In this episode, we break down three things millionaires do differently when preparing for retirement. We explore simple shifts in planning and behavior that can help you move closer to your retirement goals.
Episode Transcript
Welcome/Close: 0:03
Welcome to the Real Talk Retirement Show, where we explore the financial side of retirement and beyond. Whether you’re currently retired or planning for the future, we offer real, relatable conversations about money and personal finances. Most importantly, we dive into all these topics using real talk. Now let’s get real about your money and your retirement. Now, let’s get real about your money and your retirement.
Brian Graff: 0:28
Welcome everyone to another episode of the Real Talk Retirement Show. We are, brian Graff and Tracy Burke, happy to be back with you again for another episode. And, tracy, you know, if we decided to do this podcast in front of a live studio audience and I’m not suggesting that we do, I don’t know if we’re ready for that yet That’d be dangerous. Yes, even though there’s definitely the demand, I think tickets would go like crazy. But if we decided to do that, and let’s say there were a hundred people in the room and we led off by asking the question okay, how many of you out there would like to be a millionaire? What, what percentage of hands or what number of hands do you think would go up, tracy?
Tracy Burke: 1:09
I would think all a hundred hands right?
Brian Graff: 1:11
I would imagine so too. And you know, that doesn’t mean that those a hundred people are all greedy, right, or they’re all money hungry. They may all live, you know, within their means. Money is important but it’s not everything. But still, I think, no matter what, you know, everybody wants to have enough money at retirement so they can live comfortably, that they have money maybe to pass along to their children, to their grandchildren. So, even if money is certainly not the main reason for your happiness which we certainly hope it’s not I think everybody would love in some way to be a millionaire one day.
Brian Graff: 1:42
So we thought this would be an interesting topic to tackle and talk about specifically. You know three things the millionaires do differently when saving for retirement. So you know, kind of to set the table here, tracy, I think that a lot of people believe that to be a millionaire you have to make a lot of money, right, you have to have a higher income level. Or maybe you have to pick the perfect stock we always say the person that finds the next Apple right or maybe just to get lucky in some ways you got to win the lottery. But most of the time I mean the reality is that that is not the case. There usually aren’t any secrets or specific tricks in becoming a millionaire and usually it’s really just the way that people think and the way that they plan. We find that those who have a lot of success financially usually have very intentional strategies. They have great money habits. They have the right mindsets where you know if adopted can be replicated by all of us.
Tracy Burke: 2:43
right mindsets where you know if adopted can be replicated by by all of us. Yeah, absolutely. And it was going to say, let’s. Let’s start with an example in a story that that I think is is is really interesting, and many of our listeners may have heard this elsewhere, because this is a story that has been shared different places over the years. But a gentleman’s name is Ronald Reed and this is his. You know that, and this is a real person, a real story.
Tracy Burke: 3:07
So Ronald was a janitor at a JCPenney store in Vermont. On his side he also pumped gas as a part-time job, so certainly nothing flashy. He wore used clothes, old clothes, nothing fancy on that front either, drove a used car and lived very modestly all around, including his home. So lots of people were immensely surprised when Ronald passed away at age 92, and it was made known that he left behind $8 million yeah, $8 million. Just incredible, right, the people who knew him just blew away.
Tracy Burke: 3:48
So, similar to what you said, brian, he did not win the lottery. There was no inheritance and sometimes that could get you to that area, wasn’t investing in any tech startups or involved in any way. It was just smart, intentional habits that he practiced over a long time, over many decades. So what did he do? Well, he invested in blue chip stocks, good companies. He lived far below his means, something that everybody knows. You got to spend less than what you make to build wealth, and he just did that consistently for over 50 years. So again, it’s that mindset you sort of mentioned, just that understanding that building wealth it’s not about trying to time the market, getting lucky or doing something fancy, it’s just that discipline and patience as well.
Brian Graff: 4:41
Yeah, absolutely so. The moral of the story there again becoming a millionaire we’ll probably say it a couple of times today is not, honestly about luck, it’s about choices. It’s being consistent and making boring right, sometimes very repeatable choices. It’s not always glamorous, but that’s the key is that consistency and repetition. You know, in fact, we there was a recent study done Tracy that we looked at together by Ramsey Solutions, and it provided two really interesting statistics on millionaires, and I think the first one should come as no surprise, and that is that eight out of 10 millionaires invested in their company’s 401k right. So we say it all the time make sure you’re saving in for retirement, taking full advantage of your workplace retirement plan. Eight out of 10 millionaires are doing it. So should you. So that one probably doesn’t come as a surprise. But I thought the next one was really interesting, and that is that 79% of millionaires did not receive any inheritance at all from their parents, so they did it on their own at all from their parents, so they did it on their own, okay. So I think that was a real interesting point to make is you don’t have to be born into a rich family. You can do this on your own, through your own hard work and discipline. Yeah, so that kind of set the stage, tracy.
Brian Graff: 5:56
But today we are going to dive into these three particular things that millionaires do differently than a lot of people when it comes to saving for retirement. Because, again, wealth is not an accident. So all right. Key point number one is that millionaires treat retirement like a business plan. So they’re intentional, they don’t leave things to chance, they really focus and they plan. They create a comprehensive financial plan where they look at all areas. They look at what they’re saving, they look at what they’re spending, how they’re investing their money, their legacy goals. They certainly do a lot of tax planning and everything in between, okay, so they plan, plan, plan and on the investment side of things, of course. Of course we say it all the time, but having a long-term, consistent strategy using, you know, low cost funds, is something we certainly advocate for here at Conrad Siegel.
Tracy Burke: 6:54
Yeah, and Brian, I would say you know, as as this this first item, millionaires treating retirement like a business plan. Just think about, like what a good chief financial officer, a CFO, at a company, what their job is and what they’re doing for the company. You’re sort of that CFO of your own personal finances and it’s the same type of thing. So, even to elaborate on a couple of things, you just mentioned, the income and expenses, if we start with the income side, right, really figuring out, well, how can I maximize that income, both now, assuming you know the person’s working or in the future, or, you know, even if they’re retired, how can I maximize my income now and looking forward? And then, in retirement, you know, figuring out how it all, all those pieces of the puzzle, really fit together, right, how social security plays into it If you have any pensions, how those retirement savings, 401k IRAs however, you did that a lot of folks work part-time in retirement how all that sort of fits into their income stream. And figuring out the tax element and being the tax efficient income stream that we have. And then, on the outflows, that expense side, you know, you know millionaires are really, you know, laser focused on well, needs, wants and wishes and and some are very thrifty and some are spend thrifts and spending a lot of money, right, but you know, thinking about where their their money is going. You know what they might need, especially in the future for things like health care. You know a lot of folks like to travel, especially people with a lot of money. They like to travel quite a bit, right, and thinking of of what that looks like and how just everything fits into that overall plan. Overall plan the other thing I think about with running it like a business or running like you know what a CFO does. You know stress testing or running projections, you know, just having that sense of it and maybe they’re not doing it themselves, they’re working with somebody who is doing that for them. But thinking about, well, you know the market doesn’t go up every single year, right, there’s downturns at times. Usually every third or fourth year there’s a downturn in the market. Think about what that might do to their portfolio and how to adjust from that. So stress test that, thinking about, especially later in years, what long-term care could do, any needs that arise.
Tracy Burke: 9:26
So the other thing that I always almost akin to this comparing retirement with vacation right, most people plan out their vacation. You know when it’s time for vacation. Most people just don’t jump in a car and you know, hey, everybody jump in and off. We go and we’re going to figure things out as we go. Right, you have a plan, you know where you’re going to go, mostly booking hotels, you might be reserving restaurants, or you know how you’re going to get there, what you’re going to do, the activities, hopefully creating a budget or at least having some sense of what that’s going to cost. So, if we think about it, retirement is a pretty darn long vacation. That’s sort of what you’re planning. So if you’re planning a 30-year vacation, you certainly want to just wing it right. So you plan for it. And again, retirement’s no different.
Brian Graff: 10:14
Yeah, that’s a great analogy, Tracy. By the way, I got to do a better job planning my vacations. I am notorious for waiting until the last minute and by the time I usually book at hotels, they’re all gone. The family’s mad at me, but hey, that’s. That’s a story for another, another day, maybe a different podcast, but but yes, but certainly with this, you know, I think one of the other keys, tracy, is that you know a good, a good CFO of a company or good CEO of a company.
Brian Graff: 10:37
They don’t just come in with a plan and then sit back and relax, right. They’re workaholics, right, they’re always in the office. They probably work 60 hours a week. I don’t know, maybe not in all cases, but they’re not just setting a plan and forgetting about it. So same thing with as you prepare for retirement. You need to really stay focused. You need to track everything and make adjustments as needed. Keep working on it.
Brian Graff: 11:00
We do recommend that all good plans get reviewed. You know, one to four times per year very similar to a business plan. Now, maybe, when you’re a little bit more in the early stages of your career, once a year is plenty, but certainly when you get closer and closer to retirement, uh, three or four times a year is probably a good idea to check in, and you know, know that there are lots of great tools out there budgeting tools, other apps available for you to use online. You know you’re not doing this on your own and remember, most importantly, good businesses they don’t guess. Like Tracy said, you don’t wing it, you plan it, you track it and you adjust. Millionaires normally do the same thing.
Brian Graff: 11:41
Yeah absolutely Absolutely. So that gets us to point number two. Something else that millionaires do that maybe a lot of other people don’t do, that is, they maximize their tax efficiency. All right, so bear with us on this one Taxes can be a little bit complicated, but this is super important maximizing tax efficiency.
Brian Graff: 12:01
So you’ve heard Tracy and I talk about this before, but when you think about investing, it’s important to have three different buckets that we’re talking about. So the first bucket is that tax-deferred bucket of investments, and that’s your 401k plans, your traditional IRAs, for example. Then you have what we call your tax-free buckets in retirement, that’s, your Roth accounts. And then, finally, you also have your taxable buckets brokerage accounts, for example. Millionaires often effectively utilize each of those three different buckets, which really allows them to most effectively create a tax-efficient income stream. So making sure that you’re not forgetting about one of these three buckets could really be vital in the long run.
Brian Graff: 12:48
Something also I think we’d like to mention is that millionaires don’t think just simply you know what’s my return on this investment. They really want to know what’s my after-tax return. Right, and understanding the impact of taxes on their investments and their income stream is vitally important. So oftentimes, millionaires, we find that they become virtually they’re literally obsessed with their tax efficiency, and they understand. Really, tracy, it’s not about what you make, it’s about what you keep in the end. So, knowing that, what are some examples, tracy, of what we would consider tax-efficient strategies that millionaires use?
Tracy Burke: 13:26
Yeah, and again, brian, this is a super important one. So the first one that comes to mind is that Roth. You just sort of described those three buckets and that really middle bucket that we visualize is that Roth bucket. And again, everybody’s I’m sure heard of Roth, but it’s really focusing on you’re paying the taxes now instead of paying them in the future, where you’re non Roth for one K or non Roth uh IRAs, and we sort of refer to them now as traditional. The traditional approach is you get a tax break up front and when you take money out later you’re paying the income taxes. The Roth is the opposite of that. Right, you’re paying it now and it’s growing tax-free and in the future you take it out tax-free and tax-deferred. There’s no taxes. So millionaires often use that Roth bucket very well. Now, sometimes you might not be eligible to put money in to a Roth IRA. If your 401k has a Roth bucket, you can obviously utilize that and a lot of people do. Some folks might make too much. There are for Roth IRAs, there are income restrictions and you might not be eligible for those direct contributions. But sometimes there’s ways around that and something we call a backdoor uh contribution and it’s fully legal and you know, if you can’t go into front door, you know my mom always told me to try the backdoor, so, uh, so. So Roth Roth can be good on that one.
Tracy Burke: 14:58
Uh, conversions, roth conversions, besides just contributions, converting money and and um, you know, there’s some people who, anybody can convert pre-tax money, traditional money, into a Roth and you might be able to do that. We’ve seen, with some of our clients who enter retirement, do that in the early stages of retirement when in a lot of cases maybe they’re in a lower tax bracket before the required distributions kick in. And I know we’re getting a little bit into the weeds here, but everybody’s probably aware, when you get into retirement, your traditional retirement savings so 401k and IRA money at some point and right now for people who haven’t taken it yet, it’s as early as age 73 or as late as age 75, you have to start taking some out on an annual basis, the traditional bucket, right. So again, you can do some conversions and we’ve seen some people do that between there and recently we actually had a client that has millions of dollars, so it falls into this millionaire category. They were actually in the lowest tax bracket, which is 10% right now, so their marginal tax bracket was 10%. So they retired but they haven’t started their RMDs. There’s required minimum distribution.
Tracy Burke: 16:17
So we refer to that Conrad Siegel sort of their gap years, right? So what we help them do is fill up the 10% tax bracket. So take enough out of the IRA and convert it from the traditional and put it into the Roth bucket and just fill up that 10% bracket. And paying 10% of taxes to get money from traditional Roth. That’s a pretty good deal from a financial viewpoint, at least financial viewpoint at least. And then again, when RMDs do start, years later, they’re projected to be in a 24% tax bracket. So why not get some money out of the traditional bucket at 10% taxes instead of later on when it’s all going to be 24%? So that’s just one example.
Brian Graff: 17:04
Yeah, it seems really logical, tracy, and I think the next thing we could talk about is the importance of asset location and making sure that we’re using appropriate investments in certain types of accounts. So can you elaborate on that a little bit, tracy?
Tracy Burke: 17:18
Yeah, and using bonds as an example in here. You know many folks have heard of municipal bonds or tax-free muni bonds. Right, they’re tax-free, meaning you’re not paying tax on the interest that those muni bonds generate. Well, in an IRA they don’t make any sense because everything’s tax-deferred. You’re not paying active income taxes while you’re investing on that money active income taxes while you’re investing on that money. But in brokerage accounts, in non-retirement accounts, municipal bonds for many people, especially those folks in higher tax brackets, make a ton of sense. So, own your municipal bonds in your brokerage accounts. Own your non-municipal bonds, which we just simply refer to as taxable bonds. So that’s treasuries or that might be corporate bonds. That’s what you want to keep in your 401k and your IRA. So again, having the appropriate assets in those buckets is really what we’re talking about and it boils down to you want tax-efficient investments in your taxable accounts really to minimize gains. And again, as you said a few moments ago, brian, focus on the after-tax return, not the pre-tax return.
Brian Graff: 18:34
Right right.
Tracy Burke: 18:34
Yeah, something else I know that a lot of folks do that, are millionaires, especially now. This is something you have to wait until you are in retirement is something called qualified charitable distributions, and we refer to those as QCDs, so it is what it sounds like it’s a charitable, you’re taking money, a distribution, for a charitable purpose, so you have to have those inclinations right. If you want to give some money to some qualified charities and you can do that from your IRA, and by doing it from your IRA there’s charitable contributions it stays off of your tax return, so it’s not part of your taxable income, so to speak, and it just reduces your overall taxes. Now, like I said, you can only do that. The age limitation is you have to be 70 and a half or older to be able to do it, but that’s a strategy a lot of folks do.
Tracy Burke: 19:34
And then the last one that probably comes to mind is tax-loss harvesting and again, we’re not going to get in the weeds on any of these, just trying to pique a little bit of interest or some of that, but tax-loss harvesting, especially when the market goes down, what some of these folks do. And of course, as advisors to clients, individual clients at Conrad Siegel, we’re tracking all of these type of things as well, and really, what tax loss harvesting is is you’re selling the losers in your investment portfolio, so to speak, to realize that tax loss, and then you reinvest that money and get it to work for you in a prudent way, moving forward. Now, yeah, a lot of complications in that it can be complicated, but it can be really effective. And, like I said, talk to an advisor about any or all of those but good ways to think about taxes as we move forward. So enough about that number two, brian. So lead us into number three. What’s the third thing that you know a lot of millionaires do?
Brian Graff: 20:34
well, yeah, tracy. So the final thing we’re going to talk about today, number three the third thing that most millionaires do differently than everyone else is that they outsource to save time and reduce mistakes. You know millionaires are willing to pay for good advice. When they work with a professional and they pay that professional, they see that money spent as an investment, not just simply an expense that’s eating away at their retirement savings. So millionaires are willing to pay for that good advice and they really know they’re good at knowing what they don’t know and making sure to outsource what they don’t know accordingly and putting it in the hands of professionals. So millionaires really surround themselves with a great team.
Brian Graff: 21:20
Right Teamwork makes the dream work. We always say. So it’s important that those millionaires have a fiduciary financial advisor that they go to when they need assistance and they trust that. They have a CPA, an accountant that they’re working with for their tax preparation, even a good estate planning attorney working with them through all their legacy goals, and they probably even have an insurance consultant in a lot of cases, not a slick salesperson but someone that they’re working with that they trust on the different types of coverages that are important to them.
Tracy Burke: 21:54
Yeah, and you mentioned saving time the saving of time and expertise. But you know it’s that both of those are very true and, again, you know, understanding that the good professional has that expertise that they don’t have. Now. You know I think about, you know a doctor or physical health and stuff, and I’ve had some medical issues at certain points and you know I go see a doctor If something’s not going well, physically well sometimes. You know, maybe the very first thing you do sometimes is Google the symptoms, but that’s not the be all and end all. Of course. You go see the doctor, right, and as best as I can, I try to have an annual physical exam every year, just to be proactive. So, realizing that a good professional would help you with your financial situation some of those examples that Brian just mentioned is important and due to that expertise, again, they can often save you from making big financial mistakes. Right, and there’s a whole variety of them. We hear these horror stories of somebody that mistaking that required distribution that we’re referencing too right, and there’s a penalty. There’s a pretty hefty penalty if you miss that.
Tracy Burke: 23:09
Some of the tax-efficient strategies can save you a lot of money in tax over time if you work with somebody that knows what they’re doing in that space. Or their estate planning documents maybe weren’t properly drafted or done or updated, or whatever that is. So another example we had a client, it wasn’t too long ago, that they wanted to buy a second home and they had enough money in their brokerage account, their non-retirement account, and they said, well, let’s just cash out $500,000, pay for what I think was mostly a down payment, or maybe it was the whole vacation home, but by doing that there are a lot of capital gains in that brokerage account Would have caused a large tax bill. We were able to get creative and figure out a way just a better option to help them out. That really helped save some money on your tax returns. So there’s, you know, it’s real and if you find a good professional it can be helpful.
Brian Graff: 24:09
Yeah, so, definitely. So. You know, don’t be afraid to delegate. It’s important to delegate, but that doesn’t mean you’re completely giving up control either. You know, we think you should stay very informed about everything that’s going on financially. Uh, you know, with your life, but just make sure you’re hiring good people. Uh, you’re surrounding yourself again with that excellent team who really specialize in making the complex simple. Yeah, so, all right, tracy, all all great stuff, but as we wrap up, as we always do, let’s talk about some action items that our listeners can take, maybe, as they work towards becoming a millionaire.
Tracy Burke: 24:42
Yeah, and some of this today is just going to be reiterating the key points that we’ve just talked about. But you know, first thing I think we started with was planning and, just like a business, plans you know for for their future, as, as families and individuals, we need to plan for our financial lives, right? So if you don’t have a retirement plan in place sort of when and how and all those type of things put one together, put a plan together, and this is for whether you’re not retired yet and looking to one day, or even if you’re already retired. It’s important to have a plan in place and get some help if you need on that one.
Tracy Burke: 25:21
The other thing we talked about some was focusing on after-tax returns when you’re investing in a portfolio and then in retirement, focusing on tax-efficient retirement income stream. So the tax element and again, just consider how you can effectively have assets in those three buckets that you talked about, brian. And if you don’t have assets in three buckets, it might not be too late. There’s ways to get money in some of those buckets. So, again, talk to your advisor or tax preparer if you need help, just being more tax efficient.
Brian Graff: 25:52
For sure. And then, finally, don’t forget to surround yourself with that great team. Don’t be a DIYer, right where you feel like you need to do it yourself. One more example, tracy you know, if I had a plumbing problem at the house, the last thing my family wants to do is see me come out of the garage with a wrench, because I promise you, I will screw it up way worse than it is already. So on that case, I would call one of my you know good plumber friends and I would rely on that person with the expertise, the experience and someone I trust. So it’s no different with your financial planning as well. So again, hopefully that everybody takes out of this podcast that being a millionaire is not as hard as it may first seem and that there are some smart moves we just talked about that are available for most people to make in getting to that goal.
Brian Graff: 26:42
So, tracy, as we wrap up today, I just want to remind our listeners to please reach out to us with any questions or comments you have about what you’ve heard today. You can hit us up at our email address, which is podcast at conradsegalcom. We are truly here to help you. It’s what we do, it’s what we love. So reach out anytime and again, as always, please feel free to share this podcast with your friends, family members, colleagues. If you like what you heard and if you’re so inclined, give us a five-star review and please subscribe if you haven’t already. All right, tracy. Well, again, great talking with you today. Until next time, everybody, stay safe and good luck with your retirement future. Take care.
Welcome/Close: 27:27
Thank you for tuning into today’s show. The Real Talk Retirement Show is created and produced by Conrad Siegel, an advisory firm that specializes in helping people prepare for retirement and beyond. If you want to learn more about our work or meet the team, you can visit conradsegalcom. Information on this show is for educational purposes only and should not be considered personalized investment tax or legal advice. Before making decisions, you should consult with the appropriate professionals for advice that is specific to your situation.