Coach Pete D’Arruda and Phil Graham examine costs that can quietly reduce a retirement paycheck. Topics include Medicare’s income-related premium adjustments, taxes on Social Security benefits, Roth conversion considerations, and the cumulative effect of investment fees. They discuss why understanding these rules before making withdrawals can help frame a more useful conversation with your financial and tax professionals. Part four of the Financial Safari interview.

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Transcript

Automatically transcribed from this episode; timestamps are approximate.

00:00 Welcome back into the Financial Safari. Consumer advocate Thomas Lipscomb here with you alongside Phil Graham, special friend of the show here alongside bestselling author, America's Wealth, Financial, and Income Coach, Coach Pete D’Arruda. Get your own questions answered or tune in to past episodes and check out all of our free resources by heading over to FinancialSafari.com. Again, that's FinancialSafari.com. And don't forget to subscribe to us on YouTube. FinancialSpeakeasy.com is the way to get there. Again, that's FinancialSpeakeasy.com. We're releasing new videos all the time. Great way to make sure that you are up to date on what you need to know heading into retirement. Let me give you one more site while we're doing it. PlanOncePlanForLife.com. That's where you can, if you go there right now, we'll send you one of these e-books out right away. The Modern Planning, PlanOncePlanForLife.com.

00:47 Thomas, there's five, and Phil, and everybody else out there in Radio Land, there are five quiet drains on your retirement paycheck, all right? These are quiet assassins. We don't like quiet assassins when it's touching our money. None of these is a scam, and nobody's going to call you about them. Every one is a rule working exactly the way it was written, and every one of them is far easier to deal with before it applies than after. Very, very important. That's why we're going to talk about it. That's good. Now, I've sat across the table from people who did everything right. They saved steadily. They stayed out of debt. They retired with more than they needed, and still watched a few thousand dollars a year walk out the door for reasons they never saw coming. So we're going to talk about what they are. And it's not because anyone cheated them, Thomas and Phil and everybody out there. It's because a threshold moved past them, or a look back caught them, or a rule that they had never heard of finally applied.

01:42 That always stinks to be zinked by something like that. So what follows? We're going to talk about the five I see the most, the five quiet drains on your portfolio. And all the figures are 2026 figures that we're going to talk about here. So they're pretty up-date. But the first one is something that, Phil, we've talked about this, Thomas, as well, off show. And it's one that came out of nowhere. It's called your Aunt Irma. I-R-M-A-A look back. Thomas, not a good thing. Doesn't sound like a good thing. And when I first heard this word, I thought, because my wife is from Holland. Hold on. I feel like I've heard that as a name before. All right. Let me tell you what it stands for. It stands for Income-Related Monthly Adjustment Amount. In plain language, it's your income. If your income is above a certain line, you pay more for Medicare Part B and D.

02:31 And these are two things about it that catch people. All right. The two big things. First, it looks backward two years. So your 2026 Medicare premium is set by your 2024 tax return. Whoa. Now, a lot of people didn't realize that. No, that's interesting. And not this year's income. Not last year's. The one you filed in 2025 for the year 2024. Talk about confusing. Phil, what do you think about that? Can you repeat the question? Can you just listen to it? I was listening to the years, and in my brain, I'm trying to track. And then that last part, I'm like, now I'm lost again. I don't know. That was the correct answer right there. You're lost. Yeah, I can't figure it out. Yeah. So keep in mind, if 2024, we're talking about 2024 and you're in retirement now, possibly

03:18 that was your last full year of work. Or the year you sold a rental property. Or the year you did a large Roth conversion. And now it puts you way over that threshold. And second, it is a cliff, not a ramp. You know, ramps are easy to deal with because they're slow and steady and gradual. A cliff. Now, I've never jumped over one or walked through one or walked over one of you. You wouldn't be here. Exactly. No. You know, I think of those movies, though, where you see all the buffalo or wherever it is, and they're following each other, and they'll just go right over this. Yeah. So what do I mean when I say a cliff? Well, there's no gentle phase in. One dollar over the line. One dollar over that line that they say, the line of demarcation. Just one dollar. And the full surcharge applies for the entire year. Talk about a government penalty. Wow. How does that make you feel? Don't like it. Now, there's something called a QLAC.

04:06 QLAC. Qualified Lifetime Annuity Contract. Now, these have been developed. They've been around for years, but a lot of people don't realize what they are. And what this is, is for IRA money, which really can kill you when you start doing those minimum required distributions, right? MRDs. You can take the money off that MRD equation by every dollar you put into a QLAC. So let's say you have $500,000 in a regular IRA, and you don't want to keep paying those minimum required distributions on that. So you transfer, let's say, $300,000 into a QLAC. Okay. Now, the QLAC now, that takes $300,000 off of your MRD equation. In other words, you're not taxed on that each and every year. You don't have to take the money out. Oh, nice. And the QLAC says, and this is what confuses people, the QLAC says you have until age 85

04:51 to start taking that money out. The confusion, Phil, and I think you'll agree with that, is a lot of people thought that once you put money in a QLAC, you could not touch it until age 85. Is that correct? That's what people thought. Correct. But that's not the case. No. You can basically take it anytime you want. But when you take it out, now you have to start reporting it again on the MRD equation. Yeah. Uncle Sam's usually flexible when it means that they're going to get tax money sooner. Yeah. So I wrote a book about this called Quiet Money. And when you think about it, the money you put in a QLAC turns quiet. It's not sitting there yelling at Uncle Sam saying, hey, come over here and tax me. It gets really quiet and it hides legally. I like that. So that's a good one. That helps with a tax torpedo. We don't like tax torpedoes. Most people believe Social Security either is or isn't taxed.

05:37 It is neither. How much of it lands on your return depends on a number called combined income, which is your adjusted gross income plus any tax exempt interest plus half of your Social Security benefit. Cross that first threshold and up to half of your benefit becomes taxable. Cross the second one and up to 85% of your Social Security, which was a tax to begin with, by the way, is now taxable. Wow. Oh, man. Thanks, Uncle Sam. Here's the part that makes it a torpedo rather than a bump. Those thresholds have never been adjusted for inflation. Think about that. Have we had inflation the last few years? That means they're low is what you're saying. In other words, a lot of people are triggering that and didn't even know it.

06:23 So $25,000 was a real income in 1984. It is not one now, is it? 1984, $25,000. The Social Security Administration's own historians note that the thresholds were deliberately left unindexed and they document the result. The share of beneficiaries owing tax on their benefits has climbed steadily. In other words, if you have money, you're going to pay taxes now for Social Security because they're not adjusting that inflation amount up. So, I mean, it's $25,000. It's nothing anymore, but that starts triggering things. Yeah, sure. Yeah, that makes a lot of sense. Wow. Phil, how does that make you feel on that? Not good. And when I think about that, Coach, we always talk about it's based on your taxable income. Is there a way to get not taxable income that doesn't trigger that so I can still put the money in my pocket and spend it, but I'm not triggering all these phantom taxes?

07:10 Well, one of the ways is a Roth conversion. And a lot of folks, like David Walker, when he was on here, was talking about he has most of his money in Roth IRAs. And he should know he was our former comptroller general. And he said, Coach, the taxes are going up. There's no doubt. He said, so converting to Roth, it does hurt a little bit. Having to pay the taxes, he said, but now I pay taxes once and never pay again. Again, plan once, plan for life. And you don't have those required minimum distributions where you're forced to take it and your beneficiaries inherit it tax-free. Uncle Sam shows up next year. The tax man says, well, let me start taxing you on your IRAs and say, you know, I don't have any IRAs anymore. I have Roth IRAs. And so you just slam the door in his face. So if you want to find out about the Roth conversion strategies that make sense to make sure you don't get tax torpedoed, call right now. We'll do a plan for you that encompasses everything we've talked about today.

07:57 When you come in, you'll leave with three books. One being this new book, Modern Planning. Plan once, plan for life. You'll also leave with the 22-step total retirement plan. It's a workbook. It's $99. We're going to give it to you. But it's an interactive one. We will cover every step with you or behind the scenes for you and we'll categorize everything on one color-coded page that makes a lot of sense when you see it. There's no need for hundreds and hundreds of pages to confuse you. Put it all on one page and understand exactly what's going on, not only now, but later and after you're not here. All on one sheet. Thomas, tell folks how I can get this. Glad to. That number, 800-661-7383. 800-661-7383. Or you can text the keyword plan to 600700. That is the keyword plan to 600700.

08:43 And it's true. A total retirement plan is a lot more than that IRA or two or that 401k or two that you have. It is a true total plan. Well, here's a good question. Ask yourself, how much bigger would your nest egg be today if 10 years of fees had stayed in your account instead of leaving it? Oh. Bill, you've got a second point on that, don't you? Yeah. I look at it as, I used to say, coach, when is a 2% fee not a 2% fee? It's my little riddle. Yeah? Batman. Because 2% doesn't sound bad, right? It's only 2%. Well, but it's every year it sounds bad. But let's think of it, if you earned 10% in a year and you subtract 2%, that's actually 20% of your gains.

09:29 So that 2% fee actually wasn't 2%, it was 20% of your gains. Wow. So if you're giving up 20% of your gains or more, that starts taking a huge chunk of what could have been credited to your account. And again, what's the value for it? What did you get for it? Are you getting any value? Is it just evaporating and it's just coming out every quarter every year? Those are things that need to be addressed and looked at. And I think the consumer needs to understand where those fees are coming from. And most people have no idea what the total fees are because there's also the internal fees that you can't see in a lot of contracts. Financial termites. You know, it's not only where the fee's coming from, but where are those fees going?

10:18 Good question, huh? Good question for your broker. Right. What are you getting for those fees? So, you know, let's put this 20%. Now, 20% sounds bad enough, but let's look at a $100 bill. So a $100 bill comes in to your house. Before you touch it, it turns into an $80 bill. There's no such thing as an $80 bill. It turns into the 420s. One of the 20s goes away every single time you get that fee. And then that money that should have been your account's not there anymore. So now we have compounding badness. That's a good way to look at it. Yes, it is. And we've done a report before looking at a 2% fee over 20 years. If you had an account with no fees, and they both are in the same interest. So the only thing different was an account with no fees and one with 2% fees. It's about $500,000 difference. Phil, there's where the money went. Wow. That's a lot of money. That's a lot. That's the difference between a beach house in retirement or a trailer park in retirement.

11:07 That's right. There you go. Not good. So let's do this. Let's put a total plan together. It's been a great show, by the way. I appreciate your time today, Phil, coming in. Absolutely. Always love it. And it's very enlightening on some of the taxes that are out there and some of the ways we can bypass it, though. So it's been a positive show. We're talking about ways to bypass the will and the trust and the court, and also bypassing a tax man as much as possible. And legally, by the way, there's no such thing as illegal. You've got to pay some taxes, but there's nothing that says you have to overpay. So if you want a true total retirement plan, folks, we're going to make that offer for the next 10 of you to call. There'll be no fee or obligation. We've seen others charge over $1,000 for plans that I don't think are anywhere near as good as this. But you're also going to get that financial termite inspection report, which will identify these fees we're talking about here. Put it in real black and white. And then now you'll know if it makes sense to continue paying those fees or not.

11:55 Thomas, next 10 people, no cost, no obligation. And that number is 800-661-7383. 800-661-7383. You can also connect with the team at Capital Financial by texting keyword plan to 600-700. That is keyword plan to 600-700. Well, for Phil Graham joining us from the Charlotte area, Thomas, Denise, Jose working the board. It's Coach Pete. We'll see you next week. Same time, same station, right here on the Financial Safari.