A Wiser Retirement®

259. What Pilots (& Others) Should Consider 5 Years Before Mandatory Retirement

• Wiser Wealth Management • Episode 259

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Retirement for pilots comes with its own set of challenges and opportunities, especially with the mandatory retirement age of 65. In this episode of
A Wiser Retirement® Podcast, we explore essential financial strategies and lifestyle adjustments to help pilots (and others) navigate a seamless transition into retirement.

Other Links:
- Click here to download your free airline 401k allocation.
- Click here to use our Mortgage Payoff Calculator

Podcast Episodes Referenced:
- Ep 253: Navigating the Future of the Airline Industry
- Ep 234: Pilots, Maximize Your 401(k) Contributions!

YouTube Videos Referenced:
- Pilots, stop spending millions in 401k management fees!
- Tips for Airline Pilots Approaching Retirement

Learn More:
- About Wiser Wealth Management
- Schedule a Complimentary Consultation: Discover how we can help you achieve financial freedom.
- Access Our Free Guides: Gain valuable insights on building a financial legacy, the importance of a financial advisor for business owners, post-divorce financial planning, and more!

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This podcast was produced by Wiser Wealth Management. Thanks for listening!

Financial Planning and Life Lessons

Speaker 1

You know, Casey, it's interesting that pilots have that mandatory retirement age of 65 and how some see that as like so punitive. But then, if you just ask those same people when they would want to retire, they'd probably say 65 anyway.

Speaker 3

Or 60. Or 60, exactly, exactly. Welcome to the Wiser Retirement Podcast. We believe the best financial advice should always be conflict-free. I'm your host, casey Smith, guiding you to financial freedom. Today is the award-winning world's best financial planner, missy Beach.

Speaker 1

Hello Casey.

Speaker 3

Hello, so we took a little break from recording. A lot has happened in the world. We typically do recordings ahead of time, only around the holidays, because we want to break too. So we're recording this post. Thanksgiving, but before Christmas is like. This podcast will post on December 16th. We've had quite a few things happen, even in my personal life. Missy, I was hit again.

Speaker 1

How many times now, Casey? Me in a car, in your car.

Speaker 3

You should not. Yes, not body, not body, that's true. You know you should not get in a car with me. You know we've had one car that got hit and was told it would be totaled and it was revived. And then I didn't know that at the time, so I bought a new car and it got smushed in a six car pile up. None of this is my fault. And then the old car that actually came back, which replaced the new car, which is now gone to car heaven. I dropped my son off at a baseball game or a night game, but a practice, and I was just sitting at a red light and all of a sudden wham.

Speaker 3

I get hit again and I'm like, oh my gosh, like what is going on? I get out, it's a golf cart that hit me on the highway.

Speaker 1

On the highway.

Speaker 3

Some guy, some guy had gotten uh, uh, just really intoxicated, drunk as a skunk and had uh hopped out of the marietta country club through the shrubs and was driving down uh stylesboro road. Yeah, that little ticket through the shrubs fleeing, was driving down the road and, uh, he was laid out in the ground. I I thought, I thought that he was dead.

Speaker 1

Well, good thing we had CPR training here at the office.

Speaker 3

We've had CPR training here at the office. I was like I was ready to use my, my new skills and I get down and I realized he's breathing which is good. Cause you know you think when you think about the CPR you think they were teaching us. You know you actually crack their ribs.

Speaker 1

Yeah, I know you got to do it hard.

Speaker 3

I was like, oh my gosh, this is going to be horrible.

Speaker 1

And uh, I was he a big guy or a little guy?

Speaker 3

He's a medium sized guy and I uh look down. I see him breathing, I look at his eyes and he's just passed out drunk. Oh my drunk, oh my gosh. So he just hit you full force. And then he was just out cold. He was in his personal golf cart, so they typically don't have governors on them, so I figured he's going 30 miles an hour and he's rammed in the back of my car probably good thing.

Speaker 1

He was drunk and didn't maybe get hurt.

Speaker 3

I don't know I don't, I don't know. Uh, unfortunately, you know, all the police in kansas, georgia, came out and my understanding is that you know. Well, I know he went to the hospital because he never talked oh, he was just out so he never like came to no, no. Well, maybe when I stepped away because I heard him say no, no, no, no, no, you know, stay down. So maybe he was trying to get up at some point to drive home but so many thoughts.

Speaker 3

One if you have, well, maybe yourself, or if you have a loved one that struggles with alcoholism, it's a real thing, it's it's. It's a, it's an addiction, it's a disease, um can help. Yeah, that was a week night right if I, it was 6.30 pm. Oh, on a weekday, what I learned later was someone hit a hole in one and there was like an open keg.

Speaker 2

Well, yeah, so what? And then?

Speaker 3

he went to the bar after that and was drinking himself is what I heard. I don't know if that's entirely true. I wasn't there to witness that part, obviously. But you know, I just felt sad for the kids. You know kids, kids were at the scene because I guess mom got called and they were all standing there looking at dad in the middle of the middle of the road Um so you know, dads, um, don't, don't do stuff like that.

Speaker 1

Moms don't do stuff like that.

Speaker 3

If my kids saw me laid out in the middle of the road, passed out. It's because I had just killed the last zombie in the zombie apocalypse.

Speaker 1

Yeah, that'd be heroic.

Speaker 3

Not because I drank too much, no, yeah. You're right, it is a real disease Um but yeah, no, I've had, I've had I've friends who've um gone through AA and and they're sober and they they were able to remarry and, and, and they're doing fine. Uh, there's a ways out of this, but anyway, if you need to hear this this holiday, maybe it all happened for a reason. I'm not actually terribly upset about it, One, the car has been hit so many times. At this point I'm just like, well, they, they've had good practice.

Speaker 1

How are you still insured. That's what.

Speaker 3

I want to know. It's not my fault, I'm just sitting there. So, yeah, the car has been put together so many times, but I'm glad that I was there, because if I hadn't been, one more intersection down is a major highway and there's no way that he would have stopped. He would have probably have kept going straight. And no one would have seen him, no lights.

Speaker 3

No, there were lights in the car. I don't believe they were on. I actually have pictures of the accident. I could probably go back and look at that, but that's not the point. Point is just be safe out there. Make good decisions.

Speaker 1

Don't drink and drive. Be good examples for your children.

Speaker 3

Yeah, you know, just hey, let's model good behavior.

Speaker 1

You never know when they're going to get dragged into it.

Speaker 3

But it's very interesting and all these accidents. This is the first time alcohol has been involved. So I have gotten a letter from Cobb County prosecutor asking me how emotionally damaged I am from the accident, which I'm not, and I filled the answers out honestly and I returned it to the prosecutor. And then yesterday I got a nice little letter from the hospital. The hospital says that I could potentially owe them $80,000.

Speaker 2

What I know right.

Speaker 3

So I started rereading the letter and rereading the letter and evidently it's just related to if there's any claims, like if I win anything, the hospital may ask for reimbursement through my, through my claims which, first of all, I'm not suing anybody.

Speaker 1

Yeah, you just want your car fixed.

Speaker 3

I just want my car fixed and Allstate's paying for all this, and then they're going to turn around and go after his insurance company to get the money back. So Allstate would be made whole in the end. So everything's going to be okay. Nobody died, thank goodness. He just needs to go to a class or something. But but yeah, let's see what else is going on here. Guess what, missy.

Speaker 1

What we just signed another lease.

Speaker 3

We did yesterday we're expanding, we're expanding again, so the office is adding another thousand square feet. Wow, so yeah, and I think we're settled in our spot here through 2032. Nice, so we'll be Commute is locked in.

Speaker 3

Commute is locked in until 2032. So Weisler Global Headquarters is getting another expansion. This time it's just a really, really large room that I will be able to have work tables and things like that. So basically frees up some more office space for senior advisors and then gives our planning associates and younger advisors a little more space. There's a possibility that we end up with a permanent podcast space. So for those of you watching on TV YouTube, you might see a new studio come Februarybruary or march of uh, next year.

Speaker 3

We'll see we'll see how that, how that uh plans out, uh, and we've had a couple of things. William has passed the william meghoff or clients that are listening. William passed the cfp exam go william. That's huge we're excited, uh, for him. Uh, mich Michaela passed the series 65 exam, so she's a licensed advisor now and hopefully she'll be able to sit for the CFP exam come of November of next year yeah uh, so we're excited about that.

Speaker 3

Grace will start her CFP classes in January, so the the group is, um uh, doing really well. Uh, as far as education goes, we've been to two conferences. We went to a naffa conference in nashville. Uh, got a real.

Speaker 3

That was a really nitty-gritty conference like we got into the weeds technical stuff on, uh, several topics and then we uh, some of us, some of us all the advisors attended nash. Then operations and investments, andrew. We all flew to California for the Schwab conference, which was very enlightening as well. I will say I'm really proud that we're with Schwab now. I think they've come through this transition finally from TD Ameritrade really well and they're doing some good things. The Ameritrade really well and they're doing some good things.

Speaker 3

They are still like an old dinosaur as far as forms and technology for on our side, but I think, as far as what they're doing for the clients in the industry, they're moving in the right direction, so I was really pleased with that. So, anyway, let's get into our topic today what pilots and others should consider five years before retirement. So for those of you who are not pilots, we have a large segment of our client base that are airline pilots and mandatory retirement age for a pilot 65 years old. Right now there is some legislation pending that could push it to 67. Don't know if that's going to happen this year. There was a last minute push, but it seems to as like so punitive.

Speaker 1

But then, if you just ask those same people when they would want to retire. They'd probably say 65 anyway.

Retirement Planning and Financial Advice

Speaker 3

Or 60. Or 60, exactly. Yeah Well, I think you see it as punitive because when you're a senior pilot, you're the top snorty list, so you can make a good amount of income and not have to work a full schedule. You could work maybe one or two trips a month if you wanted to.

Speaker 3

And so that's the part they're like hey, this is the easiest time of my life. How come I have to quit now? When, when, if it went to 67, I can build this a little longer where the companies are like, I don't know if we want you milking this, and it's funny because when you meet with clients of different age demographics, how their answer changes.

Speaker 1

Because our more senior pilots. Yeah, they want to keep working forever because they understand the system and just what you described. But yet the younger pilots who haven't made it up the pay scale yet, they're still saying, oh yeah, 50, 55. And I'm like, okay, just wait, we'll keep updating this plan, but I bet you might stretch that out. Let's look at a traditional 65.

Speaker 3

Yeah, the younger ones are working harder. I thought you were going a different direction with that. I think the younger ones don't want age 67 because they want the older ones gone.

Speaker 1

Oh well, that's true too.

Speaker 3

Oh yeah, they definitely don't, that's kind of what's happening in the union. There's a younger management base now and so ALPA is against age 67. But if you read their reasons why, it doesn't quite compute really. If the federal government says that full retirement age is now 67, then it ought to be 67. You still have to keep your medical.

Speaker 1

Yeah. So you know what does it matter?

Speaker 3

Yeah, it doesn't matter. I think if now, if I was the company, I'd probably say 65, because chances of keeping your medical at 67 or or, or much less, uh, maybe, maybe it's better now, but I don't have any stats for that. But if you're out on medical, um, that's pretty expensive for the airline.

Speaker 1

I was just thinking that same thing in the amount of pilots that go out on disability for the littlest things.

Speaker 3

We can go to work and keep working with some of the things that they would have to not be at work for for obvious reasons. So that's the part that I think that people don't quite understand. So there's different angles. There's the pilot who is 65, who doesn't want to quit yet, and then there's the company who's well, if you're disabled, I got to pay all this money.

Speaker 3

And then there's the younger pilots that want the older pilots gone so they can get their seniority numbers. So they're all kind of. All kind of is a mess, but all right. So let's, let's hop into this Couple of things as you're approaching retirement so we were within five years and this applies for anyone is you should be able to get a sense of what you're going to be doing next in retirement and, more importantly, what is that going to cost you.

Speaker 1

Yeah, I think you're kind of at that age range where your kids or dependents have kind of flown the coop, so they're kind of out of the picture. And all your child rearing, your tuition, your travel ball, your horseback riding your ballet that's off your plate now. So it's really just kind of you and your spouse and those are your own living expenses and everybody else is out of the picture. So you should have more of an idea of what it's just going to take the two of you or maybe it's just you in the picture at that point in terms of annual living expenses in the picture at that point in terms of annual living expenses.

Speaker 3

So think about your hobbies, your bucket list items. Some of those might be one-time expenses, but you got to work that into your budget. So what I would do is say what is my basic living expense going to be and then what are the extra things that I want to do? You're gonna have a country club membership in retirement or are you going to be traveling for pilot families? Amazingly, they said they want to travel. They don't actually do. I know I can think of probably about 10 that never stepped on a plane after their retirement date.

Speaker 1

Just have zero interest. I'm really surprised by that. But yeah, when we ask pilot, families're like nope done.

Speaker 3

Yeah, I don't want to be on a plane now some of them will uh take up rving or do things go go by land, because they've seen everything by air and I wanted to go see it by land that's a good point but the uh, you know other other things might be legacy, more legacy related, like a second home at a lake that the grandkids are going to come over someday, or et cetera, et cetera.

Speaker 3

You get my point, but all that has a cost to it. So you need to figure out what does it cost to operate, and then what does it cost for the extras, and then what is the one-time expenses? What's the one big trip? Two big trips or maybe is it one big trip a year for 10 years or 15 years. These are all things we work into our planning process to help make all the numbers work.

Speaker 1

Exactly. That kind of leads us into the next point, casey, is that also at this point your mortgage should be almost paid off. Or if not paid off, let's look at an amortization schedule to get extra principal paid in that five-year remaining working career. So you've got it paid off at retirement.

Speaker 3

I know something that our advisors do when they take people through the planning process is if it's not going to be paid off by 65, we come up with a number Maybe it's 500 extra a month or 1,000 extra per month that goes toward the mortgage to put on a um kind of a glide path to be paid off by then. So that that's really important. And people you know I can hear people already only pay 2.75%. Or I got 3.3 and a quarter percent. Why should I have to pay that off? It's about retirement's, about cashflow. Okay, you know, if you were Jeff Bezos or if you're, you're um, you know Elon Musk, then maybe you have a hundred million dollars in loans and it's you're paying two and a quarter percent. You get a hundred million dollars sitting in the bank earning 5%. You're making millions of dollars a year off the spread. Yeah, but that's not these families that we work with now.

Speaker 3

So the spread that you're making is maybe, maybe, a thousand dollars. In some cases it's like hundreds of dollars Exactly. So don't don't put anything else at risk, but, more importantly, free up the cash flow. Anytime we go into our planning software, we say, hey, there's no mortgage here versus there's a mortgage here, but we have more money. More money invested, it always favors not having the payment.

Speaker 1

Exactly, and people have to also look at interest rates as they fall and what they're getting paid on their cash. So most high yield savings accounts are down to like 4%. Now, if you're in the highest tax bracket, you're shaving off a third of that, and so you're down in the twos.

Speaker 3

So we have a whole podcast, I think, on that. I know we have videos on why you should pay off your mortgage. I know there's blogs on this. These are all things that we can link into our show notes, but, more importantly, the theme here is debt-free.

Speaker 1

Yeah, just pay it off.

Speaker 3

We don't want car loans and mortgages. We want to be debt-free by retirement. Then, in addition to that, we want to have a cash reserve.

Speaker 1

Oh yeah, to enter retirement.

Speaker 3

So that number varies by family, but I'd say most families are somewhere between $50,000 to $100,000 in liquid assets. That is cash that's sitting in a high-yield savings account somewhere staring at you doing nothing just sitting there.

Speaker 1

Yep.

Speaker 3

And then inside your portfolio, you would start building up some additional cash, which we'll talk about that when we get to the portfolio section of our conversation. But you need to have plenty of liquid reserves not related to your investments. Needs to be separate.

Speaker 1

Oh yeah, on the outside Correct, easily accessible.

Speaker 3

So once we have that, um then let's talk about kind of the unknown healthcare.

Speaker 1

Oh, and that's everybody's big concern as they approach retirement, Right, Because sometimes retirement isn't 65. And so a lot of times there might even be a younger spouse. So even if you're retiring at 65, maybe your spouse is 62 or 63 in what to do. And so you know, for some pilots the airline might offer a reduced premium, but still that can be really expensive, you know, even if you're still only paying 55% on the marketplace private insurance to see how that compares even to what the airline offers retirees. But it's not a reason not to retire early, is what I tell clients.

Speaker 3

No, it's never a reason not to retire early. Also, too, is the Affordable Health Care Act and it kind of gets a bad rap. Is the Affordable Health Care Act and it kind of gets a bad rap? But if you have enough money, like in a brokerage account outside of your IRAs or Roth money, you can live off that for a few years. Keep your income really low and you get really big subsidies. And it seems weird, like why would a person with three, four or $5 million in liquid assets plus their properties get a subsidy for healthcare? But it's just how the system was built. So so you just keep your income low. Maybe you're going to delay well, you should be delaying social security anyway, but you're in delay social security. Maybe you're in delay your your pension. If you have one BBCG for for airline pilots, then you'd have the opportunity to have no income other than your interest and it can't be too low.

Speaker 1

Then you get the Medicaid thing here in Georgia.

Speaker 3

You don't want to be on Medicaid. So you, you, what you would do is is have just enough income that you qualify for one of the higher subsidies.

Speaker 3

So you can do that for one spouse, um, or both of you if you're prior to 65, but you you kind of want to cap out your, your income, would kind of cap out 70,000 a year. So if that's, if that's okay from a from a lifestyle standpoint, if all you have is IRA money, then that that's kind of what you're gonna have to live with, and if it's brokerage money, you're just paying capital gains. So you could probably pull out a lot more than that and still be under the subsidy.

Speaker 1

Yeah, I mean up, mean up to 94 000 of income you're still in the zero capital gains bracket for married couples.

Speaker 3

Yes, true, so true not bad, so it there's just so many options there and you're never going to catch missy or shana or I sitting at a health care conference. No, that's not gonna happen. Uh, so we, we depend, depend on experts in that field, especially as fast as it all is changing Same with property casualty and we're not going to catch me in one of those conferences no, yeah, Logan Steele is a healthcare broker that we use.

Speaker 1

He's been great helping one of our clients through that right now looking at the Affordable Care Act and how income is affecting the subsidies at different levels and how much income to recognize, and it's a tangled web.

Roth IRA Conversion for Airline Pilots

Speaker 3

Yes, very much so. All right, so let's talk about Roth IRAs. Oh yeah, we have a video we'll be posting shortly on this. In relation to airline pilots, there's some really, really bad information out there. There's one company it's an individual, I think. He runs a solo shop who advises airline pilots, telling them to convert everything over to Roth.

Speaker 3

Oh, yeah, and when people realized how wrong he is. I feel sorry for this guy. I just think he's. I don't know if he's a fiduciary, if he falls under that rules or on those rules or not, but he has a lawsuit pending.

Speaker 1

Oh really.

Speaker 3

Like.

Speaker 1

Is he the one that says even convert the employee your contributions?

Speaker 3

to the.

Speaker 1

Roth, so pay their tax too. Basically. Correct Pay the tax on their contributions now.

Speaker 3

Yeah.

Speaker 1

He's, he's convert everything.

Speaker 3

Now I've at your high tax. I have not met a person who's actually done it. Shauna was working with a person who is threatening to do it but, um, I've not. I've only met with uh pilots who flown with someone who said they did it or is about to do it.

Speaker 1

It's the chatter in the cockpit.

Speaker 3

So they're going to convert everything in their 401k. So the example that it was given to me by a Delta first officer was I flew this captain. He said he's about to convert his entire 401k plan. So three and a half million dollars he's going to take his taxable income and in addition to his pay. So we figured he's probably making five, six hundred thousand a year, yeah, and so he's already in the highest tax bracket. So in addition to that he's gonna take on three and a half million dollars, he's gonna pay 37 percent tax on over four million and over four million dollars in income and he'll convert all that into roth.

Speaker 3

Just pay the tax now, because he's got to pay it eventually anyways, is the thinking and then he's going to grow that through tax-free going forward. As soon as you take a big hit in tax and grow, it doesn't add up. I'm doing a video this afternoon with Shauna. We're going to post this on our YouTube channel. We can probably link it here, guys, uh, to the podcast as well. Uh, but we're, I'm, I'm. This is my new campaign. I was trying to save everybody from RAA and what a terrible deal that is, but uh, now now now there's someone else is doing doing more harm than RAA is.

Speaker 3

I mean, just don't pay all that tax now?

Speaker 1

And, Casey, what if suddenly they have all these huge Roth IRAs with millions and millions and the government's like, hey, all you big Roth people right. You got to take it out now If your balance is 5 million or 10 million.

Speaker 3

Correct, I thought that was a part of the 2.0, the.

Speaker 1

Secure.

Speaker 3

Act. I thought there was a limit. It's really big though it's there. It's like 50 million. They were targeting one guy. Oh, peter the PayPal guy, yes, they were after him because he put all his shares in PayPal when he started the company in his Roth.

Speaker 1

Well, that's the thing. People start abusing these don't know that was abuse that was really smart oh yeah, exactly, because what if, what if?

Speaker 2

his entire investment was a total loss.

Speaker 3

Oh yeah, he couldn't have deducted it. So, yeah, um, but yes, so I don't want to give away the video because I'm going to watch the video, but but I think the premise here is is smart is you're? You're paying? You're losing 37% right away because you missed out on that deduction. So by deferring that tax plus the earnings, because we've had two years of 20 plus percent rate of returns, right, and the mark in the S and P. So if you, if you're deferring that, that tax, it keeps building and building and building and building, you're not having to pay the tax at some point. Yes, you're going to have a large tax bill, but you also had this decades long period of no tax. So the snowball got bigger. So you have more in assets in the end, right. And then, yes, you're going to have to pay tax on those eventual gains with RMDs and such like that, and you might end up in the 32% tax bracket down the road, but you're still going to have more in assets.

Speaker 1

Exactly. That's the thing more in assets.

Speaker 3

Yes, Because your assets is risen, so this video has cost me a lot of money because when I walked by your office I saw you, shana, grace, william and Michaela all sitting there building your own spreadsheet out. To try to solve this, I did a different approach. I used ChatGPT, which didn't do as well, and then I used another service AI services relatively new. It's really good with spreadsheet work. I used it and it kind of came to the same conclusions what you guys did. It needed a little more programming, more tweaking, and I did it when I was on a drive somewhere. I was not driving, I was riding in the back, but I was kind of working on that. But yeah, basically AI is kind of supporting that as well.

Tax Planning and Efficient Investing

Speaker 4

Hey, fellow aviators, before we dive back into this episode, I've got some awesome news to share. On our website, we've got a freebie just for you. Our team of financial advisors has done the leg work to provide you with free 401k allocations for all the major airlines. Getting your hands on your airline's specific allocation is a breeze. Just click the link in the episode notes or head over to pilotretirementcom. Now let's get back to the good stuff in this episode.

Speaker 3

That being said, I think the point of this conversation is if you're 60 years old, there's no reason why you need putting any more money into a roth oh yeah, five years out from retirement, definitely no more money in a roth and why because you're so close.

Speaker 1

You're in your highest earning years. Your tax bracket's not going to change, so stop.

Speaker 3

Right, yeah, end of story. Yeah, you're not going to be able to make up that loss in tax deduction.

Speaker 2

Yeah, especially the guys making a million dollars their last few years.

Speaker 3

We've met a few of those on the A350 at Delta. No, don't need to350 at.

Speaker 1

Delta no.

Speaker 3

Don't need to be doing that Get your pre-tax deduction. There's a point I think if there was a rule of thumb and I'm talking to the masses, so please don't email me and say you told me to do this in your podcast.

Speaker 3

I don't know who's listening exactly. I know there's thousands of you, but I don't know exactly your podcast. I don't know who's listening exactly. I know there's thousands of you, but I don't know exactly your situation. So this is not individual advice. But if you, if you were, if I was a new hire, which you're probably hardly saving because that's when you have the least amount of money, but ideally it's a hundred percent Roth, I think if you're making less than 150,000 a year, I would say a hundred percent Roth. When you cross over the one 50 to three 350 mark, it's probably 50-50.

Speaker 1

Yep.

Speaker 3

And then over the 350 mark I would do everything pre-tax. You should have excess dollars you don't know what to do with. You put those into a brokerage account and you start building in the brokerage. You do it back to a Roth. You could do, but that's really small in the scheme of things.

Speaker 1

It's just not worth the squeeze.

Speaker 3

So the brokerage account is where you would build. You can do it very tax efficiently with ETFs. You can do tax loss harvesting. So if you have a bad year, you take those losses, you create a tax credit, you rebuy a similar portfolio we have. We have a whole program called flight path. It does this for you automatically with the ETFs. You don have a whole program called flight path that does this for you automatically with the etfs. You don't have to think about it. You just put the dollar in and then it takes care of tax loss harvesting and rebalancing automatically. It's all done by the computer. Uh, but if you're um, if you keep saving, then you get to retirement, then eventually you have a large brokerage account which you can live off of virtually tax-free. I talked about this earlier, right?

Speaker 3

And then you have 10 years between age 65 and 75 in lower income years to then start converting your IRA to Roth during that time span. So maybe you convert at 22 or 24% bracket. It just depends on your situation and if you're married, your wife has assets as well, or if she has a pension. That changes things a little bit. That's why every family is unique. But pilots seem to like to marry teachers and nurses. Yes, it's so weird. So teachers and nurses sometimes come with pensions, plus the nurses these days, definitely the teachers. So those are things that you kind of have to think about long-term, and that's where these other companies aren't doing. They aren't doing long-term tax planning.

Speaker 1

No, because then they have all your assets in the retirement bucket Right. And so what happens if you have to retire early or you know, and then everything's in the retirement bucket tied up till 59 and a half, or you've got to do a rule of 55.

Speaker 3

Right.

Speaker 1

I mean complex strategies. So yeah, build up your opportunity fund in that brokerage account and, like you said, from 65 to 75, the world is your oyster and you have so many opportunities for conversions, for living expenses, for controlling the income for IRMA, for ACA subsidies, for whatever it might be prior to that.

Speaker 3

As humans, we have this cognitive bias. They write about it in the Psychology of Money book. And what we like to do? We're lazy. So what we like to do in our brains is take two data points, connect them together and come to a conclusion.

Speaker 1

It's easy.

Speaker 3

It's easy. So if A and B, then this next one has to be C, and there it is. I'm done thinking about this. This makes perfect sense, and I think what's happening is people are thinking that, oh, we've spent so much money as a country that we have to have really super high tax rates in the future. And I'm going to convert right now, because 37% is probably going to be 60 or 70% tax it's. You know, pilots sometimes are like borderline preppers, so they will go negative very quickly and they'll go to the extreme very quickly.

Speaker 3

So that, in my mind, is how people are getting to this conclusion about this whole Roth. Convert everything to Roth, but what they're missing is so many other things, and it's one of it staring at us right now, which is the AI. Ai is allowing us to work more efficiently. In my example, I had a room full of employees who were very well paid trying to solve one problem, and I was solving the problem with AI in the back of an Uber on the way to a business meeting downtown. Right? So you think about those two worlds and not that you guys are wrong. We came to the same conclusions. We just came to it a little differently Is efficiency? Think about the efficiency of being able to do more with more artificial intelligence helping you not replacing you, but helping you. So if that's the case, that really allows our firm to be more efficient, right.

Maximizing Retirement Planning for Airline Pilots

Speaker 3

Oh, because I could do with someone that could be running the ai simulation, maybe with one other person, or run run by the data points, by that one person, and then we all could have been working on something different and been more efficient, which probably would generate more revenue, which would generated more tax so my point is there are efficiencies that are coming to the U S, to the world, that I think would that solve our problem you know, to get out of the debt that the country has.

Speaker 3

We can. We can work our way out of the debt. We can generate more income out of the debt or out of, uh, uh. Well, partially maybe out of the debt, uh, but we can work our way out of the debt, um, and having to pay these interest payments, I think, very different ways. Now, in order to do that, we need really good leadership. So you know, whether you like them or not, the incoming crowd seems to be movers and shakers and people that are willing to turn the sofa upside down to try to solve the problem.

Speaker 2

Yeah, let's try it, and that's exactly what we need right now.

Speaker 3

We need a complete shakedown of everything. Yeah, let's see if it works. So, if you know, so, anyway, there's there's so many tangents we could take this. Uh, we can certainly take this down, but I think that's the important part is, you can't have a lazy brain. Uh, when you're doing these things, you're you're going to have to look at all the data points and and and do the research, and the best thing you can do is model out your exact tax situation, which is what we do during our planning process Model out your tax situation through age 95.

Speaker 1

Yeah.

Speaker 3

So when I, when I look at a plan that any here, anybody here's done, I'm looking at you know what I'm talking about? That, that cashflow worksheet. Oh, yeah, and I see, well, man, you're in the 10% tax bracket or 12% tax bracket for for 10 years, and then, all of a sudden, you're in the 10% tax bracket or 12% tax bracket for 10 years and then, all of a sudden, you're going to be in the 22% bracket.

Speaker 3

So that means we probably should be converting all the way to the max of the 12, but maybe we go in and convert up to the 20%. Yeah Right, for that time period, and you also too. All this is going to change.

Speaker 1

I know it's just aspirational right now, like same thing with social security claiming strategy you know we talk about that, probably five years prior to retirement. But it's all based on you maintain great health status and you know it might be age 70 for one spouse, full retirement age for the other spouse Right. But we can't predict the future and if you're going to maintain great health, so that's kind of aspirational at that point.

Speaker 3

Yeah, and assuming that the government solves that problem too, true.

Speaker 1

But we're pretty good till 2092.

Speaker 3

Oh really.

Speaker 1

It was social security, and so that's the thing that a lot of people are missing, casey. So the trust fund you know could be depleted by mid 2030s, correct, all right, fine.

Speaker 3

That's a 25% hit.

Speaker 1

Yeah, but then current revenue from all of us paying in should meet 73% of current outflows until the year 2092.

Speaker 3

So you just got to solve the 25% problem.

Speaker 1

Exactly. So people are kind of panicking a whole lot over 25% shortfall and so that's going to be an easy, you know, raise the wage base or raise the percentage fix.

Speaker 3

And then our financial planning software, you can do the what are you afraid of section. So once we finish a plan, you have access to this whole database of all kinds of scenarios you can run on your own. One of them is what are you afraid of? I call it watching Fox News late at night. Yeah exactly. Inflation, all the gold commercials, silver commercials, everything that pops out at two o'clock in the morning. But yeah, so in most plans that I've seen, if you cut it by 25%, the plan still works.

Speaker 3

Yeah, we'll show you, you're fine cut it by 25%, the plane still works Exactly. Yeah, we'll show you, you're fine. So one more caveat, I guess, to shift it back to airline pilots is right now. Delta is the only airline that's running the market-based cash balance plan. United may have just started theirs as a as we post this, yes.

Speaker 1

Americans? I don't know what Americans doing.

Speaker 3

They're trying. I don't know what Americans are doing. They're trying, they're trying, but it's not launching well. So the market-based cash balance plan after age 59 and a half allows you to convert out of that plan into your 401k plan once a year. Now, if you remember, the market-based cash balance plan is really conservative, so you're getting at most 3.5% a year inside that account, so it's great for tax referral. The fact that you did it you should have done it. That's another thing that's all over the Delta boards right now is on on Facebook is that people are saying, oh, you idiots who did the market-based cash balance plan. You're not making any money and I'm sitting there looking at it going look at their statement.

Speaker 3

I I'm like you guys are the idiots that are going to pay the all the tax.

Speaker 1

Yeah, it doesn't make any sense and are they really saving? Yeah, I have clients calling me going.

Speaker 3

Hey, I'm gonna send you a screenshot of this.

Speaker 3

Like they're really beating people up about having done the market-based cash balance really, and I that I think I responded the one guy that's like well, they have a cognitive bias of connecting two data points and coming up with what they think is a correct conclusion. And they're not coming up with the correct conclusion. I'm sure they're all great pilots, but they're not. They're not thinking this all the way through. So if you're in the program, you absolutely did the right thing. We have the math to show you did the right thing.

Speaker 1

They just have words.

Speaker 3

They're just using words that are really nasty and they don't have any math behind their data. They have. They are. Some of them do have math, but it's false math. They think they can beat the S&P 500 in addition to the tax.

Speaker 1

Wow, that's awesome.

Speaker 3

So you have to. It's the last two years you had to have you had to have made up for your tax bracket, so I always assume that these guys are in the 32% bracket at minimum.

Speaker 3

So, you had to have beaten 32%, plus the S&P gave you 20% for two years, so that's 52% rate of return per year to break even, right, yeah, so it just doesn't make. You're just thinking going, oh my gosh, like uh, uh, so yeah, this is your opportunity now to get this money into an asset allocation. That should be, and you can do it once a year. Uh, maybe do it around tax time, cause that's when you think about money probably the most but go ahead and sweep that market-based cash balance plan into your 401k plan.

Speaker 3

Don't let anybody talk you into putting into an IRA or any of that.

Speaker 1

No, keep it in the plan.

Speaker 3

It belongs in the plan. Keep it in the 401k plan Low expenses. If you're not a wiser client and you've been using a service that's managing your assets and you have brokerage link funds, I would encourage you to stop those services. Move it into the normal 401k plan. The last five years your 401k balance is probably pretty high. You do not need to be paying an asset management fee on your 401k money.

Speaker 1

Oh, absolutely not.

Speaker 3

Once you retire, I can show you that it probably makes more sense, because a retirement portfolio is very different than a building wealth portfolio.

Speaker 1

Oh, yes, with cash.

Speaker 3

Yes, I can show you that that if wiser um for assets under management, believe that we, we more than make up what our management fee is, uh, post retirement, but prior to retirement, the wealth building phase, you don't need us, you just need our flat planning fee, flat fee planning service. You do not need our asset under management service, and this this relates to airline pilots, because your 401k plan is so cheap. Your the average cost is 0.03 of a percent.

Speaker 1

Yeah, you just can't beat that.

Speaker 3

Don't need an asset.

Speaker 1

Institutional funds no.

Speaker 3

I, in fact, I believe in it so much you can go to pilotretirementcom or wiserinvestorcom to click on the pilot section. We have free 401k allocations. That's how much. I believe you don't need an asset manager, is that? Andrew has prepared these. He's given it to you for free because I want to make sure that the other guys aren't getting their 1% or whatever. They're charging sometimes more, I understand, in management fees. You don't need to be doing that. That's where the flat fee service can come in Again. Really, this is just for airline pilots. Your union has worked so hard to negotiate really really good 401k plans and every time we move money to a brokerage lane, can we hire a manager to manage your funds in the brokerage lane? You're absolutely destroying that value.

Speaker 1

Yeah, don't do it.

Speaker 3

Losing so much money by doing that it destroying that value? Yeah, don't do it. Losing so much money by doing that Uh it's not even. It's not even about rate of return, it's about expenses. Yeah, Cause what I'm seeing.

Speaker 1

RAA doing, is they're?

Speaker 3

putting ETFs inside the brokerage link that are just like the ETFs, that are the funds in the plan. Those are even mutual funds. Those are CITs cumulative investment trust so they're so big they don't even have to be mutual funds.

Speaker 1

Yeah, that's, true Right.

Speaker 3

So you're just like the blind leading more blind people. And also, too, if you find someone that is a big fan of RAA, they're likely being compensated. Raa compensates pilots. They give them a one year's worth of revenue, I believe, according to their ADV that was filed. So just stay away from that. I I'm on a crusade to to save people millions of dollars, that we've done the math. If you, if you have, if you hire anybody to be managing at 1%, from age, let's say, 32, all the way up to age 65,. He was spent over three and a half million dollars in management fees which is crazy.

Speaker 3

That's three and a half more million dollars you'd have in your account, which is insane. So do some sweeping of the market-based couch balance plan. You can use our allocations online if you'd like. You definitely, at this point, need a financial plan, so if you haven't, if you haven't uh put a plan together, that that's a really important at this step. Most of the guys we're working with are in their uh late or I'd say late 50s, all the way down to this is high 20s in some cases.

Speaker 3

But I'd say average age is what? 42, 42 probably. That's when the plan really you can make a big difference in someone's life.

Speaker 1

Well, that's the thing Five years out when you start to model things for clients like hey. Even if you put an extra two or three grand a month in your brokerage account every month, it's not moving the retirement spending needle a lot, so don't expect miracles. It's just more of assessing everything, showing how it can all play out.

Speaker 3

Right, let's see Next point. Portfolio allocation is probably 70, 30 based, purely based on age, nothing else 70, 30 bonds. As you get closer to 65 I'd be 60, 40, 60, stock 40 bond. You can retire on a 60 40 portfolio just have just have about two years worth of uh expenses and savings absolutely you can do that inside the brokerage account or you can do it um on, with your own cash outside.

Speaker 3

That's in addition to the 50 to 100 000 we talked about earlier. Uh, let's talk about social security for a minute. Uh, this will actually be our last point with your own cash outside. That's in addition to the 50 to 100,000 we talked about earlier. Let's talk about social security for a minute. This will actually be our last point. Social security, just defer it.

Speaker 1

Yes.

Speaker 3

If I had a canned answer for all of our listeners. It's waiting till age 70.

Speaker 1

Yes, as long as you are in good health, you just wait.

Retirement Planning and Purposeful Living

Speaker 3

Yes, If you're. According to the Alpa health study, I think FedEx pilots, uh, only live like four to five years after retirement. It's really bad, yeah. So maybe, maybe, uh, maybe that's a little different story, but Wait, just FedEx. Backs out of the clock flying. Yeah, I don't know if UPS is part of the study or not, but I think it was FedEx the data still had, like the tiger express guys.

Speaker 1

Oh, overnight.

Speaker 3

That's backside of the clock. Yeah, I can picture the tiger express guys like flying across the world and DC eights wearing wife beaters and smoking Marlboros. For some reason I never met a tiger express guy, but that's why I visioned they look like uh.

Speaker 3

so they could smoke in the cockpit, yeah, so again, the cockpit was still in the data that last time I saw it. So it's, it's, uh, not it's a new, relatively new study, but it's, but it still has a lot of, uh, older people in it. Uh, I think skewed the data a little bit. So big thing is just be healthy, right, that's that's the most important thing. But but the benefit also to, if you have poor health, but if you still wait till 70, your wife still gets the benefit.

Speaker 3

let's say she would didn't work, she's a homemaker so she does, she has very low social security if, if you wait to take yours till 70, she still gets the higher payout the rest of her life, or vice versa. Right, so that that's something to consider as well. It's like is does one spouse have longevity and does the opposite spouse have the higher social security?

Speaker 1

Yeah, it's always a household decision. You never look at your claiming strategy and isolation, and that's what a lot of people think of. They're like, well, we just need some money into the household, let's fire up one, you know, yeah, and I'm like it doesn't work like that.

Speaker 3

No, so. So that's where software really helps us, because it's looking at social security, it looks at pension, it looks at your IRA, your Roth, your brokerage and it says, hey, how can I generate the maximum income and where do I pull from? So you're going to pull from different places at different times in different amounts.

Speaker 3

Exactly but it all comes together to smooth out to be one to be, once you know, higher income all the way through retirement. And then in our projections we're including inflation. So we're, we're adding a pay bump every single year to cover the cost of living, which a lot of software that you use at home. They don't even really think about how to work in inflation.

Speaker 1

Those are some of my favorite plans when we coordinate social security claiming with pension claiming strategies and find that optimal mix of what age, what timing for each spouse and just maximize that strategy.

Speaker 3

And then, since we've kind of catered this podcast to pilots, I would just say make sure that you're retiring with a purpose.

Speaker 3

For me, when I stopped flying in 2014, even though I was coming in here and I had a purpose of being here, there's a part of me that just kind of died that day and I just remember I struggled a little bit because I'd be going somewhere and I'd drive past the airport and the planes that I used to fly were landing and I'd be like, oh man, I used to do that and I miss parts of it.

Speaker 3

I don't I certainly don't miss getting up at 4.30 in the morning and pre-flying an airplane in some cold place like Syracuse, or one time I had to do it in Presque Isle, maine, when the temperature was below the starting temperature of an engine oh God, I guess you weren't flying. It was like minus 35 or it was something stupid. So I don't miss that at all, but I do miss, I guess, the coolness factor of it and the things I used to see. But you just gotta make sure you have something to do. We have a couple of clients that do Delta professional services, because they can get kind of pick their own schedule. They can do ground school instruction or some instruction, and they might do it five days out of the month, and so that keeps you plugged in.

Speaker 1

That's a good schedule Five days a month.

Speaker 3

Yeah, you know it pays. Okay, they obviously try to get you to work more, it seems like. But you know, I think you could get hired and do something like that, not because you need the money, but it's something to do. Other people, it's the kids. They dive into the grandkids or their older kids or they're finally doing the stuff around the house They've been wanting to do. You might have something else in mind, but what you don't want to do is go and sit, and those are the people that I've just noticed that they start, kind of start to trying to mush a little bit.

Speaker 1

Yeah.

Speaker 3

Get a little grumpy, start having some health issues and health. Yeah, yeah. So just just know what you're going to do and go, go, wake up in the morning with your feet hit the ground. You know, you know what it's going to be, and and I think those retirees seem to be um happier and healthier.

Speaker 1

Yeah, just have a purpose.

Speaker 3

But anyway, I think this will wrap it up, missy. Thanks for listening to today's episode. If you're interested in learning more about Wiser Wealth Management, you can do so by going to our website at wiserinvestorcom or clicking the show notes below. We have Missy Beach, our senior planner, here today. Shauna Theriault is also a senior planner. William McKayla also be happy to work with you as well.

Speaker 2

Thanks, for listening. We'll see you guys again next week. Thanks for listening to a Wiser Retirement Podcast. We hope you enjoyed today's episode. Make sure to subscribe wherever you're listening. That way you don't miss any new episodes. We'd also appreciate if you could leave a rating and review. If you have any questions about anything that was discussed today, head to wiserinvestorcom and reach out. This episode was produced by Rachel Dotson. This podcast is strictly for informational purposes only and is not to be considered as investment advice or a solicitation to buy or sell any financial products, securities, digital assets or any other investment vehicles or a basis to make any financial decisions. Thank you, guests of the show are compensated for their participation and no referral fees are paid to or received by any host or guest for clients, listeners or similar interests. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor, tax professional, insurance professional and or legal professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.