33:17 Lisa:	It has the tables and essentially the IRS has a factor based on your age, X life expectancy. If you’re 70 and a half they have a table that says what your life expectancy at all is.
33:30 John:	Yeah, you know it’s funny because the IRS and Social Security... primarily those two. If you want to know when you’re going to die they have tables that will tell you the exact date.
33:42 Lisa:	They have a statistical table. Let’s say I have... I’ve got a 72 year old lady and she’s got about $400,000 in IRA assets as of December 31st. Because they always calculate your minimum distribution based on the amount of assets on December 31st of the prior year. 34:02
34:03 John:	Right. It’s the prior year. It’s not what you have in there today or when you’re taking it out. It’s the last day of the year on the last year.
34:14 Lisa:	She goes to the table, she looks everything up. This 72 year old lady she has a... according to the IRS tables has a 25.6 year life expectancy.
34:27 John:	She can do the math and find out when the reaper cometh.
34:33 Lisa:	It looks like she’ll be 90 something, 90 plus.
34:37 John:	Well, and it’s funny because if you... depending on which government agency you’re dealing with and the factors here. It’s funny that some of them think you will live a long time and some of them don’t.
34:52 Lisa:	On this deal, I’m glad that the IRS table thinks that you’re going to live a long time. 
34:56 John:	That’s right.
34:57 Lisa:	Because essentially this lady with her 400,000 IRA she would divide that asset number by her life expectancy.
35:06 John:	By 25.6.
35:09 Lisa:	Essentially her first year there of her required minimum distributions or... well I guess this isn’t her first year, she’s 72. She would have to take $15,625.
35:21 John:	There you go.
35:23 Lisa:	Pay the tax. If she’s getting social security and then she adds another $15,000 worth of income on top of that, very well may be likely she owes some income tax.
35:35 John:	In particular Social Security itself generally speaking is nontaxable. If her other income keeps her below the threshold for causing her Social Security to become taxable. Now she’s going to have to take some money out of this IRA. Not only is she going to pay taxes on the IRA, but that could push her up into the threshold that causes a portion of her non-taxable Social Security to become taxable. 
36:08	Essentially once you cross those thresholds for roughly every one dollar of... or for every three dollars of taxable income you have $1 of your Social Security becomes taxable. Up to a total of 80% of your Social Security. That can be a pretty significant hit.
36:30 Lisa:	You should always go back and check the numbers. If you have a tax preparer someone... someone who speaks the taxman’s language.
36:40 John:	There are several online calculators that you can get on... you can just Google IRA RMD calculator.
36:50 Lisa:	RMD, that’s the slang that we all use for those Required Minimum Distributions.
36:55 John:	You just do RMD calculator in Google and you’ll come up with several. Then, and what I would do is check... if you do two or three of them and you’re getting the same number every time then you’ve got a good idea that that’s going to be relatively accurate there as far as the numbers and everything.
37:14 Lisa:	We’re done. Let’s go and take our next break and then we’ll come back and talk about a few more issues with taking distributions from IRA when we get back.
37:19 John:	Sounds like a plan. I think my little light is down. It’s not putting out much light. Yeah, we’ve got bad lighting in here and I like wearing my ball cap.
37:54 Lisa:	Well I hope when I retire I have the problem of too much money.
37:59 John:	Yeah, that’s what I’m telling you. 
38:01 Lisa:	I guess I’m working on it.
38:03 John:	Yeah, that would be all right. You and I will probably be... because we’re self-employed we will probably be the ones that are having to live off of those retirement dollars. We’ll probably already be taking RMDs regardless. Even before we get to 70 and a half before they’re required. We’ll be taking RMDs but the required part is for our food. It’s required for us to eat.
38:33 Lisa:	Not required for the tax guy but...
38:35 John:	Yeah required for John and Lisa to eat minimum distributions. Yeah that’ll be us.
38:44 Lisa:	I hear folks a lot of times talking about they work as civil servants, like police and firemen and teachers. There are jobs you can do where you’re working for a private business you can certainly make more money. For a lot of those folks you just cannot eat the benefits. Including the health insurance and the pension type savings and benefits that those public service jobs offer.
39:16 John:	All right, looks like we’ve got about ten more seconds here and then we’re going back live. Welcome back to Aging Insight everybody this is your host, John Ross here live in the studio with Lisa Shoalmire on wine festival day. We’ve got about 15 minutes left in our program which means you’ve got about 15 minutes before it is time to head to Spring Lake Park and get out to the Texarkana Wine Festival. Enjoy this beautiful, absolutely beautiful day. 
40:02 Lisa:	Wear your sunscreen.
40:03 John:	Wear some sunscreen.
40:04 Lisa:	Wear a hat.
40:05 John:	Skin protection is always a good idea especially for gingers like myself. I can stand in the sun for about 30 seconds before I get burnt. Bring you some money because you’re going to want some of the good food out there. You might even find some art or some crafty things that you like. You might even want a sip of wine.
40:27 Lisa:	Yeah, there’s a couple of booths that had some artesian olive oils and some craft goat cheese.
40:36 John:	I was going to say our friends from down in Longview who were here last year with the Haute Goat. 
40:42 Lisa:	Yeah, so if you like some goat cheese. 
40:44 John:	They do, do some good goat cheese. Their stuff is fantastic.
40:49 Lisa:	I’m just thinking about strawberries and watermelon with some goat cheese salad.
40:53 John:	With some Haute Goat cheese. That’s exactly right. Good stuff out there. Lisa we’re talking about the IRAs, we’re talking about that don’t want to be... they don’t want to take distributions necessarily. I guess one option is get back to work.
41:10 Lisa:	They could, and this is an interesting thing. I hadn’t really had this happen before, but again I met with a client this week who is over 70 and a half. Last year his IRA, they sent him a letter about how much he was going to have to take versus required minimum distribution. Then they send him a check. He had to pay tax on it because he is still working full time. If you’re working full time and your current employer has a 401K or 403B type savings plan. You’re still a fulltime employee and they have a retirement... your employer has that retirement plan. You can take any of your former retirement assets like your IRAs and things and you can roll them into your current employers.
41:59 John:	Put them back in your 401K. 
42:02 Lisa:	Then you don’t have to take any minimum distributions.
42:05 John:	Right, because as long as you’re still employed you’re operating under a different set of rules with those 401Ks. Of course this could be depending on a person’s situation for example we use the example of somebody who gets a lot of their income maybe from a side job, maybe or a small business. Like some of the folks out here at the wine festival these are most of the folks out there. Most of the vendors these are self-employed type folks in their small businesses. If you’re running a small business into your retirement years maybe you set up a 401K for your business. You could actually take those IRA dollars and roll them back in as a way to not have to take those RMDs. That’s one option, although like you said I’ve never seen it happen but to be perfectly honest this was news to me when you were telling me about it.
43:01 Lisa:	Yeah. Well, it was a little bit news to me when my client was telling me about it, and so I had to research it to confirm that what he said was correct and sure enough...
43:11 John:	Yeah, sure enough.
43:12 Lisa:	Smart client he’s going to take all of his IRAs roll them into his current employer’s 401K plan and just cut off having to take those RMDs.
43:21 John:	There’s also some things that you can do as far as your investment choice within the IRA. There’s something called a QLAC which stands for a Qualified Lifetime Annuity Contract. What these particular contracts do they are... it’s a type of annuity which is an insurance type agreement. Essentially what that allows you to do is defer a portion of your IRA so that you do not have to take RMDs on all of it. You’re taking it on part of it but not on all of it. 
44:02	At least not right now. Now once you hit I believe age 80 or 85.
44:08 Lisa:	Yeah, so you get another... a ten year plus high.
44:10 John:	You get somewhere in the 10 to 15 year range. Again we don’t sell these sort of things we’re not... we don’t know all the specifics on them. Once you get into the 80 to 85 range and you now have to take those RMDs they will be very, very high.
44:29 Lisa:	Oh, I checked it up, it’s 85.
44:31 John:	It is 85. Yeah. When you hit 85 the whole idea here is like in Lisa’s example this lady who was 72 and had a 25 plus year life expectancy. Well, the way the IRS looks at these QLACs is if you’re sitting around at 85, your life expectancy has now dwindled down to five, or six, or seven years. They want you there to... you haven’t been taking RMDs this whole time. They want you to take all of your RMDs out in the next four or five years.
45:10 Lisa:	That’s some big chunks of money.
45:12 John:	Yeah. You are pushing it down the road but depending on how long you ultimately live, those could actually end up not being much of a cost saver. 
45:24 Lisa:	Yeah. What other thing though if you really are trying to minimize those RMDs is you can actually, John convert your traditional IRA and you can convert that into Roth IRAs.
45:38 John:	Yes, if you want to eat some taxes on it.
45:41 Lisa:	You’re still going to pay some taxes but it’s just one of those things to where a lot of folks before they reach 70 and a half they start a little each year, they start converting some of their traditional IRA to Roth IRAs. Of course Roth IRAs when you convert you do pay the tax on what you’ve converted right then. 
46:06	Maybe it’s been a year of high medical expenses. Maybe you’ve had some losses in your investments. Who knows what might be going on. It’s always an option to... there’s once you convert traditional IRAs to Roth IRAs there are no required minimum distribution from a Roth and you don’t pay tax again on a Roth.
46:30 John:	That’s true. The other and then of course one other option in all of this is long term care insurance. Generally speaking if you’re already waited until 70 and a half to even shop for a long term care insurance it’s probably going to be out of the picture at that time.
46:47 Lisa:	It’s costly.
46:48 John:	Yeah, because it’s going to be a bit higher. Plus it’s likely that you’ve had some sort of health event during the proceeding years that would prohibit you from qualifying. If you’re looking a little bit further down the road maybe you’re early in those early 60s you are going to sign up for some long term care insurance. One thing you can know is when you’re pulling money out of IRAs yes, it’s taxable income. If you’re using that money to pay on long term care insurance premiums that is a tax deduction. You get a good split there where yes it’s taxable income, but you’re using the taxable income on deductible expenses in some way shape or form.
47:37 Lisa:	There’s a lot of things... I guess the idea though is to more than anything else like we always talk about in Aging Insight. Get the knowledge, get prepared. Seek out the people that can help you look at your situation.
47:51 John:	Yeah, and as far as it goes. Again, the biggest thing I think right now is ultimately is understanding the fee structure in all of this. This is where we opened up. 
48:05	Think about it from this standpoint if you’re worried about having to pull out some money because of... you don’t want to have to pay a few thousand dollars in taxes on that. Hey I get that I don’t want to pay a few thousand dollars in taxes either. If the financial advisor that you’re using is robbing you blind in fees to the tune of 10 or $15,000 a year.
48:33 Lisa:	Yeah, the taxes are not the biggest cost.
48:35 John:	Your focus is in the wrong place in this deal.
48:39 Lisa:	Do you know what I think is interesting about that at least the taxman it may be a little confusing, but in the end it’s pretty transparent. It’s on a tax form.
48:48 John:	You know how much the tax cost you. Because you can look there on the form and you can write them a check for that amount. It stings and it hurts. That does make you very conscious of that. That helps influence legislation and helps people make decisions out there. When you start getting into the world of financial advisory fees and not just what your advisor is getting paid, but what the company that they work for is getting paid. What the manager of the mutual fund that they have invested you in is getting paid. There are so many levels of costs associated with your average investment.
49:36 Lisa:	A quarter point here and a quarter point here, here a point, there a point.
49:43 John:	Everybody getting a point, that’s exactly right and by the time it’s all said and done... I visited with somebody here recently and they had looked at somebody’s investments and they were... the cost of their... the cost associated with their IRA... 50:04
50:05 Lisa:	Portfolio, yeah.
50:06 John:	Yeah, with their portfolio were greater than the income that was being produced off the assets. They had said, “Well we want to be in some safe...” the client had said, “Well we want to be in some safe stuff.”
50:22 Lisa:	Well sure.
50:22 John:	We put him in some stuff and it was very, very safe.
50:25 Lisa:	Which means that’s not pretty... usually safe means a lower rate of return.
50:29 John:	Yeah, and so we’re talking one and a half percent or something like that. One and three quarter percent guaranteed rate of return. Then you’ve got two and a half percent...
50:38 Lisa:	Fees.
50:39 John:	... of fees. They’re paying this person to lose money.
50:45 Lisa:	They’re losing money on their investment and then there’s always the inflation which causes your dollars to be worthless than they were. You’re not accomplishing anything.
50:57 John:	If any of you all are out there if you all are listening to this and you’re like, “You know what, John I’m actually okay with that I don’t mind paying $5 for four $1 bills.” I would like to see you after the show. Because I’ve got some...
51:13 Lisa:	Five dollar bills. I’ve got some dollars...
51:16 John:	I’ve got some $4 bills that I will see you for five bucks if that’s your investment structure. What I would actually encourage most people to do is sit down with that financial advisor and say, “Show me the fees.”
51:30 Lisa:	Yeah. Show me the fees. Show me your commission. Show me the fund commissions and don’t let them redirect.
51:36 John:	Yeah, don’t let them hem and haw about it. I want you to show them... ask them, “If there were no fees how much money would I have made. Now how much money did I make because of the fees? Give me a comparison there.” At least that way you’ve got something that you can base it on. Something that you can judge the performance on. Now I understand nobody... just like nothing is for free out there you should not expect anybody to work for free. 
52:06 Lisa:	A lot of times if it’s a super-managed investment where there’s a fund manager that’s always tweaking and everything. You’re hopeful that they’re doing better than the average automated mutual fund.
52:23 John:	Well, yeah you would think... although I think statistically I think in most studies they have found that...
52:29 Lisa:	The automated funds do better.
52:31 John:	That well yeah, that there’s really no... there’s no statistical difference across the board. Basically when it comes to the stock market you can have super advanced degrees and study, study, study. Or you can throw darts at a wall. About either way has the same success rate.
52:51 Lisa:	It’s hard out there to get all that right. You are trying to save for your retirement.
52:56 John:	That’s right. At least know what you’re paying for. Double-check those RMDs when you get that notice every year. Of course if you have any other questions you can always teach out to us on Facebook or any of the other places that we are out there. We’re in a million places.
53:11 Lisa:	Yeah, and catch some Aging Insight television.
53:13 John:	That’s right, every...
53:14 Lisa:	Channel ten?
53:14 John:	Yeah, Channel ten. We will see all of you all...
53:18 Lisa:	At the wine festival.
53:19 John:	... at the wine festival. Bye, bye. We’ll see you all later as well.
[END OF TRANSCRIPT]