Reducing Your Lifetime Taxes

For this week's newsletter check out the full interview on YouTube:

Have you ever thought to yourself, “I wish I had known that sooner?” Well that is the driving force of Marcus's story.?

About Marcus

Back in August of 2009, Marcus found himself in Southern California and had recently enlisted in the Marine Corps. He found himself sitting in a hot, musty auditorium, and had just been given a signup sheet for the government’s version of a 401k.?

He reminisced reading through the questions that were asking about how much he wanted to invest, what he wanted to invest in, and what type of account he wanted.?

When looking through these options, he thought to himself, “I have no idea what any of this means” and when he looked to his left and my right, he was surrounded by an abundance of confused faces. Unfortunately, there wasn’t anyone there who could help with questions, or even point them in the right direction.

From that moment forward, he vowed to would learn how all of these investments and taxes worked so he would never be in that situation again.?

He never wanted to feel like he was GUESSING when it came to making BIG decisions with his money.?

This is how his journey started towards becoming an advisor, and is the reason he started Focal Point Financial Planning. His goal is to help you avoid the mistakes that he made so you never have to say to yourself, “I wish I had known that sooner.”

How To Do Retirement RIGHT

2008 is still prevalent in everyone's mind. Marcus commonly gets asked, "am I going to be okay with what I have saved up?

After spending a lifetime saving, accumulating, and growing your wealth, when is it the right time to enter into the distribution phase?

This is a huge mindset shift.

Marcus asks his clients these THREE questions:

1. Are you actually on track to where you want to go?
2. How do we improve your investments while being mindful of taxes and fees?
3. How do we reduce your lifetime taxes?

These answers tend to be different for each client. Some need more and some need less to live out the retirement that they want.

Marcus talked a bit about some of the research done in the past with the 4% rule, which is essentially the idea that if you can live off of 4% annually from your portfolio then you can feel safe to retire. In many instances, 4% isn't a sustainable lifestyle.

To summarize the research paper Marcus spoke about in our interview, the authors Jonathan Guyton and William J. Klinger use stochastic analysis to determine sustainable initial withdrawal rates from retirement portfolios. The paper tests three equity allocations (50%, 65%, and 80%) based on two different investment data periods (1928-2004 and 1973-2004). It develops confidence standards to measure the probability of sustaining an initial withdrawal rate for at least 40 years and the percentage of purchasing power maintained during the withdrawal period. The paper concludes that initial withdrawal rates of 5.2-5.6% are sustainable at the 99% confidence standard for portfolios containing at least 65% equities. The two new decision rules - the capital preservation rule and the prosperity rule - eliminate the risk of exhausting retirement assets. (I highly recommend reaching out to Marcus so that he can send you this research article).

Guyton and Klinger's article set the framework for the modern and more dynamic approach that advisors like Marcus use today. Marcus takes a "guard rail" approach. Simply put, it is like you are driving on a canyon road and the guard rails do not let you go too far on either side. When your portfolio is doing well, you can take a little bonus! Likewise, when you drift the other way, you take a bit of a hair cut. This typically works a lot better, as most people naturally cut back and spend less money during times of recession and economic downturn.

Taxes

This next statement is pretty unanimously agreed upon, and it is that "no one wants to pay taxes."

Marcus talks about how there are very few ways to completely ELIMINATE taxes. One way is by using Section 1202, which allows capital gains from qualified small business stocks to be excluded from federal tax. Among other rules, the stock must be held for at least five years in order to exclude the gains, it cannot be a service related business, and it must be a C-Corp. This special tax treatment is designed to incentivize individuals to invest in small businesses.

Sadly, paying taxes is just the world we live in. But, it is possible to try and legally pay as few taxes as possible, and that is where someone like Marcus comes in to help plan for the future.

There are lots strategies that help defer taxes so that you can pay when it is convenient for YOU. The 1031, Delaware Statutory Trusts, and my favorite, the Deferred Sales Trust, just to name a few.

Note: It is always important to speak with your trusted advisors prior to making any financial moves.

Understanding How to Plan for Taxes

In most cases like talked about above, taxes cannot be avoided. With that said, the goal is to be as efficient with your tax planning as possible.

That starts by setting expectations on taxes, and determining how to use income deductions to be proactive in how we pay Uncle Sam. There are no extra "patriot points" earned for being the person who paid the most in taxes.

Everything starts with a plan, and Marcus is the person to help guide you on the journey so that you can spend your money on things you love and not searching for those "patriot points".

If you are looking for a an advisor who is happy to sit down and make sure you are confidently investing your money for the future, reach out to Marcus at one of the following:

Linkedin:

Website:

Email: [email protected]

This newsletter was established to provide people with information that will spark conversations with their trusted financial professionals, navigate use cases for different tax strategies, as well as to explore the expertise of industry leaders. If you are an inquisitive individual with an unquenchable thirst for finance, or you know someone who fits that description, be sure to subscribe and share this newsletter with them.

*This information is for educational purposes. Engineered Capital Gains Solutions, Inc. does not provide legal, tax professional services, or advice. Each transaction and individual circumstances vary widely and participants are strongly urged to seek independent legal, tax, and professional advice.*