Kevin: [00:00:00] 

Well, we're here in studio today and we got a good episode for you Today we're gonna be talking about retirement. And a lot of people when they think about retirement, they're either too young and they're like, I don't even wanna worry about this. Or they're too old, and they're like, it's too late for me.

Or they're in the middle and they just want to, they're in a stage of life where they're not even thinking about retirement. 'cause they got young kids and they got sporting events and vacations and home improvements, and they're like, who has time to save for retirement or money to save, retire or money?

Yeah. You're spread thin. There's an excuse for all three areas of life. You're either too young, you're in the middle, or it's too late. Well. It's not too late. The, the earlier the better, obviously just from time value, money. But today I just want to talk with you about maybe some things that people can do to retire earlier.

Mike: Yeah, 

Kevin: retire richer. And how to accelerate no matter what kind of on the, on that spectrum you are. You're early, middle, or late. What could we do to. Kind [00:01:00] of get our, uh, retirement 

Mike: portfolio where it needs to be. Yeah, I know we're saying it's not too late, no matter when, and it is not too late, but the time, we need to discuss the time value of money and the power of compounding, right?

Yeah. So if you can put away a thousand dollars when you're 30, that's it. Versus putting away a thousand dollars when you're 50, by the time you're 65, that one $1,000 you put away at 30, um, could be worth 10, 15, 20,000. And if you're retiring at 65, that's a big deal. Mm-hmm. But on the power of compound, and you also gotta consider things like after tax of your investment income.

I know we're talking about retirement, I gotta go to tax because it can make a big difference. So let's say you're putting, just consider you're putting away $10,000 a year if you're able to, if you put $10,000 away a year, um, you're doing that, whether let's talk after tax. If you're $10,000 after tax, um, that's great.

It'll grow. But what if that after tax amount, instead of 10,000, you could actually not [00:02:00] pay tax or pay less tax. And instead of having 10,000 a year, you're putting the same amount of take home, pay away. Mm-hmm. But what if you put 14,000 a year away? That is a big difference. Mm-hmm. So as we're gonna go into retirement, but gotta understand the power of making tax advantageous investments, um, because you're starting off with more, you can also consider it, and I like to think of it this way.

Um, this is how we tell it to our clients. Let the IRS subsidize your retirement. That's what we do with 4 0 1 Ks, right? Yeah. If they're, if they're post-tax or pre-tax 4 0 1 Ks 

Kevin: and we're not talking social security. No, no, no, no, no, no, no. That is not the government subsidizing your retirement. That is a crapshoot.

Be in control of your money. Yes. But yes. 

Mike: Yeah. So if you can, so you should do it as early as you can consider the power of compounding. Um. But consider tax advantaged investments. Let's talk about the first one that most people are familiar with. Um, tell us how pre-tax contributions into [00:03:00] retirement plan, whether there's a 401k ira.

Mm-hmm. Um, all the big ones tell why is that good? 

Kevin: Yeah. Um, yeah, there's two, two main retirement. Accounts really. I mean, it, it's either pre-tax, pre-tax or post-tax. Pre-tax just means you're gonna have a 401k maybe at your employer. Uh, you could have a traditional IRA. Um, what that means is they're gonna take money outta your paycheck, which you're not gonna pay federal tax on.

You're gonna pay social Security and Medicare on it, but you're not going to pay federal withholding or federal tax on that contribution you put in. That's. Pre-tax, you're, you're putting money in before it's taxed. So if you think about it just logically, you put money in there that hasn't been taxed.

Mm-hmm. So what happens now in this, and this is your traditional 401k, traditional IRA, you put money in there, you get the tax deduction upfront, it's gonna grow over the course of your working years or, uh, whenever you reach retirement age, then you could start pulling on it. Uh, when you pull on it, then the government's gonna get [00:04:00] their tax.

There's no such thing as a free lunch. So you get the tax break up front. But then you're gonna pay for it later. And the IRS is a little sneaky because they typically put what's called an RMDA required minimum distribution on these because what the IRS is gonna say is, Hey, that's great you got your pre-tax deduction.

I want my tax at a set time. Mm-hmm. Regardless of if you pull it or not, I'm gonna make you pull it 'cause I want my tax. 

Mike: Yeah. 

Kevin: So when you reach the age 70 and a half, the, those RMDs are gonna kick in too. So you're, you're, you gotta plan saying, Hey, is this my high income earning years? You can play with the tax brackets.

Mm-hmm. You, if this is, if I'm in the 37% tax bracket, maybe it makes sense to do that pre-tax. And I get, for every dollar I contribute, I'm saving 37 cents. And then when I'm in retirement. I don't think that my tax bracket's gonna be as high and I could pull it at a lower tax rate. Yes, that's kind of the game you're playing.

The other, the other flip of that coin is just gonna be what's the Roth? And so there's Roth 4 0 1 Ks, there are Roth IRAs. Um, there [00:05:00] are income caps on who can contribute to those, but. Really you can get, you can get around it. It's just a backdoor. I mean, everyone's heard of a backdoor Roth. If you're making above that income threshold to contribute to a Roth, you contribute to a traditional and then convert it to a Roth.

Yeah. If you get to the same point, I'm like, what are we doing? This song and dance? I mean, just let them eliminate it. Right? Eliminate the income. Yes. Threshold. Yes. But the thought of the The Roth is that is post-tax. So you're gonna get paid from your employer. You're gonna pay tax on those wages, but then it's gonna go into a Roth account where it grows tax free.

So now what we're looking at is. In retirement, there's no RMD to it because you know, the RMDs tied to the traditional 'cause IRS, they want their money. The tradition's like pay me. There's nothing for you to pay on a Roth, that you don't owe the government anything in retirement. So that is kind of like, it's a really strong account because it just grows and then it's yours.

Mike: Yes. But you're getting your tax benefits later in life versus. Today. And that's a hard balance to [00:06:00] do, um, and to try to figure out, yeah. Um, we should talk about different kind of retirement accounts, but then get into other areas like using retirement accounts in quote unquote qualified money is not the only way, and honestly it's not the best way.

Mm-hmm. Um, always for you to grow your financial freedom for retirement. It's not, but we're gonna talk about them some more in Kevin's example. If you do the pre-tax one, you get more money to invest, that will grow longer. So when you consider the power compounding, if that's the only thing you're looking at, you're much better doing pre-tax.

Mm-hmm. Um, get the deductions. So instead of, again, 10,000 a year, instead of only getting 10,000, get 14,000 'cause you don't have to pay tax on that amount. Um, that's nice. It grows. But then when you retire or when you hit 72 and a half or whatever, they change the age to be firearm days. They change that a lot regularly.

Um. You're gonna have to pull it down and pay tax. My father's in this situation, he's 80. He's not having to do RMDs. He doesn't need to take outta that money. He's, he's [00:07:00] been very astute in his financial planning. He's got non-qualified money. He'd rather it just grow for his wife in case he's probably gonna pass before 'cause he is 10 years older or.

Not 10 years, but older. Um, but he doesn't wanna take it out. He has to with the RMDs, and that's annoying as heck. What we've done with a lot of our clients, and I love this when we can do it and plan it, right? I mean, the facts have to set up right, but use the pre-tax accounts, grow the heck out of it, and then as you get into your fifties, um, even early sixties, then if you have enough capital left over to make outside tax advantaged investments like.

A short term rental loophole or qualify for rep, get a bunch of depreciation, lower your active income. Mm-hmm. You can do the backdoor Roth conversions. Mm-hmm. Um, and we've had clients where we can get them and they're making two, 300,000 a year, but in those years they, they have enough dry powder and after tax accounts to go make a big investment.

Um. And lower their tax to hardly anything, do the backdoor conversion [00:08:00] tax free. And now they're converting the retirement account that's been growing for 20, 30 years. Mm-hmm. And pre-tax accounts convert when you do that, when you convert it into a Roth, the IRA let the IRS lets you do it, but they make you recognize as taxable income, the amount that you convert that year.

Mm-hmm. Mm-hmm. But if you can do that in a year where you have a tax deduction, a big tax deductions, you can do that tax free. Yeah. And then you get the best of both worlds. You get the deduction on the front end, you get into a Roth, and when you retire, you don't have RMDs and you get to pull it out tax free whenever you want, however you want.

It's a beautiful, beautiful plan. 

Kevin: That's a great strategy. And you know, a client story of one that failed because they did it without talking to us first. Uh, they pulled a bunch of retirement money out early. Got the penalties, which the penalties you cannot reduce with tax planning. Um, it's just that's below the line of all the deductions.

So it's gonna calculate your, on a tax return, it calculates your tax, then it calculates penalties below it. Yeah, so any tax planning, if you take money out of a [00:09:00] retirement account early, normally, unless. There's some exceptions, but normally you're gonna get hit with a 10% penalty. Yep. So this person wanted to buy a rental property and we were gonna tax plan with it.

I mean, there's nothing wrong with that. They took a substantial amount, like more than they needed to on the down payment. It was like four or $500,000 out of a retirement account. So they paid, they tipped 40 to 50 K 'cause they took that 10% penalty and they were shocked that we couldn't eliminate the penalty without, yeah.

With the depreciation on, on what they purchased. Yeah. You paid zero income tax. Yeah. I mean it's very clear or it was very little. They were like in the first two tax brackets and even with the distribution, 'cause they bought a multimillion dollar property, but they've generated so much income. Um. We were able to eliminate it on a taxable income standpoint, but

Mike: you can get rid of that penalty, 

Kevin: the penalty still.

So we're like, Hey, you, you owe like $10,000 in tax, but you owe like $50,000 in penalties. And they're like, what? I owe 60 grand. I was, you, you could have done this a little better. Right. Um, you know, I, I hate when people tap into the retirement accounts early, [00:10:00] unless it's kind of a, you're just, especially right now, I was.

I had a consult with a client yesterday and they're going through the same exercise. They're like, I have a million dollars in a Roth, or, uh, $500,000 in a 401k. I got 70 in liquid cash. What? Where am I pulling from? And I'm like, well, right now the markets are low. Yeah, you learn in finance, you buy low sell high.

Um, you don't sell low. So if you're gonna liquidate some of these retirement accounts, when the market's low, you're losing a lot of purchasing power in the future because those accounts are likely gonna recover depending on what you're invested in. So you don't want to cut your knees off and just limit where your account can go.

So you're really stunting yourself in this market right now. If the market is low to sell and pull that money out, then tip and then pay the penalties, you know, and all that. Yeah. So it's kind of, you gotta be smart with your cash on how we do this, but, uh, it's a great strategy to actually generate.

Penalty free taxable income if you can. Yes. And then offset it. 

Mike: So before we move off the topic of retirement accounts, we've heard of IRAs, we've heard of 4 0 1 Ks. Those aren't the [00:11:00] only retirement accounts out there. No. As a matter of fact, there's a whole bunch of different kinds of IRAs and 4 0 1 Ks.

You got your Roth 4 0 1 Ks, your regular 4 0 1 Ks. You got your mm-hmm. Um. You are self-directed 4 0 1 Ks, which a lot of our clients do self-directed IRAs. Um, and you have self-employed pension plans. Mm-hmm. Those are nice. You can, instead of only being able to put away 6,000 for an I-R-A-I-R-A or 24 and a half thousand for a 401k, you can put away 60,000 I think in 2025.

It goes up a little bit each year, you're able to put away a lot more. Um, this is powerful when people haven't been retired or putting much away in their retirement accounts, um, but they're finally getting. They're mojo on in your forties and your fifties, finally starting to make some good disposable income.

That's when it's great if you can do, put away more, um, yeah, and then do the, the backdoor conversion when you can. But then there's also the cash balance plans, man. 

Kevin: Yeah. 

Mike: Those are awesome for people who are like. And honestly in my situation where I wasn't making much, I was, we were building this business.

[00:12:00] Everything we made, we poured back into the business, didn't have any disposable income for, from over a decade, then you have disposable income. But I'm already 50. Can you let 'em turn 50 this year? Yeah. 50. I need to grow my retirement funds. Um. You can do something called a defined benefit plan or cash balance plan.

And it allows, we've had clients put over $400,000 a year where they get a $400,000 tax deduction in one year. Mm-hmm. And put that contribution in. Mm-hmm. Um, and then they can retire. They do that for four or five years. I got a million and a half bucks maybe. Mm-hmm. Or two and a half million bucks in a retirement account that gross tax free.

So all retirement accounts aren't the same. They're, if you go to a financial advisor and they prescribe one thing for you and one thing only. Go to find a different financial advisor. Found out the different options that you have. Not everyone's eligible for all these different accounts, but some are. Um, mm-hmm.

There's gonna be one out there that you're eligible for, and those are a powerful way. The, the IRS, the tax law allows you to grow your retirement account, but now is our transition. I [00:13:00] don't always love that you get into retirement accounts. Generally you're stuck in Wall Street. Um, not a bad place to be in, but I don't think you should be there with all of your funds, right?

Mm-hmm. Um. And when your money's in a qualified retirement account, your hands are cuffed. There's only so many things you can do. Yes, you can get self-directed. Yes, you can do a rollover business startup, but your hands are still cuffed. If you had enough dry powder outside of it, you might be able to make more money, and better yet, you can tax plan with your non-retirement account money.

Mm-hmm. So if I go buy an asset. That's gonna grow over time, but I buy it with my retirement account, say do it self-directed, but I'm paying high tax because we're making decent money at the firm now. Um, I can't use that money to, to lower my tax, but if I have outside money, not in a retirement account mm-hmm.

I can go buy. Oil and gas, reduce my taxable income, reduce my W2 income. Mm-hmm. Um, if you get a good investment, and that's the trick, right? If you're gonna invest money, you gotta find one that's gonna grow. Yeah. You can do lots of tax planning, but if you buy an investment that goes [00:14:00] down, it was a terrible idea.

Mm-hmm. Great tax idea, but worthless, horrible idea for your personal financial situation. Um, so let's talk about some tax advantage investments outside and why that's powerful. 

Kevin: Yeah. And there's also other strategies once you, if you're self-employed, you know, to kind of piggyback on that set. But if you wanna retire richer and you have children and you wanna hook them up mm-hmm.

You can set up a Roth for your kids. I love that. And you put very small amounts in there. And by the time they're 40, 50, they're millionaires. Yes. Compounding 40 years.

Mike: And if you come out tax free. Yes. I love that.

Kevin: So just a small little. Uh, something I wanna throw in there, but Yeah, you're exactly right.

With, with alternative investments as we like to, as kind of what we call them, it's investments that grow in value over time. They're hopefully appreciating assets such as real estate or, um, there's so many funds out there like multifamily syndications, ATM funds Be weary. Yeah, very weary. Don't do those.

Yes. You're gonna come across, once you [00:15:00] start getting into this kind of industry or this area of your life where you have some, you're accredited, you have some disposable income, and you're looking at options of, okay, I, I like mutual funds, I like stocks, but private placements, that's what they are. And they carry more risk because they're, yeah, they're re probably registered with the SEC.

Mm-hmm. They're not publicly traded, so there's not gonna be as many, um, you know, audit requirements. You know, from accounting standpoint, none usually. You don't have to. So just be, be weary of these private placements. If you, if, if your cousin comes up and like, man, I invested in this, this, this real estate deal, they're gonna gimme 10 x return in two years and tax benefits up front.

If it's too good to be true, we've learned by losing our own money, it probably is. Uh, I'm not saying all good things are bad, but just saying if you get pitched some private placement, that's just, wow, I, I'd be stupid not to, you know, mortgage my house and put some more in this. Probably not a good investment.

Be careful. Go with you. Talk to your CPA, have CPAs can, we can review some [00:16:00] language in these ppms or in the operating agreements and we can kind of look under the hood, but you would rope in maybe in an attorney, financial advisor. Yes. Get your team together and say if you're gonna invest significant income into a private placement, like an ATM fund or multifamily project.

Oil and gas. I mean, there's so many different car washes. There's. Oh yeah, there's 

people out there 

who syndicate car washes.

Mike: I just thought I want to quickly a good nugget here for retirement planning and helping you retire earlier. Um, as Kevin mentioned, you should have a team around you. You look at anyone that runs a big business.

I mean, the best businesses out there, the biggest ones, um, fortune 500 companies. There's always a CEO, but they aren't working alone. Mm-hmm. They got a board of directors. A board of advisors. Yeah. Um, you shouldn't do this on your own, so that's a big nugget. Build a team around you. You should have a tax strategist depending on what you're investing in.

You should have an attorney and you should have a financial advisor unless you can do your own financial advice. Mm-hmm. That looks at you holistically. [00:17:00] Don't get a financial advisor that's just gonna force you into stocks. They make a commission on, or annuities or whatever some of the you see out there.

Um, get one that's gonna understand you'd be willing to work with you. Usually you have to pay for those. They, they don't work off commissions. Those financial advisors, they're fee based 'cause they're working for you. Whether you were. Invest in Wall Street or go buy a, a long-term rental house, they're gonna help you with that and do that strategy.

So build a team. Sorry, I had to interrupt. 

Kevin: No, that's great. No, exactly right. And um, the whole goal with these alternative investments is there's ways, depending on what your situation is, and we see this a lot where we may have like a high income earning, um, doctor. And then your spouse is stay at home with the children.

There's ways to utilize the stay at home spouse to alt, use alternative investments, have the high income earner, do the 401k, like we talked about, push money into retirement, traditional retirement accounts, but you can also have this spouse manage. Your real estate portfolio that you're using and then [00:18:00] offsetting the tax liability of the high income earner.

So if you think about it, you know, we sometimes have a doctor making maybe a million dollars a year stay at home. Spouse manages the long-term rentals, and then we kind of do some tax strategy around that. This, the tax savings on the rentals reduces the doctor's income. By, let's say four or $500,000, which gives them more money to invest.

Yes. It snowballs hugely. Yeah. And if you think about it from just a, just a analytical standpoint, that spouse had a $250,000 job. Mm-hmm. That's a pretty good salary. Yes. For staying home with the children. And then you're kind of managing some real estate, maybe 10 hours a week or something. 15. Usually 15, yeah.

Man, that's a good, good salary. And so y'all are working together on a tax plan as a, as a married couple. So there's just so many creative things you could do like that. And then if you keep doing like, Hey, I want a rental house a year or two, depending on the market, depending on interest rates, depending on vacancy in the areas you like, you know, you don't just go blindly buy real estate, no [00:19:00] one would do that.

But let's say by the time you retire, you want. 10 rental homes. Uh, you want maybe some other alternative investments that are passive. You want some maybe bonds or some very low risk things, and then you have your traditional 401k or whatever it is. Now we have a holistic retirement plan where if the stock market tanks, the housing market may not follow.

Mm-hmm. You know, depending on the cause in the economy for one drop or the other. That's why investing in like multifamily is a really good hedge, just because if the economy goes down, people are renting more. 

Mike: Yeah. Self-storage too. Yeah. People are losing their properties and they gotta store stuff and self-storage occupancy goes through the roof in a bad economy.

Yeah. Um, so diversification. Yep. Let's talk about risk versus reward. Um, I'm, I hate taking, well, I don't hate taking risk as much as Kevin does, but the older I get the more I don't like risk. Right? I, you work hard, you don't wanna lose your stuff. Um, but. [00:20:00] If you don't take risk, you're not gonna get some reward.

Every, what I would consider every one of our friends or clients that I would consider wealthy, they have taken serious risks. Um, smart risks, mitigated risks, well thought out risks. Not, not just, you took a risk to start the, the firm. Yeah. I pulled out all my 4 0 1 KI paid the penalties. That's a big risk.

I was dead broke. Brand new marriage with kids and, uh. We spent everything. We had nothing. Um, I even had, my father had to help me a few years so we could make a mortgage payment. Um, but it paid off. You gotta, if you don't take the risks, then be okay with just a 401k and, and social security. Um, yeah. But.

Risk. You gotta decide to do it. It's a hard decision to make. You gotta do it smartly. Don't risk stuff that you can't afford to lose. If it's gonna change your life or ruin your life, don't risk. And you're probably gonna lose some if you're taking risks. Mm-hmm. Mm-hmm. But over [00:21:00] time, you learn from those losses.

Mm-hmm. Over time, um, you'll probably get some good hits. That being said, I mean, we have clients that take risks all the time and never get a hit, right? Mm-hmm. Um, they probably should build a better team, and usually those people don't have a team. Risks are necessary if you want to reward, um, you wanna retire faster, take some.

But how, how do you, how do you mitigate your risk, Kevin? How do you decide what risk is worth taking? What is a wise risk? God calls us to be good stewards over everything he is provided us. You're risking money. 

 but tell me how you determine risk in your personal investment portfolio. 

Kevin: Well, I'm different than you. Um, yes, you are. My risk assessment level's a lot lower.

Uh, I am really big on the, on the long game. You know, I think, uh, getting rich quick is not a thing. I mean, sure it does happen. Bitcoin happens, GameStop happens. Um, I knew about them early on and that's the downside of kind of my wrist tolerance is I likely would never get in on [00:22:00] it because I'm like, this is bunk, this is too, you know, whatever.

I know what I'm doing is tried and true. I'm just gonna invest in US based securities that I believe in mutual funds. Um. Yeah. So I, I do manage, play with some risk though. Yeah. Like, I don't just, you know, I, but what I do, um, is I have a brokerage account that's liquid where I, it's not a retirement account, it's a brokerage account.

Um, and then I spread, let's say I'm an invest. $30,000. I would take a thousand dollars 30 times and invest in 30 different mutual funds that I like, like semiconductors, utilities, uh, communications, retail, even some international stuff in there. I'll literally break it into 30 funds if possible. Uh, gold and silver funds, whatever.

I mean, just mutual funds. And a mutual fund is even more diversified 'cause I'm gonna invest in a retail fund. It's gonna have target, Walmart, Lowe's. All these other companies in there. So they're breaking out my $1,000 investment even more. But I'm spread across these different industries. Mm-hmm. So that's, and then I just keep pumping into [00:23:00] that at that ratio.

I mean, it's not gonna be 30 funds, but it would, you know, I would find 10 to 15 good targets. I like spread it thin and just keep going and invest. 'cause I believe in America and that's. That's what that strategy does. Yes. Is I believe that target will be around, Walmart will be around, at and t will be around.

I believe these are big companies and if the American economy is moving forward, these companies are gonna move forward with it. Google, apple, the big, the big companies in, in our country, I believe in them and I invest in them. 

Mike: Yeah. 

Kevin: So that's kind of my tried and true.

Mike: But you're not just investing in one stock like.

But people would've thought that about Kodak in the nineties or late eighties. Right. I'm gonna put everything in Kodak. It's gonna be around for 30 years. Well, that's the mutual came out.

Kevin: That's what the mutual fund, like if Walmart goes under, I'm invested in a retail fund, I still have Target.

Mike: Do you pick any other like individual stocks or.

Kevin: No, you do. I don't. Um, yeah, I just like the mutual fund. I could just 'cause it's safe. Okay. And you know, I'm not gonna hit the home runs, but I'm gonna hit some [00:24:00] singles and some doubles and that's okay with me. But where I take my risks mm-hmm. Are in the business. Yes. Obviously, when you're self-employed, that is enough risk for me already, especially with a partner like me.

Yeah. Yeah. You stress me out. Um. But yes, that's, I take a lot of risks in the business thanks to you, but also we invest into oil. We started our own oil fund. The oil is very risky. So that's kind of my risky side. Ty and I, my wife, we love real estate as well. We wanna get into some real estate. So I got my tried and true singles and doubles oil's, kind of like my home run, but I'm getting tax breaks on it.

I wanna get into some real estate, which is kind of like a double, I would say, in baseball terms. That's kind of a double triple. So you, but 

Mike: you're taking a relatively low risk strategy. Mm-hmm. Um.

Kevin: But I play with some risk in the business and oil. That's kind of my risks.

Mike: But when you're investing outside of the mutual funds, you're investing in tax advantaged investments.

Mm-hmm. Which is allowing you to invest a lot more Yeah. Than you would be investing otherwise. 

Kevin: Yeah. The oil and gas saved, I mean Yeah, it saves, saves a lot. It saves a lot on our [00:25:00] taxes. Yeah. We're investing in an appreciating, hopefully investment that's going to send back some return and you know, we're already seeing some good returns.

Yeah. From. One operator at least yes, in our fund that, and they're all ahead of schedule, but, and they're ahead of schedule. So Yeah. In our, in our oil fund, we have four operators. And then because we diversified. Because we diversified. So that, that made me easy. I would feel uncomfortable investing a hundred thousand dollars with one operator.

I'd be like checking all, you know? Yeah. But. I can kind of relax a little bit. It's okay. But yeah, we do a lot of personal stuff too. Just like we, we have three kids and when we have, our church is expanding, so we're, we're giving to that. And so we want it, we want some capital money today to do what we want to do with it, but we're, we see the future.

Mike: So if I could summarize your investment strategy and, and you're at 41 years old and it's gonna change over time, but right now it's, it's mostly diversified, um, mutual funds. Mm-hmm. And then you take some though. Enough, like, I don't know if you have a percentage, but you invested in tax [00:26:00] advantage investments to also help, and those are the risks.

So you're, you're balancing your risk, but you have a proportion that you're feeling comfortable with. Yeah. 

Kevin: Yeah. I, I would, I would, it's almost half. So maybe I'm maybe more riskier than I think. I think the risk in the business, it's hard to quantify. Yeah. Yeah. Like when you're self-employed and you hire any employee, it's a risk.

That's a risk. Big risk. That's a huge risk. Especially in the professional services industry where they're in charge of strategies for people's money. If they don't know what they're doing, it's gonna cost.

Mike: We ran into that recently. Yeah. But, yeah. 

Kevin: So what about you though? 

Mike: Uh, tell me about your theology.

I'm still more risky. Um, I. So we talk about individual stocks, like I feel like you do Kevin. I, I believe in America's future. Um, but I like, and I do have, I've got 401k and my wife has a 401k, and, and we're investing that, and that's all mutual funds. Mm-hmm. Um, we're actually just letting the mutual fund or the fidelity to decide how to do it based on our age, how they're allocating amongst the funds.

Um, that's my low risk and that's about. 20% of our income and [00:27:00] then we invest the rest in more tax advantage investments in real estate. Um, but when you see where you are absolutely certain, um, and this is where the big risk is, and I'm talking about buying individual equities and stock, when we saw after the tariffs came out, um.

Markets got slammed, but more so Tesla was slammed and it wasn't slammed because of any underlying fundamentals. It was slammed because the public. Decided they didn't like the owner or the, the CEO of Tesla. A lot of 'em didn't. And it got artificially deflated in my opinion. Um, and I bought in that and my wife and I talked about it, direct stock.

We knew it was a risk. I bought Tesla stock, um, a big chunk of it and it was scary. My wife and I prayed and prayed about it and we tried to determine how much we knew we were gonna do some. Um, we finally settled on investing half of what I was willing to do, but that was two, three months ago. Mm-hmm. Two months ago.

It's already up. I was talking to a friend, we checked it. I try not to check it 'cause the plan is a whole [00:28:00] long-term hold. It's speculating, it's trying to buy low, sell high and do it quickly and make a lot of money. This was a long-term hold. I'm figuring 10 year hold. I mean, on Tesla. I believe if this optimist robot actually comes out, that could be the biggest product launch of the 21st century.

Huge. Um, and Tesla owns it. So I figured at least a 10 year hold. I try not to look at it, but heck, in two months I've done. 51, 50 2%. Mm-hmm. Um, that could go up and down though it swings a lot. Um, but I'm trying not to look at it. I'm gonna hold it for 10 years. What's the likelihood Tesla's gonna be out of business in 10 years, Kevin?

So that was an easier risk for me. Um. The oil and gas stuff and, and fund to fund stuff that we're doing and syndications, we're looking into those. Those are more risky, but they are tax advantaged. So I think it lowers the risk and actually if you build an Excel form mm-hmm. To evaluate your risk and there's ways to do that.

We learn those in school. Um. If you do it with strategies like, alright, so we know if we invest in oil and gas, we're likely to get a 30% [00:29:00] return of capital immediately in tax savings that year. So really you're getting 30% of your investment subsidized by the IRS. Then you look at the risk, okay,

Kevin: with no recapture.

Mike: Yes, no recapture. And then so you evaluate the risk by getting that immediate bump. And that's a guarantee. That's no doubt the investment might not perform right, but you're guaranteed to get that tax benefit. Mm-hmm. That lowers the risk a lot. Um, and we're only talking about a couple here. We're talking about oil and gas and real estate.

And the point is we're talking about retirement here. There's a lot of other investment strategies you can do this stuff with. Mm-hmm. Um, but we're we're riskier. Yeah. Then again. The God has grown our firm greatly and it's easier to make risks like that when I know there's a really good chance I've got a valuable firm that I have good ownership in.

Right. Yeah. Um, that's my main retirement plan. Yeah. That's what I poured my life into for the last 15 years.

Kevin: Yeah, no doubt. And. I think you hinted at it earlier as those self-directed, so let's say you wanted to get in real estate. Let's say you have a couple hundred thousand dollars [00:30:00] sitting in a retirement account.

It is definitely possible to use that to get out of the market. If you don't like the ups and downs of the stock market, you can put your money in cash that's in that retirement account. And actually buy a rental property, buy real estate inside your retirement account. Now this isn't gonna be the best tax move.

I mean, your retirement account is gonna get a lot of depreciation. It's not gonna help you, uh, you can't use the property. You're kind of handcuffed as much. Like when, when, when you own assets in a retirement account. The the IRS does not want you touching it. You know, for personal reasons because you're not a retirement age.

You can't use retirement can, you're getting a benefit today on retirement money. They don't like that. So it's a strategy you could do to get real estate in your retirement portfolio or a portion of it. And self-direct too. If you don't have the liquid capital and disposable income personally, you just can't tax plan with it.

But taxes aren't the only thing. We're talking about wealth building. We're talking about retirement and diversification. Get get you a rental property, look into it. Yes. Um, and then have some stocks, have some mutual [00:31:00] funds. Your normal investments quick, then get into, lemme have a quick tip, 

Mike: a really good golden nugget here, um, where there's hidden money in it.

If you are gonna use self-directed retirement account to invest in real estate, you gotta be careful of ubit. Unrelated business income tax. So there's this rule in the code. If you have a retirement account in the subject to ubit and all, all the IRAs are, um, a lot of different ones are, that means if you have debt financed income.

So let's say you buy real estate. But you only put 20% down or 30% down the other 70% mortgage. Suddenly 70% of any net operating income you get is taxable. But guess what? You don't have to pay ubit. All you have to do is roll your stuff into a self-directed 401k versus a self-directed IRA or sep. If it's a self-directed 401k, they're not subject to ubit.

There's hidden money in that. 

Kevin: Yeah, no, absolutely. Yeah. So going back to also the the three kind of. People, you know that I view it like you're early, you're in the middle, but you're busy and then you're late in life. If you're early, and I [00:32:00] consider early, like if you're 25 and under maybe 30 and under, you have a good 30, 40 years of work ahead of you.

Um, traditionally speaking that you can save. Do not. Negate your future. Uh, there, I, I love telling this story, but one of, one of our team members started, um, he came into my office and he was doing his onboarding paperwork and he was one of our interns, and he came up and he's like, Hey, what do I do, uh, with retirement?

Should I, you know, what do you do? He's just a, and he's 22, 

Mike: I think, at the time. 

Kevin: Yeah. And he's super smart. Just ask what other people are doing. Yes. And if you think they're successful, I mean, I don't consider myself uber successful at all, but. You know, we're pretty, we know what we're doing and money most of the time I like to think.

But he just asked and I was like, man, if you, if you can sacrifice today, don't get a, you know, this is your first job outta college. You're gonna be seeing a little bit more money than your career. Don't [00:33:00] go immediately and spend it, because that's what I did. I mean, I, I, that's what I did. I got, I started getting a salary and a bonus and I'm like, woo, this is fun.

Yeah. If you can, if you can have some kind of deferred pleasure, sacrifice. Sacrifice, exactly. You'll be a millionaire by the time you're my age. Yeah. Just do, if, even if you did. $10,000 a year at the age of 20, or if you maxed out your 401k here and he's still with us, then get an employer match. Yeah. And we match as important 

Mike: money.

If there's employer match, you should always consider maxing your employer's match. 

Kevin: Yeah. So, yeah, that was, he's been on board with us for a while. Um, he's still here with us, but he's grown tremendously. But I'm like, man, I'm. I'm just proud of him. Like he just started young. He asked a good question and he's following it and I was like, he's gonna be a millionaire by the 

Mike: time he's 40.

But you do realize when you coached him to max out his retirement account, it caused our firm to max out our match. It cost us a lot of money coming. Right? Yeah. You know, it's good for him. It's 

Kevin: good for him. Makes so in that early boat, that's the best way to retire Rich. And [00:34:00] sooner is just start self-sacrifice, deferred pleasure.

You will be living large when you retire. Yes. In the middle area. Yeah. I. I'm kind of in that area too, where it's like I got kids doing all these events. Uh, we got a business that needs capital. We just have all these moving. Just plates. I'm juggling, I think. Um, but we are intentional with our retirement in that middle area.

I set a pre-tax, uh, pre-tax, uh, 401k through the firm and we, I, I just set my percentage to max it out, and I don't, I just. Outta sight outta mind for me. Yeah. I don't feel it. Leave my bank account. I, it just helps me. I don't feel it leave, it's just automatic every pay period. And then by the end of the year, it's maxed.

We recently put our spouses on payroll, as you know. They're, they, they help in our business. We draft them into the 

Mike: firm to help and, uh. They didn't much love it, but now they're getting a max their four one days 

Kevin: as well. Yeah. So now if you're a business owner and you were married, I guarantee your spouse helps in your business.

Oh gosh. [00:35:00] Guarantee you put them on a payroll. We put 'em on a payroll of like 20,000 or 24,000, just whatever the max is, and we defer all their wages into a retirement account. Mm-hmm. So now. Mike and I are maxing out our retirement, and then our spouses are too. And it's all deductible. Yeah, it's all salary because they are helping in so many facets of our business, and so that's another little trick if you're self-employed, but in that middle area, just try to set everything up as automatic, adjust your personal budgeting to account for it, but.

Don't, just don't negate it either. I know it's hard. I know it's busy, but you're take yourself and you're still sacrificing. 

Mike: Not as much as we were sacrificing 15 years ago or you were Yeah. But you're sacrificing. Yeah. So sacrifice is an important part. Don't be scared to take risk, but make sure you're taking smart risk.

Yeah. And sacrifice. What about in the third stage of life? Life? The third 

Kevin: stage. Just it's never too late to start. 

Mike: Mm-hmm. 

Kevin: It's better to start. I mean, the best, the best time to plant a tree was yesterday. Okay? Mm-hmm. You didn't plant the tree, but you could plant it today. Just do something. I mean, something is better than nothing.

Um, you don't wanna rely on [00:36:00] the government for, for any sort of reliable income. Yeah. You've paid into Social Security. I'm sure it's gonna be there for a while. I, I'm confident it's gonna be there. I've been hearing since I've been in college 20 years ago. Social security's a scam. It's not gonna be here.

It's still here. 

Mike: I kind of worry. I think it, it won't be here or they won't let us. The means. It's a possibility. It is a 

Kevin: possibility. I you're not gonna rely on it. I wouldn't rely on it, but I, I would bet it's gonna be here, but I wouldn't rely on it. So don't rely on the government, be in charge of your own destiny.

Even if you're chunking away a few hundred dollars a month, uh, into some investment, some growth, something you're not touching, uh, that's always the temptation. That's what retirement accounts are good for, is it eliminates. The temptation of you going to the bank and getting your money out is 'cause it's so hard to get your money.

You gotta fill out paperwork to draw early. You're gonna get penalized and taxed. They make it hard for you to access, access that money on purpose. 'cause it's, you can't just go to the bank and start drawing on your retirement account. Yeah. Right. So just do something. Just start, get with a cpa, get with a financial advisor and say, Hey, [00:37:00] I'm behind.

What can I do to put myself in a better position? 

Mike: But as the time, as you're earning potential, the time you have it. Um, decreases. So the older you get when you know you not be able to work less or work as much as you had when you're 30, you got 30, 40 years ahead of you. When you're 50, you hope you have 15, 25 years ahead of you, but you might not, um, maybe take a little less risk.

You still gotta take some risk, but take less risk, be more cautious. Um. But like Kevin said, it's not too late to start. It's only too late to start if you've retired, um, and you don't have some kind of cash flowing investment that you've made to be able to put more away. So start. Sometime. Mm-hmm. And sacrifice the younger you are.

Don't be afraid to take risks, but don't do it on your own. Build a team. Mm-hmm.

Kevin: That's right. Yeah. So, uh, hopefully this is helpful, but I've enjoyed our chat today about retirement. It's not a topic we. Typically is in our wheelhouse. We always, you know, we like tax. Yeah, we like tax. [00:38:00] So as CPAs, we, we always love just bantering on tax, but that's why we have financial advisors we network with and we bring 'em in on these conversations.

So go get you a good financial advisor, good CPA, have them work well in the sandbox together they play, uh, hopefully nice. And then you'll have a great plan, a great tax plan, a great financial plan, and your future self will be very thankful. Yes. 

Mike: Um. Don't forget about the power of tax advantage investments that can make a huge difference.

One of our more favorite clients we've worked a lot with for a decade now, um, a physician, he got in and he had just finished his residency and was finally starting to get a, a real paycheck. What'd he been working for? For 10 years. Right. And the government was taking 40% of it and it was hurting him. Um, and he was just busting his butt.

He is like, what am I gonna do like this? This is my promise land. This sucks. Mm-hmm. And. Was having to work more and more thanks to pe. Um, have less and less time at home. And, uh, he got and started doing some serious [00:39:00] tax planning. Um, he worked with his wife, got her to be a real estate professional over the next decade.

I. He made it to where it's now optional for him to work. That was through tax strategy. Mm-hmm. That was through making tax advantaged investments. He was able to snowball his financial freedom to where now he can just choose to work or not. He has more capital to just invest in. Mm-hmm. Um, read Rich Dad, poor Dad, it's a good book.

Talks to you about quadrants. You need to get money out of your needing to trade time for money. That's something big you really, guys really gotta consider that if you're only trading your time for money as an hourly employee or even as a professional with a salary. Um. There's only so much you can make.

You have an a, a, a terminal capacity, uh, a terminal elevation that you can get to. You can't get any further than that. Try to move some into the passive income. Try to move money that can grow. That's not gonna take every second of your time. Um, that's what we got. There's hidden money in retiring. [00:40:00] There's a lot of hidden money in retiring.

Better through planning correctly.

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