Unlock the secrets to a robust financial future with John Prover and me as we traverse the essentials of financial planning post-budgeting. We'll equip you with the knowledge to craft that ideal retirement income and demonstrate how employer benefits can be the linchpin to your fiscal ambitions. Delving beyond the surface, our conversation turns to the vital decision-making that comes with choosing between Roth IRAs and traditional IRAs, and we dissect the long-term effects of taxation on your nest egg. With our transparent pricing strategy laid bare, we ensure that every piece of advice is tailored to your path toward financial clarity and success.
Navigating the oft-misunderstood realm of life insurance, we cast new light on its role within a well-rounded financial strategy, challenging the typical associations by framing it as a transformative 7702 plan. Your assets deserve impenetrable protection; thus, we discuss the importance of a comprehensive insurance portfolio to shield against life's unforeseen storms. Moreover, we underscore the importance of education over persuasion, ensuring you're armed with the insight to make informed decisions that resonate with your principles. As we map out proactive client engagement techniques and adapt financial tools to suit your unique needs, rest assured that our strategies are designed to foster a trusted, value-focused partnership every step of the way.
Unlock the secrets to a robust financial future with John Prover and me as we traverse the essentials of financial planning post-budgeting. We'll equip you with the knowledge to craft that ideal retirement income and demonstrate how employer benefits can be the linchpin to your fiscal ambitions. Delving beyond the surface, our conversation turns to the vital decision-making that comes with choosing between Roth IRAs and traditional IRAs, and we dissect the long-term effects of taxation on your nest egg. With our transparent pricing strategy laid bare, we ensure that every piece of advice is tailored to your path toward financial clarity and success.
Navigating the oft-misunderstood realm of life insurance, we cast new light on its role within a well-rounded financial strategy, challenging the typical associations by framing it as a transformative 7702 plan. Your assets deserve impenetrable protection; thus, we discuss the importance of a comprehensive insurance portfolio to shield against life's unforeseen storms. Moreover, we underscore the importance of education over persuasion, ensuring you're armed with the insight to make informed decisions that resonate with your principles. As we map out proactive client engagement techniques and adapt financial tools to suit your unique needs, rest assured that our strategies are designed to foster a trusted, value-focused partnership every step of the way.
Welcome to the Bounds Blueprints podcast, where we discuss the optimal techniques for finances and health and then break it down to create an individualized and balanced plan. I'm your host, justin Gaines, here with my co-host, john Prover. This is part two of what a client meeting should look like and how it should go. Thanks for listening and we hope you enjoy the episode.
John Proper:
So, if I can just recap real quick and then you can bring in the next step or continue, they're going to reach out to you or they're going to be referred by someone. You have an awesome system in place which they'll just come to you on your own terms through a text message when they're ready. You're then going to talk about your pricing and how you're paid first, because it's important to be upfront. You get to learn a lot about them, their goals, their needs, and that's going to lead into the four steps of retirement you talked about. Then you talked about budgeting and some other things. We actually whether it should be before this podcast, but our last podcast you actually talked about budgeting, how to build a budget, all that stuff. So there's great information there too. We talked about some legacy. So, after you're building that budget, talking about assets, net worth, so what would be next?
Justin Gaines:
So once we do the overview book and generally this order gets jumbled around because we flow with the meaning, depending on each client what it looks like. But if we haven't already identified your desired income at retirement which we've already discussed but if we haven't determined that value, we determine that value. We haven't yet determined your retirement age. We've just determined the amount of income you want in distribution and if you want to leave any legacy. If you want to leave legacy, we've identified to what extent and that's going to allow us to determine what our accumulation number needs to be. From that and now we have a budget in front of us. So now we look at okay, we have an accumulation number target.
Justin Gaines:
Let's now talk about the vehicles that we can use that are tax advantaged, that aren't tax advantaged. The main ones that most people are going to use is we're going to talk and look at your total comp package from your employer, because we want to look at what protection vehicles and also what income accumulation vehicles and savings vehicles Does your work offer that we can use in order to maximize our budget and maximize our contributions. Because if you have a 401k and your company matches, I'm not a huge fan of 401k as accumulation vehicles. But if your company is matching your contributions, you're making 100 percent return day one, so you automatically have had 100 percent return. You'd have to have a 50 percent reduction in your investments in order to be at break even. That's a no-brainer.
John Proper:
Yeah, that's a no-brainer. Even I understand.
Justin Gaines:
Like it used to be contributing to your 401ks up to your company match, but not exceeding your company match. Yeah, it's your 401k up to the company match. We'll look at your company package, determine what that number is put that in there We'll use. Sometimes you'll have options for different types of 401ks, so we'll make a decision there as well. We're going to talk about Roth IRAs versus traditional IRAs. An IRA is just an investment retirement account. A Roth IRA your money is taxed. Now Taxes will come out of your paycheck and then you're putting money into the Roth IRA post-tax dollars. A traditional IRA you're putting it in pre-tax dollars, so it's going to lower your taxable income now. But you're going to pay taxes on distribution. So now our accumulation number needs to be larger because we're going to lose a portion of that to Uncle Sam in distribution. So that's why we want to worry about distribution phase first.
John Proper:
Is it the same amount usually taken out or will taxes change over time?
Justin Gaines:
So typically that's an exercise we do with a client is what do you think? Do you think taxes are going to increase or decrease over time?
John Proper:
Imagine the increase.
Justin Gaines:
I mean, if you look at the US spending habits, I don't see the US government decreasing their spending. The way that they are able to fund their spending is through taxes. Generally speaking, over a long period of time, taxes are going to increase. If you look back at history, taxes have increased over time.
Justin Gaines:
So as a result of that, we want to decrease our taxable income in distribution Now the other reason why is say somebody says I think taxes are going to go down or they're going to stay the same. Let's take our free tax dollars in contributions, we're going to grow something. If we put in $6,000 a year, $500 a month, into an IRA for 30 or 40 years, that's going to accumulate to a certain dollar amount. If I have my calculator I can actually do. I have my academic district college calculator.
John Proper:
That's right.
Justin Gaines:
Nobody likes to use but I love this thing. Let's see. Let me just run a quick calculation here. If we have 40 years, say we average, we'll go very conservative. Stock market generally. S&p 500 over the last 40 years has averaged somewhere between 7% and 10%. Let's put it at 7% Present value, the accounts zero. We're putting in $6,000 a year. We're doing that every year. Let's solve for that For 40 payments. That's going to get us to, with a 7% rate of return, $6,000 of contributions a year. It gets us to just over $1.25 million.
John Proper:
Now, we've only contributed though.
Justin Gaines:
Let's see I got to get out of here. We've contributed $240,000, but we have 1.28 million. We've grown a million dollars in gains, but because it was pre-taxed dollars, all of that money is going to be taxed.
John Proper:
The lump sum of 1.28 million.
Justin Gaines:
It's going to be taxed. In order for the taxes on 1.28 million to equal the same level of tax on a quarter of a million dollars of income, your tax rate would have to go down so low that you'd effectively have to be in a tax-free society.
John Proper:
We're talking with a Roth IRA that 250,000 you put in will be taxed, versus a regular IRA, the 1.28 million would be taxed. Obviously we're talking percentages, so it would be much higher, Correct?
Justin Gaines:
Weird why they even have IRAs then. Well, the issue is that your contributions to your Roth IRAs can't. You can only contribute up to $6,500 a year in 2023. This number gets adjusted for inflation, so it generally goes up. Then, if you're over the age of 50, you can contribute an extra $1,000 for catch-up contributions to allow you to grow your account faster.
John Proper:
If someone caps that yearly, though, if your goal is, I'm just going to cap, hit that cap every year, is that putting you at a good enough position, or is it not?
Justin Gaines:
It's not putting you at a good enough position because if we take so, we'll do the same thing. We'll say we'll do the calculation again. Let's say that most of my clients we have to be aggressive with their accounts and with their strategies and they have to contribute more because they start later. The younger you start, the more compounding you get. A lot of my clients generally start around age 30. And, depending on their distribution targets, I generally am telling them they have to retire at 70, not 65, because they haven't saved anything yet. So that's 40 years and that's where I'm pulling that 40 years from 30 to 70,. 40 years of growth. Let's say we put them in aggressive strategies and they're hitting that top 10%. They have nothing. Right now they're contributing $6,500.
Justin Gaines:
With this calculator I can't adjust for the increases over the years, but let's just put it at 65 and see where we get, even though technically, with the growth of inflation and stuff, we'll add $200,000 in this number in order to account for the compounding and the growth that occurs there. Because generally speaking, if you put it into a calculator, that's what you're going to end up with. And then 40 years at 10%, $6,500. So that would put you at roughly $3 million. Now there's a couple problems with this calculation. One it assumes 10% rate of return every single year, never missing. That is an error in the calculation that's being accounted for. If we get a year that the market drops, which is going to happen, it's going to be down here.
Justin Gaines:
That's going to throw off this whole calculation. So, adding the $200,000, you're probably conservatively, you're probably looking at somewhere between $200,000. 2.8 and 3.2 million. Now again, if we want the 100,000 of distribution, we're still short of the 4 million more. Yeah. So, generally speaking, if you're maxing out a Roth for 40 years, it'll put you in a position where you can get by.
John Proper:
Yeah, it's maybe half of what you want.
Justin Gaines:
Right. It'll put you in a spot. You'll be able to live, you'll be able to retire, you'll be able to get by, but it's not going to put you in a comfortable position.
John Proper:
So we want to look at other vehicles as well.
Justin Gaines:
That's where we start talking about a 7702 plan. So a 7702 plan has all of the same tax advantage benefits as a Roth IRA and it has two extra ones. The two extra benefits are you don't have to wait to age 59 and a half to take distributions. You can take distribution. If it's funded properly. You technically could take distributions at year one. Once you start contributing and the money's there, you can start taking distributions. You ideally wouldn't do that with that strategy. You'd want it to be in there for a longer period of time to compound and grow, but if you needed to, you could.
Justin Gaines:
The other benefit is that it actually blooms, or blossoms, as we say, when you die, because there's a death benefit portion. So that builds your legacy. So a lot of times what I'm doing with clients is we're looking at a Roth IRA, a 7702 plan and then an additional investment and saving accounts based on what makes the most sense, because the Roth IRA is going to get us most of the way to our distribution need. A 7702 plan, properly structured, will give you additional supplementary distribution in retirement as well as funding your legacy. So it allows us to fund stages three and four. Then, whatever our gap is in stage three. We find additional savings accounts, whether it's a traditional IRA, the 401k that you're contributing to and that allows us to get that buffer to be able to match this all out and make it so that we have enough distribution to cover everything.
John Proper:
Does the 7702?
Justin Gaines:
7702.
John Proper:
7702. Does that one so that comes with life insurance when you die?
Justin Gaines:
So 7702 is the tax code that refers to how universal life insurance is taxed.
John Proper:
Okay.
Justin Gaines:
So generally the reason why I refer to it as 7702 plan is because if I talk to a client first about life insurance, they won't talk about that.
John Proper:
You know, those are combined. So the same thing. Just that's what I thought that's send them for it.
Justin Gaines:
Yeah, that makes sense. And then people don't know about life insurance and how to use it properly. They know one or two things. Yeah, their financial advisor that knows nothing about life insurance. I was just on a call last week with a financial advisor who was advising my client my new client to keep his life insurance and continue to pay for it. I was advising him that, under the circumstances that it was, it was an account that I acquired, so I didn't write this policy. Technically it wasn't structured properly, needed to be canceled and cashed in. Take the tax implication now, take the money, invest it somewhere else, because it wasn't structured properly and it wasn't basically, the policy was going to eat itself up and it was junk.
Justin Gaines:
It was garbage and a lot of people get life insurance. Policies are not structured properly and they are garbage. So people don't want to talk about life insurance because they've only heard about the terrible scenarios with it. But here's a financial advisor telling this person yeah, but if you keep paying into this, it's going to give you this huge amount of money and legacy planning. Yes, but the amount that you're going to pay into it it's going to eat up your internal rate of return and you're not going to get this. And that was simply a case of this financial advisor not knowing what he's talking about and just getting blinded by the death benefit number that was so large and not realizing and calculating for distribution and legacy planning properly.
Justin Gaines:
he's getting blinded by a number and thinking about well, if this death benefit comes in, I'll have an accumulation number here for future generation. Again, blinders on focused on accumulation, not focused on distribution, not focused on legacy planning. It's a case of if I talk about it as a 7702 plan, explain all the benefits, explain how it works. People are like, oh, this makes a lot of sense If we do this right, this could work. But if I talk about life insurance, I'm not listening.
John Proper:
It's like oh, here's a delicious meal. Like you eat it, you love it. You're like, yeah, there's liver in there. Yeah, exactly the same thing. It's amazing.
Justin Gaines:
What is it?
John Proper:
What is helping?
Justin Gaines:
you, and I even knew that this was the case by the time you were cooking that beef tongue and it smelled amazing and I was like man, I know what this is and I do not want to eat this, but it smells so good I have to try it. It's one of those things that if I didn't know what it was, if I wasn't there when you started cooking it, you were like here, try some.
John Proper:
And I tried it.
Justin Gaines:
I would have the same reaction I did and I was like, wow, this was amazing, and not even realize what it was. But for sake of time I'm going to jump us through so we talk about the different accumulation vehicles.
Justin Gaines:
We talk about legacy planning, we do a whole education thing around that and then I'm going to identify if we haven't already identified it, I'm going to explicitly ask what other protection vehicles you have. So we're going to talk about your home insurance, your life insurance, your renters insurance, auto insurance, all of these things, because part of what's going to keep you on your path is making sure that your current financial assets are protected, which is part of the reason why we put the income earning in the balance sheet is knowing that that's protected. So, since we had the balance sheet, now I'm going to go through and say is this asset protected? Is this asset protected? Is this asset protected, and make sure it is, and then we can adjust and make sure that you're paying the appropriate amount, that it's properly covered, all of that sort of stuff, because if we find something, an asset, that's not properly covered and we have a catastrophic loss, everything we just did gets counteractive, because you just had a house fire and you don't have enough coverage to replace all of that.
Justin Gaines:
So now your net worth just went down as a result of something completely out of your control, and it could have been corrected by paying an extra $25, $50 a month or potentially even a year in insurance, and so using insurance properly as a income and cash flow protection vehicle, which is really what insurance should be used for. As a cash flow protection vehicle, we're able to make sure that you're going to stay in your path as long as possible. So we identify all the insurance protections and so at this point we're at an hour and a half. We're exhausted. The client and myself are both burnt out at this point. There's so much information I will have written this out in notes. I give the client a copy of it to take home review everything.
Justin Gaines:
We haven't talked about selling, anything we haven't talked about. We've talked about, potentially, where we're going to move stuff and we've talked about potential sales of product, but we're not selling anything in this meeting. That is a guarantee that I give every client is we are not selling anything in this meeting. Sometimes I'll have a client that wants to meet for two to three hours and knock out two meetings in one, and what I do in that situation in order to continue to give my promise is I say, ok, we're moving into our second meeting now, and usually I have us get up, have a glass of water, take a quick little walk around the office or something, and come back and say, ok, this is our second meeting, this is where we're going to talk about where we're moving stuff, how we're moving it, why we're moving it. That's where an actual sale will potentially occur.
Justin Gaines:
But in between the end of the first meeting and the second one, everybody's exhausted. This is where I say is there anything that I haven't clearly addressed in this meeting that's a concern of yours or that you feel we should have talked about? They say yes, they say no, we talk about it. Then I ask OK, did you get value in this meeting, yes or no? If no, then there's a big problem If we just spend an hour, hour and a half together. I didn't provide you value, I screwed up, I screwed up the time.
Justin Gaines:
That's not on you. Typically the client's going to say yes, and then I just remind them that at the beginning of the meeting we talked about, if I provided value, that you would fairly compensate me through giving the introductions. Could we sit down right now and identify five people for you to do an introduction, whether you give me their number and I'll reach out to them, or preferably put them in a group chat, send the text, I'll even pull up my back end CRM system to show them, put them in a group text and you'll literally see that their number doesn't come up, and then, once they see that they're like OK, you have their name, because they said hey, this is Gary and Gary, I think you should talk to Justin. I just met with him and he helped me out with my finances and we're putting together a plan. I think you could benefit from a conversation with him. He's these that I don't have Gary's number, though, and that's happened before with Gary Gary will respond while we're still in the meeting and then it pops up with a new number, unidentified, and then I have to go back to his tax, add a number.
Justin Gaines:
So we'll identify that that way. Once we do the introductions. Then we schedule our next meeting for three to seven business days from the current meeting. Sometimes people have vacations. That doesn't work. Generally speaking, three to seven business days allows both of us to be on a time constraint to do our homework, whether it's getting the information that we weren't, so we didn't have on hand, so we're filling in any gaps.
Justin Gaines:
I'm producing calculations and quotes for people. It gives us that time that we're not just like, oh, it's three weeks out, I can let that sit there. Three to seven days gives me enough time. To remember the conversation One of my meetings I had yesterday. I ended up while I was doing that because I had some time left over in the day. I was putting together some stuff and I was going back through my notes and I realized that our calculation was actually slightly aired. Because he's currently living with a bunch of friends renting. He's going to be living with a significant other Rent's going to go up significantly because it's only two people instead of four people. We were building his budget out and we forgot to take it. We were building it under the current circumstance, forgot to take into account my rent's going to change in eight months. Then we know in our next meeting we're going to need to recalculate this. That's part of what that second meeting is about is making sure we have all the information, recalculate, readjusting, educating through that process.
Justin Gaines:
That's the bulk of our first meeting and how we go through everything.
John Proper:
Yeah, there's definitely some things I like. You're thinking about life insurance in a different way, in our advantage. That's awesome. Then it's more of a comfortable thing. There's one other I can't remember, but either way, you brought up a lot of plans too. That will be great starting points for other podcasts going into IRA Roth, IRA 7702, specifics of each of those for future ones.
Justin Gaines:
For sure. No, we can definitely break them down. But yeah, for sake of time, breaking out strategy, getting into these things. Even if you look at the length of this podcast, we didn't even spent I'm 99 percent of the talking and we're at. The recording here says 54 minutes. I'm sure there's some time in the beginning that we were recording that was going to get cut off. That wasn't part of the podcast.
John Proper:
But we're already at, if we're doing an hour and a half meeting.
Justin Gaines:
We're at 45 minutes, half of that. The other 45 minutes would be taken up by the client talking, sharing that information questions, all that sort of stuff, but we've run through all the education. We make sure that there's enough time, but generally speaking it's going to be an hour and a half in order to be able to get a holistic view of your position and educate you on what the process is going to look like.
Justin Gaines:
I don't want anybody going in blind and saying, okay, we're going to take on the second meeting another hour of my time, an hour at two and a half hours, and I don't even know what the process looks like. We want to identify that process, talk it through, because the process doesn't work for you and you're not interested in it, and that's fine.
Justin Gaines:
That just means that the path that we're talking about and the pathway that we're looking at, you don't wanna take, and that's okay. It's just, I'm not gonna be the right financial advisor for you if you don't wanna look at your retirement plan in four phases and take into consideration your actual end goals and then reverse engineering it. That's not how you wanna do it and I'm not gonna be the best financial advisor for you.
John Proper:
Same reason why a vegan probably won't wanna work with me.
Justin Gaines:
Right. If your ideologies don't line up and your ideologies don't line up, that's just what it is Right.
John Proper:
But one of the things that's beneficial.
Justin Gaines:
That's not necessarily true in the health world, because there is the science and concept, new knowledge and stuff coming up. Where in the health in the finance world. It's one of my coaches. One of the things he says is finances isn't religion, so you can't be pro something or against something. You either know how to use it in the proper situation or you don't.
John Proper:
Yeah.
Justin Gaines:
So, like somebody who says, oh, I'm pro life insurance or I'm anti-life insurance, that somebody doesn't understand life insurance.
John Proper:
Right.
Justin Gaines:
Because life insurance it's not a religion, it's not pro or con. Life insurance is used for specific situations and it's very targeted, and so if you are in a situation where you need that, then it makes sense and if you're not, then you're not. But if you don't understand it, you're either pro life insurance, anti-life insurance versus it'd be like saying I'm pro Roth IRA and I'm anti-Roth IRA.
John Proper:
Right.
Justin Gaines:
That doesn't make sense either.
John Proper:
No.
Justin Gaines:
It's. Either it works for your specific situation or it doesn't, and we can plug this in as a piece of the pie or take it out because it's not the right ingredient for the pie. But you can't with financial vehicles. You can't be pro and con it's. You either know the situation, it's good to find out.
John Proper:
No, I think that's exactly the same for a health world, and it's just a great key to look for in someone you go to, whether it's a health expert or a financial expert. You don't want someone stuck in a viewpoint, stuck in some certain dogma. You don't want them to be dogmatic. It's like, yes, I'd push for just because this is the example I used animal-based eating. But if someone has low stomach acid, for example, we may go without high amounts of animal products. So you never want someone who's black and white or stuck in stuff, and that's what all this is about.
Justin Gaines:
Yeah, you gotta have that individualized, personalized plan with specific tools that are well-known, that can be used for your specific situation in order to maximize your pathway and make it so that your pathway has to leave them under resistance.
John Proper:
Yeah, our job is to interpret those things. You know we're the middleman in terms of there's all these diets, all these financial plans. This is where you're at. You know we interpret it.
Justin Gaines:
Right, and part of what it is is explaining. There are pros and cons of the vehicles for situations, but you can't be pro or cons completely of one of those, and our job is to explain to the client. Here are the pros, here are the cons. And here's the next best thing. And here are the pros, here are the cons. Which one could you stick with the longest.
John Proper:
Yeah.
Justin Gaines:
That's the one we're gonna go with. It might not be the best one, but if it's the best one for you, then it's the right one.
John Proper:
Thanks for listening to our podcast.
Justin Gaines:
We hope this helps you on your balance freedom journey.
John Proper:
Please share your thoughts in the comments section below.