In this episode of Retirement Unpacked, Al Smith delves into the intricacies of retirement planning in the age of artificial intelligence. As AI tools become mainstream, Al shares insights into their advantages and shortcomings when planning for a stable financial future. Discover the essential strategies that can help you balance risk and security, ensure your Social Security benefits remain untaxed, and manage unexpected life events smartly.
Welcome to Retirement Unpacked with Al Smith, owner of Golden Eagle Financial. You want a retirement plan that alleviates your fears about the future so you know your money will last. As a chartered financial consultant, Al Smith will help you find a balance between the risk and reward of the market and the safety of your retirement income. And now, here’s your host, Al Smith.
SPEAKER 02 :
Welcome to another program of Retirement Unpacked. I think I’ll have some information that you’ll find useful today. And before I dive into that, I’d like to tell you about the next coming event that we have. It’s March 19th at the Belmar Library. Now, Belmar is that area at Alameda and Wadsworth. There is a library in that area just to the west and north of I’m sorry, south of Alameda and just to the west of Wadsworth, there’s a very nice Jefferson County library called Belmar Library. March 19th is a Thursday. We will be there and talking about the essential tax strategies for retirement. It begins at 6 o’clock. It will last until 7.30 p.m. um there’ll be some refreshments and there’ll be a really easy parking and by march 19th it might even be a light out when we meet the days are getting a little bit longer but we’ll be talking about some really important things because as people move closer to retirement the tax strategies that they employ can mean the difference of having your Social Security be completely untaxed or having a healthy amount of your Social Security included with the rest of your taxable income. And those are some things that we will be talking about at that event. And there’s other taxes that we need to be aware of also that we’ll be talking about that. What I’m going to be talking about today, there’s been a lot of talk, a lot of news and everything about AI. I have this cheesy acronym, you don’t want to have AI. take care of your retirement plan, and you want to have AL take care of that. That’s me. My name is Al. But the point being, I thought I would ask AI some questions that have to do with retirement. There’s a lot of different AI programs. There’s ChatGBT. There’s Claude. There’s Gronk. And there is one called Hazel. And we asked Hazel some questions that have to do with retirement. And I was pleasantly surprised with the quality of the answers. And I’ll dive into some of those. And although I was pleased with the answers, The disadvantage of working with AI is you don’t know what’s missing. In other words, although the answers were correct, they weren’t necessarily complete. I’ll give you an example. The first question I asked Hazel is, how much money will I need in retirement? and what hazel suggested is start with spending and then back into the required nest egg and what hazel described she said that we should divide our spending into two components the must And the nice to have, the must have would include housing, food, utilities, basic transportation, Medicare premiums, baseline health care taxes. So those are the must have. And then the other are nice to have, which we can label discretionary spending. And including in that, they have travel, gifting, and what they call discretionary upgrades. and i’m not quite sure what discretionary upgrades are maybe they’re talking about upgrades to your home upgrades to clothing in your closet i’m not sure what discretionary upgrades are but that’s one of the disadvantages of ai is if they’re using terminology without defining the terminology then you have to continue exploring AI to find out what are discretionary upgrades because in retirement if you have created a nice nest egg and you would like some discretionary upgrades it would be nice to know what those are or at least based on what AI’s method of determining how much you need in retirement. But once you have identified those and you add the two together, the nice to have and the must have, you add those and you come up with a number. And then from that number, you will subtract your guaranteed income. That would include Social Security, pensions, annuity income, and rental net income in the event You own rental property. Then once you have done that, you add in taxes and health care adjustments. And included in that would be Medicare Part B, any Medigap coverage, or Part C, Medicare is included in that, dental vision. And a part that I had a big problem with is they labeled something potential long-term care planning. Now, I’m not sure if that’s potential long-term care, like you don’t know if you’re going to need the long-term care, or is it potential planning? Because I’ve talked about this quite frequently on my show, and that is people who reach age 65, there is at least a 50 percent chance that they will need care for 90 days or longer. And out of those 50 percent, about 50 percent of those will need care for between like one and three years and much more likely and much longer period time. for women. So the word potential, I’m not sure where that fits in there. So answering the question, how much money will I need in retirement? In addition to including dental and vision, dental and vision are important. but I don’t know anyone who has had to radically alter their lifestyle because of dental or vision expenses. However, if a family member, especially if the person we’re talking about, one member of a couple, ends up in assisted living for a considerable period of time, that’s catastrophic, especially when compared to dental or vision coverage or Medigap coverage. The next thing they suggested is to build in inflation. and have it be on health care at a higher rate than the consumer price index, which is the one they use in determining increases in Social Security. So basically they’re saying build in a higher rate than the consumer price index, but they don’t tell us what that higher rate is. So in other words, if we’re wanting to use AI, we still have a lot of further questions to be answered, like planning for potential long-term care and also the higher rate for health care in the future. What is that higher rate? If we’re using 2.5% or 3% for inflation, does that mean 4% for health care or does that mean 8%? And I’m not bashing AI. All I’m pointing out are the shortcomings of AI, the things that were not necessarily explained. And then they suggest, once you do this, you figure out what they call a withdrawal rate. And conservative planning, they use a withdrawal rate for a 25- or 30-year period in retirement of between 3.5% and 4%. And they also consider other dynamic what they call guard rails to adjust spending as markets move, the stock market. And once they figure this, then they suggest some quick and easy math. They refer to it as the back of the envelope math. And in order to determine the nest egg that you will need, look at your total annual spending, and that’s based on both the must-have and the nice-to-have, and subtract from that guaranteed income, and we talked about that, Social Security, pensions, rental income, and so forth, and then you divide that by the withdrawal rate. The example they gave is if a client needs $140,000 a year of income and retirement, and he or the couple has $60,000 a year in guaranteed income, and if we’re using a 3.8% withdrawal rate, we divide $140,000 by .038, and it comes out to 2.1%. Now, I’m not saying everybody needs $2 million in retirement, but $140,000 of retirement income, that’s a very healthy amount. And one of the things I do when I sit down and plan for people is we try to have 90% or more of your income retired. to be tax-free so that that will be a very minuscule part of your retirement planning is the amount you’ll be paying in tax. And most people can live on less than $140,000 a year, especially if they’re in a 10% or lower tax bracket. And the longevity target they’re talking about is like age 95. And so my problem with the question of how they replied to how much money will I need in retirement, they allowed, there was nowhere in here at all for unforeseen events. What if your son or daughter, what if their emergency became your emergency? What if all of a sudden you had both a daughter and a mother-in-law move in with you. That’s called the sandwich generation. And I know specifically of some folks who are in that set of circumstances. Also, they did mention taxes, but they were not prioritized because the question, how much money will I need in retirement, should have perhaps been rephrased, how much after-tax money will I need in retirement? So AI didn’t do a poor job. It was just an incomplete job, so to speak. and i think the question of how much money will i need in retirement it’s very much sort of an open ended question and if someone were coming into my office i would cover the things that that they talked about here and i would add some things like how can we lower your taxes in retirement so that nest egg could be smaller. How much should we set aside for unforeseen events? So by asking some other things, I think it can be more helpful. I have several more questions that I asked Hazel, who’s the AI app, and we’ll talk about those after the break.
SPEAKER 01 :
Al Smith of Golden Eagle Financial works to balance your investments for both growth and safety. Financial markets are changing every day and Al can help protect your investments based on your personal risk tolerance. In your first meeting with Al, he’ll assess how conservative or aggressive a strategy you’re comfortable with. This information will help Al design a unique plan using resources that will build and protect your retirement and remain within your comfort level. Al is highly skilled at creating conservative strategies that help minimize losses. If the market turns, your retirement stays on track. Al learns what matters to you and then builds a custom solution that makes sense for you, including covering the what-ifs of life. Be confident and prepared for retirement. Contact Al Smith of Golden Eagle Financial today and get started on your personal path to retirement by finding him on the klzradio.com advertisers page. Investment advisory services offered through Brookstone Capital Investment, LLC, a registered investment advisor. BCM and Golden Eagle Financial Limited are independent of each other. Insurance products and services are not offered through BCM, but are offered and sold through individually licensed and appointed agents.
SPEAKER 02 :
Welcome back to Retirement Unpacked. We’re talking about AI and how it answers questions that have to do with retirement. We use the AI app Hazel. There’s a lot of AI apps out there. I’m not recommending one versus another. And I think they’re very good in a limited way. Another question I asked Hazel is, how can I lower my cost of living in retirement? And Hazel answered, think about housing, healthcare, taxes, insurance first, because these drive the most outcomes. With respect to housing, Hazel suggested possibly downsizing or relocating to reduce taxes, insurance, utilities and maintenance and so forth. And that kind of makes sense. But relocation, for example, if your family lives here. And it’s cheaper to live in Arkansas. You don’t necessarily want to move to Arkansas and have it to be much more expensive when you want to go visit your family. So downsizing makes sense. Relocation, not necessarily so. Also with downsizing, a lot of people think in terms of townhomes or condominiums, What I would strongly suggest, if people are thinking about that, because that does relieve a lot of the maintenance. Most townhomes, condominiums and so forth, you don’t necessarily have to shovel snow or mow the lawn. However, some HOA fees are substantial, like $400 or $500 a month. And when that’s added to property tax and other maintenance, then downsizing may relieve you of a few of the duties of home ownership, but not necessarily reduced your cost of living. And cost of living completely outside of retirement, that’s a big, big topic today. And my topic isn’t about how young people can buy homes, but the cost of living is something that we’re all faced with. So how we can improve upon that, I think, is extremely important. The next thing that Hazel talked about was health care. Shop Medicare Advantage or Medicare Gap and also Part D. Do it annually during enrollment. And if you’re now turning 65, before you make a choice, evaluate all the alternatives out there. Medicare Advantage is the least expensive, but the coverage and the networks change every year. And if you have significant medical expenses because of some medical conditions you have now, Medicare Advantage, although it’s the cheapest, may not be the best. And during open enrollment, which is from October to December, that’s obviously the best time to do that if you’re not like turning 65 this year. Now, using HSA’s health savings account, that’s helpful because you can use the tax-advantaged programs to pay for medical expense. The other thing that Hazel talks about is lowering taxes. Cost of living is taxes, managing the tax brackets with Roth conversions and capital gains, especially if you’re in the 0% to 15% bracket, and withdrawal sequencing. What withdrawal sequencing has to do with is if the stock market has had a downturn in a particular year, and you’re needing or being required to take money out of that account, that has a very devastating effect on the future growth of that account, whether it’s an IRA or just a brokerage account or whatever that is. In addition to that, to save, they suggest using qualified charitable distributions from IRAs if you’re 70 and a half. That can clearly reduce taxable income that would be required at age 73 when required minimum distributions kick in. So a lot of different things that they did not talk much about as far as saving cost of living. They didn’t talk at all about banking, and banking isn’t a terribly expensive thing, but some banks have fees for nearly everything, and other banks are practically free of fees. But make certain that if you go to one of those, you’re getting the services that you need. Your vehicles. Once you make a transition into retirement, you may find that you need fewer vehicles. And if you’re thinking of purchasing a vehicle, think in terms of not only the cost of the vehicle, but the cost of operating the vehicle. If you drive very short distances, possibly a hybrid, especially a plug-in hybrid, might be attractive because if you don’t drive more than 50 miles a day, You may be using purely the electric component of that vehicle and using very, very little gasoline. So these are some things to think about. They talked about it with respect to relocation, but they didn’t talk much about utilities, phone and Internet. And television. I remember when I was very, very young and television was free because every half hour they had like two commercials. Boy, was that terrible. And they were talking about eventually we’re going to have to be paying for television. And I thought to myself, wow, with two commercials every half an hour, how could that actually happen? But even with enormous numbers of commercials, you can be paying… $150, $250 a month with Infinity or any one of the other carriers in order to have a wide selection of what to watch on TV. Now, you can also stream what you watch on TV, but that can end up costing you a lot in subscriptions also. So if you’re looking to shave what you’re spending in retirement, I would suggest you audit what you’re spending on Internet and television and also make sure your phone carrier is not charging you $40 or $50 a month because you can get coverage for about half that, especially if you don’t use a lot of streaming, okay? Also… Don’t spend a lot of money having food delivered to your home. Now, I know most people who are retirement age aren’t having DoorDash or Uber Eats come to their home three times a week. But for younger people, I’ve heard on various news programs, some people spend as much on restaurant delivery as they do at the grocery store. Well, this is clearly unwise, especially if you’re all the way in retirement. I had an office visit of a couple who are in their 50s. They were both working, and they pretty much knew the problem with their inability to save for retirement. They did not own a home. They were living with the woman’s parents, and they were spending $800 a month eating out at restaurants. I remember the mortgage payment on a home I bought many years ago was $800 a month, so I can’t imagine that. Now, the other thing I highly recommend if you want to save money in retirement is audit your own bank statements. Look and see if you’re paying for things that you’re not using. whether it’s a health club or whatever. Years ago, when I renewed my driver’s license, I went online and I found, oh, gee, this is really easy. I renewed my driver’s license. A few months later, I looked at my bank statement and $9 a month was coming out every month. And it had a toll-free number by it, so I called, and they told me, well, this is the service that permits you to renew any one of the number of licenses. And I thought to myself, well, I only have to do this every five years. Am I going to pay $9 a month for the next five years until I renew my license? So I obviously canceled it, and it wasn’t – scam they did permit me to get my license but it was a scam in that it was a service that I did not need so I highly recommend you review your own bank statements you can see where your money is going most of us spend most of our money using either charge cards or debit cards so that’s a give you a real clear picture of where your money is going and if you’re trying to spend less and that’s probably the first step that you should take. Another thing I did ask Hazel is should I convert my IRA to Roth? And they had a pretty lengthy answer. They said if your current bracket is likely lower than the future brackets, like someone who has retired but maybe has not started collecting required minimum distributions, you may have a lower tax bracket than the future bracket. And all the answers they gave about converting an IRA to Roth, none of them took into consideration the taxation of your Social Security as a result of that. They only looked at it over the short term rather than the long term. And when I do presentations, we talk about paying tax on the seed rather than the harvest. Because even if you’re in a healthy bracket, It’s better to pay tax on a balance you have now rather than a balance that has doubled or tripled or quadrupled in value because it has grown tax-free over time. Thank you for tuning in. I hope I was able to answer a little questions about AI and how although it’s useful in retirement planning, it’s very expensive. incomplete if you’d like to have an audit or a checkup of your own retirement call my office at 303-744-1128 we’ll set up a time to have a conversation if you’re driving contact KLZ they’ll put you in touch with me have a great day God bless you and let’s pray for families of the folks who died in the avalanche in Nevada and also the family of Savannah Guthrie. Again, hopefully you’ll be here next week. God bless. Bye now.
SPEAKER 03 :
Thank you for listening to Retirement Unpacked with your host, Al Smith of Golden Eagle Financial.
