Brian Michaud
The Michaud Letter Retirement Assets
What IF… what you thought you knew about money, turned out NOT to be true? When would you want to know?
The purpose of this conversation is to go through conventional (traditional) financial strategies and QUESTION the actual implications those strategies will have on your financial future.
Because each client’s specific situation is unique, I will provide a 100,000 foot overview, when covering a couple topics.
I encourage you to grab a pen or highlighter and highlight parts of this booklet that pique your interest. When you are finished contact me to schedule a time to meet and review what you’ve highlighted. You may have MANY “AHA Moments” when you read this book (and that’s a good thing). I encourage you to write them down so you can reference them when we meet.
Brian Michaud
CEO and Founder of Encompass
Retirement Savings
Myth# 2: All you need is a big amount of money to retire.
Really? Do you want a bigger amount of money in retirement or a bigger monthly net check?
Most people in our industry focus on the bigger amount of money.
For example, when you hear a comment from an advisor like “Your returns are not as high as they could be with us”. That advisor is focusing on the size of the amount of money. Unfortunately, no one asks how much of that bigger amount of money am I going to be able to spend on items I want or need.
As an example let’s explore Person A and Person B: The question you have is, which person you would rather be?
At first glance we tend to focus on the bigger account, but the real analysis should be focusing on the size of the net check. How much will you get to put in your pocket?
This example sheds light on how easy it is to be distracted by first impressions, when we really should be focused on the bigger picture. Planning for retirement does not stop at the amount of money. The planning stops when we start spending the money.
When wealth strategies are truly understood, the net spendable amount of money is more important than the size of the account, needed to generate that amount.
Typical financial planning focuses on building the largest amount of money possible. Maybe that is because of the uncertainty of the income tax liability we will be facing? Maybe it is because of the uncertainties of the stock market? Maybe it allows them not to have a conversation about taxes? (Regardless, none of it is about how much capital will be available to you, to do with what you want.)
How Traditional Retirement is Sold
Success is more often defined as accumulating more and more money, instead of maximizing the net distribution.
Having your money in the right spot can be equally, if not more important, than chasing rates of returns.
Person ‘A’ had more money than person ‘B’, but when the money is actually spent, person ‘B’ has more money to spend, however he wished.
Because of the affect income taxes had on the distributions, better results could be attained with less income. This is similar to typical clients who accumulated a great deal of money. However, when they actually looked at the impact of taxation on the distribution of their money, they found they had less to spend than they thought they would.
Below is an example of how distributions from various accounts are affected on the distribution calculation.
If you save your money in a 401(k) or an IRA; The distributions, when you begin pulling money out of that account, is taxed as income at whatever income tax rate you are in at the time of distribution.
Focusing on the right objective
If you buy an annuity and pay for it with after-tax money; then the money coming out of it is subject to income taxes on a ‘last in-first out’ basis. You end up paying income taxes on the increase in value of the account.
If you purchase a ROTH IRA; under current law, the income tax due on the distribution during normal retirement years is; zero.
My industry tends to focus on the wrong thing: the size of the accounts rather than size of the check to be cashed.