hundred and seventy eight thousand dollars. But when you include. That plus the inheritance tax savings that his loved ones are going to get, it’s a total tax savings of retirement and inheritance tax savings of an estimated seven hundred and eighteen thousand. Of the seven hundred and sixty thousand IRA. Folks. That is an enormous savings, it is six figures, plus please do everything you can to implement a Roth Ladder Conversion. This is the difference between tax prep and tax planning. Ok. Then also, we I promised that I would give you. An example of how to generate tax free income, especially in your forties and fifties. We’ve got folks that listen to us then in their 20s, 30s, 40s and 50s and early 60s, and you may want to consider a rule seventy seven oh two plan that allows you to invest in life insurance because that’s the other tax free investment out there, truly tax free where it doesn’t contribute to any ordinary income taxes, it doesn’t contribute to any Social Security, taxation or any additional Social Security taxation. It also doesn’t contribute to any additional Medicare surcharges when you withdraw money from these policies because their loans against the policy and there’s no taxes on loans.

Ford Stokes:
So that’s how it works, and it’s using the I.R.S. code. The IRS tax code rules seventy seven, oh two. You can google it and look it up, but. I would encourage you to consider that. So we’ve got a gentleman that has worked with me in the past. He is fantastic. And he’s based in Florida. And he came to me and said it. I need to do something different. I don’t have a plan. He’s forty six years old, he’s an executive, he’s a marketing executive, and he was like, I need to do something different. I’m just concerned about taxes in the future. So he’s putting two thousand five hundred dollars away for the next ten years a month, so he’s putting two thousand five hundred away a month and he’s basically putting in, you know, $30000 a year for 10 years. It’s $300000 total. Well, he’s going to generate ninety two thousand four hundred and ten dollars a year tax free, as estimated by the illustration that we saw with the EOL. That illustration that we ran for him with one of our top carriers and we work with the top wholesaler in the country that wholesales these products. And so, you know, they just write billions of dollars in annuities and hundreds of millions, if not billions of dollars in.

Ford Stokes:
And I indexed universal life policies as well. So we’re able to get like the best options for this client and also for you. If you’re listening to the sound of our voice here on AM nine 20, the answer or on the Active Wealth Show podcast, we’re here to help you do this type of thing. And he’s not going to miss the $2500 a month for 10 years. He’s got three hundred thousand dollars, but get this. So he’s got three hundred grand invested when he turns on from age 67 to age seventy seven, he’s going to generate nine hundred and twenty thousand dollars from that three hundred thousand dollar investment just in 10 years. And he’s still going to have cash value and he’s still going to have a tax free death benefit as well. So if you want to generate triple of what you could get in Social Security income and do that also tax free, then why not consider investing in indexed universal life policy and take advantage of our I.R.S. code rule? Seventy seven oh two. So it’s all completely legal. Financially savvy clients that we have do this, and they’ve got a big part of their plan. And so I would encourage you to reach out to us at Active Wealth.com and let’s do everything we can to get you more tax efficient, fee efficient and market efficient. So again, we’re talking about tax planning versus tax prep, but it’s great to do tax prep, it’s important to do tax prep, work with TurboTax or work with a CPA and make sure that you’re giving the IRS the money that they deserve and the money that is according to our our tax codes.

Ford Stokes:
We’re also in a historical, historically low tax period right now, the current twenty four percent bracket. If it goes back up to levels, what we had between 1960 and 1963, guess what? That was 56 percent, the current twenty four percent bracket that is eight percent higher than two X. Of where we are right now in our tax office, and if you believe. The gentleman that’s in the White House and I use that term loosely, I’m not a fan of our current president. I am a fan of our former president, Donald Trump. I am a fan of people saying what they really mean. And also, I’m not a fan of tax and spend liberals. I’m a fan of getting the government out of your pocket so that you can make decisions on your retirement and have a successful retirement. That’s a fan. That’s what I’m a fan of. Because tax risk in future tax hike and future tax rate hike risk could be one of the greatest obstacles to you having a successful retirement in the next thirty five to. 50 plus years, depending on what your age is.

Ford Stokes:
And so I would encourage you to consider getting into some sort of tax planning, and you can do that just by visiting Active Wealth.com or sending me an email at Forwarded Active Wealth or calling us at (770) 685-1777. Most people have a tough time remembering the phone number, so I would encourage everybody just to visit Active Wealth.com. That’s Act IV Alta. It’s exactly how it sounds Active Wealth.com and we will. You’ll get booked directly into my calendar. You’ll speak directly to me. And if you’ve been listening to us for six or 12 months or twenty four months and you haven’t called in, we’d love to hear from you. Sam loves it when we talk. When I when I get a chance to talk to a radio listener because we share great stories like we do with that executive and we come back from the break, we’re going to talk about bond replacements and how that can help you become more market efficient and grow your money over time. With a slightly different strategy that also delivers what we hope is a more sound strategy, with a little extra safety between fixed index annuities and also structured notes as well. Thanks so much for listening Active Wealth Show. We’ll be right back right here on a.m. nine 20. The answer?

Producer Sam Davis:
Fixed annuities, including multiyear guaranteed rate annuities, are not designed for short term investments and may be subject to restrictions, fees and surrender charges, as described in the annuity contract guarantees are backed by the financial strength and claims paying ability of the issuer.

Producer:
Listen to the number one show on the weekends on AM nine 20. The answer to protect and grow your hard earned money. The Active Wealth Show with Ford Stokes your chief financial adviser, Saturdays at 12 noon and Sundays at 11 a.m..

Ford Stokes:
And welcome back, folks, to segment for the Active Wealth Show, we’ve been talking about tax prep versus tax planning, we also talked about the geopolitical events with Russia potentially invading Ukraine. We are talking about how you can invest in a smart tax plan, also generate smart income with tax free income with the rule of seventy seven oh two plan. But we talked about how to implement a Roth Ladder Conversion efficiently and effectively by taking money from your investment account to pay the taxes on the money that moves from your tax deferred bucket, which is your IRA into a tax free bucket, which is a Roth IRA, and take money from your investment account and pay the taxes from a taxable investment account. And so therefore, you’re moving tax deferred money to tax free investment environment that can grow tax free completely and compound and all that great stuff. But then you’re using taxable money to pay the taxes on that, so you’re maximizing the money that goes into your tax free account, which is a Roth IRA. Now next, we want to get market efficient. Another way to do that is to replace the bonds you’ve got with a fixed indexed annuity, but you can also invest in structured notes as well. We talked about our February structured notes paying out thirteen point five. Seven percent are March. Note will come out next week, and so you ought to just give us a call. But let’s talk about a bond replacement specifically with a fixed indexed annuity. Sam, go ahead and run Chapter 15 on bond replacement from my new book Annuity 360 Chapter 15

Ford Stokes:
Bond replacement with fixed indexed annuities. Big idea Historically, bonds have seen volatility when the market is volatile. Fixed indexed annuities are not subject to the same volatility, which makes them a much safer investment. You might have heard a financial advisor talk about replacing your bonds with annuities to protect your wealth and grow your retirement funds. Am I firm Active Wealth management? We believe this is a smart way to protect your future. Many people have learned that bonds are a safe way to invest your money, but there are some downsides to bonds that should make you think twice. We’ll talk about some reasons why you should consider replacing your bonds with annuities. First, here’s some information on the history of bonds in the United States. Historical bond volatility The nineteen hundred saw two secular bear and bull markets in U.S. fixed income. Inflation peaked at the end of World War one and World War Two due to increased government spending. The first bull market started after World War One and lasted through World War Two. The U.S. government kept bond yields artificially low until nineteen fifty one. The long term bond yields were at one point nine percent in nineteen fifty one. They climbed to nearly 15 percent in nineteen eighty one in the 1970s. Globalization had a huge impact on bond markets. New asset classes such as inflation protected securities, asset backed securities, mortgage backed securities, high yield securities and catastrophe bonds were created.

Ford Stokes:
Early investors in these new asset classes were compensated for taking on the challenge. The bond market was coming off its greatest bull market, coming into the twenty first century long term bond yields decline from a high of 15 percent to seven percent by the end of the century. The bull market in bonds showed continued strength in the early twenty first century, but there is no guarantee with our current market volatility that this will hold. See Chart fifteen point one to see the incredible difference of investing in a fixed index annuity versus investing in bonds. Why you should consider replacing your bonds with annuities. The first question you should ask yourself is this Why would you take market risk with your bonds when your bonds can lose their value? If you just look at the history of loan, you can see how uncertain the future of bonds is. Inflation and fluctuating interest rates play a big role in bond yields. Interest rate risk of bonds, bonds and interest rates to have an inverse relationship when interest rates fall. Bond prices rise due to the COVID 19 pandemic, investors have moved their money to bonds because they believe it is a safer investment option. However, this has caused bond yields to fall to all time lows as of May twenty four point twenty twenty. The 10 year Treasury note was yielding zero point six four percent and the 30 year Treasury bond was at one point twenty seven percent.

Ford Stokes:
Reinvestment risk of bonds This is the likelihood that an investment’s cash flows will earn less in a new security. For example, an investor buys a ten year, one hundred thousand Treasury note with an interest rate of six percent. They expect it to earn $6000 a year at the end of the term. Interest rates are four percent. If the investor buys another 10 year note, they will earn four thousand instead of six thousand annually. Consider the possibility that interest rates change over time when deciding to invest. And bonds, systematic market risk. This refers to the risk that is inherent to the market as a whole, it will affect the overall market, not just a particular stock or industry. This can be unpredictable and it is impossible to avoid. Diversification cannot fix this issue, but the correct asset allocation strategy can make a big difference. Unsystematic market risk This type of risk is unique to a specific company or industry, similar to systematic market risk. It is impossible to know when unsystematic risk will occur. For example, if someone is investing in health care stocks, they may be aware of some major changes coming to the industry. However, there is no way they can know how those changes will affect the market. There are two factors that contribute to company specific risk business risk.

Ford Stokes:
There are two types of risk internal and external internal refers to operational efficiency and external would be similar to the FDA banning a specific drug that the company sells. Financial risk. This relates to the capital structure of a company. A weak capital structure can lead to inconsistent earnings and cash flow that can prevent a company from trading reduced advisory fees. Investors who trade individual stocks may know how much commission they are paying their broker, but individuals who buy bonds often have no idea what type of commission they are paying. Bond dealers collect commission on bonds they sell called markups, but they bundle them into the price that is quoted to the investors. This means you are unaware of how much commission you were actually paying. Standard & Poor’s estimates of bond markups is zero point eight five percent of the value for corporate bonds and one point twenty one percent for municipal bonds. However, markups can be as high as five percent, up to 50 dollars per bond. Bonds have finite durations. Bonds only provide income for a finite amount of time. Unlike an annuity, which provides income for life, you must reinvest your money if you want to continue generating interest with bonds. However, reinvesting with a bond can sometimes come at a loss. As we discussed above, annuities will provide you with an income you can never outlive.

Ford Stokes:
I hope you enjoy that chapter. See, now you understand the types of risk you’re dealing with with bonds. But let’s just say you took a million dollar IRA and the 60 40 portfolio portfolio with 60 percent securities, which would be six hundred grand. 40 percent bonds, which would be four hundred thousand. Let’s say you just moved the $400000 that were invested in bonds into a fixed indexed annuity. You would eliminate the advisory fee. The annual advisory fee is one point five percent. Ours is lower than that. But your advisory fee, let’s say you would eliminate over a thirty five year period. You would literally save two hundred and ten thousand in in deleting that one point five percent advisory fee on the four hundred thousand. Because you’re no longer have that invested into a bond portfolio, you’ve got to invest in a fixed indexed annuity. There’s no advisory fees with a fixed indexed annuity. It’s the.

Producer:
So let’s recap what you may have missed. It’s the final countdown.

Ford Stokes:
We recapped our February structured note, and that recap of the February structure note was at three thirteen point five seven percent. There was two hundred and forty eight thousand new jobless claims, which is above the 216 or two hundred nineteen thousand estimated. We talked about was geopolitical events out there and that basically the markets generally recover in thirty five days or less, but an average of thirty five days. We also talked about tax prep versus tax planning, and it is. Now let’s make this the year that we’re going to start really planning our taxes and not just doing tax preparation. We think that is a really good idea to do. And then we want to try to get to a Roth Ladder Conversion and even consider building in tax free retirement income by investing in a rule of seventy seven oh two plan. And all you have to do is visit Active Wealth.com to do that. We ran out of time where we’ll talk about the Medicare two year look back next time and how you really need to start planning at age sixty one for Medicare if you haven’t already. And we talked a lot about bond replacement and how you can make two point eighty four million dollars more over a thirty five year retirement, just by replacing the bonds in your portfolio on a million dollar portfolio to take out the four hundred grand of the bond portion of your portfolio and invest in a fixed indexed annuity.

Ford Stokes:
Doing a lot better than what bonds are doing now. Also, it’s a great way to eliminate some of the unsystematic and systematic market risk out there with bonds that we’re seeing in the slightly rising interest rate environment. And that was a lot. We talked about a lot on the show, but remember, if you haven’t taken action, you haven’t made a decision. Do me a favor. Make a decision. Give us a call. At (770) 685-1777 or visit Active Wealth.com click that set an appointment button and let’s get started on a financial plan. A portfolio analysis, a Roth Ladder Conversion plan or retirement income gap analysis. A Social Security maximization report. Let’s get started on your successful retirement future today because we’re going to work very hard to protect and grow your wealth. We’re so glad you’ve been with us. Remember, with retirement, it’s all about knowledge. If you’re going to be a bear, be a grizzly. Be as aggressive as you can about getting knowledge for your own retirement. Thanks so much for tuning the Active Wealth Show and have a great week, everybody.

Producer:
Thanks for listening to the Active Wealth Show. You deserve to work with a private wealth management firm that will strategically work to protect your hard earned assets. To schedule your free consultation, call your Chief Financial Advisor Ford Stokes at (770) 685-1777 or visit Active Wealth. Investment Advisory Services offered through Brookstone Capital Management LLC become a registered investment advisor. Bcm and Active Wealth Management are independent of each other. Insurance products and services are not offered through BCM, but are offered and sold through individually licensed and appointed agents. Investments involve risk and, unless otherwise stated, are not guaranteed. Past performance cannot be used as an indicator to determine future results. Are you concerned about U.S. tax rates being raised by the Biden administration and how that will affect your retirement? Tune into the Active Wealth Show with Ford Stokes, your chief financial adviser, to learn how you can reduce the taxes you pay before and during retirement. The Active Wealth Show Saturdays at noon and Sundays at 11:00 a.m..

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