How Tax-Smart Income Targeting Can Allow You To Save Taxes & Retire Earlier

Walter Storholt:

There are many so-called financial advisors out there who tout holistic planning approaches, yet their answers always start and end with investments, or maybe some annuity that’s going to solve all your problems, those magic bullets. And at best, you might get some planning light advice, we’ll call it. Has your advisor ever talked to you about income targeting? If not, consider that a red flag that their approach isn’t as holistic as perhaps they claim. On today’s episode, hear Tyler Emrick, CFA, Certified Financial Planner®, peel back the onion on income planning, which is a critical part of a successful retiree’s overall tax-smart distribution planning. Today you’re going to learn how this type of planning, coupled with careful asset allocation decisions, can save a lot of tax over a multitude of years, allowing you to potentially retire earlier, spend more, and give more, and be sure to pay attention to how Tyler, Kevin, and the team at True Wealth use these strategies to benefit clients no matter what, whether you’re still working, or already in retirement. Buckle up, it’s time for Retire Smarter.

Hey, welcome to Retire Smarter everybody. Walter Storholt here alongside Tyler Emrick. We’ve got a great show on the way today. Our good friend IRMAA is back for a little bit of today’s show and a little bit of a follow-up to our previous episode, so make sure you go check that out if you didn’t listen to the last about income targeting and should we even care about IRMAA? We talked a little about that. We’re going to dive a little deeper in today’s show.

Tyler, good to be with you. What’s going on in your landscape, my friend?

Tyler Emrick:

Happy to be here, Walt. Honestly, nothing going on. We had a pretty relaxing weekend and not much going on at all, so sometimes those weekends are good, right?

Walter Storholt:

I had one of the same, you’re exactly right. We’ve been going a little too fast lately. Let’s peel it back a little bit and just have a chill weekend. So it was good to catch up.

Tyler Emrick:

It is. I don’t even have any funny stories about throwing my kid in the water or cutting down a tree or nothing, so it hit me right as we started today. So we’ll have to leave it with a nice relaxing weekend and we’re ready to go for the podcast today.

Walter Storholt:

Sometimes that’s the special nugget you need is I was able to relax. There you go. That’s all you need sometimes.

Tyler Emrick:

Yes, absolutely.

Walter Storholt:

I did get a new camera, so I am excited about that, to do some… I’m getting into wildlife photography, so I got a new camera, I’m really excited about it. So I did take a couple of shots with it to practice with this past weekend.

Tyler Emrick:

Maybe we’ll have to get some of those out and have Walt’s photography shop, get them posted on Instagram and have the whole ordeal.

Walter Storholt:

Oh my gosh.

Tyler Emrick:

When you first said that my mind went to, yesterday my camera wasn’t working on my computer and I was frustrated because sometimes that technology creeps up on me and I’m like, what’s going on? But as soon as you said camera, I was thinking you were going to say something around work and doing meetings and all that good stuff, but happy to hear it’s much funner than that, or much more fun.

Walter Storholt:

More fun, for sure. Speaking of cameras, I do have a new webcam that’s supposed to be super-duper really cool, for Zoom meetings and video that we’re doing and that kind of stuff, so that’ll be fun to mess around with. I haven’t set it up yet, but it arrived, so there’s that.

Tyler Emrick:

Fair enough. Well, good deal.

Walter Storholt:

It apparently tracks you. If you move around, it’ll follow you around, which is pretty interesting.

Tyler Emrick:

I don’t know how I feel about that. You’ll have to give me some feedback and see how it goes.

Walter Storholt:

Not as weird as this last little nugget. There’s some technology that I found out from AI yesterday. If you ever do videos and you struggle to keep eye contact with the camera, you have trouble looking at the camera, you want to keep looking off the screen and stuff, and really eye contact is important to you, AI can now take your eyeball and make it always be looking at the camera no matter how you turn your head, but think about how weird that probably will end up looking in humans.

Tyler Emrick:

Especially if you listen or watch back on yourself and like, well, hey, this solves a problem. Hey, more for it, happy to hear about it and utilize it.

Walter Storholt:

I’m interested to see that in practice. It sounds a little crazy.

Tyler Emrick:

Yes. Well, for my afternoon appointments, I’m going to be looking into my camera to see if my eye contact is off or not.

Walter Storholt:

There you go.

Tyler Emrick:

And it’s going to be probably pretty weird.

Walter Storholt:

It’s going to get into your head now.

Tyler Emrick:

So if you’re the family I’m meeting with this afternoon, I might have to apologize in advance, right?

Walter Storholt:

It’s good stuff. All right, Tyler, well take us through today’s episode.

Tyler Emrick:

You’re absolutely right. You set us up great, Walt. We’re really building off our podcast, or the last podcast that we did. So you are going to hear that term IRMAA maybe a couple of times here. If you don’t know what I’m talking about or if you haven’t heard that before, go back, listen to that podcast, it essentially is income limits and once you hit over them, you owe a little bit more for your Medicare costs. But we’re not really diving into that per se today. We’re really wanting to get a little bit more into this idea of income targeting, and it’s a strategy that we really call or fits into our tax-smart distribution planning, and we really thought it would be a good time to maybe peel back the onion a bit and talk about, Walt, how does it work? And maybe more specifically, who does it benefit and why should it be a part of your overall planning and approach to what you’re doing on a year-in, year-out basis?

And I’ll give a little bit of a disclaimer here, Kevin and I were talking about the podcast and maybe doing a little bit of prep work, and he kind of sat back, he’s like, “You might get an egghead alert on this one, so just be careful. Just be careful.” And I was like, “I don’t know if we have to worry about that.” So Walt, if you got your hand on the trigger finger.

Walter Storholt:

I have it queued up. I’ll be listening,

Tyler Emrick:

Be careful. And we’ll try to keep it, and certainly, I’ll probably get down into the weeds a little bit on today’s podcast, but certainly listen to it a couple of times if you need to, we’re here if we have questions, and I’ll try to make sure and keep it as clear and clean as possible. And some of you listening might even be like, well, what the heck do I mean by income targeting? We’re targeting some type of income, right?

Walter Storholt:

Let’s start there.

Tyler Emrick:

Yes.

Walter Storholt:

It’s target practice? What’s going on?

Tyler Emrick:

So from a high-level standpoint, when I’m saying income targeting, really what we’re diving into is trying to understand for on a year-in and year-out basis, how much and what type of income do you want to hit your tax return? And there are a few basic things that you’re going to have to know and understand to be able to actively and productively target an income level each year. And those things are, if you’re asking yourself, well, you need to know, what’s my marginal income rate from my ordinary income each year? So what’s your marginal tax rate each year on your ordinary income? Aside from that, well, how much do you pay in taxes on your long-term capital gains and qualified dividend income? And maybe more importantly, once you know those rates, well, how is that going to change year over year?

So you might be thinking, okay, well, I might know these things, and if you do, that’s great, and how we use the answers to those questions and income targeting is, well, it helps you make better decisions on, well, how you save if you’re working and you know your taxable income this year, that’s probably going to help you understand, well, should I save pre-tax or should I save Roth?

When you head into retirement and that paycheck goes away, well, now you have to look and say, “I have some more flexibility on how much income I take on a year-in and year-out basis. How do I want to manage that?” So it’ll probably help you more effectively look at all your accounts and decide, well, which account do I want to pull from?

It also even goes further down into just, well, how should I use my investments inside of each of our accounts? We have a Roth, we a trust account, we have a 401k, which type of assets should I hold inside of those? So you can see all these things that stem off those few high-level questions that we need to know around your tax rate and how your income’s taxed. And it all is encompassed into this big idea of, hey, what is income targeting?

So as we think about the layout of the podcast today, I think it’d probably be best, Walt, to maybe just tackle it from the standpoint of a typical family and how we apply income planning in their specific situation and what the benefit that they get out from it is and go from there.

Walter Storholt:

Always nice to put ourselves in somebody’s shoes and figure out how that feels. What kinds of decisions might we have to make in a real-life scenario?

Tyler Emrick:

Absolutely. And the first, I guess, family that I would want to talk about, or a typical scenario, would be that family that has most of their assets in pre-tax retirement accounts. It’s really not uncommon for families to, hey, you supported a family, maybe you put your kids through school, you did a good job and managed your debt down low, maybe even you’ve paid off your house, and you have to juggle all these things. And yes, retirement’s there in the background and you want to get there. So how do you do it? Well, you just contribute to your retirement plans through work. They’re a wonderful place for you to put money. You get free money a lot of times.

So we see this a lot. I have a lot of families that I work with in the medical profession. And with the doctors, for example. Hey, you’re in school all this time. You come out of school, you have this huge debt that you have to get down. You have this influx of income all of a sudden. You have all these goals that you want to accomplish. Maybe you’re getting married or you want to buy a house. And then you’ve got these nice retirement plans that the hospital systems offer you like a 403(b) or a 457. And so you’re just like, hey, I’m going to put all my money I can into those. Anything that’s left, that’s what I’ve got to handle all these other goals.

But what those families find is once they get on the doorstep of retirement, you’re looking around at, well, what assets do I have to use to help me get through retirement? And a lot of it hasn’t been taxed and it’s sitting in those pre-tax retirement accounts. So that’s the first type of family that we want to look at. And we want to say, all right, well what does retirement income targeting look like, or just income targeting in general look like for that type of family? And the first thing-

Walter Storholt:

And I just want to reiterate for the listeners, Tyler, we’re talking income targeting, just again, the type of income and how much, so doorstep of retirement.

Tyler Emrick:

Type income and how much. You got it. And for this particular family, since they have most of their assets in pre-tax retirement accounts, hey, good old Uncle Sam is going to get his hands on that money when it comes out of the account. So you’ve got, when you do your distributions, the amount of your distribution will determine, well, how much taxes do you end up paying on that distribution ultimately? Does that make sense?

Walter Storholt:

It does. Yeah, absolutely.

Tyler Emrick:

Okay, perfect. Before we dive into that income targeting and actually creating the strategy and how do we implement it, there are a few key items that we want to target or trigger on. And the first is we are going to have to know their ordinary income rate. This is the rate that their IRA distributions are going to be taxed at. This is the rate that their pension incomes are taxed at. And if you look at the tax brackets, what you’ll find is there are a few rates that really see some significant jumps if your income goes above them.

So for example, the first one’s 12% tax bracket, and the next bracket above the 12, it jumps 10% and any income above that would be taxed at 22%. The other one that jumps out at me would be the 24% tax bracket. So if your income’s falling in that 24% tax bracket, you overshoot it and your income goes into the next bracket, well now every dollar’s going to be taxed at 32%. So I don’t know about you, Walt, I’m pretty frugal, but I’d want to know or I could see value and understanding that, hey, if I pull more money out of my retirement accounts, I’m going to be paying 10 or 8% more in taxes on that money.

Walter Storholt:

At least good to be aware of the fact that that’s going to be happening, right?

Tyler Emrick:

And if we can work around it.

Walter Storholt:

If we can work around it, great. If we can’t, well then it is what it is.

Tyler Emrick:

Now, of course, those limits aren’t the cliff. I don’t know if anybody listened to the last episode, full send, the IRMAA tier, which is another limit that we need to be mindful of. It’s like, well, hey, if your income goes above it by a dollar, we’re over, right?

Walter Storholt:

Just Evel Knievel, right?

Tyler Emrick:

Yes, the ordinary incomes work a little differently. But still, the concept still applies, right? We need to know ordinary income. We also need to know, are you going to be subject to these IRMAA tiers? And do we need to be mindful if you have $1 that goes over them? Well, hey, now you’re paying more for your Medicare. And then we also, or the third item that we would want to be paying attention to, would be, well, how do these rates change for you over retirement? And what is your expected long-term tax rates or IRMAA tiers that you’re going to follow into? And then we can start to build a strategy around that. And as we start thinking about the strategy, well, the strategy is going to be one of, hey, can I save money in taxes and can I do it more efficiently? Can I take money out of my retirement account and pay less in taxes now than what I could down the road?

Or, hey, am I going to have an issue down the road to where my income is going to pop above one of these IRMAA tiers, but yet if I start pulling distributions out of my pre-tax retirement accounts now, paying taxes at a lower rate, maybe that’ll avoid some of those troubles and some of those pitfalls down the road. So that’s really where the strategy comes into play and what we’re trying to do. And then there is this little item called asset location, which I’ll get into that a little bit more on the second family that we talk about today. But asset location is essentially saying, hey, well, I have these types of accounts, most of them in this scenario, or most of my accounts are pre-tax retirement accounts. If I’m going to start taking money out of them and paying taxes on it, well, where am I going to reinvest those funds and what types of investments do I want to hold in that account? Because there are different tax considerations that we don’t want to lose sight of.

So that’s what we need to know. That’s the high-level strategy. Now the question becomes is, well, how do we make this thing work and how does it work in practical application? So normally what happens is if you’re on the doorstep of retirement, you’re really focusing on, well, how much money do I need to live off of? I’d say that’s a pretty important number to know. Walt, wouldn’t you say?

Walter Storholt:

Yeah.

Tyler Emrick:

Like, Hey, how much do I need on a month-in, a month-out basis?

Walter Storholt:

Well, that’s why there were whole ad campaigns of people walking around with big numbers. I know those were the whole account numbers, ING or something like that.

Tyler Emrick:

It was. Or ING? Yes. I remember that, the big orange numbers. Yes, you’re absolutely right, the number is important, and you have to be able to get that to replicate the lifestyle that you want to in retirement. So a lot of times what we find is, well, you might have a pension plan that’s going to come in on a month-in, a month-out basis, that’s going to go towards that spending number. You’re going to have social security. Now, of course, social security, for the vast majority of us, is going to be taxable. So you have social security coming in, but that can be used for your normal monthly spending. And then you fill up any gaps with retirement account withdrawals, on a monthly basis, to get you that number that you need to spend. Okay?

Well, once we know what that looks like and we know how much you need to spend and where it’s going to come from, well then we can go back to that whole idea of the income target and saying, well, what’s the difference? What’s the gap? How high do we want to take income? And then to cover our normal spending, we’re going to go up this high. What’s that gap look like and how much is it? And what should we do with the money in that gap? So for example, rough numbers here, let’s say you need a 100K a year to live off of, but your income target was $175,000 per year. That gap is $75,000 and you’ve done the work to say, “Hey, I want to get that money. I want to pull it out,” for whatever reason, whether it be taxes or to fend off some of these issues down the road, “how can I use that money effectively and efficiently?”

And a lot of times what we find is that gap or that difference, we’re doing things like Roth conversions to go ahead and pay taxes on the money and then get it reinvested and let it grow tax-free forever. But sometimes it can be used for gifting to the grandkids. It can be used for debt pay down, to pay off your mortgage, or really any host of things that money can be used for and as long as it’s being used to get you to a better spot financially, debt pay down, reinvesting into Roth, well then that’s all good things, and that’s all going to put you in a better situation going forward.

And then if we remember the scenario we’re talking about now is that this is a family that has most of their money saved in pre-tax retirement accounts. So from a management standpoint, it’s fairly easy for us because we have a lot of control over how much you withdraw from your IRA to manage and take that income right up to those targets and be very deliberate with it on a year in and year out basis.

Walter Storholt:

So it really sounds like you’re looking at the opportunity to say, “Oh, let’s take more out strategically already in X bracket, let’s fill it up.” That’s the Evel Knievel part. You’ve already crossed a threshold, so let’s fill it up because next year, if you need to take out more, you could be pushed into this threshold, or if this changes, then you’re going to end up paying more money anyway, so let’s go ahead and take it out now. That’s really this next-level planning that seems to be happening here is just, hey, we’ve got these, I don’t know, these bumpers, it’s like bowling, right? We’ve got these bumpers that we’ve got to fit in that we can choose our path in our lane for how we want to go through that to the end.

Tyler Emrick:

Right. Exactly correct. Well, and that’s a great segue, Walt, it’s like, well, why would a family want to do this and go through the work? And really it comes back to sending less money to go to Uncle Sam, paying at a lower tax bracket now versus what it might be down the road. And we don’t want to forget, in current tax law, in 2026, your tax rates are going up. The 22% tax bracket, if that’s what you’re in now, it’s going to be 25. If you’re in the 24% bracket, in 2026 that’s going to jump up to 28%. So that’s as in current tax laws. I don’t know about you, Walt, but I don’t know how much faith I have into some other tax code getting pushed through in the next few years.

Walter Storholt:

Who knows what else is going to change leading into 2026?

Tyler Emrick:

That’s correct. And that might happen. But as we sit here today, that’s what we know, and that’s the information that we can use in our planning. But not only from a tax standpoint and saving you there, but also we got to think about if we’re doing this type of planning, well, that’s going to help you plan for some of those pitfalls down the road. The one that comes up to mind quite a bit is required minimum distributions. Now, the age that you have to do those required minimum distributions has gotten kicked down the road a bit. It’s either at age 73 or age 75 when those have to start. But I think a lot of families are surprised with just how large those distributions are going to be when that time comes. And there’s not much you can do to avoid that money hitting your tax return.

And that can cause all sorts of problems. We just go back to IRMAA and $1 above. Well, if your RMD is going to kick you into those higher IRMAA limits, there’s not a lot of planning that we can do when that time comes. The time to do the planning is now. You also think about a family. If you’re married and your spouse happens to pass away. Well, you’re no longer going to file jointly, you’re going to go to a single filer, the surviving spouse’s. Well, those income brackets are much, much more condensed for a single filer where in many cases we find that, hey, while you’re married, you might be in one tax bracket, but that tax bracket might go up substantially for a surviving spouse.

And then I think the other thing to maybe round out some of these benefits, we’ve got the tax side of it, we’ve got the plan for some of these large, big income hits, let’s say down the road, we also got planning for a surviving spouse, but also estate planning for other family members or inheritance or children. I don’t know if you’ve ever inherited any money in a retirement account, but the laws have changed over the last few years where there are stringent rules to where, when you inherit a retirement account, that money is going to have to be distributed under what, in most cases, is 10 years. So that’s money as you think about, hey, you’ve never paid taxes on it, and whoever inherited it’s going to have to pay it, and they’re going to have a very short window on when they have to get that money out of there. So again, they’re not providing much flexibility, whereas if you’re doing this income targeting and you’re repositioning your assets into more tax-efficient accounts, that’s a win-win all the way around.

Walter Storholt:

Very cool. And a lot of people are going to face that more and more, it sounds like, these days too. That was the stretch IRA, right? Where you could just-

Tyler Emrick:

It was.

Walter Storholt:

Have an account last forever, pass it from generation to generation, but government said, “I can’t quite do that anymore,” and that’s going to have trickle-down effects on exactly the topic you’re addressing today. That’s pretty neat to see how that will impact.

Tyler Emrick:

It will. Absolutely. Yeah. The laws were a little bit more lax, let’s say, on how quickly you could leave money into an inherited retirement account. And those are still in place for some individuals who inherit money like a spouse can get around those rules, and there’s some other circumstances where you might have some more flexibility there. But you’re absolutely right, in the last few years those laws have changed and made it much, much more condensed for the vast majority of people who are going to inherit these assets.

That brings us to that second type of family, and the big difference with this next scenario that we want to walk through is that this is a family where they found, they’re on the doorstep of retirement or they’re working, but they have much more assets outside of retirement accounts. So they might have a significant amount of wealth in a trust account or a taxable brokerage account, or real estate, or a host of other investment options, which adds a little bit more complexity from a tax standpoint, and thus trickles down into our maybe a little bit different approach that we would take under that scenario to that income targeting, because there is a little bit more unknowns with some of those assets in the way that the income flows through on the tax return.

And as we start thinking about, okay, well what do we have to know when we start doing income planning for this type of family that has most of their assets or a large chunk of assets outside of retirement accounts? And I think that idea of asset location becomes much, much more important. Not that it wasn’t for the other family we just talked about, but you really see it come through under this type of scenario. And again, high level, what I mean by asset location is being deliberate about the type of investment you hold in each of your accounts.

And a very, very simple example is, all right, well, if you have bonds, they’re tax inefficient, and have traditionally lower expected return than a stock, so we would want to hold those types of assets in pre-tax retirement accounts. If you have stocks, those are traditionally tax efficient, meaning that they are a little bit more favorable from a tax standpoint. So we might want to hold those inside of your trusts or your Roth accounts. And there’s many, many different shades of gray to this. Frankly, Walt, this might even be a whole separate podcast down the road where we dive into asset location because when you get down to the research on what this provides to you on a year-in, year-out basis, the numbers aren’t small.

The most recent research has shown that if you do effective asset location, again, just what type of investments should I hold in different accounts? It traditionally has had about 50 basis points or 0.5% of after-tax annual returns. So if you have a million dollars in investments spread across a multitude of different accounts, well that’s $5,000 more return per year. That’s not a small chunk of change when you think about just being more deliberate about where your investments are held inside of each of your accounts. And I think it’s even more pronounced now with interest rates going higher, families are getting much, much more interest on their cash and bond investments. And when it comes tax time for 2023, I think there’ll be some families that might have a pretty big surprise when they realize what their tax bill is going to be because all that interest income’s going to flow through and be taxable on their tax return, depending on what type of account that they hold it in. So asset location is a big piece for this type of family.

Walter Storholt:

All right, asset location. I was going to trigger you a couple of times there on asset location.

Tyler Emrick:

Really?

Walter Storholt:

But…

Tyler Emrick:

Hey, I slid through.

Walter Storholt:

You slid through without one, so we’ll see if that one pops up. I see a term on your list that might.

Tyler Emrick:

I don’t know. I think I’m going to be safe here. We’ll see though. So we got asset location. And then, all right, now we got to go down and take a look and really define, well, when we are doing our income targeting, what type of income are we going to target? And what I mean by this is when you go back to that family we just talked on where they have most of their assets and pre-tax retirement accounts, again, it’s easier for us to manage what we call modified adjusted gross income, which is the number that is used for those IRMAA tiers and so on and so forth. But as you get those assets that are outside of retirement accounts and they are kicking off gains and dividends and so on and so forth, and sometimes those gains and dividends aren’t as easily managed and we don’t maybe know exactly what they’re going to be on a year in, year out basis, well then that number becomes very hard to manage to.

So we might switch to or target what we call ordinary income or taxable income as opposed to modified adjusted gross income. So let’s maybe dive into an example here. So let’s say we have a widow client, he’s in his early sixties and has significant wealth. From a long-term planning standpoint, once RMDs kick in, this individual might likely fall into 32% tax bracket or even higher. So when we’re planning for that, they’ve got almost 13 years that they can plan before those RMDs kick in, or required minimum distributions, because that happens at 73 for most individuals. Then we might target ordinary income of say 24% and fill up that tax bracket on a year-in and year-out basis. And we might intentionally do that with Roth conversions or whatever the case may be. And then we will do that with the understanding that all of that, what we call preferential income, or which is like long…

Ah, come on. So preferential income, and I don’t know if it’s going to get much better, Walt, because when I say preferential income, what I’m talking about is long-term capital gain and qualified dividend income. These are essentially just taxed at lower rates than ordinary income for this individual. They might be taxed at 15% or 20%, whereas most income would be taxed at 24. Does that make sense, or not too bad there?

Walter Storholt:

No, you’re good, Tyler. I just feel like when you say preferential income, you should have to say it a little differently, like preferential income. You’ve got to…

Tyler Emrick:

Nose up a little bit?

Walter Storholt:

Put a little nose up, a little more gravitas into it.

Tyler Emrick:

Yes. But that income, that preferential income, again, it’s taxed at those preferred rates, and they sit on top of your ordinary income. So you can kind of think of it as a cake, right? That bottom layer of the cake is ordinary income. We can manage that. Those are distributions from your retirement account. Those are pensions and social security and all the things that we have a good idea and can manage. And then that next layer on top, since we can’t necessarily manage that as easily, or we don’t have as much insight into how much of that’s going to hit the return each year, well, since it’s stacked on top and it doesn’t increase, we know it’s a flat rate, well then we can manage around it and it doesn’t matter as much, and then we can plan around the more important ordinary income.

And as I think about that asset location, to put a button on that situation, well, in this scenario for this widow, well, their IRAs might hold tax efficient lower growth assets such as shorter term bonds or tax-inefficient bonds. Maybe their Roth account has higher growth assets like their stocks, and then the trust account has anything that’s going to kick off those qualified dividends or long-term capital gains, or maybe some tax-efficient real estate that are going to be taxed at more of these set lower rates that aren’t set to change in 2026.

So I think it becomes a little bit more complex, but the targets and the way that we do it maybe just looks a little different for this type of family. But the reason why we do it, and the reason why it’s important, it’s all the same reasons. It’s all about maximizing your wealth, sending less money to go to old Uncle Sam, and putting your heirs or your spouse in a better financial situation, should something happen to you. And if you do this over a number of years, you can really see the impacts of it over a long, healthy retirement.

Walter Storholt:

And again, this is just one little… Well, I’ll use your cake analogy. You always get my attention if you want to talk food, or especially some sort of cake, and a layer cake at that, man, you’ve got me hooked. People don’t know, we’re recording this podcast today, it’s 6:00 AM my time, but we’re talking about cake and I’m like, I’m ready for some cake already.

Tyler Emrick:

Sugar rush in the morning to start your day.

Walter Storholt:

Yeah, let’s just lean into it. My favorite thing, my dad’s birthday is near Christmas, and so he always gets cake on his birthday, but then it’s always when we’re all together and the whole family’s there and we have a tradition the day after his birthday, the morning after his birthday, everybody has another humongous slice of cake on the morning.

Tyler Emrick:

He doesn’t do that birthday confetti cake, does he? Is that the standard? Because that’s, in my household, like the cream of the crop. Some people might be going, “Oh, that’s gross.”

Walter Storholt:

No, we have a family cake. So it’s something that his mom and his sister, sometimes he gets two cakes in back-to-back days, sometimes three back when I was younger and still living in the house, I’d make him one, then we would travel to New Jersey, his sister would make him one, and then we’d go up to Maine to see his parents and they would make him one. So he’d get three cakes back to back to back. But no, it’s chocolate, a layer chocolate cake with homemade chocolate pudding in between the layers and then homemade whipped icing over all of it on the outside. It’s amazing. It’s awesome.

Tyler Emrick:

Hard to argue against that, that’s for sure.

Walter Storholt:

Anyway, I’m getting us way off track, but…

Tyler Emrick:

That’s all right. Hey, we can talk about cakes at any time.

Walter Storholt:

This is just one layer of the cake, and that’s what’s pretty cool at True Wealth Design, you guys make a big cake.

Tyler Emrick:

Yes, absolutely. We don’t want things to get lost in the shuffle. And frankly, I always say we’re plan first financial advisors. Frankly, we have to have some type of financial plan to put in place to be able to better make these decisions in the now. We have to have some idea what the future might look like and understand, well, what’s our families trying to accomplish. What’s important to them? And taking that information and putting them in the best situation they can today and help them understand, well, hey, when are these peaks and troughs in your income going to come up? When’s RMDs going to come in and how does that affect you? What’s your long-term tax rate look like? And do you have any potential estate issues? These are all things that you really don’t know until you’ve taken the time upfront to look at them and talk through them and look at them through a pragmatic lens.

At the end of the day, when we go through this, I think in most examples or what I’ve found, is that families will go through this, and once they gain the clarity and the confidence that, “Hey, this is going to be all right, we’re going to be in good shape,” or, “Hey, we can do these things and put ourselves in a better financial situation.” Well, what that does is it opens up the doors for them to be more comfortable with maybe their family gifting or their charitable gifting or going on more trips or whatever the case may be. And that’s where I think the financial planning gets fun is when you open the eyes and help families get to a point to where they can make, not only better financial decisions for themselves but just better overall life decisions and do the things that they maybe wouldn’t have otherwise felt comfortable doing.

Walter Storholt:

Yeah, it’s all great points, all really helpful. Tyler, any final thoughts on today’s episode and how we should understand a little bit of this income targeting and the IRMAA implications and our asset location? Felt like those were the three big buzzwords that…

Tyler Emrick:

It was a big one. Yeah, no, I think we hit most of them. I got my egghead alert. I talked a little bit about cake.

Walter Storholt:

Beautiful.

Tyler Emrick:

I think we hit everything that we wanted to today. Certainly, if anybody ever has any questions or anything like that, the team here at True Wealth is always going to be available to sit down and have that conversation.

Walter Storholt:

Well, here’s how you can get in touch, and certainly, if you’ve got any questions about today’s episode or something else that’s on your mind when it comes to financial retirement planning and the proper strategies for your situation, the best way to start is to schedule a 15-minute call with an experienced advisor on the True Wealth Team. And the way that you can do that is by going to truewealthdesign.com and click the ‘Are We Right For You?’ Button. And from your smartphone or your computer, you can schedule a time to visit and see if you’d be a good fit to work together. Again, it’s the best place to start, that 15-minute introductory call. It’s complimentary. Just go to truewealthdesign.com. Or you can call 855 TWD PLAN, that’s (855) 893-7526, and that contact info is in the description of today’s show so you can find it easily.

Tyler, great episode today. We got to talk about cake, all sorts of good stuff, and sounds like after a relaxing weekend, you’ve got something adventurous hopefully planned here in the next couple of days.

Tyler Emrick:

Oh, no. We’ll see.

Walter Storholt:

Here’s to [inaudible].

Tyler Emrick:

Good catching up, Walt.

Walter Storholt:

Enjoyed it. We’ll talk again soon. Come back and join us next time right back here on Retire Smarter.

Speaker 3:

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